-----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, SklJuFrmeQIJ68XAgv4rBwk5amXXpCP0vxo0+2L4qlVbysqROAvSFHDUq0zYHaTL Qd/p+jfj13GIxnLFN4aSwQ== 0000950114-98-000301.txt : 19980623 0000950114-98-000301.hdr.sgml : 19980623 ACCESSION NUMBER: 0000950114-98-000301 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19980619 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: SEC FILE NUMBER: 333-57345 FILM NUMBER: 98651400 BUSINESS ADDRESS: STREET 1: 7TH & WASHINGTON TRAM 19 1 STREET 2: ONE MERCANTILE CENTER STREET CITY: ST LOUIS STATE: MO ZIP: 63101-1643 BUSINESS PHONE: 3144252525 MAIL ADDRESS: STREET 1: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166 FORMER COMPANY: FORMER CONFORMED NAME: MERCANTILE TRUST CO DATE OF NAME CHANGE: 19720229 S-4 1 MERCANTILE BANCORPORATION FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1998 Registration No. 333-------- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM S-4 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ------------------------ MERCANTILE BANCORPORATION INC. (Exact name of registrant as specified in its charter) MISSOURI 6712 43-0951744 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
P.O. Box 524 St. Louis, Missouri 63166-0524 (314) 418-2525 (Address, including ZIP code and telephone number, including area code, of registrant's principal executive offices) ------------------------ JON W. BILSTROM, ESQ. General Counsel and Secretary Mercantile Bancorporation Inc. P.O. Box 524 St. Louis, Missouri 63166-0524 (314) 418-2525 (Name, address, including ZIP code and telephone number, including area code, of agent for service) ------------------------ Copy to: JOHN Q. ARNOLD ROBERT M. LaROSE, ESQ. RICHARD G. CLEMENS, ESQ. Vice Chairman and Chief Financial Officer Thompson Coburn Sidley & Austin Mercantile Bancorporation Inc. One Mercantile Center One First National Plaza P.O. Box 524 St. Louis, Missouri 63101 Chicago, Illinois 60603 St. Louis, Missouri 63166-0524 (314) 552-6000 (312) 853-7642 (314) 418-2525
------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / -------------------------- CALCULATION OF REGISTRATION FEE
======================================================================================================================== Title of each class of Amount to be Proposed maximum Proposed maximum Amount of securities to be registered registered offering price per unit aggregate offering price registration fee - ------------------------------------------------------------------------------------------------------------------------ Common Stock, $0.01 par value 3,194,844 shares $19.17 $61,273,000 $18,075.54 ======================================================================================================================== Includes one attached Preferred Share Purchase Right per share. Estimated solely for the purposes of computing the registration fee pursuant to the provisions of Rule 457(f), and based upon the $61,273,000 aggregate book value of the 3,553,717 shares of common stock, $1.25 par value, of First Financial Bancorporation issued and outstanding as of May 31, 1998.
--------------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ 2 [LETTERHEAD OF FIRST FINANCIAL BANCORPORATION] ----------------, 1998 Dear Shareholder: The Board of Directors cordially invites you to attend a Special Meeting of Shareholders of First Financial Bancorporation ("First Financial") to be held at ----- -.m. Central Time, on -----------------, - -------------------, 1998, at -------------------------------------- (the "Special Meeting"). At the Special Meeting, you will be asked to consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of May 7, 1998 (the "Merger Agreement"), and each of the transactions contemplated thereby, pursuant to which First Financial will be merged (the "Merger") with and into Ameribanc, Inc., a Missouri corporation and wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"). Upon consummation of the Merger, each share of First Financial common stock will be converted into the right to receive 0.88 (the "Exchange Ratio") of a share of MBI common stock, all as more fully described in the accompanying Proxy Statement/Prospectus. Enclosed are the following items relating to the Special Meeting and the Merger: 1. Proxy Statement/Prospectus; 2. Proxy card; and 3. A pre-addressed return envelope for the proxy card. The Proxy Statement/Prospectus and related proxy materials set forth, or incorporate by reference, financial data and other important information relating to First Financial and MBI and describe the terms and conditions of the Merger. The Board of Directors requests that you carefully review these materials before completing the enclosed proxy card or attending the Special Meeting. THE BOARD OF DIRECTORS OF FIRST FINANCIAL CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST INTEREST OF FIRST FINANCIAL AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF FIRST FINANCIAL UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT. --- The investment banking firm of ABN AMRO Incorporated has issued its written opinion, dated as of the date hereof, to your Board of Directors regarding the fairness from a financial point of view of the Exchange Ratio to be received by First Financial shareholders pursuant to the Merger Agreement. A copy of the opinion is attached as Annex A to the Proxy Statement/Prospectus. ------- APPROVAL OF THE MERGER AGREEMENT BY THE FIRST FINANCIAL SHAREHOLDERS IS A CONDITION TO THE CONSUMMATION OF THE MERGER. Accordingly, it is important that your shares be represented at the Special Meeting, whether or not you plan to attend the Special Meeting in person. Please complete, date and sign the enclosed proxy card and return it in the enclosed pre-addressed envelope, which requires no postage if mailed within the United States. If you later decide to attend the Special Meeting and vote in person, or if you wish to revoke your proxy for any reason prior to the vote at the Special Meeting, you may do so and your proxy will have no further effect. You may revoke your proxy by delivering to the 3 Secretary of First Financial a written notice of revocation or another proxy relating to the same shares bearing a later date than the proxy being revoked or by attending the Special Meeting and voting in person. Attendance at the Special Meeting will not in itself constitute a revocation of an earlier dated proxy. If you need assistance in completing your proxy card or if you have any questions about the Proxy Statement/Prospectus, please feel free to contact A. Russell Schmeiser at (319) 356-9038 or me at (319) 356-9024. Sincerely, Robert M. Sierk President and Chief Executive Officer 4 FIRST FINANCIAL BANCORPORATION 204 EAST WASHINGTON STREET P.O. BOX 1880 IOWA CITY, IOWA 52244-1880 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ----------------------, 1998 TO THE SHAREHOLDERS OF FIRST FINANCIAL BANCORPORATION: Notice is hereby given that a special meeting (the "Special Meeting") of shareholders of FIRST FINANCIAL BANCORPORATION, an Iowa corporation ("First Financial"), will be held at ----------------------- on - ---------------, 1998, at ----- -.m. Central Time, for the following purposes: (1) To consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of May 7, 1998 (the "Merger Agreement"), by and among Mercantile Bancorporation Inc. ("MBI"), Ameribanc, Inc., a wholly owned subsidiary of MBI ("Ameribanc"), and First Financial, pursuant to which First Financial will be merged (the "Merger") with and into Ameribanc, in a transaction that will result in the business and operations of First Financial being continued through Ameribanc, and whereby, upon consummation of the Merger, each outstanding share of First Financial common stock will be converted into the right to receive 0.88 of a share of MBI common stock, as set forth in detail in the attached Proxy Statement/Prospectus. (2) To transact such other business as may properly come before the Special Meeting or any adjournments or postponements thereof. The record date for determining the shareholders entitled to receive notice of, and to vote at, the Special Meeting or any adjournments or postponements thereof has been fixed as of the close of business on - -----------------, 1998. On the record date, First Financial had ------- shares of common stock issued, outstanding and entitled to vote. Such shares were held by approximately ------ holders of record. Each share will be entitled to one vote on each matter submitted to a vote at the Special Meeting. Pursuant to Division XIII of the Iowa Business Corporation Act, each holder of First Financial common stock will have the right to dissent from the Merger Agreement and to demand a determination of the fair value of such shareholder's shares in the event the Merger Agreement is approved and the Merger consummated. A copy of Division XIII of the Iowa Business Corporation Act is attached as Annex B to the Proxy Statement/Prospectus. ------- THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS OF THE OUTSTANDING SHARES OF FIRST FINANCIAL COMMON STOCK IS REQUIRED FOR APPROVAL OF THE MERGER AGREEMENT. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. 5 WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS. FAILURE TO RETURN THE ENCLOSED PROXY CARD OR TO VOTE AT THE MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER. PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. If the Merger Agreement is approved, you will be sent instructions regarding the mechanics of exchanging your existing First Financial common stock certificates for new certificates representing shares of MBI common stock. BY ORDER OF THE BOARD OF DIRECTORS Iowa City, Iowa A. Russell Schmeiser - --------------,1998 Executive Vice President, Chief Operating Officer and Secretary 6 MERCANTILE BANCORPORATION INC. PROSPECTUS ---------------- FIRST FINANCIAL BANCORPORATION PROXY STATEMENT SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON --------------, 1998 This Prospectus of Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), relates to up to 3,194,844 shares of common stock, $0.01 par value (the "Common Stock"), and attached Preferred Share Purchase Rights (the "Rights"), of MBI (the Common Stock and Rights are collectively referred to herein as "MBI Common Stock"), to be issued to the shareholders of First Financial Bancorporation, an Iowa corporation ("First Financial"), upon consummation of the proposed merger (the "Merger") of First Financial with and into Ameribanc, Inc., a Missouri corporation and wholly owned subsidiary of MBI ("Ameribanc"). Upon receipt of the requisite shareholder and regulatory approvals, and the satisfaction or waiver of certain conditions precedent, the Merger will be consummated pursuant to the terms of the Agreement and Plan of Merger, dated as of May 7, 1998 (the "Merger Agreement"), by and among MBI, Ameribanc and First Financial. This Prospectus also serves as the Proxy Statement of First Financial for use in connection with the Special Meeting of Shareholders of First Financial (the "Special Meeting"), which will be held on ----------------, 1998, at the time and place and for the purposes stated in the Notice of Special Meeting of Shareholders accompanying this Proxy Statement/Prospectus. Pursuant to the Merger Agreement, MBI will issue up to an aggregate of 3,194,844 shares of MBI Common Stock. Upon consummation of the Merger, the business and operations of First Financial will be continued through Ameribanc and each share of common stock, $1.25 par value, of First Financial ("First Financial Common Stock") will be converted into the right to receive 0.88 of a share of MBI Common Stock (the "Exchange Ratio"). The fair market value of MBI Common Stock to be received pursuant to the Merger may fluctuate and at the consummation of the Merger may be more or less than the current fair market value of such shares. See "TERMS OF THE PROPOSED MERGER - General Description of the Merger." No fractional shares of MBI Common Stock will be issued in the Merger, but cash will be paid in lieu of such fractional shares. See "TERMS OF THE PROPOSED MERGER - Fractional Shares." The Merger is intended to qualify as a reorganization under the Internal Revenue Code of 1986, as amended (the "Code"). The Merger generally is intended to achieve certain federal income tax deferral benefits for First Financial shareholders with respect to shares of MBI Common Stock received in the Merger. See "SUMMARY INFORMATION - Federal Income Tax Consequences in General" and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." MBI Common Stock is traded on the New York Stock Exchange (the "NYSE") under the symbol "MTL." On -------, 1998, the closing sale price for MBI Common Stock as reported on the NYSE Composite Tape was $---- per share. First Financial Common Stock is not actively traded. This Proxy Statement/Prospectus, the Notice of Special Meeting and the form of proxy are first being mailed to the shareholders of First Financial on or about -------------------, 1998. 7 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF MBI COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF MBI AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER FEDERAL OR STATE GOVERNMENTAL AGENCY. All information contained in this Proxy Statement/Prospectus with respect to MBI has been supplied by MBI and all information with respect to First Financial has been supplied by First Financial. The date of this Proxy Statement/Prospectus is -------------------, 1998. -2- 8 AVAILABLE INFORMATION --------------------- MBI and First Financial are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, file with the Commission reports, proxy statements and other information. Such reports, proxy statements and other information filed with the Commission by MBI and First Financial can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at Suite 1300, Seven World Trade Center, New York, New York 10048, and Room 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. The Commission maintains an Internet site on the World Wide Web containing reports, proxy and information statements and other information filed electronically by MBI and First Financial with the Commission. The address of the World Wide Web site maintained by the Commission is http://www.sec.gov. MBI Common Stock is listed on the NYSE, and such reports, proxy statements and other information concerning MBI also are available for inspection and copying at the offices of the NYSE, 20 Broad Street, New York, New York 10005. First Financial Common Stock is not actively traded. Reports, proxy statements and other information concerning First Financial are available from First Financial, without charge, upon written or oral request to A. Russell Schmeiser, Executive Vice President and Chief Operating Officer, First Financial Bancorporation, 204 East Washington Street, P.O. Box 1880, Iowa City, Iowa 52244-1880, telephone (319) 356-9038. This Proxy Statement/Prospectus does not contain all of the information set forth in the Registration Statement on Form S-4 and exhibits thereto (the "Registration Statement") covering the securities offered hereby which has been filed by MBI with the Commission. As permitted by the rules and regulations of the Commission, this Proxy Statement/Prospectus omits certain information contained or incorporated by reference in the Registration Statement. Statements contained in this Proxy Statement/Prospectus provide a summary of the contents of certain contracts or other documents referenced herein but are not necessarily complete and in each instance reference is made to the copy of each such contract or other document filed as an exhibit to the Registration Statement. For such further information, reference is made to the Registration Statement. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ------------------------------------------------- THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS RELATING TO MBI AND FIRST FINANCIAL THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS, EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE AVAILABLE, WITHOUT CHARGE TO ANY PERSON, INCLUDING BENEFICIAL OWNERS OF FIRST FINANCIAL COMMON STOCK TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO MBI, TO JON W. BILSTROM, GENERAL COUNSEL AND SECRETARY, MERCANTILE BANCORPORATION INC., P.O. BOX 524, ST. LOUIS, MISSOURI 63166-0524, TELEPHONE (314) 418-2525, OR IN THE CASE OF DOCUMENTS RELATING TO FIRST FINANCIAL, TO A. RUSSELL SCHMEISER, EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER, FIRST FINANCIAL BANCORPORATION, 204 EAST WASHINGTON STREET, P.O. BOX 1880, IOWA CITY, IOWA 52244-1880, TELEPHONE (319) 356-9038. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY REQUEST SHOULD BE MADE BY ------------, 1998. -3- 9 The following documents filed with the Commission by MBI under the Exchange Act are incorporated herein by reference: (a) MBI's Annual Report on Form 10-K for the year ended December 31, 1997. (b) MBI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. (c) MBI's Current Reports on Form 8-K dated January 10, 1998 and January 30, 1998. (d) The description of MBI's Common Stock set forth in Item 1 of MBI's Registration Statement on Form 8-A, dated March 5, 1993, and any amendment or report filed for the purpose of updating such description. (e) The description of MBI's Preferred Share Purchase Rights set forth in Item 1 of MBI's Registration Statement on Form 8-A dated May 27, 1998. The following documents filed with the Commission by First Financial under the Exchange Act are incorporated herein by reference: (a) First Financial's Annual Report on Form 10-K for the year ended December 31, 1997. (b) First Financial's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. (c) First Financial's Current Report on Form 8-K dated May 18, 1998. (d) The description of First Financial's Common Stock set forth in Amendment No. 1 to First Financial's Registration Statement on Form S-4, dated November 12, 1985, and any amendment or report filed for the purpose of updating such description. Such incorporation by reference shall not be deemed to incorporate by reference the information referred to in Item 402(a)(8) of Regulation S-K. All documents filed by MBI and First Financial pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof and until the date of the Special Meeting shall be deemed to be incorporated by reference herein and made a part hereof from the date any such document is filed. The information relating to MBI and First Financial contained in this Proxy Statement/Prospectus does not purport to be complete and should be read together with the information in the documents incorporated by reference herein. Any statement contained herein or in a document incorporated herein by reference shall be deemed to be modified or superseded for purposes hereof to the extent that a subsequent statement contained herein or in any other subsequently filed document incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part hereof. -4- 10 Any statements contained in this Proxy Statement/Prospectus involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MBI OR FIRST FINANCIAL. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF MBI COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES PURSUANT HERETO SHALL IMPLY OR CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MBI OR FIRST FINANCIAL OR ANY OF THEIR SUBSIDIARIES OR IN THE INFORMATION SET FORTH HEREIN SUBSEQUENT TO THE DATE HEREOF. -5- 11 TABLE OF CONTENTS -----------------
Page ---- AVAILABLE INFORMATION 3 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE 3 SUMMARY INFORMATION 8 - ------------------- SUMMARY INFORMATION 8 Business of MBI 8 Business of Ameribanc 9 Business of First Financial 9 The Proposed Merger 9 Effect on First Financial Stock Plan and Employee Benefit Plans 10 Other Agreements 11 Interests of Certain Persons in the Merger 12 Special Meeting of First Financial Shareholders 12 Reasons for the Merger 13 Opinion of Financial Advisor to First Financial 13 Fractional Shares 13 Waiver and Amendment 13 Federal Income Tax Consequences in General 14 Regulatory Approval 14 Accounting Treatment 14 Dissenters' Rights 14 Markets and Market Prices 15 Comparative Unaudited Per Share Data 15 Summary Financial Data 17 INFORMATION REGARDING SPECIAL MEETING 20 General 20 Date, Time and Place 20 Record Date; Vote Required 20 Voting and Revocation of Proxies 21 Solicitation of Proxies 21 TERMS OF THE PROPOSED MERGER 23 General Description of the Merger 23 Effect on First Financial Stock Plan and Employee Benefit Plans 24 Other Agreements 25 Interests of Certain Persons in the Merger 27 Background of and Reasons for the Merger; Board Recommendations 27 Opinion of Financial Advisor to First Financial 32 Conditions of the Merger 37 Representations and Warranties 39 Termination, Waiver and Amendment of the Merger Agreement 40 Indemnification 41 -6- 12 Closing Date 41 Surrender of First Financial Stock Certificates and Receipt of MBI Common Stock 41 Fractional Shares 42 Regulatory Approval 42 Business Pending the Merger 43 Accounting Treatment 46 CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER 47 DISSENTERS' RIGHTS OF SHAREHOLDERS OF FIRST FINANCIAL 48 PRO FORMA FINANCIAL INFORMATION 51 Comparative Unaudited Per Share Data 51 Pro Forma Combined Consolidated Financial Statements (Unaudited) 53 INFORMATION REGARDING MBI STOCK 67 Description of MBI Common Stock and Attached Preferred Share Purchase Rights 67 Restrictions on Resale of MBI Stock by Affiliates 69 Comparison of the Rights of Shareholders of MBI and First Financial 69 SUPERVISION AND REGULATION 73 General 73 Certain Transactions with Affiliates 74 Payment of Dividends 74 Capital Adequacy 74 Support of Subsidiary Banks 75 FIRREA and FDICIA 75 Depositor Preference Statute 76 FDIC Insurance Assessments 76 Interstate Banking and Other Recent Legislation 76 RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS 77 LEGAL MATTERS 77 EXPERTS 77 OTHER MATTERS 78 SHAREHOLDER PROPOSALS 78 ANNEXES Annex A -- Opinion of ABN AMRO Incorporated A-1 Annex B -- Dissenters' Rights Provisions of the Iowa Business Corporation Act B-1
-7- 13 SUMMARY INFORMATION ------------------- The following is a summary of the important terms of the proposed Merger and related information discussed elsewhere in this Proxy Statement/Prospectus but does not purport to be complete and is qualified in its entirety by reference to the more detailed information that appears elsewhere in this Proxy Statement/Prospectus and the documents incorporated by reference herein. Shareholders of First Financial are urged to read this Proxy Statement/Prospectus in its entirety. All MBI per share data reflect three-for-two stock splits distributed in the form of dividends on each of April 11, 1994 and October 1, 1997. BUSINESS OF MBI MBI, a Missouri corporation, was organized in 1970 and is a registered bank holding company under the federal Bank Holding Company Act of 1956, as amended (the "BHCA"). At March 31, 1998, MBI owned, directly or indirectly, all of the capital stock of Mercantile Bank National Association ("Mercantile Bank") and 19 other commercial banks, all of which operate from 557 banking offices and 544 Fingertip Banking automated teller machines, located throughout Missouri, Illinois, eastern Kansas, northern and central Arkansas and Iowa. MBI's services concentrate in three major lines of business: consumer; corporate; and trust and investment advisory services. MBI also operates non-banking subsidiaries that provide related financial services, including investment management, brokerage services and asset-based lending. As of March 31, 1998, MBI had 133,115,227 shares of its Common Stock outstanding and reported, on a consolidated basis, total assets of $31.8 billion, total deposits of $22.5 billion, total loans of $19.6 billion and shareholders' equity of $2.5 billion. On February 2, 1998, MBI completed the acquisition of Horizon Bancorp, Inc., an Arkansas corporation and a registered bank holding company under the BHCA ("Horizon"), headquartered in Arkadelphia, Arkansas. This acquisition was accounted for under the pooling-of-interests method of accounting, but due to the immaterialitity of Horizon's financial information to MBI's financial condition and results of operations, MBI's consolidated financial statements have not been restated for any dates or any periods prior to the acquisition date of Horizon. As of February 2, 1998, Horizon reported, on a consolidated basis, total assets of $537 million, total deposits of $454 million and shareholders' equity of $47 million. On March 2, 1998, MBI completed the acquisition of HomeCorp, Inc., a Delaware corporation and savings and loan holding company ("HomeCorp"), headquartered in Rockford, Illinois. This acquisition was accounted for under the pooling-of-interests method of accounting, but due to the immateriality of HomeCorp's financial information to MBI's financial condition and results of operation, MBI's consolidated financial statements have not been restated for any date or any period prior to the acquisition date of HomeCorp. As of March 2, 1998, HomeCorp reported, on a consolidated basis, total assets of $335 million, total deposits of $309 million and stockholders' equity of $21 million. On January 10, 1998, MBI entered into an agreement to acquire CBT Corporation, a Kentucky corporation and registered bank holding company under the BHCA ("CBT"), headquartered in Paducah, Kentucky. The acquisition is intended to be accounted for under the pooling-of-interests method of accounting. As of March 31, 1998, CBT reported, on a consolidated basis, total assets of $1.03 billion, total deposits of $715 million and shareholders' equity of $122 million. On February 2, 1998, MBI entered into an agreement to acquire Firstbank of Illinois Co., a Delaware corporation and registered bank holding company under the BHCA ("Firstbank"), -8- 14 headquartered in Springfield, Illinois. The acquisition is intended to be accounted for under the pooling-of-interests method of accounting. As of March 31, 1998, Firstbank reported, on a consolidated basis, total assets of $2.28 billion, total deposits of $2.00 billion and stockholders' equity of $238 million. On April 13, 1998, MBI entered into an agreement to acquire Financial Services Corporation of the Midwest, a Delaware corporation and registered bank holding company under the BHCA ("FSCM"), headquartered in Rock Island, Illinois. The acquisition is intended to be accounted for under the pooling-of-interests method of accounting. As of March 31, 1998, FSCM reported, on a consolidated basis, total assets of $518 million total deposits of $409 million and stockholders' equity of $34 million. MBI's principal executive offices are located at One Mercantile Center, St. Louis, Missouri 63101 and its telephone number is (314) 418-2525. Additional information concerning MBI is included in the documents incorporated by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." BUSINESS OF AMERIBANC Ameribanc, a Missouri corporation, is a wholly owned subsidiary of MBI that was organized in 1991. Ameribanc is a registered bank holding company under the BHCA. At March 31, 1998, Ameribanc owned all of the capital stock of 20 banks which operate from 557 locations in Missouri, Illinois, eastern Kansas, northern and central Arkansas and Iowa. Ameribanc, which will continue to be a subsidiary of MBI following the Merger, will be the surviving corporation upon consummation of the Merger. BUSINESS OF FIRST FINANCIAL First Financial, an Iowa corporation, was organized in 1985 and is a one-bank holding company registered under the BHCA. First Financial is the parent company of First National Bank Iowa ("FNBI"), a national banking association. As of March 31, 1998, 3,553,717 shares of First Financial Common Stock were issued and outstanding. As of March 31, 1998, First Financial reported, on a consolidated basis, total assets of $568 million, total deposits of $481 million and shareholders' equity of $60 million. First Financial's principal executive offices are located at 204 East Washington Street, P.O. Box 1880, Iowa City, Iowa 52244-1880 and its telephone number is (319) 356-9000. THE PROPOSED MERGER Subject to the satisfaction of the terms and conditions set forth in the Merger Agreement, First Financial will be merged with and into Ameribanc. Upon consummation of the Merger, First Financial's corporate existence will terminate and Ameribanc will continue as the surviving entity. Simultaneously with the effectiveness of the Merger, each outstanding share of First Financial Common Stock will be converted into the right to receive 0.88 of a share of MBI Common Stock. Such consideration is subject to certain anti-dilution protections, but is not adjustable based upon the operating results, financial condition or other factors affecting either MBI or First Financial prior to the consummation of the Merger. The fair market value of MBI Common Stock to be received pursuant to -9- 15 the Merger may fluctuate and at the consummation of the Merger may be more or less than the current fair market value of such shares. Harris Trust and Savings Bank, the transfer agent for MBI Common Stock, has been selected as the Exchange Agent (the "Exchange Agent") for purposes of effecting the conversion of First Financial Common Stock into MBI Common Stock upon consummation of the Merger. As soon as practicable after consummation of the Merger, a letter of transmittal (including instructions setting forth the procedures for exchanging certificates representing shares of First Financial Common Stock for the MBI Common Stock issuable to each holder thereof pursuant to the Merger Agreement) will be sent to each record holder of certificates formerly representing shares of First Financial Common Stock as of the Effective Time (as hereinafter defined). Upon surrender to the Exchange Agent of his or her certificate(s) representing shares of First Financial Common Stock, together with a duly completed and executed letter of transmittal, such holder will receive certificates representing that whole number of shares of MBI Common Stock to which such holder is entitled under the Merger Agreement. See "TERMS OF THE PROPOSED MERGER - Surrender of First Financial Stock Certificates and Receipt of MBI Common Stock." The Merger Agreement provides that the consummation of the Merger is subject to certain terms and conditions, including the approval of the Merger Agreement by the requisite vote of the holders of First Financial Common Stock, the receipt of the requisite regulatory approvals, a letter of KPMG Peat Marwick LLP to the effect that the Merger will qualify for pooling-of-interests accounting treatment and an opinion of counsel for MBI regarding certain federal income tax aspects of the transaction. For a discussion of each of the conditions to the Merger, see "TERMS OF THE PROPOSED MERGER - Conditions of the Merger." The Merger will be consummated and become effective (the "Effective Time") upon the later of (i) the issuance of a certificate of merger by the Office of the Secretary of State of the State of Missouri and (ii) the filing of articles of merger with the Office of the Secretary of State of the State of Iowa. Unless the parties otherwise agree, the date of the closing of the Merger (the "Closing Date") shall occur on such date as MBI shall notify First Financial in writing (such notice to be at least five business days in advance of the Effective Time) but (i) not earlier than the approval of the Merger Agreement by the requisite vote of the holders of First Financial Common Stock and the receipt of the requisite regulatory approvals (the "Approval Date") and (ii) not later than the first business day of the first full calendar month commencing at least five days after the Approval Date. The Merger Agreement may be terminated at any time prior to the Closing Date by the mutual consent of the parties or, unilaterally, by either party upon the occurrence of certain events or if the Merger is not consummated by May 1, 1999. See "TERMS OF THE PROPOSED MERGER - Conditions of the Merger" and "- Termination of the Merger Agreement." EFFECT ON FIRST FINANCIAL STOCK PLAN AND EMPLOYEE BENEFIT PLANS Upon consummation of the Merger, MBI will assume the First Financial Bancorporation 1997 Stock Compensation Plan (the "First Financial Stock Plan"), and all of the outstanding rights (whether or not then exercisable) with respect to First Financial Common Stock pursuant to the First Financial Stock Plan (collectively, the "First Financial Stock Options") will be converted into rights to purchase MBI Common Stock. As a result of such assumption: (i) each outstanding First Financial Stock Option will be exercisable solely for shares of MBI Common Stock; (ii) the number of shares of MBI Common Stock subject to the First Financial Stock Options will equal the number of shares of First Financial Common Stock immediately prior to the Effective Time multiplied by the Exchange Ratio; and -10- 16 (iii) the per share exercise price for each First Financial Stock Option will be adjusted by dividing such exercise price by the Exchange Ratio. In addition, upon consummation of the Merger, Ameribanc will honor all severance and other compensation contracts and provisions for vested benefits under the employee plans of First Financial and FNBI earned or accrued through the Effective Time. MBI will take such steps as are necessary to integrate the employees of First Financial and FNBI into MBI's employee benefit plans as soon as practicable after the Effective Time. See "TERMS OF THE PROPOSED MERGER - Effect on First Financial Stock Plan and Employee Benefit Plans." OTHER AGREEMENTS In addition to and contemporaneously with the Merger Agreement, MBI and First Financial executed a Stock Option Agreement (the "Option Agreement") and MBI and all of the directors of First Financial executed separate Voting Agreements (the "Voting Agreements"). The following is a summary of the material terms of the Option Agreement and the Voting Agreements. OPTION AGREEMENT. Pursuant to the Option Agreement, First Financial issued to MBI an option (the "Option") to purchase up to 707,189 shares of First Financial Common Stock at a price of $37.75 per share (the "Option Price"). The Option is exercisable upon the occurrence of certain events generally relating to the failure of First Financial to consummate the Merger because of a material change or potential material change in the ownership of First Financial, all as set forth in the Option Agreement. No such event has occurred as of the date hereof. First Financial granted to MBI the Option as a condition of and in consideration of MBI entering into the Merger Agreement. The Option is intended to increase the likelihood that the Merger will be consummated in accordance with the terms of the Merger Agreement. Consequently, the Option may have the effect of discouraging a person who might now or prior to the consummation of the Merger consider or propose the acquisition of First Financial (or a significant interest in First Financial), even if such person were prepared to pay a higher price per share for First Financial Common Stock than the price per share implicit in the Exchange Ratio. In the event MBI acquires shares of First Financial Common Stock pursuant to the Option, MBI could vote those shares in the election of First Financial directors and other matters requiring a shareholder vote, thereby potentially having a material impact on the outcome of such matters. See "TERMS OF THE PROPOSED MERGER - Other Agreements - Option Agreement." VOTING AGREEMENTS. Concurrent with the execution of the Merger Agreement, MBI and all of the eight directors of First Financial executed separate Voting Agreements (the "Voting Agreements") pursuant to which each such director agreed that he will vote all of the shares of First Financial Common Stock then owned, controlled or subsequently acquired in favor of the approval of the Merger Agreement at the Special Meeting. In addition, until the earliest to occur of the Closing Date or the termination of the Merger Agreement, each director further agreed he will not vote any such shares in favor of the approval of any other competing acquisition proposal involving First Financial and a third party. Each director also agreed that he will not transfer shares of First Financial Common Stock unless, prior to such transfer, the transferee executes an agreement in substantially the same form as the Voting Agreement and satisfactory to MBI. As of the Record Date (as defined below), the directors of First Financial who signed Voting Agreements owned beneficially, directly and indirectly, an aggregate of ----------- shares (excluding 214,527 shares held in trust by Mary Lee Nagle Duda, the spouse of Fritz Duda, a director of First Financial) of First Financial Common Stock, or approximately -------% -11- 17 of the issued and outstanding shares. See "TERMS OF THE PROPOSED MERGER - Other Agreements - Voting Agreements." INTERESTS OF CERTAIN PERSONS IN THE MERGER MBI has agreed that the Merger will not diminish any indemnification obligations of First Financial or FNBI in favor of the employees, agents, directors or officers of First Financial or FNBI existing as of the Effective Time. In addition, to the extent that First Financial's existing directors' and officers' liability insurance policy provides coverage for the acts or omissions of the directors and officers of First Financial and FNBI prior to the Effective Time, First Financial has agreed to give to such insurance carrier and to MBI notice of any potential claims thereunder. On and after the Effective Time, MBI's directors' and officers' liability insurance policy will provide coverage for the prior acts of the directors and officers of First Financial and FNBI. See "TERMS OF THE PROPOSED MERGER - Interests of Certain Persons in the Merger." SPECIAL MEETING OF FIRST FINANCIAL SHAREHOLDERS The Special Meeting will be held on -------------, 1998, at ------- - -.m. Central Time, at -----------------------------------------. Approval by the First Financial shareholders of the Merger Agreement requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of First Financial Common Stock. Only holders of record of First Financial Common Stock at the close of business on --------------, 1998 (the "Record Date") will be entitled to notice of, and to vote at, the Special Meeting. At such date, there were ------ shares of First Financial Common Stock outstanding. Each share of First Financial Common Stock is entitled to one vote on each matter submitted to a vote at the Special Meeting. As of the Record Date, directors and executive officers of First Financial and their affiliates owned beneficially, or controlled the voting of, an aggregate of -------- shares of First Financial Common Stock, or approximately ------% of the shares entitled to vote at the Special Meeting. Each of First Financial's directors and executive officers has indicated his or her intention to vote his or her shares (excluding the 214,527 shares held in trust by Mary Lee Nagle Duda, the spouse of Fritz Duda) for the approval of the Merger Agreement, which includes the eight directors of First Financial who, pursuant to the terms of their respective Voting Agreements, have committed to vote their shares of First Financial Common Stock for approval of the Merger Agreement. In addition, MBI and FSCM currently own 6,000 and 11,250 shares, respectively, of First Financial Common Stock, which shares will be voted for the approval of the Merger Agreement. THE BOARD OF DIRECTORS OF FIRST FINANCIAL CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST INTEREST OF FIRST FINANCIAL AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF FIRST FINANCIAL UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT. --- REASONS FOR THE MERGER FIRST FINANCIAL. First Financial's Board of Directors believes that the Merger is in the best interests of First Financial and its shareholders. In reaching the decision to recommend the approval of the Merger Agreement to the shareholders, the Board of Directors, without assigning any relative or -12- 18 specific weights, considered a number of factors. For a discussion of such factors, see "TERMS OF THE PROPOSED MERGER - Background of and Reasons for the Merger; Board Recommendations." MBI. MBI's Board of Directors believes that the Merger will enable MBI to (i) expand MBI's presence in eastern Iowa through the acquisition of an established banking organization and (ii) enhance MBI's ability to compete in the increasingly competitive banking and financial services industry. See "TERMS OF THE PROPOSED MERGER - Background of and Reasons for the Merger; Board Recommendations." OPINION OF FINANCIAL ADVISOR TO FIRST FINANCIAL As of the date of hereof, ABN AMRO Incorporated ("ABN AMRO"), First Financial's financial advisor, rendered to the Board of Directors of First Financial a written opinion to the effect that, as of the date of such opinion, the Exchange Ratio to be received by the holders of First Financial Common Stock in the Merger is fair to them from a financial point of view. Attached to this Proxy Statement/Prospectus as Annex A is a copy of the ------- opinion of ABN AMRO, as of the date hereof, setting forth the procedures followed, assumptions made, matters considered and qualifications and limitations of the review undertaken by ABN AMRO in connection with rendering its opinion. Holders of First Financial Common Stock are urged to read ABN AMRO's opinion in its entirety. See "TERMS OF THE PROPOSED MERGER - Background of and Reasons for the Merger; Board Recommendations" and "- Opinion of Financial Advisor to First Financial." FRACTIONAL SHARES No fractional shares of MBI Common Stock will be issued to the shareholders of First Financial in connection with the Merger. Each holder of First Financial Common Stock who otherwise would have been entitled to receive a fraction of a share of MBI Common Stock shall receive in lieu thereof cash, without interest, in an amount equal to the holder's fractional share interest multiplied by the closing stock price of MBI Common Stock on the NYSE Composite Tape on the Closing Date as reported in The Wall Street Journal. Cash received by First Financial shareholders in lieu of fractional shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." WAIVER AND AMENDMENT Any provision of the Merger Agreement, including, without limitation, the conditions to the consummation of the Merger and the restrictions described under the caption "TERMS OF THE PROPOSED MERGER - Business Pending the Merger," may be (i) waived in writing at any time by the party that is, or whose shareholders are, entitled to the benefits thereof or (ii) amended at any time by written agreement of the parties approved by or on behalf of their respective Boards of Directors, whether before or after the approval of the Merger Agreement by the shareholders of First Financial; provided, however, that after approval of the Merger Agreement by the shareholders of First Financial at the Special Meeting no such modification may (i) alter or change the amount or kind of the consideration to be received by the First Financial shareholders pursuant to the Merger Agreement or (ii) adversely affect the tax treatment to the First Financial shareholders as a result of receiving shares of MBI Common Stock in the Merger. -13- 19 FEDERAL INCOME TAX CONSEQUENCES IN GENERAL Thompson Coburn, MBI's legal counsel, has delivered its opinion to the effect that, assuming the Merger occurs in accordance with the Merger Agreement and conditioned on the accuracy of certain representations made by MBI and First Financial, the Merger will constitute a "reorganization" for federal income tax purposes and that, accordingly, assuming the First Financial Common Stock is a capital asset in the hands of the holder at the Effective Time, (i) no gain or loss will be recognized by First Financial shareholders who exchange their shares of First Financial Common Stock solely for shares of MBI Common Stock in the Merger, (ii) the basis of the MBI Common Stock will equal the basis of the First Financial Common Stock for which it is exchanged and (iii) the holding period of the MBI Common Stock will include the holding period of the First Financial Common Stock for which it is exchanged. However, cash received in lieu of fractional shares may give rise to taxable income. EACH FIRST FINANCIAL SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICABILITY OF VARIOUS STATE, LOCAL AND FOREIGN TAX LAWS. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." REGULATORY APPROVAL The Merger is subject to prior approval of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and any other bank regulatory authority that may be necessary or appropriate (the Federal Reserve Board and any other bank regulatory authority that may be necessary or appropriate are collectively referred to herein as the "Regulatory Authorities" and, individually, as a "Regulatory Authority"). MBI will file the required applications regarding the Merger with the Federal Reserve Board. In reviewing the applications and the proposed Merger, the Federal Reserve Board will consider various factors, including possible anti-competitive effects of the Merger, and examine the financial and managerial resources and future prospects of the combined organization. There can be no assurance that the requisite regulatory approvals will be granted or as to the timing of such approvals. See "TERMS OF THE PROPOSED MERGER - Regulatory Approval" and "SUPERVISION AND REGULATION." ACCOUNTING TREATMENT It is intended that the Merger will be accounted for under the pooling-of-interests method of accounting. See "TERMS OF THE PROPOSED MERGER - - Accounting Treatment." DISSENTERS' RIGHTS Pursuant to the Iowa Business Corporation Act (the "IBCA"), each holder of First Financial Common Stock will have the right to dissent from the Merger Agreement and to demand a determination of the fair value of such holder's shares and, if the Merger is consummated, receive payment of such fair value in cash by following the procedures set forth in Division XIII of the IBCA, the text of which is attached hereto as Annex B. Failure to ------- follow such procedures may result in a loss of such shareholder's dissenters' rights. Any First Financial shareholder returning a blank executed proxy card will be deemed to have approved the Merger Agreement, thereby waiving any such dissenters' rights. See "DISSENTERS' RIGHTS OF SHAREHOLDERS OF FIRST FINANCIAL." -14- 20 MARKETS AND MARKET PRICES MBI Common Stock is traded on the NYSE under the symbol "MTL." The closing per share sale price reported for MBI Common Stock on May 7, 1998, the last trading date preceding the public announcement of the Merger, was $52.8125. First Financial Common Stock is not actively traded, but there are regularly quoted bid and asked prices from eight brokerage firms which maintained public trading markets for First Financial Common Stock in 1997. The following table sets forth for the periods indicated the high and low prices per share of MBI Common Stock as reported on the NYSE and of First Financial Common Stock as known to management of First Financial, along with the quarterly cash dividends per share declared. The per share prices do not include adjustments for markups, markdowns or commissions.
MBI FIRST FINANCIAL ------------------------------------- ------------------------------------ SALES PRICE CASH SALES PRICE CASH ------------------ DIVIDEND ------------------ DIVIDEND HIGH LOW DECLARED HIGH LOW DECLARED ---- --- -------- ---- --- -------- 1996 - ---- First Quarter $31.0006 $27.6875 $.273 $18.25 $16.33 $.13 Second Quarter 31.9375 29.0000 .273 19.00 17.68 .13 Third Quarter 35.2500 28.9375 .273 20.17 18.42 .1467 Fourth Quarter 36.0000 32.6875 .273 20.17 19.33 .1467 1997 - ---- First Quarter $39.688 $33.3125 $.287 $23.42 $20.08 $.1467 Second Quarter 41.688 35.0000 .287 23.00 21.33 .1467 Third Quarter 53.500 40.5000 .287 25.00 22.00 .17 Fourth Quarter 61.625 45.5000 .287 29.50 24.25 .19 1998 - ---- First Quarter $61.250 $49.5625 $ .31 $45.75 $29.13 $.19 Second Quarter 57.500 49.8125 .31 47.50 36.13 .2725 (through June 15, 1998) - -------------------- For recent sale prices of MBI Common Stock, see the cover of this Proxy Statement/Prospectus. Shareholders are advised to obtain current market quotations for MBI Common Stock and First Financial Common Stock.
COMPARATIVE UNAUDITED PER SHARE DATA The following table sets forth for the periods indicated selected historical per share data of MBI and First Financial and the corresponding pro forma and pro forma equivalent per share amounts giving effect to the proposed Merger, as well as the pending acquisitions by MBI of FSCM, CBT and Firstbank, each of which will be accounted for under the pooling-of- interests method of accounting, and the acquisition by MBI of Roosevelt Financial Group, Inc. ("Roosevelt"), which was consummated on July 1, 1997 and accounted for under the purchase method of accounting. The data presented is based upon the consolidated financial statements and related notes of each of MBI and First Financial included in documents incorporated herein by reference, and the pro forma combined consolidated balance sheet and income statements, including the notes thereto, appearing elsewhere herein. This information should be read in conjunction with such historical and pro forma financial statements and related notes thereto. The assumptions used in the preparation of this table appear in the notes to the pro forma financial information appearing elsewhere in this Proxy Statement/Prospectus. See "PRO FORMA FINANCIAL INFORMATION - Notes to Pro Forma Combined Consolidated Financial Statements." This data is not necessarily indicative of the results of the future operations of the -15- 21 combined organization or the actual results that would have occurred if the proposed Merger, the pending acquisitions by MBI of FSCM, CBT and Firstbank and the acquisition of Roosevelt had been consummated prior to the periods indicated.
MBI/ MBI/ MBI/ FIRST FIRST FINANCIAL FIRST FINANCIAL MBI/ALL ENTITIES ALL ENTITIES MBI FINANCIAL PRO FORMA PRO FORMA PRO FORMA PRO FORMA REPORTED REPORTED COMBINED EQUIVALENT COMBINED EQUIVALENT -------- -------- ------------ -------------- ------------ -------------- Book Value per Share: March 31, 1998 $ 18.65 $ 16.96 $ 18.54 $ 16.32 $ 18.58 $ 16.35 December 31, 1997 18.47 16.50 18.33 16.13 17.58 15.47 Cash Dividends Declared per Share: Three Months ended March 31, 1998 $ .31 $ .19 $ .31 $ .27 $ .310 $ .27 Year ended December 31, 1997 1.148 .65 1.148 1.01 1.148 1.01 Year ended December 31, 1996 1.092 .55 1.092 .96 1.092 .96 Year ended December 31, 1995 .88 .51 .88 .77 .880 .77 Basic Earnings per Share: Three Months ended March 31, 1998 $ .78 $ .49 $ .78 $ .69 $ .76 $ .67 Year ended December 31, 1997 1.68 1.91 1.69 1.49 1.49 1.31 Year ended December 31, 1996 2.11 1.68 2.11 1.86 2.13 1.87 Year ended December 31, 1995 2.41 1.28 2.39 2.10 2.37 2.09 Diluted Earnings per Share: Three Months Ended March 31, 1998 $ .77 $ .49 $ .77 $ .68 $ .75 $ .66 Year ended December 31, 1997 1.65 1.67 1.66 1.46 1.45 1.28 Year ended December 31, 1996 2.08 1.27 2.08 1.83 2.09 1.84 Year ended December 31, 1995 2.37 .51 2.35 2.07 2.31 2.03 Market Price per Share: At May 7, 1998 $52.8125 $38.000 $52.8125 $46.475 $52.8125 $46.475 At June 15, 1998 50.0625 43.375 50.0625 44.055 50.0625 44.055 - -------------------- Includes the effect of pro forma adjustments for First Financial, as appropriate. See "PRO FORMA FINANCIAL INFORMATION--Notes to Pro Forma Combined Consolidated Financial Statements." Based on the pro forma combined per share amounts multiplied by 0.88, the Exchange Ratio applicable to one share of First Financial Common Stock in the Merger. Further explanation of the assumptions used in the preparation of the pro forma combined consolidated financial statements is included in the notes to pro forma combined consolidated financial statements. See "PRO FORMA FINANCIAL INFORMATION--Notes to Pro Forma Combined Consolidated Financial Statements." Includes the effect of pro forma adjustments for First Financial, CBT, Firstbank, FSCM and Roosevelt, as appropriate. Due to the immateriality of the financial condition and results of operations of Horizon and HomeCorp to that of MBI, this table does not include the effect of pro forma adjustments for Horizon and HomeCorp. See "PRO FORMA FINANCIAL INFORMATION--Notes to Pro Forma Combined Consolidated Financial Statements." Based upon the following number of shares outstanding as of March 31, 1998: Shares of MBI Common Stock as reported 133,115,257 Number of Shares of MBI Common Stock, net of treasury shares, to be issued in the mergers of: FSCM 1,877,324 CBT 4,961,910 First Financial 2,875,360 Firstbank 12,511,135 ----------- MBI/All Entities Pro Forma Combined 155,340,956 =========== The market value of MBI Common Stock disclosed as of May 7, 1998, the last trading day preceding the public announcement of the Merger, and as of June 15, 1998, the last practicable date prior to the filing of the Registration Statement, is based on the last sale price as reported on the NYSE Composite Tape. The market value of First Financial Common Stock disclosed as of May 7, 1998, the last trading day preceding the public announcement of the Merger, and as of June 15, 1998, the last practicable date prior to the filing of the Registration Statement, is based on over-the-counter "bulletin board" closing prices.
-16- 22 SUMMARY FINANCIAL DATA The following table sets forth for the periods indicated certain summary historical consolidated financial information for MBI and First Financial. The balance sheet data and income statement data of MBI and First Financial included in the summary financial data as of and for the five years ended December 31, 1997, are taken from the audited consolidated financial statements of MBI and First Financial, respectively. The balance sheet data and income statement data of MBI and First Financial included in the summary financial data as of and for the three months ended March 31, 1998 and 1997 are taken from the unaudited consolidated financial statements of MBI and First Financial, respectively. These data include all adjustments which are, in the opinion of the respective managements of MBI and First Financial, necessary to present a fair statement of these periods and are of a normal recurring nature. Results for MBI and First Financial for the three months ended March 31, 1998 are not necessarily indicative of results for the entire year. The following information should be read in conjunction with the audited consolidated financial statements of each of MBI and First Financial and the related notes thereto, included in documents incorporated herein by reference, and in conjunction with the unaudited pro forma combined consolidated financial information, including the notes thereto, appearing elsewhere in this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL INFORMATION." -17- 23 MERCANTILE BANCORPORATION INC. SUMMARY FINANCIAL DATA
ALL ENTITIES PRO FORMA COMBINED CONSOLIDATED AS OF OR FOR AS OF OR FOR THREE MONTHS THE THREE ENDED MONTHS ENDED MARCH 31, MARCH 31, -------------------------- 1998 1998 1997 ------------- -------- -------- PER SHARE DATA Basic earnings $ .76 $ .78 $ .65 Diluted earnings .75 .77 .64 Dividends declared .31 .31 .287 Book value at period end 18.54 18.65 16.50 EARNINGS (THOUSANDS) Interest income $611,817 $530,331 $398,462 Interest expense 330,187 290,026 186,501 -------- -------- -------- Net interest income 281,630 240,305 211,961 Provision for possible loan losses 9,387 6,606 18,443 Other income 140,747 127,193 88,100 Other expense 228,455 196,864 165,595 Income taxes 67,321 60,136 41,028 -------- -------- -------- Net income $117,214 $103,892 $ 74,995 ======== ======== ======== ENDING BALANCE SHEET (MILLIONS) Total assets $ 35,830 $ 31,802 $ 22,078 Earning assets 32,286 28,530 20,373 Investment securities 9,444 8,378 4,847 Loans and leases, net of unearned income 22,224 19,625 15,213 Deposits 25,830 22,528 17,354 Long-term debt 2,410 2,343 452 Shareholders' equity 2,885 2,483 1,882 Reserve for possible loan losses 316 264 231 SELECTED RATIOS Return on average assets 1.35% 1.35% 1.38% Return on average equity 16.29 16.57 15.63 Net interest rate margin 3.62 3.54 4.36 Equity to assets 8.05 7.81 8.52 Reserve for possible loan losses to Outstanding loans 1.42 1.34 1.52 Non-performing loans 232.41 231.39 273.18 Dividend payout ratio 41.33 40.26 44.84 As of or for the Year Ended December 31, ---------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- Per Share Data Basic earnings $ 1.68 $ 2.11 $ 2.41 $ 2.06 $ 1.81 Diluted earnings 1.65 2.08 2.37 2.02 1.77 Dividends declared 1.148 1.092 .88 .748 .66 Book value at period end 18.47 16.74 16.29 14.48 13.41 Earnings (Thousands) Interest income $1,878,194 $1,552,863 $1,516,156 $1,311,928 $1,269,680 Interest expense 957,690 724,910 715,466 521,542 508,469 ---------- ---------- ---------- ---------- ---------- Net interest income 920,504 827,953 800,690 790,386 761,211 Provision for possible loan losses 79,309 73,015 41,533 48,791 70,584 Other income 378,684 337,480 311,649 272,368 290,380 Other expense 894,780 718,668 640,519 645,011 666,067 Income taxes 120,506 128,535 149,898 135,896 114,768 ---------- ---------- ---------- ---------- ---------- Net income $ 204,593 $ 245,215 $ 280,389 $ 233,056 $ 200,172 ========== ========== ========== ========== ========== Ending Balance Sheet (Millions) Total assets $ 29,955 $ 22,030 $ 20,883 $ 19,397 $ 18,878 Earning assets 27,278 20,061 18,997 17,904 17,390 Investment securities 7,546 4,746 4,964 4,895 5,234 Loans and leases, net of unearned income 19,200 14,953 13,703 12,764 11,637 Deposits 22,080 17,336 16,172 15,137 15,435 Long-term debt 1,469 305 344 351 340 Shareholders' equity 2,410 1,946 1,915 1,643 1,510 Reserve for possible loan losses 255 230 232 245 233 Selected Ratios Return on average assets 0.79% 1.16% 1.39% 1.22% 1.08% Return on average equity 9.55 12.95 15.64 14.66 14.06 Net interest rate margin 3.93 4.34 4.38 4.61 4.58 Equity to assets 8.05 8.83 9.17 8.47 8.00 Reserve for possible loan losses to Outstanding loans 1.33 1.54 1.70 1.92 2.00 Non-performing loans 249.51 318.99 241.79 552.34 289.13 Dividend payout ratio 69.58 52.50 37.13 37.03 37.29 - -------------------- Includes the effect of pro forma adjustments for the pending acquisitions of First Financial, CBT, Firstbank and FSCM and the completed acquisition of Roosevelt, as appropriate. Due to the immateriality of the financial condition and results of operations of Horizon and HomeCorp to that of MBI, this table does not include the effect of pro forma adjustments for Horizon and HomeCorp. See "PRO FORMA FINANCIAL INFORMATION - Notes to Pro Forma Combined Consolidated Financial Statements." Includes company-obligated mandatorily redeemable preferred securities of Mercantile Capital Trust I. Taxable-equivalent basis. Includes tax-equivalent adjustments for MBI of $3,401,000, $3,857,000, $15,086,000, $16,353,000, $17,758,000, $17,962,000 and $18,598,000 for March 31, 1998 and 1997 and December 31, 1997, 1996, 1995, 1994 and 1993, respectively, and for all entities pro forma combined consolidated for March 31, 1998 of $4,644,000. These adjustments are based upon a federal tax rate of 35% for all periods. Based upon diluted earnings per share.
-18- 24 FIRST FINANCIAL BANCORPORATION SUMMARY FINANCIAL DATA
AS OF OR FOR THE THREE MONTHS AS OF OR FOR THE ENDED MARCH 31, YEAR ENDED DECEMBER 31, ---------------------- ---------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- PER SHARE DATA Basic earnings $ .49 $ .44 $ 1.91 $ 1.68 $ 1.28 $ 1.28 $ 1.45 Diluted earnings .49 .44 1.90 1.67 1.27 1.27 1.43 Dividends declared .19 .15 .65 .55 .51 .49 .47 Book value at period end 16.96 16.43 16.50 15.03 14.04 12.71 12.60 Average common shares outstanding 3,532,038 3,502,600 3,496,634 3,528,792 3,573,713 3,554,595 3,488,990 EARNINGS (THOUSANDS) Interest income $ 9,367 $ 8,363 $ 36,708 $ 33,268 $ 31,742 $ 29,205 $ 28,236 Interest expense 4,907 4,122 18,730 16,449 15,811 13,624 14,057 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income 4,460 4,241 17,978 16,819 15,931 15,581 14,179 Provision for credit losses 100 177 588 591 366 425 155 Other income 2,601 1,849 8,385 7,024 6,236 5,699 5,924 Other expense 4,491 3,702 16,183 14,802 15,480 14,532 13,041 Income taxes 736 664 2,909 2,534 1,751 1,760 1,852 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 1,734 $ 1,547 $ 6,683 $ 5,916 $ 4,570 $ 4,563 $ 5,055 ========== ========== ========== ========== ========== ========== ========== ENDING BALANCE SHEET (THOUSANDS) Total assets $ 568,442 $ 492,372 $ 550,053 $ 467,725 $ 457,236 $ 434,461 $ 434,081 Earning assets 516,152 459,290 504,981 428,541 421,640 404,536 406,243 Investments 119,254 102,694 112,755 97,802 123,886 109,229 134,511 Loans and leases 357,598 325,096 364,301 330,739 294,529 294,707 254,207 Deposits 480,461 419,165 458,815 395,407 385,055 362,263 363,580 Long-term debt 12,908 13,938 18,188 12,355 17,469 20,268 18,283 Shareholders' equity 60,267 53,585 57,580 52,576 50,207 45,245 43,993 Allowance for credit losses 4,499 3,896 4,589 3,788 3,602 3,354 3,101 SELECTED RATIOS Return on average assets 1.28% 1.33% 1.26% 1.26% 1.02% 1.03% 1.19% Return on average equity 11.73 11.76 11.53 11.51 9.65 10.10 12.07 Net interest rate margin 3.74 4.06 3.96 4.12 4.07 4.05 3.88 Equity to assets 10.60 10.88 10.47 11.24 10.98 10.41 10.13 Allowance for credit losses to: Outstanding loans 1.26 1.20 1.26 1.15 1.22 1.14 1.22 Non-performing loans 3.16 7.08 4.97 6.78 13.34 3.05 2.43 Dividend payout ratio 38.78 34.09 34.16 32.89 39.63 37.98 32.23
-19- 25 INFORMATION REGARDING SPECIAL MEETING ------------------------------------- GENERAL This Proxy Statement/Prospectus is being furnished to holders of First Financial Common Stock in connection with the solicitation of proxies by the Board of Directors of First Financial for use at the Special Meeting and any adjournments or postponements thereof at which the shareholders of First Financial will consider and vote upon a proposal to approve the Merger Agreement and consider and vote upon any other business that may properly be brought before the Special Meeting or any adjournments or postponements thereof. Each copy of this Proxy Statement/Prospectus is accompanied by the Notice of Special Meeting of Shareholders of First Financial, a proxy card and a return envelope to First Financial for the proxy card. This Proxy Statement/Prospectus also is furnished by MBI to each holder of First Financial Common Stock as a prospectus in connection with the issuance by MBI of shares of MBI Common Stock upon the consummation of the Merger. This Proxy Statement/Prospectus, the Notice of Special Meeting and proxy card are being first mailed to shareholders of First Financial on - -----------------, 1998. DATE, TIME AND PLACE The Special Meeting will be held at -------------------------------------, on ---------------, 1998, at ------ -.m. Central Time. RECORD DATE; VOTE REQUIRED On the Record Date, there were ------- shares of First Financial Common Stock outstanding and entitled to vote at the Special Meeting. Each such share is entitled to one vote on each matter properly brought before the Special Meeting. The affirmative vote of the holders of at least two-thirds of the outstanding shares of First Financial Common Stock is required to approve the Merger Agreement. As of the Record Date, directors and executive officers of First Financial and their affiliates owned beneficially, or controlled the voting of, an aggregate of --------- shares of First Financial Common Stock, or approximately -------% of the outstanding shares of First Financial Common Stock entitled to vote at the Special Meeting. Each of the directors and executive officers of First Financial has indicated his or her intention to vote his or her shares (excluding the 214,527 shares held in trust by Mary Lee Nagle Duda, the spouse of Fritz Duda) for the approval of the Merger Agreement at the Special Meeting, which includes the eight directors of First Financial who, pursuant to the terms of their respective Voting Agreements, have committed to vote their shares of First Financial Common Stock for approval of the Merger Agreement. In addition, MBI and FSCM currently own 6,000 and 11,250 shares, respectively, of First Financial Common Stock, which shares will be voted for the approval of the Merger Agreement. See "TERMS OF THE PROPOSED MERGER - Other Agreements - Voting Agreements." -20- 26 VOTING AND REVOCATION OF PROXIES Shares of First Financial Common Stock that are represented by a properly executed proxy received prior to the vote at the Special Meeting will be voted at such Special Meeting in the manner directed on the proxy card, unless such proxy is revoked in the manner set forth herein in advance of such vote. ANY FIRST FINANCIAL SHAREHOLDER RETURNING AN EXECUTED PROXY CARD THAT DOES NOT PROVIDE INSTRUCTIONS TO VOTE AGAINST THE APPROVAL OF THE MERGER AGREEMENT WILL BE DEEMED TO HAVE VOTED IN FAVOR OF THE APPROVAL OF THE MERGER AGREEMENT. Failure to return a properly executed proxy card or to vote in person at the Special Meeting will have the practical effect of a vote against the approval of the Merger Agreement. Shares subject to abstentions will be treated as shares that are present and voting at the Special Meeting for purposes of determining the presence of a quorum. Because the affirmative vote of at least two-thirds of the outstanding shares of First Financial Common Stock is required for approval of the Merger Agreement, abstentions will have the effect of votes against the approval of the Merger Agreement. Broker "non-votes" (i.e., proxies from brokers or nominees indicating that such persons have not received instructions from the beneficial owners or other persons entitled to vote shares with respect to which the brokers or nominees do not have discretionary power to vote without such instructions) will not be considered as present for the purposes of determining the presence of a quorum. Because the affirmative vote of a majority of the outstanding shares of First Financial Common Stock is required for approval of the Merger Agreement, broker non-votes will have the effect of a vote against the approval of the Merger Agreement. Any First Financial shareholder returning an executed proxy card that does not provide instructions to abstain from, or to vote against the approval of, the Merger Agreement will be deemed to have approved the Merger Agreement. Any shareholder of First Financial giving a proxy may revoke it at any time prior to the vote at the Special Meeting. Shareholders of First Financial wishing to revoke a proxy prior to the vote may do so by delivering to the Secretary of First Financial, at 204 East Washington Street, P.O. Box 1880, Iowa City, Iowa 52244-1880, at or before the Special Meeting, a written notice of revocation bearing a later date than the proxy or a later dated proxy relating to the same shares, or by attending the Special Meeting and voting such shares in person. Attendance at the Special Meeting will not in itself constitute the revocation of a proxy. The Board of Directors of First Financial currently is not aware of any business to be brought before the Special Meeting other than that described herein. If, however, other matters are properly brought before such Special Meeting, or any adjournments or postponements thereof, the persons appointed as proxies will have discretionary authority to vote the shares represented by duly executed proxies in accordance with their discretion and judgment as to the best interest of First Financial. SOLICITATION OF PROXIES First Financial will bear its own costs of soliciting proxies, except that MBI will pay printing and mailing expenses and registration fees incurred in connection with preparing this Proxy Statement/Prospectus. Proxies will initially be solicited by mail, but directors, officers and selected other employees of First Financial also may solicit proxies in person or by telephone. Directors, -21- 27 executive officers and any other employees of First Financial who solicit proxies will not be specially compensated for such services. Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward proxy materials to beneficial owners and will be reimbursed for their reasonable expenses incurred in sending proxy materials to beneficial owners. HOLDERS OF FIRST FINANCIAL COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. -22- 28 TERMS OF THE PROPOSED MERGER ---------------------------- The following is a summary of the material terms and conditions of the Merger Agreement, which document is incorporated by reference herein. This summary is qualified in its entirety by the full text of the Merger Agreement. MBI, upon written or oral request, will furnish a copy of the Merger Agreement, without charge, to any person who receives a copy of this Proxy Statement/Prospectus. Such requests should be directed to Jon W. Bilstrom, General Counsel and Secretary, Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524, telephone (314) 418-2525. GENERAL DESCRIPTION OF THE MERGER Pursuant to the Merger Agreement, subject to satisfaction or waiver of certain conditions precedent, including receipt of all applicable regulatory approvals, First Financial will be merged on the Closing Date with and into Ameribanc. Upon consummation of the Merger, First Financial's corporate existence will terminate and Ameribanc will continue as the surviving entity. At the Effective Time, each share of First Financial Common Stock will be converted into the right to receive 0.88 of a share of MBI Common Stock. Such consideration is subject to certain anti-dilution protections but is not adjustable based upon the operating results, financial condition or other factors affecting either MBI or First Financial prior to the consummation of the Merger. The fair market value of MBI Common Stock received pursuant to the Merger may fluctuate and at the consummation of the Merger may be more or less than the current fair market value of such shares. The amount and nature of the consideration was established through arms'-length negotiations between MBI and First Financial and their respective advisors and reflects the balancing of a number of countervailing factors. The total amount of the consideration reflects a price both parties concluded was appropriate. See "-Background of and Reasons for the Merger; Board Recommendations." The fact that the consideration is payable in shares of MBI Common Stock reflects the desire of the parties to the Merger to have the favorable tax attributes of a "reorganization" for federal income tax purposes. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET VALUE OF MBI COMMON STOCK ON THE DATE SUCH STOCK IS RECEIVED BY A FIRST FINANCIAL SHAREHOLDER OR AT ANY OTHER TIME. THE FAIR MARKET VALUE OF MBI COMMON STOCK RECEIVED BY A FIRST FINANCIAL SHAREHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK DUE TO NUMEROUS MARKET FACTORS. Following the Closing Date, each shareholder of First Financial (other than any shareholders exercising dissenters' rights pursuant to the IBCA) will be required to submit to the Exchange Agent a properly executed letter of transmittal and surrender to the Exchange Agent the stock certificate(s) formerly representing the shares of First Financial Common Stock in order to receive a new stock certificate(s) evidencing the shares of MBI Common Stock to which such shareholder is entitled. As soon as practicable following the Effective Time, the Exchange Agent will mail to each First Financial shareholder (other than any shareholders exercising dissenters' rights pursuant to the IBCA) a notice of consummation of the Merger and a form of letter of transmittal, together with instructions and a -23- 29 return envelope to facilitate the exchange of such holder's certificate(s) formerly representing First Financial Common Stock for certificate(s) evidencing MBI Common Stock. No dividends or other distributions will be paid to a former First Financial shareholder with respect to shares of MBI Common Stock until such shareholder's letter of transmittal and stock certificate(s) formerly representing First Financial Common Stock, or documentation reasonably acceptable to the Exchange Agent in lieu of lost or destroyed certificate(s), is delivered to the Exchange Agent. See "TERMS OF THE PROPOSED MERGER - Surrender of First Financial Stock Certificates and Receipt of MBI Common Stock." No fractional shares of MBI Common Stock will be issued in the Merger, but cash will be paid in lieu of such fractional shares, such cash being calculated by multiplying the holder's fractional share interest by the closing stock price of MBI Common Stock on the NYSE Composite Tape on the Closing Date of the Merger as reported in The Wall Street Journal. See "- Fractional Shares." The shares of MBI Common Stock to be issued pursuant to the Merger will be freely transferable except by certain shareholders of First Financial who are deemed to be "affiliates" of First Financial. The shares of MBI Common Stock issued to such affiliates will be restricted in their transferability in accordance with the rules and regulations promulgated by the Commission. See "INFORMATION REGARDING MBI STOCK - Restrictions on Resale of MBI Stock by Affiliates." EFFECT ON FIRST FINANCIAL STOCK PLAN AND EMPLOYEE BENEFIT PLANS MBI has agreed to assume the First Financial Stock Options in accordance with the terms of the First Financial Stock Plan and, upon consummation of the Merger, all outstanding First Financial Stock Options will be converted into rights with respect to MBI Common Stock. Beginning at the Effective Time, (i) each First Financial Stock Option assumed by MBI will be exercisable solely for shares of MBI Common Stock, (ii) the number of shares of MBI Common Stock subject to each First Financial Stock Option will equal the number of shares of First Financial Common Stock subject to the First Financial Stock Options multiplied by the Exchange Ratio and (iii) the per share exercise price for each First Financial Stock Option will be adjusted by dividing such price by the Exchange Ratio, subject to adjustment as appropriate to reflect any stock split, stock dividend, capitalization or similar transaction subsequent to the Effective Time. MBI has agreed, at and after the Effective Time, to reserve sufficient shares of MBI Common Stock for issuance with respect to the First Financial Stock Options under the First Financial Stock Plan to be assumed by MBI. MBI will also file with the Commission, and obtain the effectiveness of, a registration statement with respect to the shares of MBI Common Stock issuable upon exercise of such options and list such shares on the NYSE. The Merger Agreement provides that Ameribanc will honor severance and other compensation contracts between First Financial or FNBI and any current or former director, officer, employee or agent thereof, along with all provisions for vested benefits or other vested amounts earned or accrued through the Effective Time under First Financial employee plans. The First Financial employee plans will continue as plans of Ameribanc until such time as the employees of First Financial and FNBI are integrated into MBI's employee benefit plans that are available to other employees of MBI and its subsidiaries. MBI will take such steps as are necessary or required to integrate the employees of First Financial and FNBI into MBI's employee benefit plans available to other employees of MBI and its subsidiaries as soon as practicable after the Effective Time, with (i) full credit for prior service with First Financial or FNBI for purposes of vesting and eligibility for participation and benefit allocation (but not benefit accruals under any defined benefit plan) and co-payments and deductibles, (ii) waiver of all waiting periods, evidence of insurability and pre-existing condition exclusions or penalties and (iii) full credit for claims arising prior to the Effective Time for purposes of -24- 30 deductibles, out-of-pocket maximums, benefit maximums and all other similar limitations for the applicable plan year in which the Merger is consummated. OTHER AGREEMENTS In addition to and contemporaneously with the Merger Agreement, MBI and First Financial executed the Option Agreement and MBI and all of the eight directors of First Financial executed separate Voting Agreements. The following is a summary of the material terms of the Option Agreement and the Voting Agreements. OPTION AGREEMENT. Under the terms of the Option Agreement, First Financial issued to MBI an option to purchase up to 707,189 shares of First Financial Common Stock at a price per share equal to $37.75. The Option was granted by First Financial to MBI as a condition to and in consideration of MBI entering into the Merger Agreement. The following description does not purport to be complete and is qualified in its entirety by reference to the Option Agreement, which is attached as an exhibit to the Registration Statement and is incorporated herein by reference. The Option is intended to increase the likelihood that the Merger will be consummated in accordance with the terms of the Merger Agreement. The occurrence of certain events described below could cause the Option to become exercisable and thereby significantly increase the cost of the acquisition of First Financial. Consequently, the Option may (i) have the effect of discouraging a person who might now or prior to the consummation of the Merger consider or propose the acquisition of First Financial (or a significant interest in First Financial), even if such a person were prepared to pay a higher price per share for First Financial Common Stock than the price per share implicit in the Exchange Ratio, (ii) result in the proposal by a potential acquiror of a lower per share price than such acquiror might otherwise have been willing to pay or (iii) prevent a potential acquiror from accounting for the acquisition of First Financial through the pooling-of-interests method of accounting for a period of two years and thereby discourage or preclude the acquisition of First Financial during such period. As of the Record Date, the maximum number of shares issuable pursuant to the Option (the "MBI Option Shares") represented approximately 19.9% of the issued and outstanding shares of First Financial Common Stock. The Option exercise price is $37.75 per share. In the event MBI acquires the MBI Option Shares, MBI could vote such shares in the election of First Financial directors and other matters requiring a shareholder vote, thereby potentially having a material impact on the outcome of such matters. If not then in material breach of the Merger Agreement, MBI may exercise the Option, in whole or in part, at any time or from time to time if a Purchase Event (as defined below) has occurred; provided, however, that: (i) to the extent the Option has not been exercised, it will terminate and be of no further force and effect upon the earlier to occur of (A) the Effective Time and (B) the termination of the Merger Agreement in accordance with its terms, provided that in the case of a termination of the Merger Agreement arising from the volitional breach by First Financial of any of its representations, warranties or covenants in the Merger Agreement, the Option will not terminate until the date that is 12 months following such termination; (ii) if the Option cannot be exercised on such day because of any injunction, order or similar restraint issued by a court of competent jurisdiction, the Option will expire on the thirtieth business day after such injunction, order or restraint has been dissolved or when such injunction, order or restraint has become permanent and is no longer subject to appeal, as the case may be; and (iii) any such exercise will be subject to compliance with applicable law, including the BHCA. -25- 31 A "Purchase Event" means any of the following events: (i) First Financial or any of its subsidiaries, without having received prior written consent from MBI, have entered into, authorized, recommended, proposed or publicly announced its intention to enter into, authorize, recommend or propose an agreement, arrangement or understanding with any person (other than MBI or any of its subsidiaries) to (A) effect a merger, consolidation or similar transaction involving First Financial or any of its subsidiaries, (B) purchase, lease or otherwise acquire 15% or more of the assets of First Financial or any of its subsidiaries or (C) purchase or otherwise acquire (including by way of merger, consolidation, share exchange or similar transaction) beneficial ownership of securities representing 15% or more of the voting power of First Financial or any of its subsidiaries; (ii) any person (other than MBI or any subsidiary of MBI, or First Financial or any subsidiary of First Financial in a fiduciary capacity) has acquired beneficial ownership or the right to acquire beneficial ownership of 15% or more of the voting power of First Financial; or (iii) the holders of First Financial Common Stock have not approved the Merger Agreement at the Special Meeting, the Special Meeting has not been held or is canceled prior to termination of the Merger Agreement in accordance with its terms or First Financial's Board of Directors has withdrawn or modified in a manner adverse to MBI the recommendation of First Financial's Board of Directors with respect to the Merger Agreement, in each case after an Extension Event (as defined below). An "Extension Event" means any of the following events: (i) a Purchase Event described in (i) or (ii) of the preceding paragraph; (ii) any person (other than MBI or any of its subsidiaries) has "commenced" (as such term is defined in Rule 14d-2 under the Exchange Act) or has filed a registration statement under the Securities Act with respect to a tender offer or exchange offer to purchase shares of First Financial Common Stock such that, upon consummation of such offer, such person would have beneficial ownership or the right to acquire beneficial ownership of 15% or more of the voting power of First Financial; or (iii) any person (other than MBI or any subsidiary of MBI, or First Financial or any subsidiary of First Financial in a fiduciary capacity) has publicly announced its willingness or a proposal or intention to make a proposal, (x) to make an offer described in clause (ii) above or (y) to engage in a transaction described in clause (i) above. Subject to regulatory approval, upon the occurrence of a Purchase Event and until 12 months thereafter (but not later than the termination of the Option pursuant to the terms of the Option Agreement), First Financial shall be required, upon MBI's request, to repurchase any shares of First Financial Common Stock purchased by MBI, at a price equal to the greater of the market price or the highest price per share at which a tender or exchange offer has been made for shares of First Financial Common Stock (the "Market Price"), or to purchase the Option for the amount by which the Market Price exceeds the Option Price. At the request of First Financial during the first six-month period commencing 12 months following the first occurrence of a Purchase Event, First Financial may repurchase from MBI, and MBI shall sell to First Financial, all (but not less than all) of the First Financial Common Stock acquired by MBI pursuant to the Option at a price per share equal to the greater of (i) Market Price or (ii) the sum of (A) the aggregate purchase price of such shares plus (B) interest on the aggregate purchase price paid for such shares from the date of purchase to the date of repurchase, less any dividends received on such shares. To the best of each of MBI's and First Financial's knowledge, no Purchase Event or Extension Event has occurred as of the date of this Proxy Statement/Prospectus. VOTING AGREEMENTS. MBI and all of the eight directors of First Financial executed a separate Voting Agreement pursuant to which each such director agreed that he will vote all of the shares -26- 32 of First Financial Common Stock that he then owned, controlled or subsequently acquires (excluding the 214,527 shares held in trust by Mary Lee Nagle Duda, the spouse of Fritz Duda) in favor of the approval of the Merger Agreement at the Special Meeting. In addition, until the earliest to occur of the Effective Time, the termination of the Voting Agreements or the abandonment of the Merger, each such director further agreed that he will not vote any such shares in favor of the approval of any other competing acquisition proposal involving First Financial and a third party. Each such director also agreed that he will not transfer shares of First Financial Common Stock unless, prior to such transfer, the transferee executes an agreement in substantially the same form as the Voting Agreement. As of the Record Date, such directors owned beneficially, directly or indirectly, an aggregate of ------- shares (excluding the 214,527 shares held in trust by Mary Lee Nagle Duda, the spouse of Fritz Duda) of First Financial Common Stock, or approximately ----% of the issued and outstanding shares. INTERESTS OF CERTAIN PERSONS IN THE MERGER MBI has agreed that the Merger will not diminish any indemnification obligations of First Financial or FNBI in favor of the employees, agents, directors or officers of First Financial or FNBI existing as of the Effective Time by operation of law or by virtue of the Articles of Incorporation or other charter documents, by-laws, contracts, resolutions or other agreements or documents of First Financial or FNBI in effect as of the Effective Time. To the extent that First Financial's existing directors' and officers' liability insurance policy provides coverage for the acts or omissions of the directors and officers of First Financial and FNBI prior to the Effective Time, First Financial has agreed to give to such insurance carrier and to MBI notice of any potential claims thereunder. On and after the Effective Time, MBI's directors' and officers' liability insurance policy will provide coverage for the prior acts of the directors and officers of First Financial and FNBI. BACKGROUND OF AND REASONS FOR THE MERGER; BOARD RECOMMENDATIONS BACKGROUND OF THE MERGER. First Financial's Board of Directors has periodically reviewed First Financial's strategy in light of general conditions in the banking industry, local competitive and economic conditions, the results of its operations and its future prospects, legislative changes and other developments affecting the banking industry generally and First Financial specifically. In September 1997, First Financial's Board of Directors determined to undertake a detailed review of First Financial's strategic alternatives and to retain an independent financial advisor to assist it in exploring alternative means of maximizing shareholder value. Accordingly, on November 6, 1997, First Financial engaged ABN AMRO Incorporated ("ABN AMRO") as financial advisor for that purpose. On November 20, 1997, ABN AMRO presented an analysis to First Financial's Board of Directors encompassing, among other things, (i) First Financial's financial condition relative to its peers, (ii) First Financial's prospects as an independent financial institution under various growth scenarios, (iii) the effect on First Financial of various alternatives for enhancing shareholder value, including a stock split or stock dividend, an increase in the cash dividend or a share repurchase program, (iv) First Financial's prospects for growth through acquisitions of other financial institutions, (v) the effect on First Financial of a merger of equals, (vi) an analysis of prospective merger-of-equals and acquisition candidates, (vii) an indication as to the reasonable range of values that could be expected in the event First Financial were acquired and (viii) an analysis of prospective acquirors. After consideration by First Financial's Board of Directors of the various alternatives for enhancing shareholder value presented by -27- 33 ABN AMRO, First Financial's Board of Directors decided to explore further the possibility of a strategic business combination. On November 20, 1997, First Financial's Board of Directors established a Special Committee comprised of three outside directors: Fritz L. Duda, Robert J. Latham and Larry D. Ward (the "Special Committee"). The Special Committee was established to review strategic options available to First Financial, including possible affiliation with another financial institution, and to negotiate and implement an agreement with an independent financial advisor for the provision of investment banking and advisory services to the Special Committee and First Financial's Board of Directors. By letter agreement dated January 9, 1998, First Financial retained ABN AMRO to provide such services. On January 19, 1998, ABN AMRO presented to the Special Committee an analysis of institutions identified by ABN AMRO as having the ability to consummate a transaction, with particular emphasis being placed on institutions that were the most likely to offer First Financial shareholders the greatest value in an acquisition. The Special Committee discussed other criteria that it would consider important in evaluating prospective acquiror institutions. The Special Committee authorized ABN AMRO to explore the interest of certain financial institutions in engaging in discussions concerning a possible business combination and, in conjunction therewith, to prepare and provide an information statement regarding First Financial (the "Information Statement") to interested institutions. Beginning on January 28, 1998, ABN AMRO began contacting the prospective acquirors which had been approved by the Special Committee. The Information Statement was sent to seven institutions that expressed an interest in conducting discussions with First Financial and that entered into a confidentiality agreement. Representatives from ABN AMRO also conducted follow-up meetings with representatives of certain institutions that received an Information Statement. ABN AMRO first contacted MBI by telephone on January 28, 1998, after which MBI executed a confidentiality agreement and received an Information Statement. Representatives of ABN AMRO met with MBI representatives in St. Louis on February 11, 1998 to discuss a potential combination of First Financial and MBI. On February 18, 1998, MBI submitted a written indication of interest in a merger with First Financial. MBI's indication and the responses from the other prospective acquirors were reviewed by the Special Committee at a meeting held on February 20, 1998. Based on MBI's indication of interest, the Special Committee invited MBI to conduct a due diligence review of First Financial, which was conducted from February 24 through February 27, 1998, in Chicago. The due diligence review included a review of certain documents of First Financial, as well as interviews with four members of the senior management of First Financial. Following its due diligence review, MBI submitted a revised written indication of interest on March 5, 1998. With the Special Committee's approval, ABN AMRO responded to MBI's revised expression of interest by a letter dated March 10, 1998, which letter affirmed First Financial's interest in pursuing a transaction with MBI subject to the further negotiation of certain business terms. On March 10, 1998, the Special Committee authorized ABN AMRO to contact by telephone, and send an Information Statement to, two additional potential acquirors that had previously not been approved by the Special Committee but which had previously expressed interest in a potential transaction with First Financial. Information Statements were sent to the two potential acquirors and indications of interest were received from them, in each case at a lower valuation than the valuation of -28- 34 First Financial contained in MBI's written expression of interest of March 5, 1998. Accordingly, the Special Committee determined not to pursue negotiations with either party. On March 12, 1998, the Special Committee and a representative of ABN AMRO met with First Financial's Board of Directors at the Board's regular meeting and provided a full report on discussions with MBI and the other prospective acquirors. Board members were given an opportunity to ask questions of the Special Committee and of the ABN AMRO representative. Following a conversation between a member of the Special Committee and an investment banker unaffiliated with ABN AMRO, ABN AMRO received a letter on March 12, 1998 from an Iowa-based community bank holding company that expressed an interest in pursuing a transaction with First Financial. On March 18, 1998, the same bank holding company sent a letter to ABN AMRO and each member of the Special Committee proposing a "merger-of-equals" with First Financial. After evaluating the expression of interest and comparing it with other proposed transactions, including the most recent expression of interest from MBI, the Special Committee concluded that in light of the fact that the proposed merger-of-equals transaction contained no premium and the combined entity would have limited stock liquidity, pursuing further discussions with such entity was not in the best interests of First Financial or its shareholders. On March 26, 1998, two members of the Special Committee and representatives from ABN AMRO met in Chicago with three representatives of senior management of MBI to learn more about MBI and its prospects for the future, as well as to better understand how First Financial would be integrated into MBI in the event a merger transaction were consummated. On April 10, 1998, a representative from ABN AMRO and a senior executive from First Financial met with representatives of MBI in St. Louis to update MBI on year-to-date results at First Financial and to discuss additional business terms of the proposed transaction. On April 20, 1998, a MBI representative contacted representatives of ABN AMRO by telephone regarding such additional business terms. Based upon such discussions with MBI, the Special Committee agreed to begin negotiating a definitive merger agreement, stock option agreement and related documentation for presentation to First Financial's Board of Directors. On April 30, 1998, two senior executives from First Financial and a representative from ABN AMRO met with senior management of MBI in St. Louis and continued their examination of MBI's operations. On May 4, 1998, the Special Committee held a meeting at which it reviewed the Merger Agreement, Stock Option Agreement and related documentation and voted to recommend approval of the Merger to the full Board of Directors of First Financial. A special meeting of the Board was conducted on the same day, at which meeting the Special Committee presented a discussion of the specifics of the proposed transaction with MBI and the negotiations which had transpired. Representatives of ABN AMRO and of Sidley & Austin, First Financial's legal counsel, were also available for questions. Following extensive discussion and questioning by First Financial's Board of Directors, the Board unanimously approved the Merger Agreement, the Stock Option Agreement and the related documents and authorized proper officers of First Financial to execute them. The Merger Agreement and Stock Option Agreement were executed and delivered by the parties after the close of business on May 7, 1998. FIRST FINANCIAL'S REASONS FOR THE MERGER AND BOARD RECOMMENDATION. First Financial's Board of Directors has determined that the terms of the proposed Merger are fair to, and in the best interests of, First Financial and its shareholders. In reaching its determination, First Financial's -29- 35 Board of Directors consulted with legal counsel with respect to (i) the legal duties of First Financial's Board of Directors, (ii) tax matters and (iii) the Merger Agreement, Stock Option Agreement and issues related thereto. First Financial's Board of Directors also consulted with ABN AMRO, its financial advisors, with respect to the financial aspects and fairness of the proposed Merger to the shareholders of First Financial. First Financial's Board of Directors considered a number of factors, which included: (i) Information concerning the business, earnings, operations, financial condition, prospects, capital levels and asset quality of MBI and First Financial, both individually and on a combined basis, including but not limited to, information with respect to the companies' respective recent and historic stock and earnings performance. First Financial's Board of Directors considered the detailed financial analyses and other information with respect to MBI and First Financial presented to First Financial's Board of Directors by ABN AMRO, as well as First Financial's Board of Directors' own knowledge of MBI, First Financial and their respective businesses; (ii) The current and prospective competitive and regulatory environments in which First Financial operates, including significant recent consolidations within the banking industry, both nationally and in the Midwestern United States; (iii) The challenges of remaining a smaller, community-based institution, including the following: (1) competition on the margins for loans and deposits from existing competitors and new competition from larger financial institutions; (2) technology costs to remain competitive as a smaller entity; (3) continued demands for growth; and (4) other risks; (iv) A review of the strategic options available to First Financial and indications of interest from other prospective acquirors; (v) The increase in service to customers and consolidation of back-office functions which will result from the increased product mix and technology created by the specific business synergies resulting from the combination with MBI; (vi) The financial advice provided by ABN AMRO and the opinion of ABN AMRO that the Exchange Ratio pursuant to the Merger Agreement is fair from a financial point of view to the holders of First Financial Common Stock; (vii) The terms, conditions and course of negotiations relating to the Merger Agreement; (viii) The availability of dissenters' rights; (ix) The terms, conditions and course of negotiations relating to, as well as the legal, accounting and other consequences of, the stock option granted to MBI under the Stock Option Agreement, as well as the fact that MBI required the stock option as a condition to entering into the Merger Agreement; -30- 36 (x) The expectation that the Merger will generally be a tax-free transaction to First Financial and its shareholders for federal income tax purposes. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER;" (xi) The likelihood that the proposed Merger would be consummated; (xii) The recommendations of First Financial's management with respect to the proposed Merger (which recommendations were considered in light of certain interests of management in the proposed merger; see "- Interests of Certain Persons in the Merger"); and (xiii) The effect of the proposed Merger on the employees of First Financial as well as its effect on First Financial's customers and the communities in which First Financial operates. First Financial's Board of Directors believes that the proposed Merger will benefit shareholders of First Financial by affording them the opportunity to participate in the future growth of a larger and more diversified bank holding company having greater financial resources, competitive strengths and business opportunities than would be possible for First Financial as a stand alone entity. In view of the wide variety of factors considered in connection with its evaluation of the proposed Merger, First Financial's Board of Directors did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors considered in reaching its determination. In addition, individual members of First Financial's Board of Directors may have given different weights to different factors. FOR THE REASONS DESCRIBED ABOVE, FIRST FINANCIAL'S BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND BELIEVES THE MERGER IS FAIR TO, AND IS IN THE BEST INTERESTS OF, FIRST FINANCIAL'S SHAREHOLDERS. ACCORDINGLY, FIRST FINANCIAL'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF FIRST FINANCIAL COMMON STOCK VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. --- MBI'S REASONS AND BOARD RECOMMENDATIONS. The Executive Committee of the Board of Directors of MBI considered a number of factors, including, among other things, the financial condition of First Financial and projected synergies that are anticipated to result from the Merger. The Executive Committee concluded that the Merger presents a unique opportunity for MBI to (i) increase its presence in eastern Iowa through the acquisition of an established banking organization having operations in the targeted area and (ii) enhance MBI's ability to compete in the increasingly competitive banking and financial services industry. MBI's decision to pursue discussions with First Financial was primarily a result of MBI's assessment of the value of First Financial's banking franchise, its substantial asset base within that area and the compatibility of the businesses of the two banking organizations. -31- 37 OPINION OF FINANCIAL ADVISOR TO FIRST FINANCIAL First Financial retained ABN AMRO to provide financial advisory and investment banking services to First Financial and First Financial's Board of Directors in connection with the possible sale of First Financial. In connection with such engagement, ABN AMRO agreed, if requested by First Financial's Board of Directors, to render an opinion as to the fairness to First Financial's shareholders of the Exchange Ratio to be received in the Merger. First Financial imposed no limitations upon the scope of investigation or procedures followed by ABN AMRO in connection with its opinion, nor did First Financial give ABN AMRO any specific instructions in connection therewith. The Exchange Ratio, upon which the consideration to be received by First Financial shareholders pursuant to the Merger Agreement will be based, was determined through arms'-length negotiations between MBI and First Financial, although First Financial was advised during such negotiations by ABN AMRO. On May 7, 1998, in connection with the evaluation by First Financial's Board of Directors of the transaction proposed by MBI, ABN AMRO rendered an opinion that, as of such date, and subject to certain assumptions, factors and limitations set forth in such written opinion as described below, the Exchange Ratio to be received by First Financial shareholders is fair to such shareholders from a financial point of view. ABN AMRO has also delivered an updated opinion to the Board of Directors of First Financial dated as of the date of hereof (the "Opinion"). The Opinion is based upon a review of the financial and other information set forth in this Proxy Statement/Prospectus and the financial results for First Financial and MBI through May 7, 1998. THE FULL TEXT OF ABN AMRO'S OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX A TO THIS PROXY ------- STATEMENT/PROSPECTUS AND SHOULD BE READ IN ITS ENTIRETY FOR INFORMATION WITH RESPECT TO PROCEDURES FOLLOWED, ASSUMPTIONS MADE AND MATTERS CONSIDERED BY ABN AMRO IN RENDERING ITS OPINION. ABN AMRO'S OPINION WAS PREPARED FOR FIRST FINANCIAL'S BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO TO THE HOLDERS OF FIRST FINANCIAL COMMON STOCK. THE ABN AMRO OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE PROPOSED MERGER AND DOES NOT CONSTITUTE AN OPINION AS TO WHAT THE VALUE OF MBI COMMON STOCK ACTUALLY WILL BE WHEN ISSUED TO FIRST FINANCIAL SHAREHOLDERS PURSUANT TO THE MERGER. THE SUMMARY OF THE ABN AMRO OPINION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. In connection with its Opinion, ABN AMRO reviewed the Merger Agreement and certain related documents and held discussions with certain senior officers and directors of First Financial and certain senior officers of MBI concerning the businesses, operations and prospects of First Financial and MBI. ABN AMRO examined certain publicly available business and financial information relating to First Financial and MBI, as well as certain financial information and other data for First Financial and certain financial information and other data related to MBI which were provided to or otherwise discussed with ABN AMRO by the respective managements of First Financial and MBI. ABN AMRO reviewed the financial terms of the Merger as set forth in the Merger Agreement in relation to: (i) current and historical market prices and trading volumes of First Financial Common Stock and MBI Common Stock; (ii) the respective companies' financial and other operating data; and (iii) the capitalization and financial condition of First Financial and MBI. ABN AMRO also considered, to the extent publicly available, the financial terms of certain other banking-industry transactions recently effected, which ABN AMRO considered relevant in evaluating the Merger, and analyzed certain -32- 38 financial, stock market and other publicly available information relating to the businesses of other companies whose operations ABN AMRO considered relevant in evaluating those of First Financial and MBI. ABN AMRO held discussions with certain third parties to solicit indications of interest in a possible transaction with First Financial. In rendering its Opinion, ABN AMRO assumed and relied upon the accuracy and completeness of the financial and other information reviewed by it and it did not make or obtain or assume any responsibility for independent verification of such information. In addition, ABN AMRO did not make an independent evaluation or appraisal of the assets and liabilities of First Financial and MBI or any of their respective subsidiaries. The following is a summary of the financial analyses ABN AMRO employed and reviewed with First Financial's Board of Directors in connection with its Opinion: (a) STOCK TRADING HISTORIES. ABN AMRO reviewed the stock price history for First Financial Common Stock. This review showed that during the period from April 28, 1995 to April 28, 1998, the closing price of First Financial Common Stock ranged from $15.83 per share to $45.75 per share. ABN AMRO calculated the prices per share of First Financial Common Stock implied by multiplying each closing price per share of MBI Common Stock by the Exchange Ratio. Over the same time period, such implied prices per share of First Financial Common Stock ranged from approximately $21.27 to $54.12. ABN AMRO also examined the history of closing prices and trading volumes for shares of MBI Common Stock from April 28, 1997 to April 28, 1998. This examination showed that during this twelve-month period, the closing price of MBI Common Stock ranged from $38.33 per share to $61.50 per share and was $53.63 per share on April 28, 1998. This examination also showed that the average trading volume of MBI Common Stock was approximately 293,000 shares per day over the twelve-month period. (b) COMPARABLE GROUP ANALYSES. ABN AMRO compared selected historical financial and current trading-market data of First Financial and MBI to those of separate groups of comparable companies which ABN AMRO deemed to be reasonably similar to each of First Financial and MBI in size, financial and operating character and/or geographic market. Financial data were as of the most recently available financial statement date and for the twelve-month period then ended. Market price data were as of April 28, 1998. For each company in the comparable groups for First Financial and MBI, ABN AMRO calculated the multiples of each company's market price per share to: (i) latest twelve-month earnings per share ("LTM P/E"); (ii) latest twelve-month tangible core earnings per share ("LTM Core P/E"); (iii) the median estimated earnings per share for the current fiscal year ("Current-Year P/E"); and (iv) the median estimated earnings per share for the next fiscal year ("Next-Year P/E"). "Tangible core earnings" excludes intangible-asset amortization expense and non-recurring income and expense items. "Estimated earnings per share" figures are those prepared by securities analysts following each company. ABN AMRO also calculated the ratio of each company's market price per share to: (i) book value (shareholders' equity) per share ("P/BV"); and (ii) tangible book value (shareholders' equity less intangible assets) per share ("P/TBV"). -33- 39 The comparable companies for First Financial ("First Financial Comparable Group") consisted of selected publicly traded Midwestern commercial bank holding companies with total assets ranging from $350 million to $900 million. The First Financial Comparable Group included the following 17 companies: ANB Corp., Muncie, IN; Belmont Bancorp., Bridgeport, OH; Cass Commercial Corp., Bridgeton, MO; Capitol Bancorp Ltd., Lansing, MI; German American Bancorp, Jasper, IN; Lakeland Financial Corp., Warsaw, IN; Merchants Bancorp Inc., Aurora, IL; Ohio Valley Banc Corp., Gallipolis, OH; Peoples Bancorp Inc., Marietta, OH; Premier Financial Bancorp Inc., Georgetown, KY; Princeton National Bancorp, Princeton, IL; Peoples Bank of Indianapolis, Indianapolis, IN; Southside Bancshares Corp., St. Louis, MO; State Financial Services Corp., Hales Corner, WI; S.Y. Bancorp Inc., Louisville, KY; UnionBancorp Inc., Ottawa, IL; and Wayne Bancorp Inc., Wooster, OH. The analysis indicated that First Financial Common Stock traded at: (i) a 19.9x LTM P/E multiple compared to a median of 21.7x for the comparable companies; (ii) a 19.2x LTM Core P/E multiple compared to a median of 18.7x for the comparable companies; (iii) a 19.2x Current-Year P/E multiple compared to a median of 19.1x for the comparable companies; and (iv) a 17.1x Next-Year P/E multiple compared to a median of 17.2x for the comparable companies. The analysis also indicated that First Financial Common Stock traded at: (i) a 228.8% P/BV ratio compared to a median of 251.0% for the comparable companies; and (ii) a 240.5% P/TBV ratio compared to a median of 264.5% for the comparable companies. The comparable companies for MBI ("MBI Comparable Group") consisted of selected Midwestern and Southeast commercial bank holding companies with total assets ranging from $10 billion to $100 billion. The MBI Comparable Group included the following 14 companies: AmSouth Bancorp., Birmingham, AL; BB&T Corp., Winston-Salem, NC; Commerce Bancshares Inc., Kansas City, MO; Crestar Financial Corp., Richmond, VA; Comerica Inc., Detroit, MI; Fifth Third Bancorp, Cincinnati, OH; Firstar Corp., Milwaukee, WI; First Tennessee National Corp., Memphis, TN; Huntington Bancshares Inc., Columbus, OH; Marshall & Ilsley Corp., Milwaukee, WI; Norwest Corp., Minneapolis, MN; Regions Financial Corp., Birmingham, AL; Union Planters Corp., Memphis, TN; and U.S. Bancorp, Minneapolis, MN. The analysis indicated that MBI Common Stock traded at: (i) a 31.1x LTM P/E multiple compared to a median of 21.7x for the comparable companies; (ii) a 20.6x LTM Core P/E multiple compared to a median of 20.5x for the comparable companies; (iii) a 19.5x Current-Year P/E multiple compared to a median of 19.6x for the comparable companies; and (iv) a 17.4x Next-Year P/E multiple compared to a median of 17.2x for the comparable companies. The analysis also indicated that MBI Common Stock traded at: (i) a 298.6% P/BV ratio compared to a median of 339.8% for the comparable companies; and (ii) a 438.5% P/TBV ratio compared to a median of 401.8% for the comparable companies. (c) DISCOUNTED CASH FLOW ANALYSES. ABN AMRO prepared a discounted cash flow ("DCF") analysis of First Financial on a "stand-alone" basis (i.e., without giving effect to the proposed transaction). In preparing the DCF analysis, ABN AMRO studied the historical earnings and growth patterns of First Financial and then projected -34- 40 income statements and balance sheets for a five-year period using a series of assumptions pertaining to growth, interest margins, loan losses, non-interest income and expenses, income taxes and cash dividends. Prior to its completion, ABN AMRO reviewed and discussed with First Financial's management the financial projections. The DCF analysis yielded imputed values ranging from $24.56 to $39.34 per share of First Financial Common Stock under varied assumptions for growth and alternative financial strategies. (d) COMPARABLE TRANSACTIONS ANALYSIS. ABN AMRO reviewed the financial terms of (i) recently announced banking-industry merger and acquisition transactions in which the acquired company was headquartered in the Midwest and had total assets ranging from $300 million to $800 million and (ii) recently announced banking-industry merger and acquisition transactions in which MBI was the acquiring company. Financial data for each acquired company and First Financial were as of the most recent financial statement date available at the date the transaction was announced and for the twelve-month period then ended. Merger prices and related multiples and ratios were as of the respective transaction-announcement dates. The 13 comparable transactions included (the acquiror is the first name and is in italics followed by the seller): MBI, St. Louis, MO-Financial Services Corporation of the Midwest, Rock Island, IL; Union Planters Corporation, Memphis, TN-AMBANC Corp, Vincennes, IN; St. Paul Bancorp, Chicago, IL-Beverly Bancorp., Tinley Park, IL; MBI, St. Louis, MO-Firstbank of Illinois Co., Springfield, IL; MBI, St. Louis, MO-CBT Corporation, Paducah, KY; F&M Bancorporation, Kaukauna, WI-BancSecurity Corp., Marshalltown, IA; FBOP Corporation, Oak Park, IL-P.N.B. Financial, Chicago, IL; FirstMerit Corp., Akron, OH-CoBancorp, Inc., Elyria, OH; U.S. Bancorp, Minneapolis, MN-Zappco, Inc., St. Cloud, MN; Commercial Federal, Omaha, NE-Liberty Financial, West Des Moines, IA; First Midwest Bancorp, Naperville, IL-SparBank, Inc., McHenry, IL; Area Bancshares Corp, Owensboro, KY-Cardinal Bancshares, Lexington, KY; and Citizens Banking Corp, Flint, MI-CB Financial Corp, Jackson, MI. ABN AMRO calculated several merger-pricing multiples and ratios based upon the Exchange Ratio and price of MBI Common Stock, which together implied a merger price of $46.48 per share of First Financial Common Stock. With respect to the aggregate price for all of First Financial's outstanding Common Stock and options to purchase First Financial Common Stock, the proposed transaction with MBI represented: (i) a 25.0x multiple of First Financial's earnings compared to a median of 21.4x for the comparable transactions; (ii) a 24.6x multiple of First Financial's tangible earnings compared to a median of 22.3x for the comparable transactions; (iii) a 22.5x multiple of First Financial's estimated earnings for the current fiscal year compared to a median of 20.2x for the comparable transactions; (iv) 290.3% of First Financial's book value compared to a median of 238.9% for the comparable transactions; (v) 305.0% of First Financial's tangible book value compared to a median of 245.1% for the comparable transactions; (vi) 395.6% of First Financial's adjusted tangible book value compared to a median of 327.6% for the comparable transactions; and (vii) premiums of 22.3% over First Financial's previous day's market price, 25.6% over First Financial's one-month-earlier market price and 108.1% over First Financial's one-year-earlier market price, compared to medians of 10.6%, 23.0% and 53.0%, respectively, for the comparable transactions. The ratio of transaction value to "adjusted book value" adjusts both -35- 41 transaction value and book value for the "excess" capital of each acquired company relative to a 7% tangible equity-to-assets ratio. (e) PRO FORMA ANALYSIS. ABN AMRO prepared a pro forma merger analysis illustrating the estimated effects on selected historical and projected financial data of First Financial using projected financial data for First Financial derived from the DCF analyses described previously and projected financial data for MBI based upon the consensus growth rate estimates of securities analysts that follow MBI, giving effect to the Exchange Ratio and to certain estimated after-tax merger benefits. This analysis indicated that, as compared to First Financial's stand-alone historical and projected financial data, the proposed transaction with MBI: (i) would have increased First Financial's historical diluted earnings per share by 27.8% and could affect First Financial's projected diluted earnings per share in a range of 26.3% to 35.5%; (ii) would have diluted First Financial's historical book value per share by 1.5% and could increase First Financial's projected book value per share in a range of 3.5% to 7.7%; and (iii) would have increased First Financial's historical cash dividend per share by 32.9% and could increase First Financial's projected cash dividend per share in a range of 42.5% to 53.3%. (f) CONTRIBUTION ANALYSIS. ABN AMRO prepared a contribution analysis displaying selected financial data of First Financial and MBI along with the percentages these financial data for each of First Financial and MBI would represent of the combined company on a pro forma basis. Using recent historical financial data, ABN AMRO calculated that, of the combined company on a pro forma basis, First Financial would have contributed: (i) 1.80% of total assets; (ii) 1.86% of net loans receivable; (iii) 2.04% of total deposits; (iv) 2.33% of common equity; (v) 1.87% of net income to common; and (vi) 1.86% of market capitalization. Based on the Exchange Ratio, First Financial shareholders would have owned 2.39% of the pro forma number of shares of MBI Common Stock outstanding. (g) COMPARATIVE RETURN-TO-INVESTOR ANALYSIS. Using projected financial data derived from the First Financial DCF analysis and the MBI projection analysis Described previously and the certain assumptions regarding future potential merger prices for each of First Financial and MBI, ABN AMRO calculated the hypothetical investment returns First Financial shareholders could achieve over a five-year period under a number of scenarios. This analysis indicated hypothetical compound annual rates of return to First Financial shareholders of: (i) 9.4% assuming First Financial would remain indefinitely an independent company; (ii) 14.9% assuming First Financial would remain independent and then merge at the end of the five-year analysis period; (iii) 17.5% assuming First Financial would consummate the proposed transaction with MBI upon the Exchange Ratio and MBI would remain indefinitely an independent company; and (iv) 23.6% assuming First Financial would consummate the proposed transaction with MBI upon the Exchange Ratio and MBI would merge at the end of the five-year analysis period. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view -36- 42 of the process underlying ABN AMRO's Opinion. In arriving at its fairness determination, ABN AMRO considered the results of all of such analyses. No company or transaction used in the above analyses as a comparison is identical to First Financial or MBI or the Merger. The analyses were prepared solely for purposes of ABN AMRO's Opinion provided to First Financial's Board of Directors as to the fairness of the Exchange Ratio to be received by the shareholders of First Financial pursuant to the Merger and do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon projections of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by such analyses. Because such analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or ABN AMRO, none of First Financial, ABN AMRO or any other person assumes responsibility if future results are materially different from those projected. ABN AMRO, as part of its investment banking business, is continually engaged in the valuation of businesses in connection with mergers and acquisitions, as well as initial and secondary offerings of securities and valuations for other purposes. First Financial selected ABN AMRO as its financial advisor because ABN AMRO is a nationally recognized investment banking firm that has substantial experience in transactions similar to the Merger. In the ordinary course of ABN AMRO's business, ABN AMRO and its affiliates may actively trade securities of First Financial and MBI for their own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. First Financial retained ABN AMRO as its financial advisor by letter agreement dated January 9, 1998 ("Engagement Letter"). Pursuant to the terms of the Engagement Letter, upon delivery of ABN AMRO's Opinion, First Financial paid ABN AMRO an Opinion Fee (as defined in the Engagement Letter) of $100,000. Pursuant to the terms of the Engagement Letter, upon closing of the Merger, First Financial will pay ABN AMRO a cash financial advisory fee based on a percentage of transaction value, as defined in the Engagement Letter, reduced by the Opinion Fee previously paid. Based upon the closing price of MBI Common Stock of $50.0625 per share on June 15, 1998, the balance of the financial advisory fee payable by First Financial to ABN AMRO upon closing of the Merger would be approximately $1,119,593. Further, in the Engagement Letter, First Financial agreed to reimburse ABN AMRO for its reasonable out-of-pocket expenses incurred in connection with its engagement and to indemnify ABN AMRO against certain liabilities, including liabilities under securities laws. CONDITIONS OF THE MERGER The respective obligations of MBI, Ameribanc and First Financial to consummate the Merger are subject to the satisfaction of certain mutual conditions, including the following: (1) The Merger Agreement shall be approved by the requisite vote of holders of First Financial Common Stock at the Special Meeting. (2) The Merger Agreement and the transactions contemplated therein shall have been approved by the Federal Reserve Board and any other federal and/or state regulatory agency whose approval is required for the consummation of the transactions contemplated therein and all waiting periods after such approvals required by law or regulation shall have expired. -37- 43 (3) The Registration Statement, of which this Proxy Statement/Prospectus is a part, registering shares of MBI Common Stock to be issued in the Merger, shall have been declared effective and not be subject to a stop order or any threatened stop order. (4) None of First Financial, MBI or Ameribanc shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction that enjoins or prohibits the consummation of the Merger. (5) First Financial, MBI and Ameribanc each shall have received from Thompson Coburn an opinion (which opinion shall not have been withdrawn at or prior to the Effective Time) reasonably satisfactory in form and substance to it to the effect that (i) the Merger will constitute a reorganization within the meaning of Section 368 of the Code and (ii) as a result of the Merger, except with respect to cash received in lieu of fractional share interests, and assuming that the MBI Common Stock is a capital asset in the hands of the holder thereof at the effective time (A) holders of First Financial Common Stock who receive MBI Common Stock in the Merger will not recognize gain or loss for federal income tax purposes, (B) the basis of such MBI Common Stock will equal the basis of the First Financial Common Stock for which it is exchanged and (C) the holding period of such MBI Common Stock will include the holding period of the First Financial Common Stock for which it is exchanged. The obligation of MBI and Ameribanc to consummate the Merger is subject to the satisfaction, unless waived, of certain other conditions, including the following: (1) The representations and warranties of First Financial made in the Merger Agreement shall be true and correct in all material respects as of the Effective Time except (i) to the extent such representations and warranties are by their express provisions made as of a specific date or period, (ii) where the facts that caused the failure of any representation or warranty to be so true and correct have not resulted, and are not likely to result, in a material adverse effect on the condition (financial or otherwise), properties, business or results of operations (a "Material Adverse Effect") on First Financial and its subsidiary, taken as a whole and (iii) for the effect of transactions contemplated by the Merger Agreement and all obligations required to be performed by First Financial prior to the Effective Time shall have been performed in all material respects, and MBI shall have received a certificate of the Chief Executive Officer and Chief Financial Officer of First Financial to that effect. (2) First Financial shall have obtained any and all material permits, authorizations, consents, waivers and approvals required of First Financial for the lawful consummation by First Financial of the Merger. (3) MBI and Ameribanc shall have received a letter from KPMG Peat Marwick LLP, reasonably satisfactory in form and substance to MBI and Ameribanc, to the effect that the Merger will qualify for pooling-of-interests accounting treatment, which letter shall not have been withdrawn at or prior to the Effective Time. -38- 44 (4) Since May 7, 1998, there shall have been no Material Adverse Effect on First Financial and its subsidiary, taken as a whole. (5) Sidley & Austin, counsel to First Financial, shall have delivered to MBI an opinion dated as of the Closing Date or a mutually agreeable earlier date regarding certain legal matters. First Financial's obligation to consummate the Merger is subject to the satisfaction, unless waived, of certain other conditions, including the following: (1) The representations and warranties of MBI and Ameribanc made in the Merger Agreement shall be true and correct, in all material respects, as of the Effective Time except (i) to the extent such representations and warranties are by their express provisions made as of a specific date or period, (ii) where the facts that caused the failure of any representation or warranty to be so true and correct have not resulted, and are not likely to result, in a Material Adverse Effect on MBI and its subsidiaries, taken as a whole and (iii) for the effect of transactions contemplated by the Merger Agreement and all obligations required to be performed by MBI and Ameribanc prior to the Effective Time shall have been performed in all material respects, and First Financial shall have received a certificate from any Executive Vice President of MBI to that effect. (2) MBI and Ameribanc shall have obtained any and all material permits, authorizations, consents, waivers and approvals required of MBI or Ameribanc for the lawful consummation of the Merger. (3) Since May 7, 1998, there shall have been no Material Adverse Effect on MBI and its subsidiaries, taken as a whole. (4) Thompson Coburn, counsel to MBI, shall have delivered to First Financial an opinion dated as of the Closing Date or a mutually agreeable earlier date regarding certain legal matters. REPRESENTATIONS AND WARRANTIES The Merger Agreement contains extensive representations and warranties by First Financial, MBI and Ameribanc. These include, among other things, representations and warranties of First Financial as to (i) the organization and good standing of First Financial and its subsidiary, (ii) First Financial's capital structure, (iii) First Financial's authority relative to the execution and delivery of, and performance of its obligations under, the Merger Agreement, (iv) the documents, including financial statements and other reports, filed by First Financial with the applicable regulatory authorities, (v) title to and condition of assets, (vi) real property, (vii) taxes, (viii) the absence of material adverse changes since December 31, 1997, (ix) loans, commitments and contracts, (x) the absence of material conflicts between its obligations under the Merger Agreement and its charter documents and material contracts to which it is a party or by which it is bound, (xi) litigation, (xii) directors' and officers' insurance, (xiii) compliance with laws, (xiv) labor, (xv) the existence of certain material interests of certain persons, (xvi) allowance for loan and lease losses and non-performing assets, (xvii) employee benefit plans and related matters, (xviii) the conduct of First Financial and its subsidiary from and after December 31, 1997, (xix) the absence of undisclosed liabilities, (xx) the accuracy of the information supplied by First Financial for -39- 45 inclusion in this Proxy Statement/Prospectus and related documents, (xxi) the absence of registration obligations with respect to First Financial Common Stock, (xxii) the absence of actions that would jeopardize the qualification of the transactions contemplated by the Merger Agreement as a reorganization or for pooling-of-interests accounting treatment or jeopardize the receipt of certain regulatory approvals, (xxiii) obligations to brokers and finders, (xxiv) interest rate management instruments, (xxv) the accuracy of the statements contained in the Merger Agreement and related documents and (xxvi) Year 2000 compliance for all computer software and hardware. MBI's and Ameribanc's representations and warranties include, among other things, those as to (i) MBI's and Ameribanc's respective organization and good standing, (ii) the capital structure of MBI, (iii) MBI's and Ameribanc's authority relative to the execution and delivery of, and performance of their respective obligations under, the Merger Agreement, (iv) the documents, including financial statements and other reports, filed by MBI with applicable regulatory authorities, (v) the absence of material adverse changes since December 31, 1997, (vi) the accuracy of the information supplied by MBI or Ameribanc for inclusion in this Proxy Statement/Prospectus and related documents, (vii) the absence of obligations to brokers and finders and (viii) the accuracy of the statements contained in the Merger Agreement and related documents. TERMINATION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT The Merger Agreement may be terminated at any time prior to the Closing Date, whether before or after approval by the shareholders of First Financial, (i) by mutual consent of the Executive Committee of the Board of Directors of MBI and the Board of Directors of First Financial or (ii) unilaterally by the Executive Committee of the Board of Directors of MBI or the Board of Directors of First Financial: (A) at any time after May 1, 1999, if the Merger has not been consummated by such date (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the Merger Agreement); (B) if the Federal Reserve Board or any other Regulatory Authority whose approval is required for consummation of the Merger shall have issued a final non-appealable denial of such approval; (C) if the shareholders of First Financial shall not have approved the Merger Agreement at the Special Meeting; or (D) in the event of a material volitional breach by the other party of any representation, warranty or agreement contained in the Merger Agreement, which breach is not cured within 30 days after written notice thereof is given to the party committing such breach or is not waived by such other party. In addition, the Executive Committee of the Board of Directors of MBI may terminate the Merger Agreement in certain circumstances if environmental investigations of all real property owned, leased or operated by First Financial as of May 7, 1998 indicate that the estimated cost of corrective or remedial action with regard to such properties would exceed $500,000 in the aggregate. No assurance can be given that the Merger will be consummated on or before May 1, 1999 or that MBI or First Financial will not elect to terminate the Merger Agreement if the Merger has not been consummated on or before such date. In the event of the termination of the Merger Agreement, it shall become void and there shall be no liability on the part of any party or their respective officers and directors, except that (i) confidentiality and indemnification obligations shall survive termination, (ii) MBI shall pay all printing, mailing and filing expenses with respect to the Registration Statement and this Proxy Statement/Prospectus and (iii) in the case of termination due to continued material volitional breach after notice and opportunity to cure, the breaching party shall not be relieved of liability to the non-breaching party arising from the intentional, deliberate or willful breach of any representation, warranty, covenant or agreement contained in the Merger Agreement. -40- 46 Any provision of the Merger Agreement, including, without limitation, the conditions to the consummation of the Merger and the restrictions described under "- Business Pending the Merger," may be (i) waived in writing at any time by the party that is or whose shareholders are entitled to the benefits thereof or (ii) amended at any time by written agreement of the parties approved by or on behalf of their respective Boards of Directors or Executive Committees, whether before or after the Special Meeting; provided, however, that after approval of the Merger Agreement by the shareholders of First Financial at the Special Meeting, no such modification may (i) alter or change the amount or kind of consideration to be received by the First Financial shareholders pursuant to the Merger or (ii) adversely affect the tax treatment to First Financial shareholders as a result of receiving the shares of MBI Common Stock in the Merger. INDEMNIFICATION First Financial, MBI and Ameribanc have agreed to indemnify each other and the officers, directors and controlling persons of each other against any losses, claims, damages or liabilities to which any such party may become subject under federal or state laws or regulations, to the extent that such loss, claim, damage or liability is based primarily upon information furnished to the party subject to such liability by the other party, or out of an omission by such other party to state a necessary or material fact in the Registration Statement of which this Proxy Statement/Prospectus is a part. CLOSING DATE The Merger will be consummated and become effective upon the later of (i) the issuance of a Certificate of Merger by the Office of the Secretary of State of the State of Missouri and (ii) the filing of Articles of Merger with the Office of the Secretary of State of the State of Iowa. Under the Merger Agreement, unless otherwise agreed to by the parties, the Closing Date shall occur on such date as MBI shall notify First Financial in writing (such notice to be at least five business days in advance of the Effective Time) but: (i) not earlier than the Approval Date, which shall occur upon (a) the receipt of the requisite approval of the Merger Agreement by the shareholders of First Financial and (b) the approval of the Merger by the Federal Reserve Board and any other Regulatory Authority whose approval is required and the satisfaction of all waiting periods for such approvals; and (ii) not later than the first business day of the first full calendar month beginning at least five business days after the Approval Date. SURRENDER OF FIRST FINANCIAL STOCK CERTIFICATES AND RECEIPT OF MBI COMMON STOCK At the Effective Time, each outstanding share of First Financial Common Stock (other than any shares held by shareholders exercising dissenters' rights pursuant to the IBCA) will be converted into the right to receive 0.88 of a share of MBI Common Stock. See "- General Description of the Merger." Each holder of First Financial Common Stock, upon submission to the Exchange Agent of a properly executed letter of transmittal and surrender to the Exchange Agent of the stock certificate(s) formerly representing shares of First Financial Common Stock, will be entitled to receive a stock certificate(s) evidencing the shares of MBI Common Stock to which such shareholder is entitled. As soon as practicable following the Effective Time, the Exchange Agent will mail to each First Financial shareholder of record as of the Effective Time notification of the effectiveness of the Merger. The Exchange Agent also will provide a letter of transmittal and instructions as to the procedure -41- 47 for the surrender of the stock certificates evidencing the First Financial Common Stock and the receipt of shares of MBI Common Stock. It will be the responsibility of each holder of First Financial shares to submit all certificates formerly evidencing such holder's shares of First Financial Common Stock to the Exchange Agent. No dividends or other distributions will be paid to a former First Financial shareholder with respect to shares of MBI Common Stock until such shareholder's properly completed letter of transmittal and stock certificates formerly representing First Financial Common Stock, or, in lieu thereof, such evidence of a lost, stolen or destroyed certificate and/or such insurance bond as the Exchange Agent may reasonably require, are delivered to the Exchange Agent. All dividends or other distributions on the MBI Common Stock declared between the Closing Date and the date of the surrender of a First Financial stock certificate will be held for the benefit of the shareholder and will be paid to the shareholder, without interest thereon, upon the surrender of such stock certificate(s) or documentation and/or insurance bond in lieu thereof. FRACTIONAL SHARES No fractional shares of MBI Common Stock will be issued to the former shareholders of First Financial in connection with the Merger. Each holder of First Financial Common Stock who otherwise would have been entitled to receive a fraction of a share of MBI Common Stock shall receive in lieu thereof cash, without interest, in an amount equal to the holder's fractional share interest multiplied by the closing stock price of MBI Common Stock on the NYSE Composite Tape on the Closing Date as reported in The Wall Street Journal. Cash received by First Financial shareholders in lieu of fractional shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." REGULATORY APPROVAL In addition to the approval of the Merger Agreement by the First Financial shareholders, the obligations of the parties to effect the Merger are subject to prior approval of the Federal Reserve Board. As a bank holding company, MBI is subject to regulation under the BHCA. MBI will file all required applications seeking approval of the Merger with the Regulatory Authorities. Under the BHCA, the Federal Reserve Board can withhold approval of the Merger if, among other things, it determines that the effect of the Merger would be to substantially lessen competition in the relevant market. In addition, the Federal Reserve Board is required to consider whether the combined organization meets the requirements of the Community Reinvestment Act of 1977, as amended, by assessing the involved entities' respective records of meeting the credit needs of the local communities in which they are chartered, consistent with the safe and sound operation of such institutions. In its review, the Federal Reserve Board also is required to examine the financial and managerial resources and future prospects of the combined organization and analyze the capital structure and soundness of the resulting entity. The Federal Reserve Board has the authority to deny an application if it concludes that the combined organization would have inadequate capital. The Merger cannot be consummated prior to receipt of all required approvals. There can be no assurance that required regulatory approvals for the Merger will be obtained and, if the Merger is approved, as to the date of such approvals or whether the approvals will contain any unacceptable conditions. There can likewise be no assurance that the United States Department of Justice will not -42- 48 challenge the Merger during the waiting period set aside for such challenges after receipt of approval from the Federal Reserve Board. See "SUPERVISION AND REGULATION." MBI and First Financial are not aware of any governmental approvals or actions that may be required for consummation of the Merger other than as described above. Should any other approval or action be required, it is presently contemplated that such approval or action would be sought. There can be no assurance that any necessary regulatory approvals or actions will be timely received or taken, that no action will be brought challenging such approval or action or, if such a challenge is brought, as to the result thereof, or that any such approval or action will not be conditioned in a manner that would cause the parties to abandon the Merger. See "SUPERVISION AND REGULATION." BUSINESS PENDING THE MERGER The Merger Agreement provides that, during the period from May 7, 1998 to the Effective Time, First Financial and its subsidiary will conduct their respective businesses according to the ordinary and usual course consistent with past practices and use their best efforts to maintain and preserve their respective business organizations, employees and advantageous business relationships and retain the services of their officers and key employees. Furthermore, from May 7, 1998 to the Effective Time, except as provided in the Merger Agreement, First Financial will not, and will not permit its subsidiary to, without the prior written consent of MBI and Ameribanc: (1) declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock (other than dividends from the First Financial subsidiary to First Financial), except that First Financial may declare and pay regular quarterly cash dividends of not more than $0.2725 per share; provided, however, that First Financial may not declare or pay a quarterly dividend for any quarter in which First Financial shareholders will be entitled to receive a regular quarterly dividend on the shares of MBI Common Stock to be issued in the Merger; (2) enter into or amend any employment, severance or similar agreement or arrangement with any director, officer or employee, or materially modify any of the First Financial employee plans or grant any salary or wage increase or materially increase any employee benefit (including incentive or bonus payments), except normal individual increases in compensation to employees consistent with past practice, or as required by law or contract, and except for such increases of which First Financial notifies MBI and Ameribanc in writing and which MBI and Ameribanc do not disapprove within ten days of the receipt of such notice; (3) authorize, recommend, propose or announce an intention to authorize, recommend or propose, or enter into an agreement in principle with respect to, any merger, consolidation or business combination (other than the Merger), any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any release or relinquishment of any material contract rights; (4) propose or adopt any amendments to its Articles of Incorporation or other charter document or by-laws; -43- 49 (5) issue, sell, grant, confer or award any capital stock, options, warrants, conversion rights or other rights, except First Financial may issue shares of First Financial Common Stock upon exercise of First Financial Stock Options outstanding on May 7, 1998 and pursuant to the Option, or effect any stock split or adjust, combine, reclassify or otherwise change its capitalization as it existed on May 7, 1998; (6) purchase, redeem, retire, repurchase or exchange, or otherwise acquire or dispose of, directly or indirectly, any capital stock, options, warrants, conversion rights or other rights, whether pursuant to the terms of such capital stock, options, warrants, conversion rights or other rights or otherwise; (7) (i) without first consulting with and obtaining the written consent of MBI, cause or permit FNBI to enter into, renew or increase any loan or credit commitment (including stand-by letters of credit) to, or invest or agree to invest in any person or entity or modify any of the material provisions or renew or otherwise extend the maturity date of any existing loan or credit commitment (collectively, "Lend to") in an amount in excess of $1,000,000 or in any amount which, when aggregated with any and all loans or credit commitments of First Financial and its subsidiary to such person or entity, would be equal to or in excess of $1,000,000; provided, however, that First Financial or its subsidiary may make any such loan or credit commitment in the event (A) First Financial or its subsidiary has delivered to MBI and Ameribanc or their designated representative a notice of its intention to make such loan and such information as MBI and Ameribanc or their designated representative may reasonably require in respect thereof and (B) MBI and Ameribanc or their designated representative shall not have reasonably objected to such loan by giving written or facsimile notice of such objection within two (2) business days following the delivery to MBI and Ameribanc or their designated representative of the notice of intention and information as aforesaid; provided further, however, that nothing shall prohibit First Financial or its subsidiary from honoring any contractual obligation in existence on the date of the Merger Agreement. Notwithstanding the above, First Financial shall be authorized, without first consulting with MBI and Ameribanc or obtaining MBI's and Ameribanc's prior written consent, to increase the aggregate amount of any credit facilities theretofore established in favor of any person or entity (each a "Pre-Existing Facility"), provided that the aggregate amount of any and all such increases shall not be in excess of the lesser of ten percent (10%) of such Pre-Existing Facilities or $50,000; (8) directly or indirectly, including through its officers, directors, employees or other representatives: (i) initiate, solicit or encourage any discussions, inquiries or proposals with any third party (other than MBI or Ameribanc) relating to the disposition of any significant portion of the business or assets of First Financial or its subsidiary or the acquisition of the capital stock (or rights or options exercisable for, or securities convertible or exchangeable into, capital stock) of First Financial or its subsidiary or the merger of First Financial or its subsidiary with any person (other than MBI or Ameribanc) or any similar transaction (each such transaction being referred to herein as an "Acquisition Transaction"); or -44- 50 (ii) provide any third party with information or assistance or negotiate with any third party with respect to an Acquisition Transaction, and First Financial shall promptly notify MBI and Ameribanc orally of all the relevant details relating to all inquiries, indications of interest and proposals which it or its subsidiary may receive with respect to any Acquisition Transaction; (9) take any action that would (i) prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368 of the Code, (ii) materially impede or delay the consummation of the transactions contemplated by the Merger Agreement or the ability of MBI and Ameribanc or First Financial to obtain any approval of any Regulatory Authority required for the transactions contemplated by the Merger Agreement or to perform its covenants and agreements under the Merger Agreement or (iii) prevent the Merger from qualifying for pooling-of-interests accounting treatment; (10) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity; (11) materially restructure or change its investment securities portfolio, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported, or execute individual investment transactions for its own account of greater than $1,000,000 for U.S. Treasury or Federal Agency Securities and $250,000 for all other investment instruments; (12) agree in writing or otherwise to take any of the foregoing actions or engage in any activity, enter into any transaction or knowingly take or omit to take any other action which would make any of First Financial's representations and warranties in the Merger Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other act; or (13) enter into, increase or renew any loan or credit commitment (including standby letters of credit) to any executive officer or director of First Financial or any subsidiary of First Financial, any holder of 10% or more of the outstanding shares of First Financial Common Stock, or any entity controlled, directly or indirectly, by any of the foregoing or engage in any transaction with any of the foregoing which is of the type or nature sought to be regulated in 12 U.S.C. Section 371c and 12 U.S.C. Section 371c-1, without first obtaining the prior written consent of MBI and Ameribanc, which consent shall not be unreasonably withheld. The Merger Agreement also provides that during the period from May 7, 1998 to the Effective Time, MBI and Ameribanc shall not, and shall not permit any of their subsidiaries to, without the prior written consent of First Financial, agree in writing or otherwise take any action that is prohibited of First Financial by subsections (9) and (12) above. -45- 51 ACCOUNTING TREATMENT The Merger is intended to be accounted for under the pooling-of-interests method of accounting. It is a condition to MBI's and Ameribanc's consummation of the Merger, unless otherwise waived, that KPMG Peat Marwick LLP, MBI's independent accountants, deliver to MBI and Ameribanc a letter stating that the Merger will qualify for pooling-of-interests accounting treatment. -46- 52 CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER ----------------------------------------------------- The following discussion is based upon an opinion of Thompson Coburn, counsel to MBI ("Counsel"), and except as otherwise indicated, reflects Counsel's opinion. The discussion is a general summary of the material United States federal income tax ("federal income tax") consequences of the Merger to certain First Financial shareholders and does not purport to be a complete analysis or listing of all potential tax considerations or consequences relevant to a decision whether to vote for the approval of the Merger. The discussion does not address all aspects of federal income taxation that may be applicable to First Financial shareholders in light of their status or personal investment circumstances, nor does it address the federal income tax consequences of the Merger that are applicable to First Financial shareholders subject to special federal income tax treatment, including (without limitation) foreign persons, insurance companies, tax-exempt entities, retirement plans, dealers in securities, persons who acquired their First Financial Common Stock pursuant to the exercise of employee stock options or otherwise as compensation and persons who hold their First Financial Common Stock as part of a "straddle," "hedge" or "conversion transaction." Each shareholder's individual circumstances may affect the tax consequences of the Merger to such shareholder. In addition, the discussion does not address the effect of any applicable state, local or foreign tax laws, or the effect of any federal tax laws other than those pertaining to the federal income tax. AS A RESULT, EACH FIRST FINANCIAL SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. The discussion assumes that shares of First Financial Common Stock are held as capital assets (within the meaning of Section 1221 of the Code) at the Effective Time. First Financial has received an opinion from Counsel to the effect that, assuming the Merger occurs in accordance with the Merger Agreement, the Merger will constitute a "reorganization" for federal income tax purposes with the following federal income tax consequences: (1) First Financial shareholders will recognize no gain or loss as a result of the exchange of their First Financial Common Stock solely for shares of MBI Common Stock pursuant to the Merger, except with respect to cash received in lieu of fractional shares, if any, as discussed below. (2) The aggregate adjusted tax basis of the shares of MBI Common Stock received by each First Financial shareholder in the Merger (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 4 below) will be equal to the aggregate adjusted tax basis of the shares of First Financial Common Stock surrendered. (3) The holding period of the shares of MBI Common Stock received by each First Financial shareholder in the Merger (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 4 below) will include the holding period of the shares of First Financial Common Stock exchanged therefor. (4) A First Financial shareholder who receives cash in the Merger in lieu of a fractional share of MBI Common Stock will be treated as if the fractional share had been received by such shareholder in the Merger and then redeemed by MBI in return for the cash. The receipt of such cash will cause the recipient to recognize capital gain or loss equal to the difference between the amount of cash received and the portion of such holder's adjusted tax basis in the shares of MBI Common Stock allocable to the fractional share. -47- 53 Counsel's opinion is subject to the conditions and assumptions stated therein and relies upon various representations made by MBI and First Financial. If any of these representations or assumptions is inaccurate, the tax consequences of the Merger could differ from those described herein. Counsel's opinion also is based upon the Code, regulations proposed or promulgated thereunder, judicial precedent relating thereto and current administrative rulings and practice, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences discussed herein. The opinion is available without charge upon written request to Jon W. Bilstrom, General Counsel and Secretary, Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524. The receipt of Counsel's opinion again as of the Closing Date is a condition to the consummation of the Merger. An opinion of counsel, unlike a private letter ruling from the Internal Revenue Service (the "Service"), has no binding effect on the Service. The Service could take a position contrary to Counsel's opinion and, if the matter were litigated, a court may reach a decision contrary to the opinion. Neither MBI nor First Financial has requested an advance ruling as to the federal income tax consequences of the Merger, and the Service is not expected to issue such a ruling. THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO CERTAIN FIRST FINANCIAL SHAREHOLDERS AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH FIRST FINANCIAL SHAREHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH FIRST FINANCIAL SHAREHOLDER. ACCORDINGLY, EACH FIRST FINANCIAL SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS. DISSENTERS' RIGHTS OF SHAREHOLDERS OF FIRST FINANCIAL ----------------------------------------------------- Each shareholder of First Financial has the right to demand to be paid the fair value of his or her shares of First Financial Common Stock in cash upon consummation of the Merger if the shareholder follows the dissenters' rights procedures set forth in Division XIII of the IBCA. "Fair value" is defined in the IBCA as the value of the subject shares immediately prior to the consummation of the Merger, excluding any appreciation or depreciation in anticipation of the Merger unless such an exclusion would be inequitable. Under the IBCA, a shareholder of First Financial may dissent from the Merger and obtain the fair value of the shares owned by such shareholder with such fair value to be paid in cash if the Merger is consummated. Any shareholder of First Financial who wishes to assert his or her dissenters' rights must do each of the following: (i) deliver to First Financial before the vote on the Merger Agreement is taken a written notice of such shareholder's intent to demand payment for his or her shares if the Merger is effected and (ii) not vote such shares in favor of the approval of the Merger Agreement at the Special Meeting. A VOTE AGAINST THE APPROVAL OF THE MERGER AGREEMENT WILL NOT, BY ITSELF, BE REGARDED AS A WRITTEN NOTICE OF A SHAREHOLDER'S INTENT TO ASSERT DISSENTERS' RIGHTS. -48- 54 If the Merger Agreement is approved at the Special Meeting, First Financial shall deliver a written notice to each person who asserted dissenters' rights as described above. The notice must be sent by First Financial no later than 10 days after the Special Meeting and must contain the following information: (i) a statement as to where a demand for payment must be sent by the dissenting shareholder and where and when the certificates evidencing shares of First Financial Common Stock owned by such shareholders must be deposited, (ii) a form with which dissenting shareholders may make their demands for payment, which form will include the date of the first public announcement of the proposed Merger and a requirement that all dissenting shareholders certify as to whether or not he or she had acquired beneficial ownership of the shares subject to the dissenters' rights demand prior to the date of the first public announcement of the proposed Merger, (iii) a statement as to the date by which First Financial must receive the demand for payment from the dissenting shareholder, such date to be not fewer than 30 nor more than 60 days after the date of First Financial's notice to dissenting shareholders and (iv) a copy of Division XIII of the IBCA. A dissenting shareholder must demand payment for his or her shares, certify as to whether the acquisition date of such shares was prior to or after the public announcement of the proposed Merger and deposit the certificates evidencing such shares prior to the date set in the notice sent by First Financial to the dissenting shareholders. A shareholder who does not demand payment or deposit certificates for such shares by the date or in the manner set forth in the notice to dissenting shareholders sent by First Financial will be deemed to have waived his or her dissenters' rights and will not be entitled to payment of the fair value of his or her shares under Division XIII of the IBCA. First Financial (or Ameribanc, as the surviving corporation in the Merger) must make a cash payment to each dissenting shareholder who files a demand for payment as described above equal to First Financial's (or Ameribanc's) estimate of the fair value of the shares of First Financial Common Stock owned by such shareholders, plus accrued interest on such payment from the Closing Date. Such payment must be made upon the later of: (i) the time the Merger is consummated or (ii) the receipt of the demand for payment from the dissenting shareholder. If the Merger is not consummated within 60 days of the date set by First Financial for receipt of the dissenting shareholders' demands for payment and deposits of stock certificates, First Financial must return the deposited certificates and send a new notice to dissenting shareholders when the Merger is actually consummated. The payment must be accompanied by the following: (i) First Financial's balance sheet as of the end of its most recently completed fiscal year, an income statement and a statement of changes in shareholders' equity as of the most recently completed fiscal year and interim financial statements of First Financial as of and for the most recent date or period available, (ii) a statement of First Financial's (or Ameribanc's) estimate of fair value of the First Financial shares, (iii) an explanation as to how the interest payment was computed, (iv) a statement of the dissenting shareholder's right to demand a greater payment than First Financial's estimate as described below and (v) a copy of Division XIII of the IBCA. First Financial may elect to withhold payment from those dissenting shareholders who do not certify in their demand for payment that they owned the shares subject to the dissenters' rights demand prior to the public announcement of the proposed Merger. To the extent that First Financial elects to withhold payment from such dissenting shareholders, First Financial shall estimate the fair value of the shares owned by such holders and accrued interest thereon and offer to pay the same to each such dissenting shareholder who agrees to accept it in full satisfaction of his or her demand. The offer to such shareholders must be accompanied by: (i) a statement of First Financial's estimate of fair value, (ii) an explanation as to how the interest payment was computed and (iii) a statement of the dissenting shareholder's right to demand a greater payment than First Financial's estimate as described below. -49- 55 After receipt of First Financial's (or Ameribanc's) estimate of fair value in either of the above cases, the dissenting shareholder may deliver notice to First Financial (or Ameribanc) of his or her own estimate of fair value for the shares and the amount of interest due and demand payment of the difference in amount, if any, previously paid by First Financial (or Ameribanc) to such shareholder and the amount of the shareholder's estimate. In order to make such a demand: (i) the dissenting shareholder must believe that the amount paid or offered by First Financial (or Ameribanc) is less than the fair value of the shares or the interest is incorrectly calculated; or (ii) First Financial (or Ameribanc) has not made payment for the shares within 60 days after the date set by First Financial (or Ameribanc) as the last day that First Financial (or Ameribanc) set for accepting demands for payment; or (iii) the Merger has not been consummated within the 60-day period after the last date that First Financial (or Ameribanc) set for accepting demands for payment and First Financial has not returned the stock certificates deposited by the dissenting shareholder. A dissenting shareholder will waive his or her right to seek a greater payment than First Financial's estimate of fair value and accrued interest unless such shareholder notifies First Financial (or Ameribanc) in writing of the same within 30 days of the receipt of First Financial's (or Ameribanc's) payment or offer of payment for the shares. If, within 60 days of receiving the dissenting shareholder's notice of a demand for increased payment, the demand remains unsettled, First Financial (or Ameribanc) must commence proceedings in the district court of Johnson County, Iowa petitioning the court to determine the fair value and accrued interest of such shares. If First Financial (or Ameribanc) fail to start such proceedings within the 60-day period, First Financial (or Ameribanc) must pay each dissenting shareholder whose demand remains unsettled the amount that such shareholder has demanded. All dissenting shareholders with claims remaining unsettled will be made parties to the proceedings and the court may appoint one or more appraisers to receive evidence and recommend the fair value of the shares. The court will find either (i) that the fair value and accrued interest already paid by First Financial (or Ameribanc) equals or exceeds the amount determined by the court, in which case the shareholder will be entitled to no additional payment from First Financial (or Ameribanc) or (ii) First Financial (or Ameribanc) must pay an additional amount equal to the difference between the court's determination of fair value and accrued interest and the amount already paid by First Financial (or Ameribanc) to the shareholder. The court shall also determine all costs of the proceedings, including the reasonable compensation and expenses of the appraisers and shall assess such costs to First Financial (or Ameribanc) unless the court finds that such an assessment would be inequitable because the dissenting shareholders had acted arbitrarily, vexatiously or not in good faith. Fees of legal counsel will generally be borne by each of the parties except that the attorneys' fees of the dissenting shareholders will be assessed to First Financial (or Ameribanc) to the extent that the court finds it did not substantially comply with the procedures set forth in Division XIII of the IBCA or to either party in favor of the other party to the extent that the court finds that the assessed party acted arbitrarily, vexatiously or not in good faith. To the extent that counsel for one dissenting shareholder is found by the court to have provided a substantial benefit to other dissenting shareholders, the court may order that the fees of such counsel be paid out of the amounts awarded to the dissenting shareholders who have been benefited. THE PRECEDING DISCUSSION IS A SUMMARY OF THE PROVISIONS REGARDING DISSENTERS' RIGHTS UNDER THE IBCA AND IS QUALIFIED IN ITS ENTIRETY BY THE TEXT OF DIVISION XIII OF THE IBCA WHICH IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX B. FIRST FINANCIAL SHAREHOLDERS WHO ARE ------- INTERESTED IN ASSERTING DISSENTERS' RIGHTS -50- 56 PURSUANT TO THE IBCA IN CONNECTION WITH THE MERGER MAY WISH TO CONSULT WITH THEIR COUNSEL FOR ADVICE AS TO THE PROCEDURES REQUIRED TO BE FOLLOWED. PRO FORMA FINANCIAL INFORMATION ------------------------------- COMPARATIVE UNAUDITED PER SHARE DATA The following table sets forth for the periods indicated selected historical per share data of MBI and First Financial and the corresponding pro forma and pro forma equivalent per share amounts giving effect to the proposed Merger, as well as the pending acquisitions by MBI of FSCM, CBT and Firstbank, each of which will be accounted for under the pooling-of-interests method of accounting, and the acquisition of Roosevelt, which was consummated on July 1, 1997 and accounted for under the purchase method of accounting. The data presented is based upon the consolidated financial statements and related notes of MBI and First Financial included in documents incorporated herein by reference and the pro forma combined consolidated balance sheet and income statements, including the notes thereto, appearing elsewhere herein. This information should be read in conjunction with such historical and pro forma financial statements and related notes thereto. The assumptions used in the preparation of this table appear in the notes to the pro forma financial information appearing elsewhere in this Proxy Statement/Prospectus. This data is not necessarily indicative of the results of the future operations of the combined organization or the actual results that would have occurred if the proposed Merger or the pending acquisitions by MBI of FSCM, CBT, Firstbank and Roosevelt had been consummated prior to the periods indicated. -51- 57
MBI/ MBI/ MBI/ MBI/ FIRST FIRST FINANCIAL FIRST FINANCIAL ALL ENTITIES ALL ENTITIES MBI FINANCIAL PRO FORMA PRO FORMA PRO FORMA PRO FORMA REPORTED REPORTED COMBINED EQUIVALENT COMBINED EQUIVALENT -------- -------- ------------ -------------- ------------ -------------- Book Value per Share: March 31, 1998 $ 18.65 $ 16.96 $ 18.54 $ 16.32 $ 18.58 $ 16.35 December 31, 1997 18.47 16.50 18.33 16.13 17.58 15.47 Cash Dividends Declared per Share: Three Months ended March 31, 1998 $ .31 $ .19 $ .31 $ .27 $ .310 $ .27 Year ended December 31, 1997 1.148 .65 1.148 1.01 1.148 1.01 Year ended December 31, 1996 1.092 .55 1.092 .96 1.092 .96 Year ended December 31, 1995 .88 .51 .88 .77 .880 .77 Basic Earnings per Share: Three Months ended March 31, 1998 $ .78 $ .49 $ .78 $ .69 $ .76 $ .67 Year ended December 31, 1997 1.68 1.91 1.69 1.49 1.49 1.31 Year ended December 31, 1996 2.11 1.68 2.11 1.86 2.13 1.87 Year ended December 31, 1995 2.41 1.28 2.39 2.10 2.37 2.09 Diluted Earnings per Share: Three Months Ended March 31, 1998 $ .77 $ .49 $ .77 $ .68 $ .75 $ .66 Year ended December 31, 1997 1.65 1.67 1.66 1.46 1.45 1.28 Year ended December 31, 1996 2.08 1.27 2.08 1.83 2.09 1.84 Year ended December 31, 1995 2.37 .51 2.35 2.07 2.31 2.03 Market Price per Share: At May 7, 1998 $52.8125 $38.000 $52.8125 $46.475 $52.8125 $46.475 At June 15, 1998 50.0625 43.375 50.0625 44.055 50.0625 44.055 - --------------- Includes the effect of pro forma adjustments for First Financial, as appropriate. See "PRO FORMA FINANCIAL INFORMATION--Notes to Pro Forma Combined Consolidated Financial Statements." Based on the pro forma combined per share amounts multiplied by 0.88, the Exchange Ratio applicable to one share of First Financial Common Stock in the Merger. Further explanation of the assumptions used in the preparation of the pro forma combined consolidated financial statements is included in the notes to pro forma combined consolidated financial statements. See "PRO FORMA FINANCIAL INFORMATION--Notes to Pro Forma Combined Consolidated Financial Statements." Includes the effect of pro forma adjustments for First Financial, CBT, Firstbank, FSCM and Roosevelt, as appropriate. Due to the immateriality of the financial condition and results of operations of Horizon and HomeCorp to that of MBI, this table does not include the effect of pro forma adjustments for Horizon and HomeCorp. See "PRO FORMA FINANCIAL INFORMATION--Notes to Pro Forma Combined Consolidated Financial Statements." Based upon the following number of shares outstanding as of March 31, 1998: Shares of MBI Common Stock as reported 133,115,257 Number of Shares of MBI Common Stock, net of treasury shares, to be issued in the mergers of: FSCM 1,877,324 CBT 4,961,910 First Financial 2,875,360 Firstbank 12,511,135 ----------- MBI/All Entities Pro Forma Combined 155,340,956 =========== The market value of MBI Common Stock disclosed as of May 7, 1998, the last trading day preceding the public announcement of the Merger, and as of June 15, 1998, the last practicable date prior to the filing of the Registration Statement, is based on the last sale price as reported on the NYSE Composite Tape. The market value of First Financial Common Stock disclosed as of May 7, 1998, the last trading day preceding the public announcement of the Merger, and as of June 15, 1998, the last practicable date prior to the filing of the Registration Statement, is based on over-the-counter "bulletin board" closing prices.
-52- 58 PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) RECENT ACQUISITIONS. MBI has completed or announced a number of acquisitions during the years covered by the pro forma financial statements that follow. Set forth below is a table that summarizes such completed and pending acquisitions, including the name of the acquired entity, the date of consummation of the acquisition, the assets and deposits of the acquired entities at the date of consummation for the completed acquisitions, the consideration paid in cash and/or shares of MBI Common Stock and the accounting method utilized. ACQUISITIONS COMPLETED BY MBI (1995-PRESENT)
CONSIDERATION ---------------------- GROSS NUMBER ACCOUNTING NAME DATE ASSETS DEPOSITS CASH OF SHARES METHOD - ---- ---- ------ ------- ---- --------- ------ (DOLLARS IN THOUSANDS) HomeCorp, Inc. Mar. 2 1998 $ 335,137 $ 309,157 $ 14 854,760 Pooling Horizon Bancorp, Inc.. Feb. 2, 1998 536,507 454,230 2 2,549,970 Pooling Roosevelt Financial Group, Inc. July 1, 1997 7,251,985 5,317,514 374,477 18,948,884 Purchase Mark Twain Bancshares, Inc. Apr. 25, 1997 3,227,972 2,519,474 73 24,088,713 Pooling Regional Bancshares, Inc. Mar. 5, 1997 171,979 135,954 12,300 900,625 Purchase TODAY'S Bancorp, Inc. Nov. 7, 1996 501,418 432,104 34,912 1,690,587 Purchase First Financial Corporation of America Nov. 1, 1996 87,649 76,791 3,253 388,113 Purchase Peoples State Bank Aug. 22, 1996 95,657 75,149 - 488,756 Purchase Metro Savings Bank, F.S.B. Mar. 7, 1996 80,857 73,843 5 296,853 Purchase Security Bank of Conway, F.S.B. Feb. 9, 1996 102,502 89,697 1 482,946 Purchase Hawkeye Bancorporation Jan. 2, 1996 1,978,540 1,739,811 80 11,838,294 Pooling First Sterling Bancorp, Inc. Jan. 2, 1996 167,610 147,588 1 782,126 Pooling Southwest Bancshares, Inc. Aug. 1, 1995 187,701 155,628 1 1,012,463 Pooling AmeriFirst Bancorporation, Inc. Aug. 1, 1995 155,521 130,179 1 992,034 Pooling Plains Spirit Financial Corporation July 7, 1995 400,754 276,887 6,697 1,951,770 Purchase TCBankshares, Inc. May 1, 1995 1,422,798 1,217,740 - 7,124,999 Pooling Central Mortgage Bancshares, Inc. May 1, 1995 654,584 571,105 8 3,806,585 Pooling UNSL Financial Corp. Jan. 3, 1995 508,346 380,716 11 2,367,161 Pooling Wedge Bank Jan. 3, 1995 195,716 152,865 1 1,454,931 Pooling PENDING ACQUISITIONS BY MBI Financial Services Corporation of the Midwest 3rd Qtr. 1998 $ 518,046 $ 408,995 - 2,077,000 Pooling CBT Corporation. 3rd Qtr. 1998 1,030,998 714,686 - 5,398,785 Pooling Firstbank of Illinois Co. 3rd Qtr. 1998 2,283,670 2,000,539 - 13,786,135 Pooling First Financial Bancorporation 3rd Qtr. 1998 568,442 480,461 - 3,194,844 Pooling - ---------------------- The historical financial statements of MBI were not restated for the acquisition due to the immateriality of the acquiree's financial condition and results of operations to those of MBI. In addition to MBI Common Stock issued, MBI assumed, through an exchange, the outstanding, non-convertible preferred stock of TCBankshares, Inc. Such preferred stock was redeemed in the first quarter of 1996. Estimated number of shares to be issued in acquisition.
-53- 59 PRO FORMA FINANCIAL STATEMENTS. The following unaudited pro forma combined consolidated balance sheet gives effect to the Merger as if it were consummated on March 31, 1998. The pro forma combined consolidated income statements for the three months ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995 set forth the results of operations of MBI combined with the results of operations of First Financial, CBT, FSCM and Firstbank as if the respective mergers had occurred as of the first day of the period presented. Such income statements also give effect to the divestiture by MBI of Duchesne Bank and Colonial Bank, each a wholly owned subsidiary of Firstbank, which divestitures are required due to deposit limitations imposed by Missouri statutes. Due to the immateriality of the results of operations of Horizon and HomeCorp to that of MBI, individually and in the aggregate, the unaudited pro forma combined consolidated financial statements contained herein do not reflect the completed acquisitions of Horizon and HomeCorp for any period prior to the acquisition date of such entities. MBI acquired Roosevelt on July 1, 1997, which acquisition was accounted for under the purchase method of accounting. Accordingly, the historical results of operations of MBI include the results of operations of Roosevelt from July 1, 1997 forward. Consistent with the Commission's rules regarding the treatment of acquisitions accounted for as purchases in pro forma presentations, the pro forma combined consolidated income statements for the three months ended March 31, 1998 and March 31, 1997 and the year ended December 31, 1997 include the results of operations of Roosevelt but the pro forma combined consolidated income statements for the years ended December 31, 1996 and 1995 do not. The unaudited pro forma combined consolidated financial statements should be read in conjunction with the accompanying Notes to the Pro Forma Combined Consolidated Financial Statements and with the historical financial statements of MBI and First Financial. These pro forma combined consolidated financial statements may not be indicative of the results of operations that actually would have occurred if the completed and proposed acquisitions had been consummated on the dates assumed above or of the results of operations that may be achieved in the future. -54- 60 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET MARCH 31, 1998 (THOUSANDS) (UNAUDITED)
MBI/FIRST FINANCIAL FIRST PRO FORMA FIRST FINANCIAL COMBINED CBT/ MBI FINANCIAL ADJUSTMENTS CONSOLIDATED FSCM ------- --------- ----------- ------------ ---- ASSETS Cash and due from banks $ 1,193,064 $ 23,575 $(16,873) $ 1,192,366 $ 63,013 (7,400) Due from banks - interest bearing 269,342 0 269,342 11,759 Federal funds sold and repurchase agreements 258,295 39,300 297,595 30,130 Investments in debt and equity securities Trading 125,634 0 125,634 0 Available-for-sale 8,027,916 119,254 8,147,170 275,694 Held-to-maturity 224,125 0 224,125 92,803 ----------- -------- -------- ----------- ---------- Total 8,377,675 119,254 8,496,929 368,497 Loans and leases 19,625,022 357,598 19,982,620 1,038,269 Reserve for possible loan losses (263,511) (4,499) (1,500) (269,510) (16,729) ----------- -------- -------- ----------- ---------- Net Loans and Leases 19,361,511 353,099 (1,500) 19,713,110 1,021,540 Intangible assets 792,626 2,695 795,321 5,677 Other assets 1,549,209 30,519 60,267 1,579,728 48,428 (60,267) ----------- -------- -------- ----------- ---------- Total Assets $31,801,722 $568,442 $(25,773) $32,344,391 $1,549,044 =========== ======== ======== =========== ========== LIABILITIES Deposits Non-interest bearing $ 3,487,875 $ 60,913 $ 3,548,788 $ 123,211 Interest bearing 18,576,440 419,548 18,995,988 1,000,470 Foreign 463,426 0 463,426 0 ----------- -------- -------- ----------- ---------- Total Deposits 22,527,741 480,461 0 23,008,202 1,123,681 Short-term borrowings 3,596,915 14,417 3,611,332 192,499 Bank notes 25,000 0 25,000 0 Long-term debt 2,193,061 7,958 2,201,019 58,964 Company-obligated mandatorily redeemable preferred securities of Mercantile Capital Trust I 150,000 0 150,000 0 Other liabilities 825,839 5,339 (3,204) 827,974 17,488 ----------- -------- -------- ----------- ---------- Total Liabilities 29,318,556 508,175 (3,204) 29,823,527 1,392,632 COLONIAL CBT/ BANK AND ALL ENTITIES FSCM/ DUCHESNE PRO FORMA FIRSTBANK BANK COMBINED FIRSTBANK ADJUSTMENTS DIVESTITURES CONSOLIDATED --------- ----------- ------------ ------------ ASSETS Cash and due from banks $ 96,021 $ (57,025) $ 45,916 $ 1,329,234 (11,057) Due from banks - interest bearing 1,782 (197) 282,686 Federal funds sold and repurchase agreements 19,250 (11,875) 335,100 Investments in debt and equity securities Trading 46 0 125,680 Available-for-sale 627,548 (69,551) 8,980,861 Held-to-maturity 24,404 (4,051) 337,281 ---------- --------- --------- ----------- Total 651,998 0 (73,602) 9,443,822 Loans and leases 1,425,133 (221,552) 22,224,470 Reserve for possible loan losses (20,285) (12,100) 3,094 (315,530) ---------- --------- --------- ----------- Net Loans and Leases 1,404,848 (12,100) (218,458) 21,908,940 Intangible assets 24,270 0 825,268 Other assets 85,501 122,031 (8,883) 1,704,774 (122,031) 34,381 (34,381) 238,489 (238,489) ---------- --------- --------- ----------- Total Assets $2,283,670 $ (80,182) $(267,099) $35,829,824 ========== ========= ========= =========== LIABILITIES Deposits Non-interest bearing $ 288,895 $ (54,857) $ 3,906,037 Interest bearing 1,711,644 (247,581) 21,460,521 Foreign 0 0 463,426 ---------- --------- --------- ----------- Total Deposits 2,000,539 0 (302,438) 25,829,984 Short-term borrowings 18,604 (1,119) 3,821,316 Bank notes 0 0 25,000 Long-term debt 0 0 2,259,983 Company-obligated mandatorily redeemable preferred securities of Mercantile Capital Trust I 0 0 150,000 Other liabilities 26,038 (24,885) 11,458 858,073 ---------- --------- --------- ----------- Total Liabilities 2,045,181 (24,885) (292,099) 32,944,356
-55- 61 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET MARCH 31, 1998 (CONTINUED) (THOUSANDS) (UNAUDITED)
MBI/FIRST FINANCIAL FIRST PRO FORMA FIRST FINANCIAL COMBINED CBT/ MBI FINANCIAL ADJUSTMENTS CONSOLIDATED FSCM ------- --------- ----------- ------------ ---- SHAREHOLDERS' EQUITY Preferred stock 0 0 0 5,000 Common stock 1,351 4,442 29 1,380 4,270 (4,442) Capital surplus 986,393 3,635 (8,825) 977,568 18,668 (3,635) Retained earnings 1,592,681 52,190 52,190 1,639,175 131,125 (52,190) (5,696) Treasury stock (97,259) 0 16,873 (97,259) (2,651) (16,873) ----------- -------- -------- ----------- ---------- Total Shareholders' Equity 2,483,166 60,267 (22,569) 2,520,864 156,412 ----------- -------- -------- ----------- ---------- Total Liabilities and Shareholders' Equity $31,801,722 $568,442 $(25,773) $32,344,391 $1,549,044 =========== ======== ======== =========== ========== COLONIAL CBT/ BANK AND ALL ENTITIES FSCM/ DUCHESNE PRO FORMA FIRSTBANK BANK COMBINED FIRSTBANK ADJUSTMENTS DIVESTITURES CONSOLIDATED --------- ----------- ------------ ------------ SHAREHOLDERS' EQUITY Preferred stock (5,000) Common stock 15,941 50 1,574 (4,100) 19 (170) 125 (15,941) Capital surplus 42,976 (2,925) 25,000 988,088 (16,070) (5,959) (2,598) (5,596) (42,976) Retained earnings 179,572 (44,240) 1,905,632 101,861 (101,861) 29,264 (29,264) 179,572 (179,572) Treasury stock 0 (11,057) (9,826) 11,057 2,651 23,045 64,388 ---------- --------- --------- ----------- Total Shareholders' Equity 238,489 (55,297) 25,000 2,885,468 ---------- --------- --------- ----------- Total Liabilities and Shareholders' Equity $2,283,670 $ (80,182) $(267,099) $35,829,824 ========== ========= ========= =========== See Notes to Pro Forma Combined Consolidated Financial Statements.
-56- 62 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE THREE MONTHS ENDED MARCH 31, 1998 (THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
MBI/FIRST FINANCIAL FIRST PRO FORMA FIRST FINANCIAL COMBINED MBI FINANCIAL ADJUSTMENTS CONSOLIDATED ------- --------- ----------- ------------ Interest Income $530,331 $9,367 $(211) $539,487 Interest Expense 290,026 4,907 294,933 -------- ------ ----- -------- Net Interest Income 240,305 4,460 (211) 244,554 Provision for Possible Loan Losses 6,606 100 6,706 -------- ------ ----- -------- Net Interest Income after Provision for Possible Loan Losses 233,699 4,360 (211) 237,848 Other Income Trust 25,886 938 26,824 Service charges 25,576 511 26,087 Credit card fees 3,284 0 3,284 Securities gains 4,263 154 4,417 Other 68,184 998 69,182 -------- ------ ----- -------- Total Other Income 127,193 2,601 0 129,794 Other Expense Salaries and employee benefits 111,575 2,164 113,739 Net occupancy and equipment 33,655 723 34,378 Other 51,634 1,604 53,238 -------- ------ ----- -------- Total Other Expense 196,864 4,491 0 201,355 -------- ------ ----- -------- Income Before Income Taxes 164,028 2,470 (211) 166,287 Income Taxes 60,136 736 (76) 60,796 -------- ------ ----- -------- Net Income $103,892 $1,734 $(135) $105,491 ======== ====== ===== ======== Per Share Data : Basic Earnings per Share $ 0.78 $ 0.78 Diluted Earnings per Share 0.77 0.77 MBI/ALL ENTITIES FIRSTBANK/ PRO FORMA CBT/ CBT/FSCM COMBINED FSCM FIRSTBANK ADJUSTMENTS CONSOLIDATED ---- --------- ----------- ------------ Interest Income $31,962 $41,598 $ (288) $611,817 (138) (804) Interest Expense 15,727 19,527 330,187 ------- ------- ------- -------- Net Interest Income 16,235 22,071 (1,230) 281,630 Provision for Possible Loan Losses 1,919 762 9,387 ------- ------- ------- -------- Net Interest Income after Provision for Possible Loan Losses 14,316 21,309 (1,230) 272,243 Other Income Trust 459 1,513 28,796 Service charges 1,552 1,945 29,584 Credit card fees 0 0 3,284 Securities gains 166 71 4,654 Other 1,998 3,249 74,429 ------- ------- ------- -------- Total Other Income 4,175 6,778 0 140,747 Other Expense Salaries and employee benefits 5,915 9,133 128,787 Net occupancy and equipment 1,107 2,606 38,091 Other 4,152 4,187 61,577 ------- ------- ------- -------- Total Other Expense 11,174 15,926 228,455 ------- ------- ------- -------- Income Before Income Taxes 7,317 12,161 (1,230) 184,535 Income Taxes 2,574 4,395 (104) 67,321 (50) (290) ------- ------- ------- -------- Net Income $ 4,743 $ 7,766 $ (786) $117,214 ======= ======= ======= ======== Per Share Data : Basic Earnings per Share $ 0.76 Diluted Earnings per Share 0.75 See Notes to Pro Forma Combined Consolidated Financial Statements.
-57- 63 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE THREE MONTHS ENDED MARCH 31, 1997 (THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
MBI/FIRST FINANCIAL FIRST PRO FORMA FIRST FINANCIAL COMBINED CBT/ MBI FINANCIAL ADJUSTMENTS CONSOLIDATED FSCM ------- --------- ----------- ------------ ---- Interest Income $398,462 $8,363 $(211) $406,614 $28,803 Interest Expense 186,501 4,122 0 190,623 14,148 -------- ------ ----- -------- ------- Net Interest Income 211,961 4,241 (211) 215,991 14,655 Provision for Possible Loan Losses 18,443 177 0 18,620 1,560 -------- ------ ----- -------- ------- Net Interest Income after Provision for Possible Loan Losses 193,518 4,064 (211) 197,371 13,095 Other Income Trust 22,801 832 23,633 398 Service charges 22,798 445 23,243 1,495 Credit card fees 5,399 0 5,399 0 Net gain from financial instruments 0 0 0 0 Securities gains (losses) 1,049 44 1,093 0 Other 36,053 528 36,581 1,520 -------- ------ ----- -------- ------- Total Other Income 88,100 1,849 0 89,949 3,413 Other Expense Salaries and employee benefits 97,722 1,801 99,523 5,436 Net occupancy and equipment 26,528 655 27,183 1,366 Other 41,345 1,246 42,591 3,210 -------- ------ ----- -------- ------- Total Other Expense 165,595 3,702 0 169,297 10,012 -------- ------ ----- -------- ------- Income Before Income Taxes 116,023 2,211 (211) 118,023 6,496 Income Taxes 41,028 664 (76) 41,616 2,040 -------- ------ ----- -------- ------- Net Income $ 74,995 $1,547 $(135) $ 76,407 $ 4,456 ======== ====== ===== ======== ======= Per Share Data : Basic Earnings per Share $ .65 $ .65 Diluted Earnings per Share .64 .64 ROOSEVELT FOR ROOSEVELT/ MBI/ALL ENTITIES THE THREE FIRSTBANK/ PRO FORMA MONTHS ENDED CBT/FSCM COMBINED FIRSTBANK MARCH 31, 1997 ADJUSTMENTS CONSOLIDATED --------- -------------- ---------------- ------------ Interest Income $36,611 $140,012 $ (288) $610,810 (138) (804) Interest Expense 16,317 90,590 858 321,380 8,844 ------- -------- -------- -------- Net Interest Income 20,294 49,422 (10,932) 289,430 Provision for Possible Loan Losses 717 640 21,537 ------- -------- -------- -------- Net Interest Income after Provision for Possible Loan Losses 19,577 48,782 (10,932) 267,893 Other Income Trust 1,156 0 25,187 Service charges 1,611 5,979 32,328 Credit card fees 0 0 5,399 Net gain from financial instruments 0 392 392 Securities gains (losses) (4) 0 1,089 Other 2,676 5,981 46,758 ------- -------- -------- -------- Total Other Income 5,439 12,352 0 111,153 Other Expense Salaries and employee benefits 7,973 11,160 124,092 Net occupancy and equipment 2,439 4,811 35,799 Other 3,478 9,467 10,135 68,881 ------- -------- -------- -------- Total Other Expense 13,890 25,438 10,135 228,772 ------- -------- -------- -------- Income Before Income Taxes 11,126 35,696 (21,067) 150,274 Income Taxes 3,941 13,605 (104) 57,266 (50) (290) (3,492) ------- -------- -------- -------- Net Income $ 7,185 $ 22,091 $(17,131) $ 93,008 ======= ======== ======== ======== Per Share Data : Basic Earnings per Share $ .60 Diluted Earnings per Share .59 See Notes to Pro Forma Combined Consolidated Financial Statements
-58- 64 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1997 (THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
MBI/FIRST FINANCIAL FIRST PRO FORMA FIRST FINANCIAL COMBINED CBT/ MBI FINANCIAL ADJUSTMENTS CONSOLIDATED FSCM ------- --------- ----------- ------------ ---- Interest Income $1,878,194 $36,708 $(844) $1,914,058 $121,890 Interest Expense 957,690 18,730 0 976,420 60,619 ---------- ------- ----- ---------- -------- Net Interest Income 920,504 17,978 (844) 937,638 61,271 Provision for Possible Loan Losses 79,309 588 0 79,897 7,470 ---------- ------- ----- ---------- -------- Net Interest Income after Provision for Possible Loan Losses 841,195 17,390 (844) 857,741 53,801 Other Income Trust 96,055 3,289 99,344 2,799 Service charges 98,733 2,058 100,791 6,281 Credit card fees 20,480 0 20,480 0 Net loss from financial instruments 0 0 0 0 Securities gains 6,985 395 7,380 157 Other 156,431 2,643 159,074 4,941 ---------- ------- ----- ---------- -------- Total Other Income 378,684 8,385 0 387,069 14,178 Other Expense Salaries and employee benefits 414,882 7,758 422,640 22,090 Net occupancy and equipment 118,758 2,755 121,513 5,864 Loss on the sale of credit card loans 50,000 0 50,000 0 Other 311,140 5,670 316,810 13,977 ---------- ------- ----- ---------- -------- Total Other Expense 894,780 16,183 0 910,963 41,931 ---------- ------- ----- ---------- -------- Income Before Income Taxes 325,099 9,592 (844) 333,847 26,048 Income Taxes 120,506 2,909 (304) 123,111 7,859 ---------- ------- ----- ---------- -------- Net Income $ 204,593 $ 6,683 $(540) $ 210,736 $ 18,189 ========== ======= ===== ========== ======== Per Share Data : Basic Earnings per Share $ 1.68 $ 1.69 Diluted Earnings per Share 1.65 1.66 ROOSEVELT ROOSEVELT/ MBI/ALL ENTITIES FOR THE SIX FIRSTBANK/ PRO FORMA MONTHS ENDED CBT/FSCM COMBINED FIRSTBANK JUNE 30, 1997 ADJUSTMENTS CONSOLIDATED --------- ------------- ---------------- ------------ Interest Income $157,373 $272,169 $ (1,152) $2,460,566 (553) (3,219) Interest Expense 71,472 178,306 858 1,303,397 15,722 -------- -------- -------- ---------- Net Interest Income 85,901 93,863 (21,504) 1,157,169 Provision for Possible Loan Losses 2,958 3,474 93,799 -------- -------- -------- ---------- Net Interest Income after Provision for Possible Loan Losses 82,943 90,389 (21,504) 1,063,370 Other Income Trust 5,010 0 107,153 Service charges 7,441 13,018 127,531 Credit card fees 0 0 20,480 Net loss from financial instruments 0 (35,630) (35,630) Securities gains 636 0 8,173 Other 11,531 10,038 185,584 -------- -------- -------- ---------- Total Other Income 24,618 (12,574) 413,291 Other Expense Salaries and employee benefits 35,009 23,717 503,456 Net occupancy and equipment 10,082 9,291 146,750 Loss on the sale of credit card loans 0 0 50,000 Other 16,030 36,555 20,269 403,641 -------- -------- -------- ---------- Total Other Expense 61,121 69,563 20,269 1,103,847 -------- -------- -------- ---------- Income Before Income Taxes 46,440 8,252 (41,773) 372,814 Income Taxes 16,796 7,630 (415) 147,654 (199) (1,159) (5,969) -------- -------- -------- ---------- Net Income $ 29,644 $ 622 $(34,031) $ 225,160 ======== ======== ======== ========== Per Share Data : Basic Earnings per Share $ 1.49 Diluted Earnings per Share 1.45 See Notes to Pro Forma Combined Consolidated Financial Statements
-59- 65 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996 (THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
MBI/FIRST FINANCIAL FIRST PRO FORMA FIRST FINANCIAL COMBINED MBI FINANCIAL ADJUSTMENTS CONSOLIDATED ------- --------- ----------- ------------ Interest Income $1,552,863 $33,268 $(844) $1,585,287 Interest Expense 724,910 16,449 0 741,359 ---------- ------- ----- ---------- Net Interest Income 827,953 16,819 (844) 843,928 Provision for Possible Loan Losses 73,015 591 0 73,606 ---------- ------- ----- ---------- Net Interest Income after Provision for Possible Loan Losses 754,938 16,228 (844) 770,322 Other Income Trust 86,616 2,998 89,614 Service charges 88,916 1,825 90,741 Credit card fees 27,962 0 27,962 Securities gains (losses) (83) (160) (243) Other 134,069 2,361 136,430 ---------- ------- ----- ---------- Total Other Income 337,480 7,024 0 344,504 Other Expense Salaries and employee benefits 365,729 6,696 372,425 Net occupancy and equipment 103,715 2,624 106,339 Other 249,224 5,482 254,706 ---------- ------- ----- ---------- Total Other Expense 718,668 14,802 0 733,470 ---------- ------- ----- ---------- Income Before Income Taxes 373,750 8,450 (844) 381,356 Income Taxes 128,535 2,534 (304) 130,765 ---------- ------- ----- ---------- Net Income $ 245,215 $ 5,916 $(540) $ 250,591 ========== ======= ===== ========== Per Share Data : Basic Earnings per Share $ 2.11 $ 2.11 Diluted Earnings per Share 2.08 2.08 MBI/ALL ENTITIES FIRSTBANK/ PRO FORMA CBT/ CBT/FSCM COMBINED FSCM FIRSTBANK ADJUSTMENTS CONSOLIDATED ---- --------- ----------- ------------ Interest Income $111,242 $140,611 $(1,152) $1,832,216 (553) (3,219) Interest Expense 53,454 61,005 855,818 -------- -------- ------- ---------- Net Interest Income 57,788 79,606 (4,924) 976,398 Provision for Possible Loan Losses 5,408 2,868 81,882 -------- -------- ------- ---------- Net Interest Income after Provision for Possible Loan Losses 52,380 76,738 (4,924) 894,516 Other Income Trust 2,544 4,292 96,450 Service charges 5,870 6,651 103,262 Credit card fees 0 0 27,962 Securities gains (losses) 35 340 132 Other 3,896 10,515 150,841 -------- -------- ------- ---------- Total Other Income 12,345 21,798 0 378,647 Other Expense Salaries and employee benefits 21,876 31,919 426,220 Net occupancy and equipment 5,443 9,259 121,041 Other 15,094 13,959 283,759 -------- -------- ------- ---------- Total Other Expense 42,413 55,137 0 831,020 -------- -------- ------- ---------- Income Before Income Taxes 22,312 43,399 (4,924) 442,143 Income Taxes 6,845 15,526 (415) 151,363 (199) (1,159) -------- -------- ------- ---------- Net Income $ 15,467 $ 27,873 $(3,151) $ 290,780 ======== ======== ======= ========== Per Share Data : Basic Earnings per Share $ 2.13 Diluted Earnings per Share 2.09 See Notes to Pro Forma Combined Consolidated Financial Statements.
-60- 66 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995 (THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
MBI/FIRST FINANCIAL FIRST PRO FORMA FIRST FINANCIAL COMBINED MBI FINANCIAL ADJUSTMENTS CONSOLIDATED ------- --------- ----------- ------------ Interest Income $1,516,156 $31,742 $(844) $1,547,054 Interest Expense 715,466 15,811 0 731,277 ---------- ------- ----- ---------- Net Interest Income 800,690 15,931 (844) 815,777 Provision for Possible Loan Losses 41,533 366 0 41,899 ---------- ------- ----- ---------- Net Interest Income after Provision for Possible Loan Losses 759,157 15,565 (844) 773,878 Other Income Trust 77,115 2,763 79,878 Service charges 82,459 1,470 83,929 Credit card fees 20,366 0 20,366 Securities gains 4,338 0 4,338 Other 127,371 2,003 129,374 ---------- ------- ----- ---------- Total Other Income 311,649 6,236 0 317,885 Other Expense Salaries and employee benefits 346,156 7,677 353,833 Net occupancy and equipment 95,896 2,726 98,622 Other 198,467 5,077 203,544 ---------- ------- ----- ---------- Total Other Expense 640,519 15,480 0 655,999 ---------- ------- ----- ---------- Income Before Income Taxes 430,287 6,321 (844) 435,764 Income Taxes 149,898 1,751 (304) 151,345 ---------- ------- ----- ---------- Net Income $ 280,389 $ 4,570 $(540) $ 284,419 ========== ======= ===== ========== Per Share Data : Basic Earnings per Share $ 2.41 $ 2.39 Diluted Earnings per Share 2.37 2.35 MBI/ALL ENTITIES FIRSTBANK/ PRO FORMA CBT/ CBT/FSCM COMBINED FSCM FIRSTBANK ADJUSTMENTS CONSOLIDATED ---- --------- ----------- ------------ Interest Income $104,420 $134,401 $(1,152) $1,780,951 (553) (3,219) Interest Expense 50,217 57,486 838,980 -------- -------- ------- ---------- Net Interest Income 54,203 76,915 (4,924) 941,971 Provision for Possible Loan Losses 2,736 2,313 46,948 -------- -------- ------- ---------- Net Interest Income after Provision for Possible Loan Losses 51,467 74,602 (4,924) 895,023 Other Income Trust 1,803 5,986 87,667 Service charges 5,971 5,836 95,736 Credit card fees 0 0 20,366 Securities gains 279 28 4,645 Other 3,361 8,318 141,053 -------- -------- ------- ---------- Total Other Income 11,414 20,168 0 349,467 Other Expense Salaries and employee benefits 21,526 30,882 406,241 Net occupancy and equipment 4,712 9,215 112,549 Other 14,664 14,824 233,032 -------- -------- ------- ---------- Total Other Expense 40,902 54,921 0 751,822 -------- -------- ------- ---------- Income Before Income Taxes 21,979 39,849 (4,924) 492,668 Income Taxes 6,460 14,107 (415) 170,139 (199) (1,159) -------- -------- ------- ---------- Net Income $ 15,519 $ 25,742 $(3,151) $ 322,529 ======== ======== ======= ========== Per Share Data : Basic Earnings per Share $ 2.37 Diluted Earnings per Share 2.31 See Notes to Pro Forma Combined Consolidated Financial Statements.
-61- 67 MERCANTILE BANCORPORATION INC. NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Represents MBI restated historical consolidated financial statements reflecting the acquisition of Mark Twain Bancshares, Inc. effective April 25, 1997, which was accounted for as a pooling-of-interests. The recently completed acquisitions of Horizon and HomeCorp also were accounted for as poolings-of-interests; however, due to the immateriality of the financial condition and results of operations of Horizon and HomeCorp to that of MBI, the historical financial statements of MBI were not restated. Regional Bancshares, Inc. was accounted for as a purchase and is included in these pro forma financial statements only from its acquisition date forward. The full impact of this acquisition is immaterial to the Pro Forma Combined Consolidated Financial Statements. MBI completed its acquisition of Roosevelt on July 1, 1997. The acquisition of Roosevelt was accounted for as a purchase; as such, historical financial statements were not restated. The estimated full impact of the Roosevelt acquisition is included in the pro forma combined consolidated income statement for the year ended December 31, 1997 and the three months ended March 31, 1997. All per share data reflects the 3-for-2 stock split declared by MBI on July 16, 1997 that was distributed on October 1, 1997. (2) In conjunction with the proposed acquisition of First Financial, MBI plans to repurchase up to 319,484 shares of MBI Common Stock in the open market. The assumed repurchase price per share is $52.8125, the closing price of MBI Common Stock on May 7, 1998, the last trading date preceding the announcement of the Merger Agreement. (3) Acquisition of First Financial with 3,194,844 shares of issued MBI Common Stock, including up to 319,484 reissued treasury shares, based on the exchange ratio of 0.88 of a share of MBI Common Stock per share of First Financial Common Stock. The number of shares of MBI Common Stock, which represents the aggregate number of shares to be issued in the Merger, was calculated as follows: Shares of First Financial Common Stock outstanding 3,553,717 Maximum number of shares of First Financial Common Stock which could be issued pursuant to First Financial's stock option plans 76,788 --------- Maximum number of shares of First Financial Common Stock to be canceled in the Merger 3,630,505 Exchange Ratio x 0.88 --------- Aggregate number of shares of MBI Common Stock to be issued in the Merger 3,194,844 =========
(4) Elimination of MBI's investment in First Financial. (5) Balance sheet impact of adjustments related to the mergers with FSCM, CBT, First Financial and Firstbank (see footnote 27). These adjustments will be initially recorded as a credit to accrued -62- 68 liabilities and the reserve for possible loan losses. Because the credit to accrued liabilities will be paid out in cash within an estimated 18-month period following the mergers, the Pro Forma Combined Consolidated Financial Statements reflect the cash outlay. An income tax benefit at an effective tax rate of 36% is included in these adjustments. (6) Acquisition of CBT with 5,398,785 shares of issued MBI Common Stock, including up to 436,875 reissued treasury shares, based on the exchange ratio of 0.6513 of a share of MBI Common Stock per share of CBT Common Stock. The number of shares of MBI Common Stock, which represents the aggregate number of shares to be issued in the merger, was calculated as follows: Shares of CBT Common Stock 7,863,792 Maximum number of shares of CBT Common Stock which could be issued pursuant to CBT's stock option plans 425,453 --------- Maximum number of shares of CBT Common Stock to be canceled in the merger 8,289,245 Exchange Ratio x 0.6513 --------- Aggregate number of shares of MBI Common Stock to be issued in the merger 5,398,785 =========
(7) Elimination of MBI's investment in CBT. (8) In conjunction with the proposed acquisition of FSCM, MBI plans to repurchase up to 199,676 shares of MBI Common Stock in the open market. The assumed repurchase price per share is $55.375, the closing price of MBI Common Stock on April 9, 1998, the last trading date preceding the announcement of the merger agreement between MBI and FSCM. (9) Acquisition of FSCM with 2,077,000 shares of issued MBI Common Stock, including up to 199,676 reissued treasury shares, based on the exchange ratio of 6.8573 of a share of MBI Common Stock per share of FSCM Common Stock. The number of shares of MBI Common Stock, which represents the aggregate number of shares to be issued in the merger, was calculated as follows: Shares of FSCM Common Stock outstanding 260,424 Maximum number of shares of FSCM Common Stock which could be issued: Pursuant to FSCM's stock option plans 800 Conversion of FSCM preferred stock 41,666 --------- Maximum number of shares of FSCM Common Stock to be canceled in the Merger 302,890 Exchange Ratio x 6.8573 --------- Aggregate number of shares of MBI Common Stock to be issued in the merger 2,077,000 =========
(10) Elimination of MBI's investment in FSCM. (11) Acquisition of Firstbank with 13,786,135 shares of issued MBI Common Stock, including up to 1,275,000 reissued treasury shares, based on the exchange ratio of 0.8308 of a share of MBI -63- 69 Common Stock per share of Firstbank Common Stock. The number of shares of MBI Common Stock, which represents the aggregate number of shares to be issued in the merger, was calculated as follows: Shares of Firstbank Common Stock 15,941,350 Maximum number of shares of Firstbank Common Stock which could be issued pursuant to Firstbank's stock option plans 652,457 Maximum number of shares of Firstbank Common Stock to be canceled in the merger 16,593,807 Exchange Ratio x 0.8308 ---------- Aggregate number of shares of MBI Common Stock to be issued in the merger 13,786,135 ==========
(12) Elimination of MBI's investment in Firstbank. (13) Interest income foregone as a result of MBI repurchasing 319,484 treasury shares in conjunction with the acquisition of First Financial by MBI. The assumed interest rate is 5%. (14) Income tax benefit associated with interest income foregone as the result of repurchasing shares in conjunction of First Financial by MBI. The assumed effective tax rate is 36%. (15) Interest income foregone as a result of MBI repurchasing 436,875 treasury shares in conjunction with the acquisition of CBT by MBI. The assumed interest rate is 5%. (16) Income tax benefit associated with interest income foregone as the result of repurchasing shares in conjunction with the acquisition of CBT by MBI. These shares were repurchased by MBI in March 1998. The assumed effective tax is 36%. (17) Interest income foregone as a result of MBI repurchasing 199,676 treasury shares in conjunction with the acquisition of FSCM by MBI. The assumed interest rate is 5%. (18) Income tax benefit associated with interest income foregone as the result of repurchasing shares in conjunction with the acquisition of FSCM by MBI. The assumed effective tax rate is 36%. (19) Interest income foregone as a result of MBI repurchasing 1,275,000 treasury shares in conjunction with the acquisition of Firstbank by MBI. These shares were repurchased by MBI in March 1998. The assumed interest rate is 5%. (20) Income tax benefit associated with interest income foregone as the result of repurchasing shares in conjunction with the acquisition of Firstbank by MBI. The assumed effective tax rate is 36%. (21) The acquisition of Roosevelt was accounted for as a purchase transaction. Included herein is the amortization of goodwill over a 15-year period (see footnote 27 below) and interest expense related to the issuance of subordinated debt securities and notes as described in footnotes 25 and 26 below. The impact of interest income lost on the cash consideration and stock buybacks is immaterial to the Pro Forma Combined Consolidated Financial Statements. The income tax -64- 70 benefit associated with taxable income statement adjustments is computed at an effective tax rate of 36%. (22) On January 29, 1997, MBI issued $150,000,000 of subordinated debt securities, that were issued at a floating rate equal to the three-month LIBOR plus 85 basis points. The rate assumed in calculating the expense from January 1 through January 29, 1997 for the Pro Forma Combined Consolidated Financial Statements is 6.86%. (23) On June 11, 1997, MBI issued $200,000,000 of 7.3% subordinated notes due 2007, $150,000,000 of 6.8% senior notes due 2001 and $150,000,000 of 7.05% senior notes due 2004. This is the pro forma impact of interest expense on such notes. (24) The pro forma excess of cost over fair value of net assets acquired was $608,076,000 for Roosevelt as of December 31, 1997. Given a 15-year amortization period, the pro forma income statement reflects one-quarter and one-half the annual amount of goodwill amortization for the three months ended March 31, 1997 and the year ended December 31, 1997, respectively. (25) Income tax benefit associated with interest expense on debt issues (see footnotes 25 and 26 above). The assumed effective tax rate is 36%. (26) Upon consummation of the mergers with FSCM and First Financial, MBI expects to record certain adjustments related to the mergers with an approximate pre-tax total of between $18,000,000 and $22,000,000. Upon consummation of the acquisition of Firstbank, MBI expects to record certain adjustments related to the merger with an approximate pre-tax total between $25,000,000 and $40,000,000. Upon consummation of the merger with CBT, MBI expects to record certain adjustments related to the merger with an approximate pre-tax total between $15,000,000 and $25,000,000. The provision for possible loan losses in the following table is to substantially conform the accounting and credit policies of the acquirees to those of MBI. The pre-tax adjustments for FSCM, First Financial, Firstbank and CBT are estimated as follows:
First Financial FSCM Firstbank CBT --------- ---- --------- ------- (in thousands) Contract penalties, equipment abandonment costs and transition and duplicative costs related to system standardization and signage $3,600 $3,500 $14,250 $ 9,700 Provision for possible loan losses 1,500 2,000 5,000 5,100 Accruals for severance and change of control payments 1,900 2,900 10,600 3,500 Investment banking, legal and accounting fees 1,900 725 8,600 3,250 ------ ------ ------- ------- Total $8,900 $9,125 $38,450 $21,550 ====== ====== ======= =======
-65- 71 (27) Earnings per share was based upon the average shares listed below:
FOR THE THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31, --------------------------- ---------------------------------------- 1998 1997 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- MBI average shares as reported 132,778,433 114,862,128 121,933,113 115,938,311 115,754,877 MBI equivalent shares for the following acquisitions, net of treasury share repurchases: FSCM 1,586,129 1,012,304 1,032,759 1,008,923 1,001,113 CBT 4,684,324 4,661,176 4,684,198 4,690,928 4,726,732 First Financial 2,788,709 2,762,804 2,757,554 2,785,853 2,825,383 Firstbank 11,888,331 11,555,805 11,685,124 11,584,583 11,604,514 Shares of MBI Common Stock issued in the Roosevelt acquisition 18,948,884 18,948,884 Less effect of MBI shares issued in the Roosevelt acquisition during the second half of 1997 (9,474,442) ----------- ----------- ----------- ----------- ----------- Average shares outstanding for basic earnings per share 153,725,926 153,803,101 151,567,190 136,008,598 135,912,619 Effect of MBI dilutive stock options and convertible notes 2,471,850 1,969,592 2,405,301 1,851,462 2,304,336 MBI equivalent average shares of dilutive stock options for: FSCM 286,457 1,011,513 911,952 1,044,600 1,109,141 CBT 95,365 170,558 40,918 33,418 34,236 First Financial 25,626 16,877 26,499 16,254 14,349 Firstbank 261,926 219,577 246,677 185,452 178,084 ----------- ----------- ----------- ----------- ----------- Average shares outstanding for dilutive earnings per share 156,867,150 157,191,218 155,198,537 139,139,784 139,552,765 =========== =========== =========== =========== ===========
-66- 72 INFORMATION REGARDING MBI STOCK ------------------------------- DESCRIPTION OF MBI COMMON STOCK AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS GENERAL. MBI has authorized 5,000,000 shares of MBI Preferred Stock, no par value, and 400,000,000 shares of MBI Common Stock, $0.01 par value. At March 31, 1998, MBI had no shares of MBI Preferred Stock issued or outstanding and 134,960,625 shares of MBI Common Stock issued and 133,115,227 outstanding. Under Missouri law, MBI's Board of Directors may generally approve the issuance of authorized shares of Preferred Stock and Common Stock without shareholder approval. MBI's Board of Directors is also authorized to fix the number of shares and determine the designation of any series of Preferred Stock and to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any series of MBI Preferred Stock. Except for the current designation and reservation of Series B Junior Participating Preferred Stock pursuant to MBI's Preferred Share Purchase Rights Plan, MBI's Board of Directors has not acted to designate or issue any shares of MBI Preferred Stock. The existence of a substantial number of unissued and unreserved shares of MBI Common Stock and undesignated shares of MBI Preferred Stock may enable the Board of Directors to issue shares to such persons and in such manner as may be deemed to have an anti-takeover effect. The following summary of the terms of MBI's capital stock does not purport to be complete and is qualified in its entirety by reference to the applicable provisions of MBI's Restated Articles of Incorporation, as amended, and by-laws and Missouri law. DIVIDENDS. The holders of MBI Common Stock are entitled to share ratably in dividends when, as and if declared by the Board of Directors from funds legally available therefor, after full cumulative dividends have been paid or declared, and funds sufficient for the payment thereof set apart, on all series of MBI Preferred Stock ranking superior as to dividends to MBI Common Stock. The Board of Directors of MBI intends to maintain its present policy of paying quarterly cash dividends on MBI Common Stock, when justified by the financial condition of MBI and its subsidiaries. The declaration and amount of future dividends will depend on circumstances existing at the time, including MBI's earnings, financial condition and capital requirements as well as regulatory limitations, note and indenture provisions and such other factors as the Board of Directors may deem relevant. The payment of dividends to MBI by subsidiary banks is subject to extensive regulation by various state and federal regulatory agencies. See "SUPERVISION AND REGULATION." VOTING RIGHTS. Each holder of MBI Common Stock has one vote for each share held on matters presented for consideration by the shareholders, except that, in the election of directors, each shareholder has cumulative voting rights that entitle each such shareholder to the number of votes that equals the number of shares held by the shareholder multiplied by the number of directors to be elected. All such votes may be cast for one candidate for election as a director or may be distributed among two or more candidates. PREEMPTIVE RIGHTS. The holders of MBI Common Stock have no preemptive right to acquire any additional unissued shares or treasury shares of MBI. -67- 73 LIQUIDATION RIGHTS. In the event of liquidation, dissolution or winding up of MBI, whether voluntary or involuntary, the holders of MBI Common Stock will be entitled to share ratably in any of its assets or funds that are available for distribution to its shareholders after the satisfaction of its liabilities (or after adequate provision is made therefor) and after preferences on any outstanding MBI Preferred Stock. ASSESSMENT AND REDEMPTION. Shares of MBI Common Stock are and will be, when issued, fully paid and nonassessable. Such shares do not have any redemption provisions. PREFERRED SHARE PURCHASE RIGHTS PLAN. One preferred share purchase right is attached to each share of MBI Common Stock. The MBI Rights trade automatically with shares of MBI Common Stock and become exercisable and will trade separately from the MBI Common Stock on the tenth day after public announcement that a person or group has acquired, or has the right to acquire, beneficial ownership of 20% or more of the outstanding shares of MBI Common Stock, or upon commencement or announcement of intent to make a tender offer for 20% or more of the outstanding shares of MBI Common Stock, in either case without prior written consent of the Board. When exercisable, each MBI Right will entitle the holder to buy 1/100 of a share of MBI Series B Junior Participating Preferred Stock at an exercise price of $212 per MBI Right. In the event a person or group acquires beneficial ownership of 20% or more of MBI Common Stock, holders of MBI Rights (other than the acquiring person or group) may purchase MBI Common Stock having a market value of twice the then current exercise price of each MBI Right. If MBI is acquired by any person or group after the Rights become exercisable, each MBI Right will entitle its holder to purchase stock of the acquiring company having a market value of twice the current exercise price of each MBI Right. The MBI Rights are designed to protect the interests of MBI and its shareholders against coercive takeover tactics. The purpose of the MBI Rights is to encourage potential acquirors to negotiate with MBI's Board of Directors prior to attempting a takeover and to give the Board leverage in negotiating on behalf of all shareholders the terms of any proposed takeover. The MBI Rights may deter certain takeover proposals. The MBI Rights, which can be redeemed by MBI's Board of Directors in certain circumstances, expire by their terms on June 3, 2008. CLASSIFICATION OF BOARD OF DIRECTORS. The Board of Directors of MBI is divided into three classes, and the directors are elected by classes to three-year terms, so that one of the three classes of the directors of MBI will be elected at each annual meeting of the shareholders. While this provision promotes stability and continuity of the Board of Directors, classification of the Board of Directors also may have the effect of decreasing the number of directors that could otherwise be elected at each annual meeting of shareholders by a person who obtains a controlling interest in the MBI Common Stock and thereby could impede a change in control of MBI. Because fewer directors will be elected at each annual meeting, such classification also will reduce the effectiveness of cumulative voting as a means of establishing or increasing minority representation on the Board of Directors. OTHER MATTERS. MBI's Restated Articles of Incorporation, as amended, and by-laws also contain provisions that: (i) require the affirmative vote of holders of at least 75% of the voting power of all of the shares of outstanding capital stock of MBI entitled to vote in the election of directors to remove a director or directors without cause; (ii) require the affirmative vote of the holders of at least 75% of the voting power of all shares of the outstanding capital stock of MBI to approve certain "business combinations" with "interested parties" unless at least two-thirds of the Board of Directors first approves such business combinations; and (iii) require an affirmative vote of at least 75% of the voting power of all shares of the outstanding capital stock of MBI for the amendment, alteration, change or repeal of any -68- 74 of the above provisions unless at least two-thirds of the Board of Directors first approves such an amendment, alteration, change or repeal. Such provisions may be deemed to have an anti-takeover effect. RESTRICTIONS ON RESALE OF MBI STOCK BY AFFILIATES Under Rule 145 of the Securities Act of 1933, as amended (the "Securities Act"), certain persons who receive MBI Common Stock pursuant to the Merger and who are deemed to be "affiliates" of First Financial will be limited in their right to resell the stock so received. The term "affiliate" is defined to include any person who, directly or indirectly, controls, or is controlled by, or is under common control with First Financial at the time the Merger is submitted to a vote of the shareholders of First Financial. Each affiliate of First Financial (generally any director or executive officer of First Financial or any shareholder of First Financial who beneficially owns a substantial number of outstanding shares of First Financial Common Stock) who desires to resell the MBI Common Stock received in the Merger must sell such stock either pursuant to an effective registration statement or in accordance with an applicable exemption, such as the applicable provisions of Rule 145(d) under the Securities Act. Rule 145(d) provides that persons deemed to be affiliates may resell their stock received in the Merger pursuant to certain of the requirements of Rule 144 under the Securities Act if such stock is sold within the first year after the receipt thereof. After one year if such person is not an affiliate of MBI and if MBI is current with respect to its required public filings, a former affiliate of First Financial may resell the stock received in the Merger without limitation. After two years from the issuance of the stock, if such person is not an affiliate of MBI at the time of sale and for at least three months prior to such sale, such person may resell such stock, without limitation, regardless of the status of MBI's required public filings. First Financial has agreed to provide MBI with a list of those persons who may be deemed to be affiliates of First Financial at the time of the Special Meeting. First Financial has agreed to use all reasonable efforts to cause each such person to deliver to MBI prior to the Effective Time a written agreement to the effect that no sale will be made of any shares of MBI Common Stock received in the Merger by an affiliate of First Financial except in accordance with the Securities Act and until such time as MBI shall first publish the financial results of at least 30 days of post-Merger combined operations of First Financial and MBI. The certificates of MBI Common Stock issued to affiliates of First Financial in the Merger may contain an appropriate restrictive legend, and appropriate stop transfer orders may be given to the transfer agent for such certificates. COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF MBI AND FIRST FINANCIAL MBI is incorporated under the laws of the State of Missouri, while First Financial is incorporated under the laws of the State of Iowa. The rights of the shareholders of MBI are governed by MBI's Restated Articles of Incorporation, as amended, and by-laws and Chapter 351 of the Missouri Revised Statutes (the "Missouri Act"). The rights of First Financial shareholders are governed by First Financial's Articles of Incorporation and by-laws, both as amended, and by the IBCA. The rights of First Financial shareholders who receive shares of MBI Common Stock in the Merger will thereafter be governed by MBI's Restated Articles of Incorporation, as amended, and by-laws and by the Missouri -69- 75 Act. The material rights of such shareholders and, where applicable, the differences between the rights of MBI shareholders and First Financial shareholders, are summarized below. PREFERRED SHARE PURCHASE RIGHTS PLAN. As described above under "- Preferred Share Purchase Rights Plan," MBI Common Stock has attached Rights, which may deter certain takeover proposals. First Financial does not have a rights plan. SUPERMAJORITY PROVISIONS. MBI's Restated Articles of Incorporation, as amended, and MBI's by-laws contain provisions requiring a supermajority vote of the shareholders of MBI to approve certain proposals. Under both MBI's Restated Articles of Incorporation, as amended, and by-laws, removal by the shareholders of the entire Board of Directors or any individual director from office without cause requires the affirmative vote of not less than 75% of the total votes entitled to be voted at a meeting of shareholders called for the election of directors. Amendment by the shareholders of MBI's Restated Articles of Incorporation, as amended, or by-laws relating to (i) the number or qualification of directors; (ii) the classification of the Board of Directors; (iii) the filling of vacancies on the Board of Directors; or (iv) the removal of directors, requires the affirmative vote of not less than 75% of the total votes of MBI's then outstanding shares of capital stock entitled to vote, voting together as a single class, unless such amendment has previously been expressly approved by at least two-thirds of the Board of Directors. The Restated Articles of Incorporation, as amended, of MBI additionally provide that, in addition to any shareholder vote required under the Missouri Act, the affirmative vote of the holders of not less than 75% of the total votes to which all of the then outstanding shares of capital stock of MBI are entitled, voting together as a single class (the "Voting Stock"), shall be required for the approval of any Business Combination. A "Business Combination" is defined generally to include sales, exchanges, leases, transfers or other dispositions of assets, mergers or consolidations, issuances of securities, liquidations or dissolutions of MBI, reclassifications of securities or recapitalizations of MBI, involving MBI on the one hand, and an Interested Shareholder or an affiliate of an Interested Shareholder on the other hand. An "Interested Shareholder" is defined generally to include any person, firm, corporation or other entity which is the beneficial owner of 5% or more of the voting power of the outstanding Voting Stock. If, however, at least two-thirds of the Board of Directors of MBI approve the Business Combination, such Business Combination shall require only the vote of shareholders as provided by Missouri law or otherwise. The amendment of the provisions of MBI's Restated Articles relating to the approval of Business Combinations requires the affirmative vote of the holders of at least 75% of the Voting Stock unless such amendment has previously been approved by at least two-thirds of the Board of Directors. To the extent that a potential acquiror's strategy depends on the passage of proposals which require a supermajority vote of MBI's shareholders, such provisions requiring a supermajority vote may have the effect of discouraging takeover attempts that do not have Board approval by making passage of such proposals more difficult. First Financial's Articles of Incorporation and by-laws, both as amended, contain provisions requiring a vote of at least two-thirds of the shareholders to approve certain proposals. Under First Financial's Articles of Incorporation, as amended, approval of a merger or consolidation with any other corporation, the sale of substantially all of the assets of First Financial or any amendment, alteration or repeal of such provisions of the Articles of Incorporation requires the prior affirmative vote of at least two-thirds of the then outstanding shares of stock of First Financial. VOTING FOR DIRECTORS. MBI's by-laws provide for cumulative voting in the election of directors. Cumulative voting entitles each shareholder to cast an aggregate number of votes equal to the -70- 76 number of voting shares held, multiplied by the number of directors to be elected. Each shareholder may cast all such votes for one nominee or distribute them among two or more nominees, thus permitting holders of less than a majority of the outstanding shares of voting stock to achieve board representation. First Financial's Articles of Incorporation do not provide for cumulative voting in the election of directors. CLASSIFIED BOARD. As described under "- Classification of Board of Directors," the Board of Directors of MBI is divided into three classes of directors, with each class being elected to a staggered three-year term. By reducing the number of directors to be elected in any given year, the existence of a classified Board diminishes the benefits of the cumulative voting rights to minority shareholders. First Financial does not have a classified Board of Directors. Each of its directors is elected annually. ANTI-TAKEOVER STATUTES. The Missouri Act contains certain provisions applicable to Missouri corporations such as MBI which may be deemed to have an anti-takeover effect. Such provisions include Missouri's business combination statute and the control share acquisition statute. The Missouri business combination statute protects domestic corporations after hostile takeovers by prohibiting certain transactions once an acquiror has gained control. The statute restricts certain "Business Combinations" between a corporation and an "Interested Shareholder" or affiliates of the Interested Shareholder for a period of five years unless certain conditions are met. A "Business Combination" includes a merger or consolidation, certain sales, leases, exchanges, pledges and similar dispositions of corporate assets or stock and certain reclassifications and recapitalizations. An "Interested Shareholder" includes any person or entity which beneficially owns or controls 20% or more of the outstanding voting shares of the corporation. During the initial five-year restricted period, no Business Combination may occur unless such Business Combination or the transaction in which an Interested Shareholder becomes "interested" (the "Acquisition Transaction") was approved by the board of directors of the corporation on or before the date of the Acquisition Transaction. Business Combinations may occur after the five-year period following the Acquisition Transaction only if: (i) prior to the stock acquisition by the Interested Shareholder, the board of directors approves the transaction in which the Interested Shareholder became an Interested Shareholder or approves the Business Combination in question; (ii) the holders of a majority of the outstanding voting stock, other than stock owned by the Interested Shareholder, approve the Business Combination; or (iii) the Business Combination satisfies certain detailed fairness and procedural requirements. The Missouri Act exempts from the provisions of the business combination statute: (i) corporations not having a class of voting stock registered under Section 12 of the Exchange Act; (ii) corporations which adopt provisions in their articles of incorporation or by-laws expressly electing not to be covered by the statute; and (iii) certain circumstances in which a shareholder inadvertently becomes an Interested Shareholder. MBI's Restated Articles of Incorporation and by-laws do not contain an election to "opt out" of the Missouri business combination statute. The Missouri Act also contains a "Control Share Acquisition Statute" which provides that an "Acquiring Person" who after any acquisition of shares of a publicly traded corporation has the voting power, when added to all shares of the same corporation previously owned or controlled by the -71- 77 Acquiring Person, to exercise or direct the exercise of: (i) 20% but less than 33 1/3%, (ii) 33 1/3% or more but less than a majority or (iii) a majority, of the voting power of outstanding stock of such corporation, must obtain shareholder approval for the purchase of the "Control Shares." If approval is not given, the Acquiring Person's shares lose the right to vote. The statute prohibits an Acquiring Person from voting its shares unless certain disclosure requirements are met and the retention or restoration of voting rights is approved by both: (i) a majority of the outstanding voting stock; and (ii) a majority of the outstanding voting stock after exclusion of "Interested Shares." Interested Shares are defined as shares owned by the Acquiring Person, by directors who are also employees and by officers of the corporation. Shareholders are given dissenters' rights with respect to the vote on Control Share Acquisitions and may demand payment of the fair value of their shares. A number of acquisitions of shares are deemed not to constitute Control Share Acquisitions, including good faith gifts, transfers pursuant to wills, purchases pursuant to an issuance by the corporation, mergers involving the corporation which satisfy the other requirements of the Missouri Act, transactions with a person who owned a majority of the voting power of the corporation within the prior year, or purchases from a person who has previously satisfied the provisions of the Control Share Acquisition Statute so long as the transaction does not result in the purchasing party having voting power after the purchase in a percentage range (such ranges are as set forth in the immediately preceding paragraph) beyond the range for which the selling party previously satisfied the provisions of the statute. Additionally, a corporation may exempt itself from application of the statute by inserting a provision in its articles of incorporation or by-laws expressly electing not to be covered by the statute. MBI's Restated Articles of Incorporation and by-laws do not contain an election to "opt out" of the Control Share Acquisition Statute. The IBCA applicable to First Financial contains a business combination statute similar to that contained in the Missouri Act. Like the Missouri business combination statute, the Iowa business combination statute generally prohibits a domestic corporation from engaging in mergers or other business combinations with Interested Shareholders (as defined in the IBCA) for a statutory time period. The prohibition can be avoided if (i) the business combination is approved by the board of directors prior to the date on which the Interested Shareholder acquires the requisite percentage of stock or (ii) the business combination is approved by the board of directors and authorized at an annual or special meeting of shareholders by the affirmative vote or at least sixty-six and two-thirds percent of the outstanding voting stock which is not owned by the Interested Shareholder. The Missouri Act imposes a longer prohibition period on transactions with Interested Shareholders (five years) than the IBCA (three years), thereby potentially increasing the period during which a hostile takeover may be frustrated. In addition, the IBCA, unlike its Missouri counterpart, does not apply if the Interested Shareholder obtains at least 85% of the corporation's voting stock upon consummation of the transactions which resulted in the shareholder becoming an Interested Shareholder. Thus, a person acquiring at least 85% of the corporation's voting stock could circumvent the defensive provisions of the IBCA while being unable to do so under the Missouri Act. The IBCA does not contain a control share acquisition statute similar to that contained in the Missouri Act. DISSENTERS' RIGHTS. Under Section 351.455 of the Missouri Act, a shareholder of any corporation which is a party to a merger or consolidation, or which sells all or substantially all of its assets, has the right to dissent from such corporate action and to demand payment of the value of such shares. Under the IBCA, shareholders of First Financial are entitled to dissenters' rights upon the consolidation or merger of First Financial which are similar but not identical to those under the Missouri -72- 78 Act. Specifically, the procedures and the filing deadlines applicable to dissenters' rights under the Missouri Act are somewhat different than those applicable in dissenters' rights proceedings under the IBCA. For example, the Missouri Act does not require payment to be made by the surviving company to the merger until the end of the dissenters' rights proceedings. The IBCA requires a payment of an amount equal to the surviving corporation's estimate of fair value for the dissenting shareholder's shares prior to the final determination of fair value. SHAREHOLDERS' RIGHT TO INSPECT. Under the IBCA, any shareholder may inspect the corporation's stock ledger, shareholder list and other books and records if the shareholder's demand for inspection is made in good faith and for a proper purpose. The IBCA specifically provides that a shareholder may appoint an agent for the purpose of examining the books and records of the corporation. The right of shareholders to inspect under the Missouri Act is generally similar to that of shareholders under the IBCA. Neither the Missouri Act nor Missouri case law, however, provides any specific guidance as to whether a shareholder may appoint an agent for the purpose of examining books and records or the extent to which a shareholder must have a "proper purpose." Accordingly, in comparison with the IBCA, in a given situation a Missouri shareholder may be provided with less guidance as to the scope of his or her ability to inspect the books and records of the corporation. SIZE OF BOARD OF DIRECTORS. As permitted under the Missouri Act, the number of directors on the Board of Directors of MBI is set forth in MBI's by-laws, which provide that the number of directors may be fixed from time to time at not less than 12 nor more than 24 by an amendment of the by-laws or by a resolution of the Board of Directors, in either case, adopted by the vote or consent of at least two-thirds of the number of directors then authorized under the by-laws. MBI's Board of Directors currently has 12 members. Similarly to the Missouri Act, the IBCA provides that a corporation may fix the number of directors in its Articles of Incorporation or by-laws. The number of directors on the Board of Directors of First Financial is set forth in First Financial's by-laws, which provide that the number of directors may be fixed from time to time at not less than 5 and not more than 15 directors by resolution adopted by a majority of the full Board of Directors. The supermajority vote required for the amendment of MBI's by-laws regarding a change in the number of directors may have the effect of making it more difficult to force an immediate change in the composition of a majority of the Board of Directors and may be deemed to have an anti-takeover effect. SUPERVISION AND REGULATION -------------------------- GENERAL As a bank holding company, MBI is subject to regulation under the BHCA and its examination and reporting requirements. Under the BHCA, a bank holding company may not directly or indirectly acquire the ownership or control of more than 5% of the voting shares or substantially all of the assets of any company, including a bank or savings and loan association, without the prior approval of the Federal Reserve Board. In addition, bank holding companies are generally prohibited under the BHCA from engaging in nonbanking activities, subject to certain exceptions. -73- 79 MBI and its subsidiaries are subject to supervision and examination by applicable federal and state banking agencies. The earnings of MBI's subsidiaries, and therefore, the earnings of MBI, are affected by general economic conditions, management policies and the legislative and governmental actions of various regulatory authorities, including the Federal Reserve Board, the Federal Deposit Insurance Corporation ("FDIC"), the Office of the Comptroller of the Currency (the "Comptroller") and various state financial institution regulatory agencies. In addition, there are numerous governmental requirements and regulations that affect the activities of MBI and its subsidiaries. CERTAIN TRANSACTIONS WITH AFFILIATES There are various legal restrictions on the extent to which a bank holding company and certain of its nonbank subsidiaries can borrow or otherwise obtain credit from its bank subsidiaries. In general, these restrictions require that any such extensions of credit must be on non-preferential terms and secured by designated amounts of specified collateral and be limited, as to the holding company or any one of such nonbank subsidiaries, to 10% of the lending institution's capital stock and surplus and, as to the holding company and all such nonbank subsidiaries in the aggregate, to 20% of such capital stock and surplus. PAYMENT OF DIVIDENDS MBI is a legal entity separate and distinct from its financial institutions and other subsidiaries. The principal source of MBI's revenues is dividends from its financial institution subsidiaries. Various federal and state statutory provisions limit the amount of dividends an affiliate financial institution can pay to MBI without regulatory approval. The approval of federal and state bank regulatory agencies, as appropriate, is required for any dividend if the total of all dividends declared in any calendar year would exceed the total of the institution's net profits, as defined by regulatory agencies, for such year combined with its retained net profits for the preceding two years. In addition, a national bank or a state member bank may not pay a dividend in an amount greater than its net profits then on hand. The payment of dividends by any financial institution subsidiary also may be affected by other factors, such as the maintenance of adequate capital. CAPITAL ADEQUACY The Federal Reserve Board has issued standards for measuring capital adequacy for bank holding companies. These standards are designed to provide risk-responsive capital guidelines and to incorporate a consistent framework for use by financial institutions operating in major international financial markets. The banking regulators have issued standards for banks that are similar to, but not identical with, the standards for bank holding companies. In general, the risk-related standards require financial institutions and financial institution holding companies to maintain certain capital levels based on "risk-adjusted" assets, so that categories of assets with potentially higher credit risk will require more capital backing than categories with lower credit risk. In addition, banks and bank holding companies are required to maintain capital to support off balance sheet activities such as loan commitments. MBI and each of its subsidiary financial institutions exceed all applicable capital adequacy standards. -74- 80 SUPPORT OF SUBSIDIARY BANKS Under Federal Reserve Board policy, MBI is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each of the subsidiaries in circumstances where it might not choose to do so absent such a policy. This support may be required at times when MBI may not find itself able to provide it. In addition, any capital loans by MBI to any of its subsidiaries also would be subordinate in right of payment to deposits and certain other indebtedness of such subsidiary. Consistent with this policy regarding bank holding companies serving as a source of financial strength for their subsidiary banks, the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the bank holding company's capital needs, asset quality and overall financial condition. FIRREA AND FDICIA The Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended ("FIRREA"), contains a cross-guarantee provision that could result in insured depository institutions owned by MBI being assessed for losses incurred by the FDIC in connection with assistance provided to, or the failure of, any other insured depository institution owned by MBI. Under FIRREA, failure to meet the capital guidelines could subject a banking institution to a variety of enforcement remedies available to federal regulatory authorities, including the termination of deposit insurance by the FDIC. The Federal Deposit Insurance Corporation Improvement Act of 1991, as amended ("FDICIA"), made extensive changes to the federal banking laws. FDICIA instituted certain changes to the supervisory process, including provisions that mandate certain regulatory agency actions against undercapitalized institutions within specified time limits. FDICIA contains various other provisions that may affect the operations of banks and savings institutions. The prompt corrective action provision of FDICIA requires the federal banking regulators to assign each insured institution to one of five capital categories ("well capitalized," "adequately capitalized" or one of three "undercapitalized" categories) and to take progressively more restrictive actions based on the capital categorization, as specified below. Under FDICIA, capital requirements include a leverage limit, a risk-based capital requirement and any other measure of capital deemed appropriate by the federal banking regulators for measuring the capital adequacy of an insured depository institution. All institutions, regardless of their capital levels, are restricted from making any capital distribution or paying any management fees that would cause the institution to fail to satisfy the minimum levels for any relevant capital measure. The FDIC and the Federal Reserve Board adopted capital-related regulations under FDICIA. Under those regulations, a bank will be well capitalized if it: (i) had a risk-based capital ratio of 10% or greater; (ii) had a ratio of Tier I capital to risk-adjusted assets of 6% or greater; (iii) had a ratio of Tier I capital to adjusted total assets of 5% or greater; and (iv) was not subject to an order, written agreement, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. An association will be adequately capitalized if it was not "well -75- 81 capitalized" and: (i) had a risk-based capital ratio of 8% or greater; (ii) had a ratio of Tier I capital to risk-adjusted assets of 4% or greater; and (iii) had a ratio of Tier I capital to adjusted total assets of 4% or greater (except that certain associations rated "Composite 1" under the federal banking agencies' CAMEL rating system may be adequately capitalized if their ratios of core capital to adjusted total assets were 3% or greater). All MBI subsidiary financial institutions as of March 31, 1998 were categorized as "well capitalized." Banking agencies have recently adopted final regulations that mandate that regulators take into consideration concentrations of credit risk and risks from non-traditional activities, as well as an institution's ability to manage those risks, when determining the adequacy of an institution's capital. This evaluation will be made as part of the institution's regular safety and soundness examination. Banking agencies also have recently adopted final regulations requiring regulators to consider interest rate risk (when the interest rate sensitivity of an institution's assets does not match the sensitivity of its liabilities or its off-balance-sheet position) in the evaluation of a bank's capital adequacy. Concurrently, banking agencies have proposed a methodology for evaluating interest rate risk. After gaining experience with the proposed measurement process, these banking agencies intend to propose further regulations to establish an explicit risk-based capital charge for interest rate risk. DEPOSITOR PREFERENCE STATUTE Legislation enacted in August 1993 provides a preference for deposits and certain claims for administrative expenses and employee compensation against an insured depository institution in the liquidation or other resolution of such an institution by any receiver. Such obligations would be afforded priority over other general unsecured claims against such an institution, including federal funds and letters of credit, as well as any obligation to shareholders of such an institution in their capacity as such. FDIC INSURANCE ASSESSMENTS The subsidiary depository institutions of MBI are subject to FDIC deposit insurance assessments. The FDIC has adopted a risk-based premium schedule. Each financial institution is assigned to one of three capital groups well-capitalized, adequately capitalized or undercapitalized-and further assigned to one of three subgroups within a capital group, on the basis of supervisory evaluations by the institution's primary federal and, if applicable, state supervisors, and on the basis of other information relevant to the institution's financial condition and the risk posed to the applicable insurance fund. The actual assessment rate applicable to a particular institution will, therefore, depend in part upon the risk assessment classification so assigned to the institution by the FDIC. See "-FIRREA and FDICIA." INTERSTATE BANKING AND OTHER RECENT LEGISLATION The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal"), enacted in 1994, facilitates the interstate expansion and consolidation of banking organizations by permitting (i) bank holding companies that are adequately capitalized and managed to acquire banks located in states outside their home states regardless of whether such acquisitions are authorized under the law of the host state, (ii) the interstate merger of banks, except for banks located in Montana and Texas, which states enacted legislation to "opt out" of this authority, (iii) banks to establish new branches on an interstate basis provided that such action is specifically authorized by the law of the host state, -76- 82 (iv) foreign banks to establish, with approval of the regulators in the United States, branches outside their home states to the same extent that national or state banks located in the home state would be authorized to do so and (v) banks to receive deposits, renew time deposits, close loans, service loans and receive payments on loans and other obligations as agent for any bank or thrift affiliate, whether the affiliate is located in the same state or a different state. One effect of Riegle-Neal is to permit MBI to acquire banks located in any state and to permit bank holding companies located in any state to acquire banks and bank holding companies in Missouri. There also have been a number of recent legislative and regulatory proposals designed to strengthen the federal deposit insurance system and to improve the overall financial stability of the United States banking system and to provide for other changes in the bank regulatory structure, including proposals to reduce regulatory burdens on banking organizations and to expand the nature of products and services banks and bank holding companies may offer. It is not possible to predict whether or in what form these proposals may be adopted in the future and, if adopted, what their effect will be on MBI. RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS ----------------------------------------- KPMG Peat Marwick LLP served as MBI's independent accountants for the year ended December 31, 1997 and continues to serve in such capacity. Services provided in connection with the audit function included examination of the annual consolidated financial statements, review and consultation regarding filings with the Commission and other regulatory authorities and consultation on financial accounting and reporting matters. McGladrey & Pullen, LLP served as First Financial's independent accountants for the year ended December 31, 1997 and continues to serve in such capacity. Services provided in connection with the audit function included examination of the annual consolidated financial statements and consultation on financial accounting and reporting matters. McGladrey & Pullen, LLP intends to have a representative present at the Special Meeting to answer relevant questions regarding the Merger. LEGAL MATTERS ------------- Certain legal matters will be passed upon for MBI by Thompson Coburn, St. Louis, Missouri and for First Financial by Sidley & Austin, Chicago, Illinois. EXPERTS ------- The consolidated financial statements of MBI as of December 31, 1997, 1996 and 1995, and for each of the years in the three-year period ended December 31, 1997, incorporated by reference in MBI's Annual Report on Form 10-K have been incorporated by reference herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, whose report is incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. -77- 83 The consolidated balance sheets of First Financial and its subsidiary at December 31, 1997 and 1996 and the consolidated statements of income, stockholders' equity and cash flows for each of the three years in the three-year period ended December 31, 1997, included in First Financial's Annual Report on Form 10-K, have been incorporated herein in reliance upon the report of McGladrey & Pullen, LLP, independent auditors, whose report is incorporated by reference herein, and upon the authority of such firm as experts in accounting and auditing. OTHER MATTERS ------------- The Board of Directors of First Financial, at the date hereof, is not aware of any business to be presented at the Special Meeting other than that referred to in the Notice of Special Meeting and discussed herein. If any other matter should properly come before the Special Meeting, the persons named as proxies will have discretionary authority to vote the shares represented by proxies in accordance with their discretion and judgment as to the best interests of First Financial. SHAREHOLDER PROPOSALS --------------------- If the Merger is approved, the other conditions to the Merger are satisfied and the Merger is consummated, shareholders of First Financial will become shareholders of MBI at the Effective Time. MBI shareholders may submit to MBI proposals for formal consideration at the 1999 Annual Meeting of MBI's shareholders and inclusion in MBI's proxy statement and proxy for such meeting. All such proposals for the 1999 Annual Meeting of MBI's shareholders must be received in writing by the Corporate Secretary at Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524 by November 16, 1998. -78- 84 ANNEX A ------- [Letterhead of ABN AMRO Incorporated] -----, 1998 Board of Directors First Financial Bancorporation 204 East Washington Street Iowa City, Iowa 52244-1880 Members of the Board: We understand that First Financial Bancorporation ("FIOW"), Mercantile Bancorporation Inc. ("MTL") and Ameribanc, Inc. ("Ameribanc"), a wholly owned subsidiary of MTL, have entered into an Agreement and Plan of Merger dated May 7, 1998 (the "Agreement") pursuant to which FIOW will be merged with and into Ameribanc in a transaction (the "Merger") in which each issued and outstanding share of common stock of FIOW ("FIOW Common Stock"), will be converted into the right to receive 0.88 (the "Exchange Ratio") of a share of common stock of MTL and the associated "Rights" under the "Rights Agreement," as those terms are defined in Section 3.02 of the Agreement (collectively, "MTL Common Stock"). You have asked us whether, in our opinion, the Exchange Ratio to be received by the holders of FIOW Common Stock in the Merger is fair to such shareholders from a financial point of view. In connection with this opinion, we have reviewed the Agreement and certain related documents and held discussions with certain senior officers and directors of FIOW and certain senior officers of MTL concerning the businesses, operations and prospects of FIOW and MTL. We examined certain publicly available business and financial information relating to FIOW and MTL as well as certain financial information and other data for FIOW and certain financial information and other data related to MTL which were provided to or otherwise discussed with us by the respective managements of FIOW and MTL. We reviewed the financial terms of the Merger as set forth in the Agreement in relation to: (i) current and historical market prices and trading volumes of FIOW Common Stock and MTL Common Stock; (ii) the respective companies' financial and other operating data; and (iii) the capitalization and financial condition of FIOW and MTL. We also considered, to the extent publicly available, the financial terms of certain other banking-industry transactions recently effected which we considered relevant in evaluating the Merger and analyzed certain financial, stock market and other publicly available information relating to the businesses of other companies whose operations we considered relevant in evaluating those of FIOW and MTL. In connection with our engagement, we held discussions with certain third parties to solicit indications of interest in a possible transaction with FIOW. A-1 85 In rendering our opinion, we have assumed and relied upon the accuracy and completeness of the financial and other information reviewed by us and we have not made or obtained or assumed any responsibility for independent verification of such information. In addition, we have not made an independent evaluation or appraisal of the assets and liabilities of FIOW or MTL or any of their respective subsidiaries. With respect to the financial data of FIOW, we have assumed that it has been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of FIOW as to the future financial performance of FIOW. We have assumed that the Merger will be consummated in accordance with the terms of the Agreement including among other things, that the Merger will be accounted for as a pooling of interests under generally accepted accounting principles and as a tax-free reorganization for federal income tax purposes. We are not expressing any opinion as to what the value of MTL Common Stock actually will be when issued to FIOW shareholders pursuant to the Merger or the price at which MTL Common Stock will trade subsequent to the Merger. ABN AMRO Incorporated ("AAI"), as part of its investment banking business, is continually engaged in the valuation of businesses in connection with mergers and acquisitions, as well as initial and secondary offerings of securities and valuations for other purposes. We have acted as financial advisor to the Board of Directors of FIOW in connection with this transaction and will receive a fee for our services, including rendering this opinion, a significant portion of which is contingent upon the consummation of the Merger. In the ordinary course of our business, AAI and its affiliates may actively trade securities of both FIOW and MTL for their own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. It is understood that this letter is for the benefit and use of the Board of Directors of FIOW in its consideration of the Merger and may not be used for any other purpose or reproduced, disseminated, quoted or referred to at any time, in any manner or for any purpose without our prior written consent, except that this letter may be used as part of any proxy statement/prospectus relating to the Merger. This letter does not address FIOW's underlying business decision to enter into the Merger or constitute a recommendation to any shareholder as to how such shareholder should vote with respect to the proposed Merger. Finally, our opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us, as of the date hereof, and we assume no responsibility to update or revise our opinion based upon circumstances or events occurring after the date hereof. Based upon and subject to the foregoing, we are of the opinion that, as of the date hereof, the Exchange Ratio is fair from a financial point of view to the shareholders of FIOW. Sincerely, ABN AMRO Incorporated A-2 86 ANNEX B ------- Following is the text of the statutory appraisal right as set forth in Division XIII of the IBCA. DIVISION XIII DISSENTERS' RIGHTS PART A 490.1301 DEFINITIONS FOR DIVISION XIII. In this division: 1. "Beneficial shareholder" means the person who is a beneficial owner of shares held by a nominee as the record shareholder. 2. "Corporation" means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer. 3. "Dissenter" means a shareholder who is entitled to dissent from corporate action under section 490.1302 and who exercises that right when and in the manner required by sections 490.1320 through 490.1328. 4. "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. 5. "Interest" means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances. 6. "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. 7. "Shareholder" means the record shareholder or the beneficial shareholder. 490.1302 SHAREHOLDERS' RIGHT TO DISSENT. 1. A shareholder is entitled to dissent from, and obtain payment of the fair value of the shareholder's shares in the event of, any of the following corporate actions: a. Consummation of a plan of merger to which the corporation is a party if either of the following apply: (1) Shareholder approval is required for the merger by section 490.1103 or the articles of incorporation and the shareholder is entitled to vote on the merger. B-1 87 (2) the corporation is a subsidiary that is merged with its parent under section 490.1104. b. Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan. c. Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange, including a sale in dissolution, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale. d. An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it does any or all of the following: (1) Alters or abolishes a preferential right of the shares. (2) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares. (3) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities. (4) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights. (5) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under section 490.604. (6) Extends, for the first time after being governed by this chapter, the period of duration of a corporation organized under chapter 491 or 496A and existing for a period of years on the day preceding the date the corporation is first governed by this chapter. e. Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares. 2. A shareholder entitled to dissent and obtain payment for the shareholder's shares under this chapter is not entitled to challenge the corporate action creating the shareholder's entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. 490.1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. 1. A record shareholder may assert dissenters' rights as to fewer than all the shares registered in that shareholder's name only if the shareholder dissents with respect to all shares beneficially owned by B-2 88 any one person and notifies the corporation in writing of the name and address of each person on whose behalf the shareholder asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which the shareholder dissents and the shareholder's other shares were registered in the names of different shareholders. 2. A beneficial shareholder may assert dissenters' rights as to shares held on the shareholder's behalf only if the shareholder does both of the following: a. Submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights. b. Does so with respect to all shares of which the shareholder is the beneficial shareholder or over which that beneficial shareholder has power to direct the vote. PART B 490.1320 NOTICE OF DISSENTERS' RIGHTS. 1. If proposed corporate action creating dissenters' rights under section 490.1302 is submitted to a vote at a shareholders' meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters' rights under this part and be accompanied by a copy of this part. 2. If corporate action creating dissenters' rights under section 490.1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in section 490.1322. 490.1321 NOTICE OF INTENT TO DEMAND PAYMENT. 1. If proposed corporate action creating dissenters' rights under section 490.1302 is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights must do all of the following: a. Deliver to the corporation before the vote is taken written notice of the shareholder's intent to demand payment for the shareholder's shares if the proposed action is effectuated. b. Not vote the dissenting shareholder's shares in favor of the proposed action. 2. A shareholder who does not satisfy the requirements of subsection 1 is not entitled to payment for the shareholder's shares under this part. 490.1322 DISSENTERS' NOTICE. 1. If proposed corporate action creating dissenters' rights under section 490.1302 is authorized at a shareholders' meeting, the corporation shall deliver a written dissenters' notice to all shareholders who satisfied the requirements of section 490.1321. B-3 89 2. The dissenters' notice must be sent no later than ten days after the proposed corporate action is authorized at a shareholders' meeting, or, if the corporate action is taken without a vote of the shareholders, no later than ten days after the corporate action is taken, and must do all of the following: a. State where the payment demand must be sent and where and when certificates for certificated shares must be deposited. b. Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received. c. Supply a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and requires that the person asserting dissenters' rights certify whether or not the person acquired beneficial ownership of the shares before that date. d. Set a date by which the corporation must receive the payment demand, which date shall not be fewer than thirty nor more than sixty days after the date the dissenters' notice is delivered. e. Be accompanied by a copy of this division. (Last amended by Ch. 211, L. `91, eff. 7-1-91.) 490.1323 DUTY TO DEMAND PAYMENT. 1. A shareholder sent a dissenter's notice described in section 490.1322 must demand payment, certify whether the shareholder acquired beneficial ownership of the shares before the date required to be set forth in the dissenter's notice pursuant to section 490.1322, subsection 2, paragraph "c," and deposit the shareholder's certificates in accordance with the terms of the notice. 2. The shareholder who demands payment and deposits the shareholder's shares under subsection 1 retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. 3. A shareholder who does not demand payment or deposit the shareholder's share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for the shareholder's shares under this division. 490.1324 SHARE RESTRICTIONS. 1. The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under section 490.1326. 2. The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action. B-4 90 490.1325 PAYMENT. 1. Except as provided in section 490.1327, at the time the proposed corporate action is taken, or upon receipt of a payment demand, whichever occurs later, the corporation shall pay each dissenter who complied with section 490.1323 the amount the corporation estimates to be the fair value of the dissenter's shares, plus accrued interest. 2. The payment must be accompanied by all of the following: a. The corporation's balance sheet as of the end of a fiscal year ending not more than sixteen months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year and the latest available interim financial statements, if any. b. A statement of the corporation's estimate of the fair value of the shares. c. An explanation of how the interest was calculated. d. A statement of the dissenter's right to demand payment under section 490.1328. e. A copy of this division. (Last amended by Ch. 211, L. `91, eff. 7-1-91.) 490.1326 FAILURE TO TAKE ACTION. 1. If the corporation does not take the proposed action within one hundred eighty days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. 2. If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under section 490.1322 as if the corporate action was taken without a vote of the shareholders and repeat the payment demand procedure. (Last amended by Ch. 171, L. `91, eff. 7-1-91.) 490.1327 AFTER-ACQUIRED SHARES. 1. A corporation may elect to withhold payment required by section 490.1325 from a dissenter unless the dissenter was the beneficial owner of the shares before the date set forth in the dissenters' notice as the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action. 2. To the extent the corporation elects to withhold payment under subsection 1, after taking the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of the dissenter's demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated and a statement of the dissenter's right to demand payment under section 490.1328. B-5 91 490.1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. 1. A dissenter may notify the corporation in writing of the dissenter's own estimate of the fair value of the dissenter's shares and amount of interest due and demand payment of the dissenter's estimate, less any payment under section 490.1325, or reject the corporation's offer under section 490.1327 and demand payment of the fair value of the dissenter's shares and interest due, if any of the following apply: a. The dissenter believes that the amount paid under section 490.1325 or offered under section 490.1327 is less than the fair value of the dissenter's shares or that the interest due is incorrectly calculated. b. The corporation fails to make payment under section 490.1325 within sixty days after the date set for demanding payment. c. The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within sixty days after the date set for demanding payment. 2. A dissenter waives the dissenter's right to demand payment under this section unless the dissenter notifies the corporation of the dissenter's demand in writing under subsection 1 within thirty days after the corporation made or offered payment for the dissenter's shares. PART C 490.1330 COURT ACTION. 1. If a demand for payment under section 490.1328 remains unsettled, the corporation shall commence a proceeding within sixty days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the sixty-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded. 2. The corporation shall commence the proceeding in the district court of the county where a corporation's principal office or, if none in this state, its registered office is located. If the corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. 3. The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. 4. The jurisdiction of the court in which the proceeding is commenced under subsection 2 is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order B-6 92 appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings. 5. Each dissenter made a party to the proceeding is entitled to judgment for either of the following: a. The amount, if any, by which the court finds the fair value of the dissenter's shares, plus interest, exceeds the amount paid by the corporation. b. The fair value, plus accrued interest, of the dissenter's after-acquired shares for which the corporation elected to withhold payment under section 490.1327. 490.1331 COURT COSTS AND COUNSEL FEES. 1. The court in an appraisal proceeding commenced under section 490.1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under section 490.1328. 2. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable, for either of the following: a. Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of sections 490.1320 through 490.1328. b. Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this chapter. 3. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited. B-7 93 PROXY FIRST FINANCIAL BANCORPORATION 204 EAST WASHINGTON STREET, P.O. BOX 1880 IOWA CITY, IOWA 52244-1880 For the Special Meeting of Shareholders to be held ------------, 1998 THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS The undersigned shareholder(s) of FIRST FINANCIAL BANCORPORATION ("First Financial"), does hereby nominate, constitute and appoint Margaret N. Keyes and Gerald W. Buxton, Jr. or each of them (with full power to act alone), true and lawful proxies and attorneys-in-fact, with full power of substitution, for the undersigned and in the name, place and stead of the undersigned to vote all of the shares of common stock, $1.25 par value, of First Financial standing in the name of the undersigned on its books at the close of business on ---------, 1998 at the Special Meeting of Shareholders to be held at --------------------------------------------, on -------, - -----------, 1998, at ------ -.m. Central Time, and at any adjournments or postponements thereof, with all the powers the undersigned would possess if personally present, as follows: 1. To consider and vote upon the adoption and approval of the Agreement and Plan of Merger, dated May 7, 1998 (the "Merger Agreement"), pursuant to which First Financial will be merged with and into Ameribanc, Inc., a Missouri corporation and wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"), in a transaction that would result in the business and operations of First Financial being continued through such wholly owned subsidiary, and whereby, upon consummation of the merger, each share of First Financial common stock will be converted into the right to receive 0.88 of a share of MBI common stock, as set forth in detail in the accompanying Proxy Statement/Prospectus. / / FOR / / AGAINST / / ABSTAIN 2. To transact such other business as may properly come before the Special Meeting or any adjournments or postponements thereof. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. The undersigned hereby revokes any other proxies to vote at such meeting and hereby ratifies and confirms all that the proxies and attorneys-in-fact, or each of them, appointed hereunder may lawfully do by virtue hereof. Said proxies and attorneys-in-fact, without limiting their general authority, are specifically authorized to vote in accordance with their best judgment with respect to all matters incident to the conduct of the Special Meeting. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN HEREIN, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL LISTED ABOVE. PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY. RETURN USING THE ENVELOPE PROVIDED FIRST FINANCIAL BANCORPORATION SPECIAL MEETING Check appropriate box Date-------------------- NO. OF SHARES Indicate changes below: Address Change? / / Name Change? / / -------------------------------------------------- -------------------------------------------------- Signature(s) In Box When signing as attorney, executor, administrator, trustee or guardian, please give your full title. If more than one person holds the power to vote the same shares, all must sign. All joint owners must sign. The undersigned hereby acknowledges receipt of the notice of Special Meeting and the Proxy Statement/Prospectus (with all enclosures and attachments), dated --------, 1998, relating to the Special Meeting. 94 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ------------------------------------------ Item 20. Indemnification of Officers and Directors - --------------------------------------------------- Sections 351.355(1) and (2) of The General and Business Corporation Law of the State of Missouri provide that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, except that, in the case of an action or suit by or in the right of the corporation, the corporation may not indemnify such persons against judgments and fines and no person shall be indemnified as to any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation, unless and only to the extent that the court in which the action or suit was brought determines upon application that such person is fairly and reasonably entitled to indemnity for proper expenses. Section 351.355(3) provides that, to the extent that a director, officer, employee or agent of the corporation has been successful in the defense of any such action, suit or proceeding or any claim, issue or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred in connection with such action, suit or proceeding. Section 351.355(7) provides that a corporation may provide additional indemnification to any person indemnifiable under subsection (1) or (2), provided such additional indemnification is authorized by the corporation's articles of incorporation or an amendment thereto or by a shareholder-approved bylaw or agreement, and provided further that no person shall thereby be indemnified against conduct which was finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct or which involved an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934. Article 12 of the Restated Articles of Incorporation of MBI provides that MBI shall extend to its directors and executive officers the indemnification specified in subsections (1) and (2) and the additional indemnification authorized in subsection (7) and that it may extend to other officers, employees and agents such indemnification and additional indemnification. Pursuant to directors' and officers' liability insurance policies, with total annual limits of $45,000,000, MBI's directors and officers are insured, subject to the limits, retention, exceptions and other terms and conditions of such policy, against liability for any actual or alleged error, misstatement, misleading statement, act or omission, or neglect or breach of duty by the directors or officers of MBI, individually or collectively, or any matter claimed against them solely by reason of their being directors or officers of MBI. II-1 95 Item 21. Exhibits and Financial Statement Schedules - ---------------------------------------------------- A. Exhibits. See Exhibit Index. -------- B. Financial Statement Schedules. Not Applicable. ----------------------------- Item 22. Undertakings - ---------------------- (1) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of MBI pursuant to the foregoing provisions, or otherwise, MBI has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by MBI of expenses incurred or paid by a director, officer or controlling person of MBI in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, MBI will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (2) MBI hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of MBI's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) MBI hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (4) MBI undertakes that every prospectus (i) that is filed pursuant to paragraph (3) immediately preceding or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415 (Section 230.415 of this chapter), will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) MBI hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within one II-2 96 business day of receipt of such request and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in the documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. (6) MBI hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. (7) MBI hereby undertakes: (a) To file during any period in which offers and sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof), which individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (b) That for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-3 97 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri, on June 18, 1998. MERCANTILE BANCORPORATION INC. By /s/ Thomas H. Jacobsen -------------------------------------------------- Thomas H. Jacobsen, Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY ----------------- We, the undersigned officers and directors of Mercantile Bancorporation Inc., as of June 18, 1998 hereby severally and individually constitute and appoint Thomas H. Jacobsen and John Q. Arnold, and each of them, the true and lawful attorneys and agents of each of us to execute in the name, place and stead of each of us (individually and in any capacity stated below) any and all amendments to this Registration Statement on Form S-4, registering the offering by Mercantile Bancorporation Inc. of shares of its common stock, and the preferred share purchase rights which trade therewith, with respect to the acquisition of First Financial Bancorporation, and all instruments necessary or advisable in connection therewith and to file the same with the Securities and Exchange Commission, each of said attorneys and agents to have the power to act with or without the others and to have full power and authority to do and perform in the name and on behalf of each of the undersigned every act whatsoever necessary or advisable to be done in the premises as fully and to all intents and purposes as any of the undersigned might or could do in person, and we hereby ratify and confirm our signatures as they may be signed by our said attorneys and agents or each of them to any and all such amendments and instruments. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and as of June 18, 1998.
Signature Title --------- ----- /s/ Thomas H. Jacobsen Chairman of the Board, - ----------------------------------- President and Chief Executive Thomas H. Jacobsen Officer Principal Executive Officer /s/ John Q. Arnold Vice Chairman and - ----------------------------------- Chief Financial Officer John Q. Arnold Principal Financial Officer II-4 98 Signature Title --------- ----- /s/ Michael T. Normile Senior Vice President - Finance - ----------------------------------- and Control Michael T. Normile Principal Accounting Officer /s/ Richard E. Beumer Director - ----------------------------------- Richard E. Beumer Director - ----------------------------------- Harry M. Cornell, Jr. /s/ Henry Givens, Jr. Director - ----------------------------------- Dr. Henry Givens, Jr. /s/ William A. Hall Director - ----------------------------------- William A. Hall /s/ Frank Lyon, Jr. Director - ----------------------------------- Frank Lyon, Jr. /s/ Robert W. Murray Director - ----------------------------------- Robert W. Murray /s/ Harvey Saligman Director - ----------------------------------- Harvey Saligman /s/ Craig D. Schnuck Director - ----------------------------------- Craig D. Schnuck /s/ Alvin J. Siteman Director - ----------------------------------- Alvin J. Siteman II-5 99 Signature Title --------- ----- /s/ Patrick T. Stokes Director - ----------------------------------- Patrick T. Stokes /s/ John A. Wright Director - ----------------------------------- John A. Wright
II-6 100 EXHIBIT INDEX
Exhibit Number Description Page - ------ ----------- ---- 2.1 Agreement and Plan of Merger, dated May 7, 1998, by and among MBI, Ameribanc and First Financial. 2.2 Stock Option Agreement, dated May 7, 1998, and entered into by and between MBI and First Financial. 2.3 Form of Voting Agreement, dated May 7, 1998, by and between MBI and certain of the directors of First Financial. 3.1(a) MBI's Restated Articles of Incorporation, as amended and currently in effect, filed as Exhibit 3.1(a) to MBI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, are incorporated herein by reference. 3.1(b) Third Amended and Restated Certificate of Designation, Preferences and rights of Series B Junior Participating Stock of MBI, filed as part of Exhibit 1 to MBI's Registration Statement on Form 8-A dated May 27, 1998, is incorporated herein by reference. 3.2 MBI's by-laws, as amended and currently in effect, filed as Exhibit 3.2 to Amendment No. 2 to MBI's Registration Statement on Form S-4 (No. 333-17757), are incorporated herein by reference. 4.1 Form of Indenture Regarding Subordinated Securities between MBI and The First National Bank of Chicago, Trustee, filed on March 31, 1992 as Exhibit 4.1 to MBI's Current Report on Form 8-K dated September 24, 1992, is incorporated herein by reference. 4.2 Rights Agreement, dated May 20, 1998, between MBI and Mercantile Bank, as Rights Agent (including as exhibits thereto the form of Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock and the form of Right Certificate), filed as Exhibit 1 to MBI's Registration Statement on Form 8-A dated May 27, 1998, is incorporated herein by reference. 4.3 Form of Indenture Regarding Senior Debt Securities, filed as Exhibit 4.1 to MBI's Registration Statement on Form S-3 (No. 333-25775), is incorporated herein by reference. 4.4 Form of Indenture Regarding Subordinated Debt Securities, filed as Exhibit 4.2 to MBI's Registration Statement on Form S-3 (No. 333-25775), is incorporated herein by reference. II-7 101 Exhibit Number Description Page - ------ ----------- ---- 4.5 Indenture, dated February 4, 1997, First Supplemental Indenture, dated February 4, 1997, and Supplemental Indenture of First Supplemental Indenture, dated May 22, 1997, between MBI, as issuer, and The Chase Manhattan Bank, as Indenture Trustee, filed as Exhibits 4.5, 4.6 and 4.12, respectively, to MBI's Registration Statement on Form S-4 (No. 333-25131), are incorporated herein by reference. 5.1 Opinion of Thompson Coburn as to the legality of the securities being registered. 8.1 Opinion of Thompson Coburn regarding certain tax matters in the Merger. 10.1 The Mercantile Bancorporation Inc. 1987 Stock Option Plan, as amended, filed as Exhibit 10-3 to MBI's Annual Report on Form 10-K for the year ended December 31, 1989, is incorporated herein by reference. 10.2 The Mercantile Bancorporation Inc. Amended and Restated Executive Incentive Compensation Plan, filed as Annex H to MBI's definitive Proxy Statement for the 1997 Annual Meeting of Shareholders, is incorporated herein by reference. 10.3 The Mercantile Bancorporation Inc. Employee Stock Purchase Plan, filed as Exhibit 10-7 to MBI's Annual Report on Form 10-K for the year ended December 31, 1989, is incorporated herein by reference. 10.4 The Mercantile Bancorporation Inc. 1991 Employee Incentive Plan, filed as Exhibit 10-7 to MBI's Annual Report on Form 10-K for the year ended December 31, 1990, is incorporated herein by reference. 10.5 Amendment Number One to the Mercantile Bancorporation Inc. 1991 Employee Incentive Plan, filed as Exhibit 10-6 to MBI's Annual Report on Form 10-K for the year ended December 31, 1994, is incorporated herein by reference. 10.6 The Mercantile Bancorporation Inc. Amended and Restated Stock Incentive Plan, filed as Annex G to MBI's definitive Proxy Statement for the 1997 Annual Meeting of Shareholders, is incorporated herein by reference. 10.7 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan for Non-Employee Directors, filed as Appendix E to MBI's definitive Proxy Statement for the 1994 Annual Meeting of Shareholders, is incorporated herein by reference. 10.8 The Mercantile Bancorporation Inc. Amended and Restated Voluntary Deferred Compensation Plan, filed as Exhibit 10.1 to MBI's Registration Statement on Form S-8 (file no. 333-47713), is incorporated herein by reference. II-8 102 Exhibit Number Description Page - ------ ----------- ---- 10.9 Employment Agreement for Thomas H. Jacobsen, as amended and restated, filed as Exhibit 10-9 to MBI's Annual Report on Form 10-K for the year ended December 31, 1997, is incorporated herein by reference. 10.10 Form of Change of Control Employment Agreement for John W. McClure, W. Randolph Adams, John Q. Arnold and Certain Other Executive Officers, filed as Exhibit 10-10 to MBI's Annual Report on Form 10-K for the year ended December 31, 1989, is incorporated herein by reference. 10.11 The Mercantile Bancorporation Inc. Supplemental Retirement Plan, filed as Exhibit 10-12 to MBI's Annual Report on Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 10.12 Mercantile Bancorporation Inc. Voluntary Deferred Compensation Plan for Non-Employee Affiliate Directors and Advisory Directors, filed as Exhibit 10.3 to MBI's Registration Statement on Form S-8 (File No. 333-47713), is incorporated herein by reference. 10.13 Mercantile Bancorporation Inc. Amended and Restated Stock Incentive Plan for Non-Employee Directors, filed as Exhibit 10.2 to MBI's Registration Statement on Form S-8 (File No. 333-47713), is incorporated herein by reference. 10.14 Agreement and Plan of Reorganization, dated October 27, 1996, by and among MBI, Ameribanc, Inc. and Mark Twain Bancshares, Inc., filed as Exhibit 2.1 to MBI's Current Report on Form 8-K filed November 6, 1996, is incorporated herein by reference. 10.15 Amendment to Agreement and Plan of Reorganization, dated January 24, 1997, by and among MBI, Ameribanc, Inc. and Mark Twain Bancshares, Inc., filed as Exhibit 10-16 to Amendment No. 2 to MBI's Registration Statement on Form S-4 (File No. 333-17757), is incorporated herein by reference. 10.16 Stock Option Agreement, dated October 27, 1996, by and between MBI, as grantee, and Mark Twain Bancshares, Inc., as issuer, filed as Exhibit 2.2 to MBI's Current Report on Form 8-K filed on November 6, 1996, is incorporated herein by reference. 10.17 Agreement and Plan of Reorganization, dated December 22, 1996, by and between MBI and Roosevelt Financial Group, Inc., filed as Exhibit 2.1 to MBI's Current Report on Form 8-K filed on December 30, 1996, is incorporated herein by reference. 10.18 Stock Option Agreement, dated December 22, 1996, by and between MBI, as grantee, and Roosevelt Financial Group, Inc., as issuer, filed as Exhibit 2.1 to MBI's Current Report on Form 8-K filed on December 30, 1996, is incorporated herein by reference. II-9 103 Exhibit Number Description Page - ------ ----------- ---- 10.19 Employment Agreement for Alvin J. Siteman, dated November 18, 1996, filed as Exhibit 10.3 to MBI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, is incorporated herein by reference. 10.20 Employment Agreement for John P. Dubinsky, dated October 27, 1996, filed as Exhibit 10.4 to MBI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, is incorporated herein by reference. 10.21 Employment Agreement for Stanley J. Bradshaw, dated December 22, 1996, filed as Exhibit 10 to MBI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, is incorporated herein by reference. 10.22 Agreement and Plan of Reorganization, dated January 30, 1998, by and among MBI, Ameribanc, Inc. and Firstbank of Illinois Co., filed as Exhibit 2.1 to MBI's Current Report on Form 8-K filed on February 3, 1998, is incorporated herein by reference. 23.1 Consent of KPMG Peat Marwick LLP with regard to the use of its report on MBI's financial statements. 23.2 Consent of McGladrey & Pullen, LLP with regard to the use of its report on First Financial's financial statements. 23.3 Consent of ABN AMRO Incorporated 23.4 Consent of Thompson Coburn (included in Exhibit 5.1). 24.1 Power of Attorney (included on signature page hereto).
II-10 EX-2.1 2 AGREEMENT AND PLAN OF MERGER 1 ============================================================================= AGREEMENT AND PLAN OF MERGER among MERCANTILE BANCORPORATION INC., a Missouri corporation and AMERIBANC, INC., a Missouri corporation and FIRST FINANCIAL BANCORPORATION, an Iowa corporation ----------------------------------------- May 7, 1998 ============================================================================= 2 TABLE OF CONTENTS
Page Recitals 1 ARTICLE I --------- THE MERGER 1.01 The Merger 1 ---------- 1.02 Closing 1 ------- 1.03 Effective Time 1 -------------- 1.04 Additional Actions 2 ------------------ 1.05 Articles of Incorporation and By-Laws 2 ------------------------------------- 1.06 Board of Directors and Officers 2 ------------------------------- 1.07 Conversion of Securities 2 ------------------------ 1.08 Exchange Procedures 3 ------------------- 1.09 No Fractional Shares 4 -------------------- 1.10 Dissenting Shares 4 ----------------- 1.11 Closing of Stock Transfer Books 5 ------------------------------- 1.12 Anti-Dilution 5 ------------- 1.13 Reservation of Right to Revise Transaction 5 ------------------------------------------ 1.14 Material Adverse Effect 6 ----------------------- 1.15 Knowledge 6 --------- ARTICLE II ---------- REPRESENTATIONS AND WARRANTIES OF SELLER 2.01 Organization and Authority 6 -------------------------- 2.02 Subsidiaries 6 ------------ 2.03 Capitalization 7 -------------- 2.04 Authorization 7 ------------- 2.05 Seller Financial Statements 9 --------------------------- 2.06 Seller Reports 9 -------------- 2.07 Title to and Condition of Assets 9 -------------------------------- 2.08 Real Property 10 ------------- 2.09 Taxes 11 ----- 2.10 Material Adverse Effect 11 ----------------------- 2.11 Loans, Commitments and Contracts 12 -------------------------------- 2.12 Absence of Defaults 14 ------------------- 2.13 Litigation and Other Proceedings 14 -------------------------------- 2.14 Directors' and Officers' Insurance 15 ---------------------------------- 2.15 Compliance with Laws 15 -------------------- 2.16 Labor 16 ----- 2.17 Material Interests of Certain Persons 17 ------------------------------------- 2.18 Allowance for Loan and Lease Losses; Non-Performing Assets; Financial Assets 17 ---------------------------------------------------------------------------- -i- 3 2.19 Employee Benefit Plans 18 ---------------------- 2.20 Conduct of Seller to Date 20 ------------------------- 2.21 Absence of Undisclosed Liabilities 20 ---------------------------------- 2.22 Proxy Statement, Etc. 21 --------------------- 2.23 Registration Obligations 21 ------------------------ 2.24 Tax, Regulatory and Accounting Matters 21 -------------------------------------- 2.25 Brokers and Finders 21 ------------------- 2.26 Interest Rate Risk Management Instruments 22 ----------------------------------------- 2.27 Accuracy of Information 22 ----------------------- 2.28 Year 2000 Compliant 22 ------------------- ARTICLE III ----------- REPRESENTATIONS AND WARRANTIES OF THE BUYERS 3.01 Organization and Authority 23 -------------------------- 3.02 Capitalization of Mercantile 23 ---------------------------- 3.03 Authorization 24 ------------- 3.04 Mercantile Financial Statements 24 ------------------------------- 3.05 Mercantile Reports 25 ------------------ 3.06 Material Adverse Effect 25 ----------------------- 3.07 Registration Statement, Etc. 25 ---------------------------- 3.08 Brokers and Finders 25 ------------------- 3.09 Accuracy of Information 25 ----------------------- ARTICLE IV ---------- CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME 4.01 Conduct of Businesses Prior to the Effective Time 26 ------------------------------------------------- 4.02 Forbearances of Seller 26 ---------------------- 4.03 Forbearances of the Buyers 28 -------------------------- ARTICLE V --------- ADDITIONAL AGREEMENTS 5.01 Access and Information; Due Diligence 29 ------------------------------------- 5.02 Registration Statement; Regulatory Matters 29 ------------------------------------------ 5.03 Shareholder Approval 30 -------------------- 5.04 Current Information 30 ------------------- 5.05 Conforming Entries 30 ------------------ 5.06 Environmental Reports 31 --------------------- 5.07 Agreements of Affiliates 31 ------------------------ 5.08 Expenses 32 -------- 5.09 Miscellaneous Agreements and Consents 32 ------------------------------------- -ii- 4 5.10 Employee Agreements and Benefits 32 -------------------------------- 5.11 Press Releases 33 -------------- 5.12 State Takeover Statutes 33 ----------------------- 5.13 Directors' and Officers' Indemnification 33 ---------------------------------------- 5.14 Tax Opinion Certificates 34 ------------------------ 5.15 Employee Stock Options 34 ---------------------- 5.16 Best Efforts to Insure Pooling 34 ------------------------------ ARTICLE VI ---------- CONDITIONS 6.01 Conditions to Each Party's Obligation To Effect the Merger 35 ---------------------------------------------------------- 6.02 Conditions to Obligations of Seller 35 ----------------------------------- 6.03 Conditions to Obligations of the Buyers 36 --------------------------------------- ARTICLE VII ----------- TERMINATION, AMENDMENT AND WAIVER 7.01 Termination 37 ----------- 7.02 Effect of Termination 38 --------------------- 7.03 Amendment 38 --------- 7.04 Waiver 38 ------ ARTICLE VIII ------------ GENERAL PROVISIONS 8.01 Non-Survival of Representations, Warranties and Agreements 38 ---------------------------------------------------------- 8.02 Indemnification 38 --------------- 8.03 No Assignment; Successors and Assigns 39 ------------------------------------- 8.04 Severability 39 ------------ 8.05 No Implied Waiver 39 ----------------- 8.06 Headings 39 -------- 8.07 Entire Agreement 39 ---------------- 8.08 Counterparts 40 ------------ 8.09 Notices 40 ------- 8.10 Governing Law 41 -------------
-iii- 5 LIST OF EXHIBITS Exhibit A - Affiliate Letter Exhibit B - Director/Officer Certificate Exhibit C - Legal Opinion of Buyers' Counsel Exhibit D - Legal Opinion of Seller's Counsel LIST OF SCHEDULES Schedule 2.01 Articles/Bylaws Schedule 2.02 Subsidiaries/Equity Securities Schedule 2.03 Seller Stock Plans Schedule 2.04(b) Authorizations Schedule 2.05(a) Seller Financial Statements Schedule 2.08(a) Owned Real Property/Leased Real Property Schedule 2.08(c) Interests in Real Property Schedule 2.09 Taxes Schedule 2.11(a) Deposits/Commitments Schedule 2.11(b) Contracts Schedule 2.11(c) Insurance Schedule 2.11(f) Loans Schedule 2.13 Litigation Schedule 2.15(c) Compliance with Laws Schedule 2.18(c) Real Estate Acquired through Foreclosure and Repossession Schedule 2.18(f) Investment Securities Schedule 2.19(a) Employee Benefit Plans Schedule 2.19(d) Post-Retirement Health and Medical Benefits Schedule 2.19(f) Change in Control Payments Schedule 2.20 Conduct of Seller Schedule 2.26(a) Derivative Securities Schedule 2.28 Material Computer Software, Firmware and Hardware Schedule 4.02 Forbearances of Seller Schedule 5.07 Affiliates -iv- 6 AGREEMENT AND PLAN OF MERGER ---------------------------- This AGREEMENT AND PLAN OF MERGER (this "Agreement"), made and entered into as of May 7, 1998 by and among Mercantile Bancorporation Inc., a Missouri corporation ("Mercantile"), Ameribanc, Inc., a Missouri corporation ("Merger Sub" and, collectively, with Mercantile, the "Buyers"), and First Financial Bancorporation ("First Financial"), an Iowa corporation ("Seller"). WHEREAS, Merger Sub is a wholly owned subsidiary of Mercantile, and each of Mercantile and Merger Sub is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHCA"); and WHEREAS, Seller is registered as a bank holding company under the BHCA; and WHEREAS, the respective Boards of Directors of Seller and Merger Sub and the Executive Committee of the Board of Directors of Mercantile have approved the merger (the "Merger") of Seller with and into Merger Sub pursuant to the terms and subject to the conditions contained in this Agreement; and WHEREAS, the parties desire to provide certain undertakings, conditions, representations, warranties and covenants in connection with the transactions contemplated by this Agreement. NOW THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties agree as follows: ARTICLE I --------- THE MERGER 1.01 The Merger. Subject to the terms and conditions of this ---------- Agreement, Seller shall be merged with and into Merger Sub in accordance with Chapter 351 of the Missouri Revised Statutes (the "Missouri Statute") and Section 490.1106 of the Iowa Business Corporation Act (the "IBCA"), and the separate corporate existence of Seller shall cease. Merger Sub shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the "Surviving Corporation") and shall continue to be governed by the laws of the State of Missouri. 1.02 Closing. The closing (the "Closing") of the Merger, unless the ------- parties hereto shall otherwise mutually agree, shall take place at the offices of Mercantile in St. Louis, Missouri, at 10:00 am, local time, on the date that the Effective Time (as defined in Section 1.03) occurs (the "Closing Date"). 1.03 Effective Time. The Merger shall become effective (the -------------- "Effective Time") upon the later of (i) the issuance of a Certificate of Merger by the Office of the Secretary of State of the State of Missouri and (ii) the filing of Articles of Merger with the Office of the Secretary of State of Iowa. Unless otherwise mutually agreed in writing by Buyers and Seller, subject to the terms and conditions of 7 this Agreement, the Effective Time shall occur on such date as Buyers shall notify Seller in writing (such notice to be at least five business days in advance of the Effective Time) but (A) not earlier than the satisfaction of all conditions set forth in Section 6.01(a) and 6.01(b) (the "Approval Date") and (B) not later than the first business day of the first full calendar month commencing at least five business days after the Approval Date. On the Closing Date, the parties hereto will cause the Merger to be consummated by delivering to the Secretary of State of the State of Missouri and the Secretary of State of the State of Iowa, for filing, Articles of Merger, in such form as required by, and executed and acknowledged in accordance with, the relevant provisions of the Missouri Statute and the IBCA. 1.04 Additional Actions. If, at any time after the Effective Time, ------------------ the Surviving Corporation shall consider or be advised that any further deeds, assignments or assurances in law or any other acts are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of Seller or Merger Sub, or (b) otherwise carry out the purposes of this Agreement, Seller and its officers and directors shall be deemed to have granted to the Surviving Corporation an irrevocable power of attorney to execute and deliver all such deeds, assignments or assurances in law and to do all acts necessary or proper to vest, perfect or confirm title to and possession of such rights, properties or assets in the Surviving Corporation and otherwise to carry out the purposes of this Agreement, and the officers and directors of the Surviving Corporation are authorized in the name of Seller or otherwise to take any and all such action. 1.05 Articles of Incorporation and By-Laws. The Articles of ------------------------------------- Incorporation and By-Laws of Merger Sub in effect immediately prior to the Effective Time shall be the Articles of Incorporation and By-Laws of the Surviving Corporation following the Merger, unless otherwise repealed or amended. 1.06 Board of Directors and Officers. At the Effective Time, the ------------------------------- directors and officers of Merger Sub immediately prior to the Effective Time shall be the directors and officers, respectively, of the Surviving Corporation following the Merger, and such directors and officers shall hold office in accordance with the Surviving Corporation's By-Laws and applicable law. 1.07 Conversion of Securities. At the Effective Time, by virtue of ------------------------ the Merger and without any action on the part of the Buyers, Seller or the holder of any of the following securities: (a) Each share of the common stock, $1.00 par value, of Merger Sub that is issued and outstanding immediately prior to the Effective Time shall remain outstanding and shall be unchanged after the Merger and shall thereafter constitute all of the issued and outstanding capital stock of the Surviving Corporation; and (b) Subject to Sections 1.09, 1.10 and 1.12 hereof, each share of common stock, $1.25 par value, of Seller ("Seller Common Stock") issued and outstanding immediately prior to the Effective Time, other than Dissenting Shares (as defined in Section 1.10 hereof), shall cease to be outstanding and shall be converted into and become the right to receive 0.88 shares (the "Exchange Ratio") of common stock, $0.01 par value, and the associated "Rights" under the "Rights Agreement," as those terms are defined in Section 3.02 hereof, of Mercantile (collectively, "Mercantile Common Stock"); provided, however, that any Seller Common Stock held by Seller, Mercantile or any of their respective Subsidiaries (as defined in Section 2.02 hereof), in each case -2- 8 other than in a fiduciary capacity or as a result of debts previously contracted, shall be canceled and shall not be exchanged for shares of Mercantile Common Stock. The Exchange Ratio was computed by (i) aggregating (A) the total number of shares of Seller Common Stock that were issued and outstanding on the date of this Agreement (as set forth in Section 2.03 hereof) with (B) the total number of shares of Seller Common Stock that are reserved for issuance pursuant to options or other rights relating to Seller Common Stock and outstanding as of the date of this Agreement (as set forth in Section 2.03 hereof) and dividing such number of shares of Seller Common Stock (computed by aggregating (A) and (B) hereof (the "Fully Diluted Shares")) into (ii) 3,194,844, the aggregate number of shares of Mercantile Common Stock to be issued in the Merger. 1.08 Exchange Procedures. ------------------- (a) As soon as practicable following the Effective Time, Mercantile shall mail or cause to be mailed to holders of record of certificates formerly representing Seller Common Stock (the "Certificates"), as identified on the Seller Shareholder List (as provided pursuant to Section 1.11(b) hereof), letters advising them of the effectiveness of the Merger and instructing them to tender such Certificates to Mercantile's duly appointed exchange agent (the "Exchange Agent"), or in lieu thereof, such evidence of lost, stolen or mutilated Certificates and such surety bond or other security as the Exchange Agent may reasonably require (the "Required Documentation"). (b) Subject to Sections 1.09, 1.10 and 1.12 hereof, after the Effective Time, each previous holder of a Certificate that surrenders such Certificate or in lieu thereof, the Required Documentation, to the Exchange Agent, with a properly completed and executed letter of transmittal with respect to such Certificate, will be entitled to a certificate or certificates representing the number of full shares of Mercantile Common Stock into which the Certificate so surrendered shall have been converted pursuant to this Agreement, and any distribution theretofore declared and not yet paid with respect to such shares of Mercantile Common Stock and any amount due with respect to fractional shares, without interest (collectively, the "Merger Consideration"). Such shares of Mercantile Common Stock, any amount due with respect to fractional shares and any distribution shall be delivered by the Exchange Agent to each such holder as promptly as practicable after such surrender. (c) Each outstanding Certificate, until duly surrendered to the Exchange Agent, shall be deemed to evidence ownership of the Merger Consideration into which the stock previously represented by such Certificate shall have been converted pursuant to this Agreement. (d) After the Effective Time, holders of Certificates shall cease to have rights with respect to the stock previously represented by such Certificates, and their sole rights shall be to exchange such Certificates for the Merger Consideration to which the shareholder may be entitled pursuant to the provisions of Section 1.07 hereof. After the closing of the transfer books as described in Section 1.11 hereof, there shall be no further transfer on the records of Seller of Certificates, and if such Certificates are presented to -3- 9 Seller for transfer, they shall be canceled against delivery of the Merger Consideration. Neither Buyers nor the Exchange Agent shall be obligated to deliver the Merger Consideration until such holder surrenders the Certificates or furnishes the Required Documentation as provided herein. No dividends or distributions declared after the Effective Time (including any redemption by Mercantile of the Rights associated therewith) on the Mercantile Common Stock will be remitted to any person entitled to receive Mercantile Common Stock under this Agreement until such person surrenders the Certificate representing the right to receive such Mercantile Common Stock or furnishes the Required Documentation, at which time such dividends or distributions shall be remitted to such person, without interest and less any taxes that may have been imposed thereon. Certificates surrendered for exchange by an affiliate shall not be exchanged until Buyers have received a written agreement from such affiliate as required pursuant to Section 5.07 hereof. Neither the Exchange Agent nor any party to this Agreement nor any affiliate thereof shall be liable to any holder of stock represented by any Certificate for any Merger Consideration issuable or payable in the Merger that is paid to a public official pursuant to applicable abandoned property, escheat or similar laws. 1.09 No Fractional Shares. Notwithstanding any other provision of -------------------- this Agreement, neither certificates nor scrip for fractional shares of Mercantile Common Stock shall be issued in the Merger. Each holder of Seller Common Stock who otherwise would have been entitled to a fraction of a share of Mercantile Common Stock shall receive (by check from the Exchange Agent, mailed to the shareholder with the certificate(s) for Mercantile Common Stock which such holder is to receive pursuant to the Merger) in lieu thereof, cash (without interest) in an amount determined by multiplying the fractional share interest to which such holder would otherwise be entitled by the closing stock price of Mercantile Common Stock on the New York Stock Exchange (the "NYSE") Composite Tape as reported in The Wall Street Journal on the Closing Date. No such holder shall be entitled to dividends, voting rights or any other rights in respect of any fractional share. 1.10 Dissenting Shares. ----------------- (a) "Dissenting Shares" means any shares of Seller Common Stock held by any holder who becomes entitled to payment of the fair value of such shares under Division XIII of the IBCA. Any holders of Dissenting Shares shall be entitled to payment for such shares only to the extent permitted by and in accordance with the provisions of the IBCA; provided, however, that if, in accordance with the IBCA, any holder of Dissenting Shares shall forfeit such right to payment of the fair value of such Dissenting Shares, such shares shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration. (b) Seller shall give to Mercantile (i) prompt notice of any written objections to the Merger and/or any written demands for the payment of the fair value of any shares of Seller Common Stock, withdrawals of such demands, and any other instruments served pursuant to Division XIII of the IBCA received by Seller, and (ii) the opportunity to participate in all negotiations and proceedings with respect to such demands under the IBCA. Seller shall not voluntarily make any payment with respect to -4- 10 demands for payment of fair value and shall not, except with the prior consent of Mercantile, settle or offer to settle any such demands. 1.11 Closing of Stock Transfer Books. ------------------------------- (a) The stock transfer books of Seller shall be closed at the end of business on the business day immediately preceding the Closing Date. In the event of a transfer of ownership of Seller Common Stock that is not registered in the transfer records prior to the closing of such record books, the Merger Consideration issuable or payable with respect to such stock may be delivered to the transferee, if the Certificate or Certificates representing such stock is presented to the Exchange Agent accompanied by all documents required to evidence and effect such transfer and all applicable stock transfer taxes are paid. (b) At the Effective Time, Seller shall provide Buyers with a complete and verified list of registered holders of Seller Common Stock based upon its stock transfer books or corporate records as of the closing of said transfer books, including the names, addresses, certificate numbers and taxpayer identification numbers of such holders (the "Seller Shareholder List"). Buyers shall be entitled to rely upon the Seller Shareholder List to establish the identity of those persons entitled to receive the Merger Consideration, which list shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Certificate, Buyers shall be entitled to deposit any Merger Consideration represented thereby in escrow with an independent third party and thereafter be relieved with respect to any claims thereto. 1.12 Anti-Dilution. If between the date of this Agreement and the ------------- Effective Time a share of Mercantile Common Stock shall be changed into a different number of shares of Mercantile Common Stock or a different class of shares by reason of reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then appropriate and proportionate adjustment or adjustments will be made to the Exchange Ratio such that each holder of Seller Common Stock shall be entitled to receive such number of shares of Mercantile Common Stock or other securities as such shareholder would have received pursuant to such reclassification, recapitalization, split-up, combination, exchange of shares or readjustment or as a result of such stock dividend had the record date therefor been immediately following the Effective Time. 1.13 Reservation of Right to Revise Transaction. Buyers may at any ------------------------------------------ time change the method of effecting the acquisition of Seller by Buyers (including, without limitation, the provisions of this Article I) if and to the extent Buyers deem such change to be desirable, including, without limitation, to provide for (i) a merger of Merger Sub with and into Seller, in which Seller is the surviving corporation, or (ii) a merger of Seller directly into Mercantile, in which Mercantile is the surviving corporation; provided, however, that no such change shall (A) alter or change the amount or kind of the Merger Consideration to be received by the holders of Seller Common Stock, (B) adversely affect the tax treatment to Seller shareholders, as generally described in Section 6.01(e) hereof, (C) materially impede or delay receipt of any approvals referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement, or (D) prevent or impede the transactions contemplated hereby from qualifying for pooling-of-interests accounting treatment unless Buyers first waive Seller's covenants set -5- 11 forth in Sections 5.02(b) and 5.16 hereof and the condition to Buyers' obligation to consummate the Merger set forth in Section 6.03(f) hereof. 1.14 Material Adverse Effect. As used in this Agreement, the term ----------------------- "Material Adverse Effect" with respect to an entity means any condition, event, change or occurrence that has or may reasonably be expected to have a material adverse effect on the condition (financial or otherwise), properties, business or results of operations, of such entity and its Subsidiaries (as defined in Section 2.02(a)), taken as a whole as reflected in the Seller Financial Statements (as defined in Section 2.05(b)) or the Mercantile Financial Statements (as defined in Section 3.04), as the case may be; it being understood that a Material Adverse Effect shall not include: (i) a change with respect to, or effect on, such entity and its Subsidiaries resulting from a change in law, rule, regulation, generally accepted accounting principles or regulatory accounting principles; (ii) a change with respect to, or effect on, such entity and its Subsidiaries resulting from any other matter affecting depository institutions generally including, without limitation, changes in general economic conditions and changes in prevailing interest and deposit rates; (iii) a change disclosed in the Seller Financial Statements or the Mercantile Financial Statements, as the case may be; (iv) any charges taken by Mercantile in connection with pending or completed acquisitions or the disposition of certain businesses or lines of business; or (v) in the case of Seller, any financial change resulting from adjustments made pursuant to Section 5.05 or 5.09(b) hereof. 1.15 Knowledge. As used in this Agreement, the term "knowledge" or --------- "best knowledge" shall mean those facts known by the executive officers of Buyers or Seller, as the case may be. ARTICLE II ---------- REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to the Buyers as follows: 2.01 Organization and Authority. Seller is a corporation duly -------------------------- organized, validly existing and in good standing under the laws of the State of Iowa, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified, except where the failure of Seller to so qualify would not have a Material Adverse Effect on Seller and the Seller Subsidiaries (as defined in Section 2.02(a)), taken as a whole, and has the corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. Seller is registered as a bank holding company with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") under the BHCA. True and complete copies of the Articles of Incorporation and By-Laws of Seller and the Articles of Association and By-Laws of First National Bank Iowa ("FNBI"), a national banking association and a wholly owned Subsidiary of Seller, each as in effect on the date of this Agreement, are attached hereto as Schedule 2.01. ------------- 2.02 Subsidiaries. ------------ (a) Schedule 2.02 sets forth a complete and correct list of all ------------- of Seller's "Subsidiaries" (as defined in Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange Commission (the "SEC"); each a "Seller Subsidiary" and, collectively, the "Seller Subsidiaries"), and all outstanding Equity Securities (as defined in Section 2.03) -6- 12 of each Seller Subsidiary, all of which are owned directly or indirectly by Seller. Except as disclosed in Schedule 2.02, all of the ------------- outstanding shares of capital stock of the Seller Subsidiaries owned directly or indirectly by Seller are validly issued, fully paid and nonassessable and are owned free and clear of any lien, claim, charge, option, encumbrance, agreement, mortgage, pledge, security interest or restriction (a "Lien") with respect thereto. Each of the Seller Subsidiaries is a corporation, bank or savings bank duly incorporated or organized and validly existing under the laws of its jurisdiction of incorporation or organization, and has corporate power and authority to own or lease its properties and assets and to carry on its business as it is now being conducted. Each of the Seller Subsidiaries is duly qualified to do business in each jurisdiction where its ownership or leasing of property or the conduct of its business requires it so to be qualified, except where the failure to so qualify would not have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. Except as set forth in Schedule 2.02, neither Seller nor any ------------- Seller Subsidiary owns beneficially, directly or indirectly, any shares of any class of Equity Securities (as defined in Section 2.03) or similar interests of any corporation, bank, business trust, association or organization, or any interest in a partnership or joint venture of any kind, other than those identified as Seller Subsidiaries in Schedule 2.02 hereof. ------------- (b) FNBI is a national banking association duly organized and validly existing under the laws of the United States of America. 2.03 Capitalization. The authorized capital stock of Seller consists -------------- of: (i) 15,000,000 shares of Seller Common Stock, of which, as of March 31, 1998, 3,553,717 shares were issued and outstanding. As of March 31, 1998, Seller had reserved 297,738 shares of Seller Common Stock for issuance under Seller's stock option and incentive plans (including grants reflected in the Board minutes), a list of which is set forth on Schedule 2.03 (the "Seller ------------- Stock Plans"), pursuant to which options ("Seller Employee Stock Options") covering 76,788 shares of Seller Common Stock were outstanding as of March 31, 1998. Since March 31, 1998, no Equity Securities of Seller have been issued, other than shares of Seller Common Stock which may have been issued upon the exercise of Seller Stock Options. "Equity Securities" of an issuer means capital stock or other equity securities of such issuer, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, shares of any capital stock or other equity securities of such issuer, or contracts, commitments, understandings or arrangements by which such issuer is or may become bound to issue additional shares of its capital stock or other equity securities of such issuer, or options, warrants, scrip or rights to purchase, acquire, subscribe to, calls on or commitments for any shares of its capital stock or other equity securities. Except as set forth above, there are no other Equity Securities of Seller outstanding. All of the issued and outstanding shares of Seller Common Stock are validly issued, fully paid and nonassessable, and have not been issued in violation of any preemptive right of any shareholder of Seller. Neither Seller nor any Seller Subsidiary has taken or agreed to take any action or has any knowledge of any fact or circumstance and neither Seller nor any Seller Subsidiary will take any action that would prevent the Merger from qualifying for pooling-of-interests accounting treatment. 2.04 Authorization. ------------- (a) Seller has the corporate power and authority to enter into this Agreement and, subject to the approval of this Agreement by the shareholders of Seller and the -7- 13 Regulatory Authorities (as defined in Section 2.06), to carry out its obligations hereunder. The only shareholder vote required for Seller to approve this Agreement is the affirmative vote of the holders of at least two thirds of the outstanding shares of Seller Common Stock entitled to vote at a meeting called for such purpose. The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby in accordance with and subject to the terms of this Agreement have been duly authorized by the Board of Directors of Seller. Subject to the approval of Seller's shareholders and subject to the receipt of such approvals of the Regulatory Authorities as may be required by statute or regulation, this Agreement is a valid and binding obligation of Seller enforceable against Seller in accordance with its terms. (b) Except as disclosed on Schedule 2.04(b), neither the ---------------- execution nor delivery nor performance by Seller of this Agreement, nor the consummation by Seller of the transactions contemplated hereby, nor compliance by Seller with any of the provisions hereof, will (i) violate, conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any Lien upon any of the properties or assets of Seller or any of the Seller Subsidiaries under any of the terms, conditions or provisions of (x) its Certificate or Articles of Incorporation, charter or By-Laws or (y) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Seller or any of the Seller Subsidiaries is a party or by which it may be bound, or to which Seller or any of the Seller Subsidiaries or any of the properties or assets of Seller or any of the Seller Subsidiaries may be subject, other than those as to which any such violation, conflict, breach, event, termination, acceleration or creation would not have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole, or (ii) subject to compliance with the statutes and regulations referred to in subsection (c) of this Section 2.04, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Seller or any of the Seller Subsidiaries or any of their respective properties or assets. (c) Other than in connection or in compliance with the provisions of the Missouri Statute, the IBCA, the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively, the "Securities Act"), the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange Act"), the securities or blue sky laws of the various states or filings, consents, reviews, authorizations, approvals or exemptions required under the BHCA, or any required approvals of the Federal Reserve Board, the FDIC or other governmental agencies or governing boards having regulatory authority over Seller or any Seller Subsidiary, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Seller of the transactions contemplated by this Agreement. -8- 14 2.05 Seller Financial Statements. --------------------------- (a) Attached hereto as Schedule 2.05(a) are copies of the ---------------- Seller's Annual Report to Shareholders for the year ended December 31, 1997. (b) The financial statements contained in the documents referenced in Schedule 2.05(a) are referred to collectively as the ---------------- "Seller Financial Statements." The Seller Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") during the periods involved, and present fairly the consolidated financial position of Seller and the Seller Subsidiaries at the dates thereof and the consolidated results of operations, changes in shareholders' equity and cash flows, as applicable, of Seller and the Seller Subsidiaries for the periods stated therein. (c) Seller and the Seller Subsidiaries have each prepared, kept and maintained through the date hereof true, correct and complete financial books and records which fairly reflect in all material respects their respective financial conditions, results of operations, changes in shareholders' equity and cash flows. 2.06 Seller Reports. Since January 1, 1995, each of Seller and the -------------- Seller Subsidiaries has timely filed any and all material reports, registrations and statements, together with any required amendments thereto, that it was required to file with (i) the SEC, including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements, (ii) the Federal Reserve Board, (iii) the FDIC and (iv) any federal, state, municipal or local government, securities, banking, savings and loan, environmental, insurance and other governmental or regulatory authority, and the agencies and staffs thereof (the entities in the foregoing clauses (i) through (iv) being referred to herein collectively as the "Regulatory Authorities" and individually as a "Regulatory Authority"), having jurisdiction over the affairs of it. All such material reports and statements filed with any such Regulatory Authority are collectively referred to herein as the "Seller Reports." As of each of their respective dates, the Seller Reports complied in all material respects with all the rules and regulations promulgated by the applicable Regulatory Authority. With respect to Seller Reports filed with the Regulatory Authorities, there is no material unresolved violation, criticism or exception by any Regulatory Authority with respect to any report or statement filed by, or any examinations of, Seller or any of the Seller Subsidiaries. 2.07 Title to and Condition of Assets. -------------------------------- (a) Except as may be reflected in the Seller Financial Statements and with the exception of all "Real Property" (which is the subject of Section 2.08 hereof), Seller and the Seller Subsidiaries have, and at the Closing Date will have, good and marketable title to their owned properties and assets, including, without limitation, those reflected in the Seller Financial Statements (except those disposed of in the ordinary course of business since the date thereof), free and clear of any Lien, except for Liens for (i) taxes, assessments or other governmental charges not yet delinquent, (ii) as set forth or described in the Seller Financial Statements or any subsequent Seller Financial Statements delivered to Buyers prior to the Effective Time, and (iii) pledges to secure deposits and other Liens incurred in the ordinary course of business. (b) No material properties or assets that are reflected as owned by Seller or any of the Seller Subsidiaries in the Seller Financial Statements as of December 31, -9- 15 1997, have been sold, leased, transferred, assigned or otherwise disposed of since such date, except in the ordinary course of business. (c) All furniture, fixtures, vehicles, machinery and equipment and computer software owned or used by Seller or the Seller Subsidiaries, including any such items leased as a lessee (taken as a whole as to each of the foregoing with no single item deemed to be of material importance) are in good working order and free of known defects, subject only to normal wear and tear. The operation by Seller or the Seller Subsidiaries of such properties and assets is in compliance in all material respects with all applicable laws, ordinances and rules and regulations of any governmental authority having jurisdiction over such use. 2.08 Real Property. ------------- (a) A list of each parcel of real property owned by Seller or any of the Seller Subsidiaries (other than real property acquired in foreclosure or in lieu of foreclosure in the course of the collection of loans and being held by Seller or a Seller Subsidiary for disposition as required by law) is set forth in Schedule 2.08(a) under ---------------- the heading "Owned Real Property" (such real property being herein referred to as the "Owned Real Property"). A list of each parcel of real property leased by Seller or any of the Seller Subsidiaries is also set forth in Schedule 2.08(a) under the heading "Leased Real ---------------- Property" (such real property being herein referred to as the "Leased Real Property"). Seller shall update Schedule 2.08(a) within ten (10) ---------------- days of acquiring any Owned Real Property or leasing any Leased Real Property after the date hereof. Collectively, the Owned Real Property and the Leased Real Property are herein referred to as the "Real Property." (b) There is no pending action involving Seller or any of the Seller Subsidiaries as to the title of or the right to use any of the Real Property. (c) Except as disclosed on Schedule 2.08(c), neither Seller nor ---------------- any of the Seller Subsidiaries has any interest in any real property other than as described above in Section 2.08(a) except interests as a mortgagee, any real property acquired in foreclosure or in lieu of foreclosure and being held for disposition as required by law and property held by any Seller Subsidiary in its fiduciary capacity. (d) To the best knowledge of Seller, none of the buildings, structures or other improvements located on the Real Property encroaches upon or over any adjoining parcel of real estate or any easement or right-of-way or "setback" line and all such buildings, structures and improvements are located and constructed in conformity with all applicable zoning ordinances and building codes. (e) None of the buildings, structures or improvements located on the Owned Real Property are the subject of any official complaint or notice by any governmental authority of violation of any applicable zoning ordinance or building code, and there is no zoning ordinance, building code, use or occupancy restriction or condemnation action or proceeding pending, or, to the best knowledge of Seller, threatened, with respect to any such building, structure or improvement. The Owned Real Property is in generally -10- 16 good condition for its intended purpose, ordinary wear and tear excepted, and has been maintained in accordance with reasonable and prudent business practices applicable to like facilities. (f) Except as may be reflected in the Seller Financial Statements or with respect to such easements, Liens, defects or encumbrances as do not individually or in the aggregate materially adversely affect the use or value of the parcel of Owned Real Property, Seller and the Seller Subsidiaries have, and at the Closing Date will have, good and marketable title to their respective Owned Real Properties. (g) Neither Seller nor any of the Seller Subsidiaries has caused or allowed the generation, treatment, storage, disposal or release at any Real Property of any Toxic Substance, except in accordance in all material respects with all applicable federal, state and local laws and regulations. "Toxic Substance" means any hazardous, toxic or dangerous substance, pollutant, waste, gas or material, including, without limitation, petroleum and petroleum products, metals liquids, semi-solids or solids, that are regulated under any federal, state or local statute, ordinance, rule, regulation or other law pertaining to environmental protection, contamination, quality, waste management or cleanup. There are no underground storage tanks located on, in or under any Owned Real Property or Leased Real Property. 2.09 Taxes. Seller and each Seller Subsidiary have timely filed or ----- will timely file (including extensions) all material tax returns required to be filed at or prior to the Closing Date ("Seller Returns"). Each of Seller and the Seller Subsidiaries has paid, or set up adequate reserves on the Seller Financial Statements for the payment of, all taxes required to be paid in respect of the periods covered by such Seller Returns and has set up adequate reserves on the most recent Seller Financial Statements for the payment of all taxes anticipated to be payable in respect of all periods up to and including the latest period covered by such Seller Financial Statements. Neither Seller nor any Seller Subsidiary has any material liability for any such taxes in excess of the amounts so paid or reserves so established, and no material deficiencies for any tax, assessment or governmental charge have been proposed, asserted or assessed in writing (tentatively or definitely) against Seller or any of the Seller Subsidiaries which have not been settled or would not be covered by existing reserves. Neither Seller nor any of the Seller Subsidiaries is delinquent in the payment of any material tax, assessment or governmental charge, nor has it requested any extension of time within which to file any tax returns in respect of any fiscal year which have not since been filed and no requests for waivers of the time to assess any tax are pending. Except as set forth on Schedule 2.09, no federal or state income tax return of Seller or any ------------- Seller Subsidiaries has been audited by the Internal Revenue Service (the "IRS") or any state tax authority for the seven most recent full calendar years. Except as set forth on Schedule 2.09, there is no deficiency or ------------- refund litigation or, to the best knowledge of Seller, matter in controversy with respect to Seller Returns. Except as set forth on Schedule 2.09 hereof, ------------- neither Seller nor any of the Seller Subsidiaries has extended or waived any statute of limitations on the assessment of any tax due that is currently in effect. 2.10 Material Adverse Effect. Since December 31, 1997, there has been ----------------------- no Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. -11- 17 2.11 Loans, Commitments and Contracts. -------------------------------- (a) Schedule 2.11(a) contains a complete and accurate listing, ---------------- as of December 31, 1997, of all contracts entered into with respect to deposits and repurchase agreements of $1,000,000 or more, by account, and, as of December 31, 1997, all loan agreements, notes, security agreements, bankers' acceptances, outstanding letters of credit, participation agreements, and other documents relating to or involving extensions of credit by Seller or any of the Seller Subsidiaries and, as of December 31, 1997, all loan commitments and commitments to issue letters of credit and other commitments to extend credit with respect to any one entity or related group of entities in excess of $1,000,000 to which Seller or any of the Seller Subsidiaries is a party or by which it is bound, by account. (b) Except for the contracts and agreements required to be listed on Schedule 2.11(a) and the loans required to be listed on ---------------- Schedule 2.11(f), and except as otherwise listed on Schedule 2.11(b), ---------------- ---------------- as of December 31, 1997, neither Seller nor any of the Seller Subsidiaries is a party to or is bound by any: (i) agreement, contract, arrangement, understanding or commitment with any labor union; (ii) material franchise or license agreement, excluding software license agreements entered into in the ordinary course of business; (iii) written employment, severance, termination pay, agency, consulting or similar agreement or commitment in respect of personal services; (iv) material agreement, arrangement or commitment (A) not made in the ordinary course of business, and (B) pursuant to which Seller or any of the Seller Subsidiaries is or may become obligated to invest in or contribute to any Seller Subsidiary other than pursuant to Seller Employee Plans (as that term is defined in Section 2.19 hereof) or agreements relating to joint ventures or partnerships set forth in Schedule 2.02, true and ------------- complete copies of which have been furnished to Buyers; (v) agreement, indenture or other instrument not disclosed in the Seller Financial Statements relating to the borrowing of money by Seller or any of the Seller Subsidiaries or the guarantee by Seller or any of the Seller Subsidiaries of any such obligation (other than trade payables or instruments related to transactions entered into in the ordinary course of business by Seller or any of the Seller Subsidiaries, such as deposits, Federal Home Loan Bank ("FHLB") and Federal Funds borrowings and repurchase and reverse repurchase agreements), other than such agreements, indentures or instruments providing for annual payments of less than $200,000; (vi) contract containing covenants which limit the ability of Seller or any of the Seller Subsidiaries to compete in any line of business or with any person or which involves any restrictions on the geographical area in which, or -12- 18 method by which, Seller or any of the Seller Subsidiaries may carry on their respective businesses (other that as may be required by law or any applicable Regulatory Authority); (vii) contract or agreement which is a "material contract" within the meaning of Item 601(b)(10) of Regulation S-K as promulgated by the SEC to be performed after the date of this Agreement that has not been filed or incorporated by reference in the Seller Reports; (viii) lease with annual rental payments aggregating $100,000 or more; (ix) loans or other obligations payable or owing to any officer, director or employee except (A) salaries, wages and directors' fees or other compensation incurred and accrued in the ordinary course of business and (B) obligations due in respect of any depository accounts maintained by any of the foregoing with Seller or any of the Seller Subsidiaries in the ordinary course of business; or (x) other agreement, contract, arrangement, understanding or commitment involving an obligation by Seller or any of the Seller Subsidiaries of more than $250,000 and extending beyond six months from the date hereof that cannot be canceled without cost or penalty upon notice of 30 days or less, other than contracts entered into in respect of deposits, loan agreements and commitments, notes, security agreements, repurchase and reverse repurchase agreements, bankers' acceptances, outstanding letters of credit and commitments to issue letters of credit, participation agreements and other documents relating to transactions entered into by Seller or any of the Seller Subsidiaries in the ordinary course of business and not involving extensions of credit with respect to any one entity or related group of entities in excess of $1,000,000. (c) Seller and/or the Seller Subsidiaries carry property, liability, director and officer errors and omissions, products liability and other insurance coverage as set forth in Schedule 2.11(c) ---------------- under the heading "Insurance." (d) True, correct and complete copies of the agreements, contracts, leases and other documents referred to in Section 2.11(b) have been included with Schedule 2.11(b) hereto. True, correct and ---------------- complete copies of the agreements, contracts, leases, insurance policies and other documents referred to in Schedules 2.11(a) and (c) ------------------------- have been or shall be furnished or made available to Buyers. (e) To the best knowledge of Seller, each of the agreements, contracts, leases, insurance policies and other documents referred to in Schedules 2.11 (a), (b) and (c) is a valid, binding and enforceable ------------------------------- obligation of the parties sought to be bound thereby, except as the enforceability thereof against the parties thereto (other than Seller or any of the Seller Subsidiaries) may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws now or hereafter in effect relating to the -13- 19 enforcement of creditors' rights generally, and except that equitable principles may limit the right to obtain specific performance or other equitable remedies. (f) Schedule 2.11(f) under the heading "Loans" contains a true, ---------------- correct and complete listing, as of December 31, 1997, by account, of (i) all loans in excess of $500,000 of Seller or any of the Seller Subsidiaries that have been accelerated during the past twelve months; (ii) all loan commitments or lines of credit of Seller or any of the Seller Subsidiaries in excess of $500,000 which have been terminated by Seller or any of the Seller Subsidiaries during the past twelve months by reason of default or adverse developments in the condition of the borrower or other events or circumstances affecting the credit of the borrower; (iii) all loans, lines of credit and loan commitments in excess of $500,000, as to which Seller or any of the Seller Subsidiaries has given written notice of its intent to terminate during the past twelve months; (iv) with respect to all loans in excess of $500,000 all notification letters and other written communications from Seller or any of the Seller Subsidiaries to any of their respective borrowers, customers or other parties during the past twelve months wherein Seller or any of the Seller Subsidiaries has requested or demanded that actions be taken to correct existing defaults or facts or circumstances which may become defaults; (v) each borrower, customer or other party which has notified Seller or any of the Seller Subsidiaries during the past twelve months of, or has asserted against Seller or any of the Seller Subsidiaries, in each case in writing, any "lender liability" or similar claim, and, to the best knowledge of Seller, each borrower, customer or other party which has given Seller or any of the Seller Subsidiaries any oral notification of, or orally asserted to or against Seller or any of the Seller Subsidiaries, any such claim; or (vi) all loans in excess of $250,000 (A) that are contractually past due 90 days or more in the payment of principal and/or interest, (B) that are on non-accrual status, (C) that have been classified "doubtful," "loss" or the equivalent thereof by any Regulatory Authority, (D) where a reasonable doubt exists as to the timely future collectibility of principal and/or interest, whether or not interest is still accruing or the loan is less than 90 days past due, (E) the interest rate terms have been reduced and/or the maturity dates have been extended subsequent to the agreement under which the loan was originally created due to concerns regarding the borrower's ability to pay in accordance with such initial terms, or (F) where a specific reserve allocation exists in connection therewith. 2.12 Absence of Defaults. Neither Seller nor any of the Seller ------------------- Subsidiaries is in violation of its charter documents or By-Laws or in default under any material agreement, commitment, arrangement, lease, insurance policy or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event that, with the lapse of time or giving of notice or both, would constitute such a default, except in all cases where such default would not have a Material Adverse Effect on Seller and its Subsidiaries, taken as a whole. 2.13 Litigation and Other Proceedings. Except as set forth on -------------------------------- Schedule 2.13 or otherwise disclosed in the Seller Financial Statements, - ------------- neither Seller nor any of the Seller Subsidiaries is a party to any pending or, to the best knowledge of Seller, threatened claim, action, suit, investigation or proceeding, or is subject to any order, judgment or decree, except for matters which, in the aggregate, will not have, or reasonably could not be expected to have, a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. Without limiting the generality of the foregoing, there are no actions, suits or proceedings pending or, to the best knowledge of Seller, threatened against Seller or any -14- 20 of the Seller Subsidiaries or any of their respective officers or directors by any shareholder of Seller or any of the Seller Subsidiaries (or any former shareholder of Seller or any of the Seller Subsidiaries) or involving claims under the Community Reinvestment Act of 1977, as amended, the Bank Secrecy Act, the fair lending laws or any other similar laws. 2.14 Directors' and Officers' Insurance. Each of Seller and the ---------------------------------- Seller Subsidiaries has taken or will take all requisite action (including, without limitation, the making of claims and the giving of notices) pursuant to its directors' and officers' liability insurance policy or policies in order to preserve all rights thereunder with respect to all matters (other than matters arising in connection with this Agreement and the transactions contemplated hereby) occurring prior to the Effective Time that are known to Seller. 2.15 Compliance with Laws -------------------- (a) To the best knowledge of Seller, Seller and each of the Seller Subsidiaries have all permits, licenses, authorizations, orders and approvals of, and have made all filings, applications and registrations with, all Regulatory Authorities that are required in order to permit them to own or lease their respective properties and assets and to carry on their respective businesses as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the best knowledge of Seller, no suspension or cancellation of any of them is threatened; and all such filings, applications and registrations are current; in each case except for permits, licenses, authorizations, orders, approvals, filings, applications and registrations the failure to have (or have made) would not have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. (b) (i) Each of Seller and the Seller Subsidiaries has complied with all laws, regulations and orders (including, without limitation, zoning ordinances, building codes, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and securities, tax, environmental, civil rights, and occupational health and safety laws and regulations including, without limitation, in the case of Seller or any Seller Subsidiary that is a bank or savings association, banking organization, banking corporation or trust company, all statutes, rules, regulations and policy statements pertaining to the conduct of a banking, deposit-taking, lending or related business, or to the exercise of trust powers) and governing instruments applicable to it and to the conduct of its business, and (ii) neither Seller nor any of the Seller Subsidiaries is in default under, and no event has occurred which, with the lapse of time or notice or both, could result in the default under, the terms of any judgment, order, writ, decree, permit, or license of any Regulatory Authority or court, whether federal, state, municipal or local, and whether at law or in equity, except in the case of subparts (i) and (ii) where such failure to comply or default would not have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. (c) Except as set forth on Schedule 2.15(c), neither Seller nor ---------------- any of the Seller Subsidiaries is subject to or reasonably likely to incur a liability as a result of its ownership, operation, or use of any Property (as defined below) of Seller (whether directly or, to the best knowledge of Seller, as a consequence of such Property being acquired in foreclosure or in lieu of foreclosure or being part of the investment portfolio -15- 21 of Seller or any of the Seller Subsidiaries) (A) that is contaminated by or contains any Toxic Substance (as defined in Section 2.08), including, without limitation, petroleum and petroleum products, asbestos, PCBs, pesticides, herbicides and any other substance or waste that is hazardous to human health or the environment and regulated by federal, state or local law, or (B) on which any Toxic Substance has been stored, disposed of, placed or used at the Property or in the construction of structures thereon; and which, in each case, reasonably could be expected to have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. "Property" shall include all property (real or personal, tangible or intangible) owned or controlled by Seller or any of the Seller Subsidiaries, including, without limitation, property acquired under foreclosure or in lieu of foreclosure, property in which any venture capital or similar unit of Seller or any of the Seller Subsidiaries has an interest and, to the best knowledge of Seller, property held by Seller or any of the Seller Subsidiaries in its capacity as a trustee. No claim, action, suit or proceeding is pending or, to the best knowledge of Seller, threatened, and no material claim has been asserted against Seller or any of the Seller Subsidiaries relating to Property of Seller or any of the Seller Subsidiaries before any court or other Regulatory Authority or arbitration tribunal relating to Toxic Substances, pollution or the environment, and there is no outstanding judgment, order, writ, injunction, decree or award against or affecting Seller or any of the Seller Subsidiaries with respect to the same. (d) Neither Seller nor any of the Seller Subsidiaries has received any notification or communication that has not been finally resolved from any Regulatory Authority (i) asserting that the Seller or any of the Seller Subsidiaries or any Property is not in substantial compliance with any of the statutes, regulations or ordinances that such Regulatory Authority enforces, except with respect to matters which reasonably could not be expected to have a Material Adverse Effect on the Seller and the Seller Subsidiaries, taken as a whole, (ii) threatening to revoke any license, franchise, permit or governmental authorization that reasonably could be expected to have a Material Adverse Effect on the Seller and the Seller Subsidiaries, taken as a whole, including, without limitation, such company's status as an insured depository institution under the FDI Act, or (iii) requiring or threatening to require Seller or any of the Seller Subsidiaries, or indicating that Seller or any of the Seller Subsidiaries may be required, to enter into a cease and desist order, agreement or memorandum of understanding or any other agreement restricting or limiting or purporting to direct, restrict or limit in any manner the operations of Seller or any of the Seller Subsidiaries, including, without limitation, any restriction on the payment of dividends. No such cease and desist order, agreement or memorandum of understanding or other agreement is currently in effect. (e) Neither Seller nor any of the Seller Subsidiaries is required by Section 32 of the FDI Act to give prior notice to any federal banking agency of the proposed addition of an individual to its board of directors or the employment of an individual as a senior executive officer. 2.16 Labor. No work stoppage involving Seller or any of the Seller ----- Subsidiaries is pending or, to the best knowledge of Seller, threatened. Except as set forth on Schedule 2.13, neither Seller nor any of the Seller ------------- Subsidiaries is involved in, or, to the best knowledge of Seller, threatened with or affected by, any labor dispute, arbitration, lawsuit or administrative proceeding that reasonably -16- 22 could be expected to have a Material Adverse Effect on the Seller and the Seller Subsidiaries, taken as a whole. None of the employees of Seller or the Seller Subsidiaries are represented by any labor union or any collective bargaining organization. 2.17 Material Interests of Certain Persons. Except as set forth in ------------------------------------- Seller's proxy statement for its 1998 Annual Meeting of Shareholders, no officer or director of Seller or any of the Seller Subsidiaries, or any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of any such officer or director, has any interest in any contract or property (real or personal, tangible or intangible), used in, or pertaining to the business of, Seller or any of the Seller Subsidiaries, which in the case of Seller and each of the Seller Subsidiaries would be required to be disclosed by Item 404 of Regulation S-K promulgated by the SEC. 2.18 Allowance for Loan and Lease Losses; Non-Performing Assets; ----------------------------------------------------------- Financial Assets. - ---------------- (a) All of the accounts, notes and other receivables that are reflected in the Seller Financial Statements as of December 31, 1997 were acquired in the ordinary course of business and were collectible in full in the ordinary course of business, except for possible loan and lease losses that are adequately provided for in the allowance for loan and lease losses reflected in such Seller Financial Statements, and the collection experience of Seller and the Seller Subsidiaries since December 31, 1997 to the date hereof, has not deviated in any material and adverse manner from the credit and collection experience of Seller and the Seller Subsidiaries, taken as a whole, for the six months ended December 31, 1997. (b) The allowances for loan losses contained in the Seller Financial Statements were established in accordance with the past practices and experiences of Seller and the Seller Subsidiaries, and the allowance for loan and lease losses shown on the consolidated balance sheet of Seller and the Seller Subsidiaries as of December 31, 1997, were adequate in all material respects under the requirements of GAAP, or regulatory accounting principles, as the case may be, to provide for possible losses on loans and leases (including, without limitation, accrued interest receivable) and credit commitments (including, without limitation, stand-by letters of credit) as of the date of such balance sheet. (c) Schedule 2.18(c) sets forth as of the date of this ---------------- Agreement all assets classified by Seller as real estate acquired through foreclosure or repossession, including foreclosed assets. (d) As of December 31, 1997, the aggregate amount of all Non- Performing Assets (as defined below) on the books of Seller and the Seller Subsidiaries did not exceed $3,266,356. "Non-Performing Assets" shall mean (i) all loans (A) that are contractually past due 90 days or more in the payment of principal and/or interest, (B) that are on nonaccrual status, (C) that have been classified "doubtful," "loss" or the equivalent thereof by any Regulatory Agency or (D) where the interest rate terms have been reduced and/or the maturity dates have been extended subsequent to the agreement under which the loan was originally created due to concerns regarding the borrower's ability to pay in accordance with such initial terms, and (ii) all assets classified by Seller -17- 23 as real estate acquired through foreclosure or in lieu of foreclosure, including in-substance foreclosures, and all other assets acquired through foreclosure or in lieu of foreclosure. (e) All loans receivable (including discounts) and accrued interest entered on the books of Seller and the Seller Subsidiaries, to the extent unpaid on the Closing Date, arose out of bona fide arm's- length transactions, were made for good and valuable consideration in the ordinary course of Seller's or the appropriate Seller Subsidiary's respective business, and the notes or other evidences of indebtedness with respect to such loans or discounts are true and genuine and are what they purport to be. The loans, discounts and the accrued interest reflected on the books of Seller and the Seller Subsidiaries are subject to no defenses, set-offs or counterclaims (including, without limitation, those afforded by usury or truth-in-lending laws), except as may be provided by bankruptcy, insolvency or similar laws affecting creditors' rights generally or by general principles of equity. All such loans are owned by Seller or the appropriate Seller Subsidiary free and clear of any liens, restrictions or encumbrances. (f) The notes and other evidences of indebtedness evidencing the loans described in Section 2.18(e) above, and all pledges, mortgages, deeds of trust and other collateral documents or security instruments relating thereto are and will be, in all material respects, valid, true, genuine and enforceable, and what they purport to be. Seller and each of the Seller Subsidiaries has good and valid title to the investment securities shown on the Seller Financial Statements and all securities entered on the books of Seller or the appropriate Seller Subsidiary subsequent to December 31, 1997, except for those sold or redeemed in the ordinary course of business. A complete and accurate list of such investment securities as of December 31, 1997 is attached as Schedule 2.18(f). Such list shall be updated each month in writing ---------------- until the Closing. 2.19 Employee Benefit Plans. ---------------------- (a) Schedule 2.19(a) lists all pension, retirement, ---------------- supplemental retirement, stock option, stock purchase, stock ownership, savings, stock appreciation right, profit sharing, deferred compensation, consulting, bonus, medical, disability, workers' compensation, vacation, group insurance, severance and other employee benefit, incentive and welfare policies, contracts, plans and arrangements, and all trust agreements related thereto, maintained by or contributed to by Seller or any of the Seller Subsidiaries in respect of any of the present or former directors, officers, or other employees of and/or consultants to Seller or any of the Seller Subsidiaries (collectively, "Seller Employee Plans"). Seller has furnished Buyers with the following documents with respect to each Seller Employee Plan: (i) a true and complete copy of all written documents comprising such Seller Employee Plan (including amendments and individual agreements relating thereto) or, if there is no such written document, an accurate and complete description of the Seller Employee Plan; (ii) the most recently filed Form 5500 or Form 5500-C/R (including all schedules thereto), if applicable; (iii) the most recent financial statements and actuarial reports, if any; (iv) the summary plan description currently in effect and all material modifications thereof, if any; and (v) the most recent IRS determination letter, if any. -18- 24 (b) All Seller Employee Plans have been maintained and operated in all material respects in accordance with their terms and the material requirements of all applicable statutes, orders, rules and final regulations, including, without limitation, to the extent applicable, ERISA and the Internal Revenue Code of 1986, as amended (the "Code"). All contributions required to be made to Seller Employee Plans have been made or reserved. (c) With respect to each of the Seller Employee Plans which is a pension plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"): (i) each Pension Plan which is intended to be "qualified" within the meaning of Section 401(a) of the Code has been determined to be so qualified by the IRS and such determination letter may still be relied upon, and each related trust is exempt from taxation under Section 501(a) of the Code; (ii) the present value of all benefits vested and all benefits accrued under each Pension Plan which is subject to Title IV of ERISA did not, in each case, as of the last applicable annual valuation date (as indicated on Schedule 2.19(a)), ---------------- exceed the value of the assets of the Pension Plan allocable to such vested or accrued benefits; (iii) there has been no "prohibited transaction," as such term is defined in Section 4975 of the Code or Section 406 of ERISA, which could subject any Pension Plan or associated trust, or Seller or any of the Seller Subsidiaries, to any material tax or penalty; (iv) no defined benefit Pension Plan or any trust created thereunder has been terminated, nor has there been any "reportable events" with respect to any Pension Plan, as that term is defined in Section 4043 of ERISA since January 1, 1990; and (v) no Pension Plan or any trust created thereunder has incurred any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA (whether or not waived). No Pension Plan is a "multiemployer plan," as that term is defined in Section 3(37) of ERISA. (d) Except as disclosed in Schedule 2.19(d) or as reflected on ---------------- the Seller Financial Statements or the notes thereto, neither Seller nor any of the Seller Subsidiaries has any liability for any post- retirement health, medical or similar benefit of any kind whatsoever, except as required by statute or regulation. (e) Neither Seller nor any of the Seller Subsidiaries has any material liability under ERISA or the Code as a result of its being a member of a group described in Sections 414(b), (c), (m) or (o) of the Code. (f) Except as disclosed in Schedule 2.19(f), neither the ---------------- execution nor delivery of this Agreement, nor the consummation of any of the transactions contemplated hereby, will (i) result in any payment (including, without limitation, severance, unemployment compensation or golden parachute payment) becoming due to any director or employee of Seller or any of the Seller Subsidiaries from any of such entities, (ii) increase any benefit otherwise payable under any of the Seller Employee Plans or (iii) result in the acceleration of the time of payment of any such benefit. Seller shall use its best efforts to insure that no amounts paid or payable by Seller, the Seller Subsidiaries or Buyers to or with respect to any employee or former employee of Seller or any of the Seller Subsidiaries will fail to be deductible for federal income tax purposes by reason of Section 280G of the Code. -19- 25 2.20 Conduct of Seller to Date. From and after December 31, 1997 ------------------------- through the date of this Agreement, except as set forth in the Seller Financial Statements and the Seller Reports: (i) Seller and the Seller Subsidiaries have conducted their respective businesses in the ordinary and usual course consistent with past practices; (ii) except upon the exercise of Seller Stock Options, neither Seller nor any of the Seller Subsidiaries has issued, sold, granted, conferred or awarded any of its Equity Securities, or any corporate debt securities which would be classified under GAAP as long-term debt on the balance sheets of Seller or the Seller Subsidiaries; (iii) Seller has not effected any stock split or adjusted, combined, reclassified or otherwise changed its capitalization; (iv) Seller has not declared, set aside or paid any dividend (other than its regular quarterly dividends) or other distribution in respect of its capital stock, or purchased, redeemed, retired, repurchased or exchanged, or otherwise acquired or disposed of, directly or indirectly, any of its Equity Securities, whether pursuant to the terms of such Equity Securities or otherwise; (v) neither Seller nor any of the Seller Subsidiaries has incurred any obligation or liability (absolute or contingent), except liabilities incurred in the ordinary course of business or in connection with the transactions contemplated by this Agreement, or subjected to Lien any of its assets or properties other than in the ordinary course of business consistent with past practice; (vi) neither Seller nor any of the Seller Subsidiaries has discharged or satisfied any Lien or paid any obligation or liability (absolute or contingent), other than in the ordinary course of business; (vii) neither Seller nor any of the Seller Subsidiaries has sold, assigned, transferred, leased, exchanged, or otherwise disposed of any of its properties or assets other than for a fair consideration in the ordinary course of business; (viii) except as required by contract or law, neither Seller nor any of the Seller Subsidiaries has (A) increased the rate of compensation of, or paid any bonus to, any of its directors, officers, or other employees, except in accordance with existing policy, (B) entered into any new, or amended or supplemented any existing, employment, management, consulting, deferred compensation, severance, or other similar contract, (C) entered into, terminated, or substantially modified any of the Seller Employee Plans or (D) agreed to do any of the foregoing; (ix) neither Seller nor any Seller Subsidiary has suffered any material damage, destruction, or loss, whether as the result of fire, explosion, earthquake, accident, casualty, labor trouble, requisition, or taking of property by any Regulatory Authority, flood, windstorm, embargo, riot, act of God or the enemy, or other casualty or event, and whether or not covered by insurance; (x) neither Seller nor any of the Seller Subsidiaries has canceled or compromised any debt, except for debts charged off or compromised in accordance with the past practice of Seller and the Seller Subsidiaries; and (xi) neither Seller nor any of the Seller Subsidiaries has entered into any material transaction, contract or commitment outside the ordinary course of its business, except in connection with the transactions contemplated by this Agreement. 2.21 Absence of Undisclosed Liabilities. ---------------------------------- (a) As of December 31, 1997, neither Seller nor any of the Seller Subsidiaries has any debts, liabilities or obligations equal to or exceeding $50,000, individually or $100,000 in the aggregate, whether accrued, absolute, contingent or otherwise and whether due or to become due, which would be required to be reflected in the Seller Financial Statements or the notes thereto in accordance with GAAP except: (i) debts, liabilities or obligations reflected on the Seller Financial Statements and the notes thereto; (ii) operating leases reflected on Schedule 2.11(b); and ---------------- -20- 26 (iii) debts, liabilities or obligations incurred since December 31, 1997 in the ordinary and usual course of their respective businesses, none of which are for breach of contract, breach of warranty, torts, infringements or lawsuits and none of which have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. (b) Neither Seller nor any of the Seller Subsidiaries was as of December 31, 1997, or since such date to the date hereof, a party to any contract or agreement, excluding deposits, loan agreements, and commitments, notes, security agreements, repurchase and reverse repurchase agreements, bankers' acceptances, outstanding letters of credit and commitments to issue letters of credit, participation agreements and other documents relating to transactions entered into by Seller or any of the Seller Subsidiaries in the ordinary course of business, that had, has or may be reasonably expected to have a Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. 2.22 Proxy Statement, Etc. None of the information regarding Seller --------------------- or any of the Seller Subsidiaries to be supplied by Seller for inclusion or included in (i) the Registration Statement on Form S-4 to be filed with the SEC by Mercantile for the purpose of registering the shares of Mercantile Common Stock to be exchanged for Seller Common Stock pursuant to the provisions of this Agreement (the "Registration Statement"), (ii) the Proxy Statement to be mailed to Seller's shareholders in connection with the meeting to be called to consider this Agreement and the Merger (the "Proxy Statement") or (iii) any other documents to be filed with any Regulatory Authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with any Regulatory Authority and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the meeting of Seller's shareholders referred to in Section 5.03, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meeting. All documents which Seller or any of the Seller Subsidiaries is responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. 2.23 Registration Obligations. Neither Seller nor any of the Seller ------------------------ Subsidiaries is under any obligation, contingent or otherwise, which will survive the Effective Time by reason of any agreement to register any transaction involving any of its securities under the Securities Act. 2.24 Tax, Regulatory and Accounting Matters. Neither Seller nor any -------------------------------------- of the Seller Subsidiaries has taken or agreed to take any action or has any knowledge of any fact or circumstance that would (i) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code, (ii) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement or (iii) prevent or impede the transactions contemplated hereby from qualifying for pooling-of-interests accounting treatment. 2.25 Brokers and Finders. Except for ABN AMRO Incorporated, neither ------------------- Seller nor any of the Seller Subsidiaries nor any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, -21- 27 commissions or finder's fees, and no broker or finder has acted directly or indirectly for Seller or any of the Seller Subsidiaries in connection with this Agreement or the transactions contemplated hereby. 2.26 Interest Rate Risk Management Instruments ----------------------------------------- (a) Set forth on Schedule 2.26(a) is a list as of the date ---------------- hereof of all interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements to which Seller or any of the Seller Subsidiaries is a party or by which any of their properties or assets may be bound. (b) All such interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements to which Seller or any of the Seller Subsidiaries is a party or by which any of their properties or assets may be bound were entered into in the ordinary course of business and, to the best knowledge of Seller, in accordance with prudent banking practice and applicable rules, regulations and policies of Regulatory Authorities and with counterparties believed to be financially responsible at the time and are legal, valid and binding obligations of Seller or a Seller Subsidiary and are in full force and effect. Seller and each of the Seller Subsidiaries has duly performed in all material respects all of its obligations thereunder to the extent that such obligations to perform have accrued, and to the best knowledge of Seller, there are no material breaches, violations or defaults or allegations or assertions of such by any party thereunder. 2.27 Accuracy of Information. The statements contained in this ----------------------- Agreement, the Schedules and any other written document executed and delivered by or on behalf of Seller pursuant to the terms of this Agreement are true and correct as of the date hereof or as of the date delivered in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained therein not misleading. 2.28 Year 2000 Compliant. To the best knowledge of Seller, both ------------------- Seller and the Seller Subsidiaries have complied with regulatory bulletins issued through February 28, 1998 by the Federal Financial Institutions Examination Council on the subject of Year 2000 Compliance. Seller and the Seller Subsidiaries have exercised ordinary care in assessing Year 2000 Compliance status of all material computer software, firmware and hardware used in the ordinary course of business as set forth on Schedule 2.28, which ------------- is a Y2K Inventory & Risk Assessment Matrix. Seller and the Seller Subsidiaries shall continue to work through Closing with its vendors to renovate or replace non-compliant computer software, firmware and hardware in order to ensure that the testing of renovated or replaced items is substantially underway by December 31, 1998. ARTICLE III ----------- REPRESENTATIONS AND WARRANTIES OF THE BUYERS As an inducement to Seller to enter into and perform its obligations under this Agreement, and notwithstanding any examinations, inspections, audits or other investigations made by Seller, the Buyers hereby represent and warrant to Seller as follows: -22- 28 3.01 Organization and Authority. Mercantile and Merger Sub are each -------------------------- corporations duly organized, validly existing and in good standing under the laws of the State of Missouri, are each qualified to do business and are each in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect on Mercantile and its Subsidiaries, taken as a whole, and has corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. Each of Mercantile and Merger Sub is registered as a bank holding company with the Federal Reserve Board under the BHCA. 3.02 Capitalization of Mercantile. The authorized capital stock of ---------------------------- Mercantile consists of (i) 400,000,000 shares of Mercantile Common Stock, of which, as of April 23, 1998, 134,960,625 shares were issued and [133,115,227] were outstanding and (ii) 5,000,000 shares of preferred stock, no par value ("Mercantile Preferred Stock"), issuable in series, of which as of the date hereof, no shares were issued and outstanding. Mercantile has designated 2,000,000 shares of Mercantile Preferred Stock as "Series A Junior Participating Preferred Stock" and has reserved such shares under a Rights Agreement dated May 23, 1988 between Mercantile and Mercantile Bank National Association, as Rights Agent (the "Rights Agreement" and, the rights to be issued pursuant thereto, the "Rights"). As of March 31, 1998, Mercantile had reserved: (i) 13,836,802 shares of Mercantile Common Stock for issuance under Mercantile's Shareholder Investment Plan (the "Investment Plan") and various employee and/or director stock option, incentive and/or benefit plans (collectively, "Mercantile Employee/Director Stock Grants"); (ii) 2,077,000 shares of Mercantile Common Stock for issuance upon the acquisition of Financial Services Corporation of the Midwest ("FSCM") pursuant to the Agreement and Plan of Merger, dated as of April 13, 1998, by and among Mercantile, Merger Sub and FSCM; (iii) 5,400,000 shares of Mercantile Common Stock for issuance upon the acquisition of CBT Corporation ("CBT") pursuant to the Agreement and Plan of Merger, dated as of January 10, 1998, by and among Mercantile, Merger Sub and CBT; and (iv) 13,800,000 shares of Mercantile Common Stock for issuance upon the acquisition of Firstbank of Illinois ("Firstbank") pursuant to the Agreement and Plan of Merger, dated as of January 30, 1998, by and among Mercantile, Merger Sub and Firstbank. From March 31, 1998 through the date of this Agreement, no shares of Mercantile Common Stock have been issued, excluding any such shares which may have been issued in connection with the Investment Plan or Mercantile Employee/Director Stock Grants. Mercantile continually evaluates possible acquisitions and may prior to the Effective Time enter into one or more agreements providing for, and may consummate, the acquisition by it of another bank, association, bank holding company, savings and loan holding company or other company (or the assets thereof) for consideration that may include Equity Securities. In addition, prior to the Effective Time, Mercantile may, depending on market conditions and other factors, otherwise determine to issue equity, equity-linked or other securities for financing purposes or repurchase its outstanding Equity Securities. Notwithstanding the foregoing, neither Mercantile nor any Mercantile Subsidiary has taken or agreed to take any action or has any knowledge of any fact or circumstance and neither Mercantile nor Merger Sub will take any action that would (i) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code, (ii) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement or (iii) prevent or impede the Merger from qualifying for pooling-of-interests accounting treatment. Except as set forth above, there are no other Equity Securities of Mercantile outstanding. All of the issued and outstanding shares of Mercantile Common Stock are validly issued, fully paid, and nonassessable, and have not been issued in violation of any preemptive right of any shareholder of Mercantile. At the Effective Time, the Mercantile Common Stock to be -23- 29 issued in the Merger will be duly authorized, validly issued, fully paid and nonassessable, will not be issued in violation of any preemptive right of any shareholder of Mercantile. 3.03 Authorization. ------------- (a) Mercantile and Merger Sub each has the corporate power and authority to enter into this Agreement and to carry out their respective obligations hereunder. The execution, delivery and performance of this Agreement by Mercantile and Merger Sub and the consummation by Mercantile and Merger Sub of the transactions contemplated hereby have been duly authorized by all requisite corporate action of Mercantile and Merger Sub. Subject to the receipt of such approvals of the Regulatory Authorities as may be required by statute or regulation, this Agreement is a valid and binding obligation of Mercantile and Merger Sub enforceable against each in accordance with its terms. (b) Neither the execution, delivery and performance by Mercantile and Merger Sub of this Agreement, nor the consummation by Mercantile and Merger Sub of the transactions contemplated hereby, nor compliance by Mercantile and Merger Sub with any of the provisions hereof, will (i) violate, conflict with or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any Lien upon any of the properties or assets of Mercantile or Merger Sub under any of the terms, conditions or provisions of (x) their respective Articles of Incorporation or By-Laws, or (y) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Mercantile or Merger Sub is a party or by which they may be bound, or to which Mercantile or Merger Sub or any of their respective properties or assets may be subject, or (ii) subject to compliance with the statutes and regulations referred to in subsection (c) of this Section 3.03, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Mercantile or Merger Sub or any of their respective properties or assets; other than violations, conflicts, breaches, defaults, terminations, accelerations or Liens which would not have a Material Adverse Effect on Mercantile and its Subsidiaries, taken as a whole. (c) Other than in connection with or in compliance with the provisions of the Missouri Statute, the IBCA, the Securities Act, the Exchange Act, the securities or blue sky laws of the various states or filings, consents, reviews, authorizations, approvals or exemptions required under the BHCA, the FDI Act or any required approvals of any other Regulatory Authority, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Mercantile and Merger Sub of the transactions contemplated by this Agreement. 3.04 Mercantile Financial Statements. The consolidated balance sheets ------------------------------- of Mercantile and its Subsidiaries as of December 31, 1997, 1996 and 1995 and related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997, together with the notes thereto, audited by KPMG Peat Marwick LLP, as filed with -24- 30 the SEC on Form 10-K for the year ended December 31, 1997 (collectively, the "Mercantile Financial Statements"), have been prepared in accordance with GAAP, present fairly the consolidated financial position of Mercantile and its Subsidiaries at the dates thereof and the consolidated results of operations, changes in shareholders' equity and cash flows of Mercantile and its Subsidiaries for the periods stated therein and are derived from the books and records of Mercantile and its Subsidiaries, which are complete and accurate in all material respects and have been maintained in accordance with good business practices. Neither Mercantile nor any of its Subsidiaries has any material contingent liabilities that are not described in the Mercantile Financial Statements. 3.05 Mercantile Reports. Since January 1, 1995, each of Mercantile ------------------ and its Subsidiaries has filed any and all reports, registrations and statements, together with any required amendments thereto, that it was required to file with any Regulatory Authority. All such reports and statements filed with any such Regulatory Authority are collectively referred to herein as the "Mercantile Reports." As of its respective date, each Mercantile Report complied in all material respects with all the rules and regulations promulgated by the applicable Regulatory Authority and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.06 Material Adverse Effect. Since December 31, 1997, there has been ----------------------- no Material Adverse Effect on Mercantile and its Subsidiaries, taken as a whole. 3.07 Registration Statement, Etc. None of the information regarding --------------------------- Mercantile or any of its Subsidiaries to be supplied by Buyers for inclusion or included in (i) the Registration Statement, (ii) the Proxy Statement, or (iii) any other documents to be filed with any Regulatory Authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with any Regulatory Authority and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the meeting of Seller's shareholders referred to in Section 5.03, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meeting. All documents which Mercantile or Merger Sub are responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. 3.08 Brokers and Finders. Neither Mercantile, Merger Sub nor any of ------------------- their respective officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Mercantile or Merger Sub in connection with this Agreement or the transactions contemplated hereby. 3.09 Accuracy of Information. The statements contained in this ----------------------- Agreement and any other written document executed and delivered by or on behalf of Buyers pursuant to the terms of this Agreement are true and correct as of the date hereof in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained therein not misleading. -25- 31 ARTICLE IV ---------- CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME 4.01 Conduct of Businesses Prior to the Effective Time. During the ------------------------------------------------- period from the date of this Agreement to the Effective Time, Seller and each of the Seller Subsidiaries shall conduct their businesses according to the ordinary and usual course consistent with past and current practices and shall use their best efforts to maintain and preserve their business organization, employees and advantageous business relationships and retain the services of their officers and key employees. 4.02 Forbearances of Seller Except as set forth in Schedule 4.02, and --------------------- ------------- except to the extent required by law, regulation or Regulatory Authority, or with the prior written consent of Buyers (unless otherwise specifically noted in this Section 4.02), during the period from the date of this Agreement to the Effective Time, Seller shall not and shall not permit any of the Seller Subsidiaries to: (a) declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock (other than dividends from any of the Seller Subsidiaries to Seller or to another of the Seller Subsidiaries), except that Seller may declare and pay regular quarterly cash dividends of not more than $0.2725 per share on the Seller Common Stock; provided, however, that Seller shall not declare or pay a quarterly dividend for any quarter in which Seller shareholders will be entitled to receive a regular quarterly dividend on the shares of Mercantile Common Stock to be issued in the Merger; (b) enter into or amend any employment, severance or similar agreement or arrangement with any director, officer or employee, or materially modify any of the Seller Employee Plans or grant any salary or wage increase or materially increase any employee benefit (including incentive or bonus payments), except (i) normal individual increases in compensation to employees consistent with past practice, (ii) as required by law or contract, (iii) such increases of which Seller notifies Buyers in writing and which Buyers do not disapprove within 10 days of the receipt of such notice and (iv) pursuant to the provisions of Section 5.10 hereof; (c) authorize, recommend, propose or announce an intention to authorize, recommend or propose, or enter into an agreement in principle with respect to, any merger, consolidation or business combination (other than the Merger), any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any release or relinquishment of any material contract rights; (d) propose or adopt any amendments to its Articles of Incorporation or other charter document or By-Laws; (e) issue, sell, grant, confer or award any of its Equity Securities, except that the Seller may issue shares of Seller Common Stock upon exercise of the Seller Stock Options outstanding on the date of this Agreement and pursuant to the option granted to Mercantile in connection with the transaction contemplated by this Agreement, or effect any stock split or adjust, combine, reclassify or otherwise change its capitalization as it existed on the date of this Agreement; -26- 32 (f) purchase, redeem, retire, repurchase or exchange, or otherwise acquire or dispose of, directly or indirectly, any of its Equity Securities, whether pursuant to the terms of such Equity Securities or otherwise; (g) without first consulting with and obtaining the written consent of Mercantile, cause or permit FNBI to enter into, renew or increase any loan or credit commitment (including stand-by letters of credit) to, or invest or agree to invest in any person or entity or modify any of the material provisions or renew or otherwise extend the maturity date of any existing loan or credit commitment (collectively, "Lend to") in an amount equal to or in excess of $1,000,000 or in any amount which, when aggregated with any and all loans or credit commitments of Seller and the Seller Subsidiaries to such person or entity, would be equal to or in excess of $1,000,000; provided, however, that Seller or any of the Seller Subsidiaries may make any such loan or credit commitment in the event (A) Seller or any Seller Subsidiary has delivered to Buyers or their designated representative a notice of its intention to make such loan and such information as Buyers or their designated representative may reasonably require in respect thereof and (B) Buyers or their designated representative shall not have reasonably objected to such loan by giving written or facsimile notice of such objection within two (2) business days following the delivery to Buyers or their designated representative of the notice of intention and information as aforesaid; provided further, however, that nothing in this paragraph shall prohibit Seller or any Seller Subsidiary from honoring any contractual obligation in existence on the date of this Agreement. Notwithstanding this Section 4.02(g), Seller shall be authorized without first consulting with Buyers or obtaining Buyers' prior written consent, to cause or permit FNBI to increase the aggregate amount of any credit facilities theretofore established in favor of any person or entity (each a "Pre-Existing Facility"), provided that the aggregate amount of any and all such increases shall not be in excess of the lesser of 10% of such Pre- Existing Facilities or $50,000; (h) directly or indirectly (including through its officers, directors, employees or other representatives) (i) initiate, solicit or encourage any discussions, inquiries or proposals with any third party (other than Buyers) relating to the disposition of any significant portion of the business or assets of Seller or any of the Seller Subsidiaries or the acquisition of Equity Securities of Seller or any of the Seller Subsidiaries or the merger of Seller or any of the Seller Subsidiaries with any person (other than Buyers) or any similar transaction (each such transaction being referred to herein as an "Acquisition Transaction"), (ii) provide any such person with information or assistance or negotiate with any such person with respect to an Acquisition Transaction, and Seller shall promptly notify Buyers orally of all the relevant details relating to all inquiries, indications of interest and proposals which it may receive with respect to any Acquisition Transaction; (i) take any action that would (i) prevent or impede the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code, (ii) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Buyers or Seller to obtain any approval of any Regulatory Authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement, or -27- 33 (iii) prevent or impede the Merger from qualifying for pooling-of-interests accounting treatment; (j) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity; (k) materially restructure or change its investment securities portfolio, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported, or execute individual investment transactions for its own account of greater than $1,000,000 for U.S. Treasury or Federal Agency Securities and $250,000 for all other investment instruments; (l) agree in writing or otherwise to take any of the foregoing actions or engage in any activity, enter into any transaction or intentionally take or omit to take any other act which would make any of the representations and warranties in Article II of this Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other act; or (m) enter into, increase or renew any loan or credit commitment (including standby letters of credit) to any executive officer or director of Seller or any of the Seller Subsidiaries, any holder of 10% or more of the outstanding shares of Seller Common Stock, or any entity controlled, directly or indirectly, by any of the foregoing or engage in any transaction with any of the foregoing which is of the type or nature sought to be regulated in 12 U.S.C. Sec. 371c and 12 U.S.C. Sec. 371c-1, without first obtaining the prior written consent of Buyers, which consent shall not be unreasonably withheld. For purposes of this subsection (m), "control" shall have the meaning associated with that term under 12 U.S.C. Sec. 371c. 4.03 Forbearances of the Buyers. During the period from the date of -------------------------- this Agreement to the Closing Date, the Buyers shall not, without the prior consent of Seller, agree in writing or otherwise to engage in any activity, enter into any transaction or take or omit to take any other action: (a) that would (i) prevent or impede the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code, (ii) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Mercantile or Seller to obtain any necessary approvals of any Regulatory Authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement, or (iii) prevent or impede the Merger from qualifying for pooling-of-interests accounting treatment; or (b) which would make any of the representations and warranties of Article III of this Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other action. -28- 34 ARTICLE V --------- ADDITIONAL AGREEMENTS 5.01 Access and Information; Due Diligence. Buyers and Seller shall ------------------------------------- each afford to the other, and to the other's accountants, counsel and other representatives, full access during normal business hours, during the period prior to the Effective Time, to all their respective properties, books, contracts, commitments and records and, during such period, each shall furnish promptly to the other (i) a copy of each report, schedule and other document filed or received by it during such period pursuant to the requirements of federal and state securities laws and (ii) all other information concerning its business, properties and personnel as the other may reasonably request. Each party shall, and shall cause its advisors and representatives to, (A) hold confidential all information obtained in connection with any transaction contemplated hereby with respect to the other party and its Subsidiaries which is not otherwise public knowledge, (B) in the event of a termination of this Agreement, return all documents (including copies thereof) obtained hereunder from the other party or any of its Subsidiaries to such other party or its Subsidiaries and (C) use its best efforts to cause all information obtained pursuant to this Agreement or in connection with the negotiation of this Agreement to be treated as confidential and not use, or knowingly permit others to use, any such information unless such information becomes generally available to the public. 5.02 Registration Statement; Regulatory Matters. ------------------------------------------ (a) Mercantile shall prepare and, subject to the review and consent of Seller with respect to matters relating to Seller, file with the SEC the Registration Statement (or the equivalent in the form of preliminary proxy materials) with respect to the shares of Mercantile Common Stock to be issued in the Merger and the exercise of the Seller Stock Options after the Effective Time. Mercantile shall promptly prepare and, subject to the review and consent of Seller with respect to matters relating to Seller, use its best efforts to file as soon as is reasonably practicable an application for approval of the Merger with the Federal Reserve Board, and such additional regulatory authorities as may require an application, and shall use its best efforts to cause the Registration Statement to become effective. Mercantile shall also take any action required to be taken under any applicable state blue sky or securities laws in connection with the issuance of such shares and the exercise of such options, and Seller and the Seller Subsidiaries shall furnish Mercantile all information concerning Seller and the Seller Subsidiaries and the shareholders thereof as Mercantile may reasonably request in connection with any such action. (b) Seller and Buyers shall cooperate and use their respective best efforts to prepare all documentation, to effect all filings and to obtain all permits, consents, approvals and authorizations of all third parties and Regulatory Authorities necessary to consummate the transactions contemplated by this Agreement and, as and if directed by Mercantile, to consummate such other transactions by and among Mercantile's Subsidiaries and the Seller Subsidiaries concurrently with or following the Effective Time, provided, however, that such actions do not: (i) prevent or impede the transactions contemplated -29- 35 hereby from qualifying as a reorganization within the meaning of Section 368 of the Code; (ii) materially impede or delay the receipt of any approval referred to in Section 6.01(b); (iii) prevent or impede the transactions contemplated hereby from qualifying for pooling-of- interests accounting treatment unless Buyers first waive Seller's covenants in Sections 5.02(b) and 5.16 hereof and the condition to Buyers' obligation to consummate the Merger set forth in Section 6.03(f) hereof; or (iv) materially impede or delay the consummation of the transactions contemplated by this Agreement. 5.03 Shareholder Approval. Seller shall call a special meeting of its -------------------- shareholders to be held as soon as is reasonably possible for the purpose of voting upon this Agreement and the Merger and related matters. In connection with such meeting, Mercantile shall prepare, subject to the review and consent of Seller, the Proxy Statement (which shall be part of the Registration Statement to be filed with the SEC by Mercantile) and mail the same to the shareholders of Seller. The Board of Directors of Seller shall submit for approval of Seller's shareholders the matters to be voted upon at such meeting. The Board of Directors of Seller hereby does and, subject to the fiduciary duties of the Seller's Board of Directors, as advised by outside legal counsel, will recommend this Agreement and the transactions contemplated hereby to the shareholders of Seller and use its reasonable best efforts to obtain any vote of Seller's shareholders necessary for the approval of this Agreement. 5.04 Current Information. During the period from the date of this ------------------- Agreement to the Closing Date, (i) each party will promptly furnish the other with copies of all monthly and other interim financial statements as the same become available and shall cause one or more of its designated representatives to confer on a regular and frequent basis with representatives of the other party and (ii) Mercantile shall promptly furnish to the Seller copies of all filings by Mercantile with each of the Federal Reserve Board and the SEC. Each party shall promptly notify the other party of the following events immediately upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken by the affected party with respect thereto: (a) the occurrence of any event which could cause any representation or warranty of such party or any schedule, statement, report, notice, certificate or other writing furnished by such party to be untrue or misleading in any material respect; (b) any Material Adverse Effect; (c) the issuance or commencement of any governmental and/or regulatory agency complaint, investigation or hearing or any communications indicating that the same may be contemplated and, as to any such matter which shall now or hereafter be in effect, any communications pertaining thereto; or (d) the institution or the threat of any material litigation involving such party. 5.05 Conforming Entries. ------------------ (a) Notwithstanding that Seller believes that Seller and Seller Subsidiaries have established all reserves and taken all provisions for possible loan losses required by GAAP and applicable laws, rules and regulations, Seller recognizes that Buyers may have adopted different loan, accrual and reserve policies (including loan classifications and levels of reserves for possible loan losses). From and after the date of this Agreement, Seller and Buyers shall consult and cooperate with each other with respect to conforming the loan, accrual and reserve policies of Seller and the Seller Subsidiaries to those policies of Buyers, as specified in each case in writing to Seller, based upon such consultation and as hereinafter provided. (b) In addition, from and after the date of this Agreement, Seller and Buyers shall consult and cooperate with each other with respect to determining appropriate Seller accruals, reserves and charges to establish and take in respect of excess equipment write-off or write-down of various assets and other appropriate charges and accounting -30- 36 adjustments taking into account the parties' business plans following the Merger, as specified in each case in writing to Seller, based upon such consultation and as hereinafter provided. (c) Seller and Buyers shall consult and cooperate with each other with respect to determining the amount and the timing for recognizing for financial accounting purposes Seller's expenses of the Merger and the restructuring charges, if any, related to or to be incurred in connection with the Merger. (d) With respect to clauses (a) through (c) of this Section 5.05, it is the objective of Mercantile and Seller that such reserves, accruals, charges and divestitures, if any, to be taken shall be consistent with GAAP. 5.06 Environmental Reports. Buyers may perform, as soon as reasonably --------------------- practicable, but not later than ninety (90) days after the date hereof, a phase one environmental investigation and/or asbestos survey by Environmental Operations, Inc. or any other firm designated by Buyers, or any of them, on all real property owned, leased or operated by Seller or any of the Seller Subsidiaries as of the date hereof (but excluding space in retail and similar establishments leased by Seller for automatic teller machines or leased bank branch facilities where the space leased comprises less than 20% of the total space leased to all tenants of such property) and within fifteen (15) days after being notified by Sellers of the acquisition or lease of any real property acquired or leased by Seller or any of the Seller Subsidiaries after the date hereof (but excluding space in retail and similar establishments leased by Seller for automatic teller machines or leased bank facilities where the space leased comprises less than 20% of the total space leased to all tenants of such property). If the results of the phase one investigation indicate, in Buyers' reasonable opinion, that additional investigation is warranted, Buyers may perform, at Buyers' expense, a phase two subsurface investigation or investigations by Environmental Operations, Inc. on properties deemed to warrant such additional study. Buyers shall perform any such phase two investigation as soon as reasonably practicable after receipt of the phase one report(s) for such properties and, in any event, shall notify Seller and Environmental Operations, Inc. within fifteen (15) days after receipt of the phase one report that Environmental Operations, Inc. should promptly commence any such phase two investigation. Should the cost of taking all remedial or other corrective actions and measures (i) required by applicable law or (ii) recommended by Environmental Operations, Inc. in such phase one or two report or reports, in the aggregate, exceed the sum of $500,000, as reasonably estimated by Environmental Operations, Inc., or if the cost of such actions or measures cannot be so reasonably estimated by Environmental Operations, Inc. to be such amounts or less with any reasonable degree of certainty, Buyers shall have the right pursuant to Section 7.01(e) hereof, for a period of fifteen (15) business days following receipt from Environmental Operations, Inc. of such estimate or indication that the cost of such actions and measures cannot be so reasonably estimated, to terminate this Agreement. 5.07 Agreements of Affiliates. Set forth as Schedule 5.07 is a list ------------------------ ------------- (which includes all individual and beneficial ownership and also identifies how all such beneficially owned shares are registered on the stock record book of Seller) of all persons whom Seller believes to be "affiliates" of Seller for purposes of Rule 145 under the Securities Act and for pooling-of-interests accounting treatment. Seller shall use its best efforts to cause each person who is identified as an "affiliate" to deliver to Mercantile, as of the date hereof, or as soon as practicable hereafter, a written agreement in substantially the form set forth as Exhibit A to this --------- Agreement providing that each such person will agree not to sell, pledge, transfer or otherwise dispose of the shares of Mercantile Common Stock to be received by such person in the Merger during the period designated in such letter and thereafter in -31- 37 compliance with the applicable provisions of the Securities Act. Prior to the Closing Date, and via letter, Seller shall amend and supplement Schedule 5.07 ------------- and use its best efforts to cause each additional person who is identified as an "affiliate" to execute a written agreement as provided in this Section 5.07. 5.08 Expenses. Each party hereto shall bear its own expenses incident -------- to preparing, entering into and carrying out this Agreement and to consummating the Merger; provided, however, that any and all fees (excluding reasonable out-of-pocket expenses) paid by Seller to its legal counsel, Sidley & Austin, related to the preparation of this Agreement and all other agreements and documentation in connection with the consummation of the transactions contemplated herein, shall not exceed $100,000; provided further, however, that Buyers shall pay all printing expenses and filing fees incurred in connection with this Agreement, the Registration Statement and the Proxy Statement. 5.09 Miscellaneous Agreements and Consents. ------------------------------------- (a) Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its respective best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as expeditiously as possible, including, without limitation, using its respective best efforts to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. Each party shall, and shall cause each of its respective Subsidiaries to, use its best efforts to obtain consents of all third parties and Regulatory Authorities necessary or, in the opinion of Buyers, desirable for the consummation of the transactions contemplated by this Agreement. (b) Seller, prior to the Effective Time, shall (i) consult and cooperate with Buyers regarding the implementation of those policies and procedures established by Buyers for its governance and that of its Subsidiaries and not otherwise referenced in Section 5.05 hereof, including, without limitation, policies and procedures pertaining to the accounting, asset/liability management, audit, credit, human resources, treasury and legal functions, and (ii) at the reasonable request of Buyers, conform Seller's existing policies and procedures in respect of such matters to Buyers' policies and procedures or, in the absence of any existing Seller policy or procedure regarding any such function, introduce Buyers' policies or procedures in respect thereof, unless to do so would cause Seller or any of the Seller Subsidiaries to be in violation of any law, rule or regulation or requirement of any Regulatory Authority having jurisdiction over Seller and/or the Seller Subsidiary affected thereby. 5.10 Employee Agreements and Benefits. -------------------------------- (a) Following the Effective Time, Buyers shall cause the Surviving Corporation to honor in accordance with their terms all employment, severance and other compensation contracts set forth on Schedule 2.11(b) between Seller, any of the Seller Subsidiaries, and ---------------- any current or former director, officer, employee or agent thereof, and all provisions for vested benefits or other vested amounts earned or accrued through the Effective Time under the Seller Employee Plans. -32- 38 (b) Subject to Section 5.15, the provisions of the Seller Stock Plans and any other plan, program or arrangement providing for the issuance or grant of any other interest in respect of the Equity Securities of Seller or any of the Seller Subsidiaries shall be deleted and terminated as of the Effective Time. (c) Except as set forth in Section 5.10(b) hereof, the Seller Employee Plans shall not be terminated by reason of the Merger but shall continue thereafter as plans of the Surviving Corporation until such time as the employees of Seller and the Seller Subsidiaries are integrated into Mercantile's employee benefit plans that are available to other employees of Mercantile and its Subsidiaries, subject to the terms and conditions specified in such plans and to such changes therein as may be necessary to reflect the consummation of the Merger. Mercantile shall take such steps as are necessary or required to integrate the employees of Seller and the Seller Subsidiaries into Mercantile's employee benefit plans available to other employees of Mercantile and its Subsidiaries as soon as practicable after the Effective Time, with (i) full credit for prior service with Seller or any of the Seller Subsidiaries for purposes of vesting and eligibility for participation and benefit allocation (but not benefit accruals under any defined benefit plan), and co-payments and deductibles, (ii) waiver of all waiting periods, evidence of insurability and pre- existing condition exclusions or penalties, and (iii) full credit for claims arising prior to the Effective Time for purposes of deductibles, out-of-pocket maximums, benefit maximums and all other similar limitations for the applicable plan year in which the Merger is consummated. 5.11 Press Releases. Except to the extent disclosure may be required -------------- by applicable law, Seller and the Buyers shall consult with each other as to the form and substance of any proposed press release or other proposed public disclosure of matters related to this Agreement or any of the transactions contemplated hereby. 5.12 State Takeover Statutes. Seller will take all steps necessary to ----------------------- exempt the transactions contemplated by this Agreement and any agreement contemplated hereby from, and if necessary challenge the validity of, any applicable state takeover law. 5.13 Directors' and Officers' Indemnification. Mercantile agrees that ---------------------------------------- the Merger shall not affect or diminish any of the duties and obligations of indemnification of Seller or any of the Seller Subsidiaries existing as of the Effective Time in favor of employees, agents, directors or officers of Seller or any of the Seller Subsidiaries arising by virtue of its Articles of Incorporation, Charter or By-Laws in the form in effect at the date of this Agreement or arising by operation of law or arising by virtue of any contract, resolution or other agreement or document existing at the date of this Agreement, and Mercantile shall continue such duties and obligations in full force and effect for so long as they would (but for the Merger) otherwise survive and continue in full force and effect. To the extent that Seller's existing directors' and officers' liability insurance policy would provide coverage for any action or omission occurring prior to the Effective Time, Seller agrees to give proper notice to the insurance carrier and to Mercantile of any potential claim thereunder so as to preserve Seller's rights to such insurance coverage. Mercantile represents that the directors' and officers' liability insurance policy maintained by it provides for coverage of "prior acts" for directors and officers of entities acquired by Mercantile including Seller and the Seller Subsidiaries on and after the Effective Time. After the Effective Time, Mercantile will provide, or cause to be provided, such coverage to the officers and -33- 39 directors of Seller to the same extent as provided to officer and directors of Mercantile's other Subsidiaries. 5.14 Tax Opinion Certificates. Seller shall cause such of its ------------------------ executive officers and directors as may be reasonably requested by Thompson Coburn to timely execute and deliver to Thompson Coburn a certificate substantially in the form of Exhibit B hereto. --------- 5.15 Employee Stock Options. ---------------------- (a) At the Effective Time, all rights with respect to Seller Common Stock pursuant to Seller Stock Options that are outstanding at the Effective Time, whether or not then exercisable, shall be converted into and become rights with respect to Mercantile Common Stock, and Mercantile shall assume all Seller Stock Options in accordance with the terms of the Seller Stock Plan under which it was issued and the Seller Stock Option Agreement by which it is evidenced. From and after the Effective Time, (i) each Seller Stock Option assumed by Mercantile shall be exercised solely for shares of Mercantile Common Stock, (ii) the number of shares of Mercantile Common Stock subject to each Seller Stock Option shall be equal to the number of shares of Seller Common Stock subject to such Seller Stock Option immediately prior to the Effective Time multiplied by the Exchange Ratio and (iii) the per share exercise price under each Seller Stock Option shall be adjusted by dividing the per share exercise price under such Seller Stock Option by the Exchange Ratio and rounding down to the nearest cent; provided, however, that the terms of each Seller Stock Option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, stock dividend, recapitalization or other similar transaction subsequent to the Effective Time. It is intended that the foregoing assumption shall be undertaken in a manner that will not constitute a "modification" as defined in the Code, as to any Seller Stock Option that is an "incentive stock option" as defined under the Code. (b) The shares of Mercantile Common Stock covered by the Seller Stock Options shall be covered by an effective registration statement filed on Form S-8 with the SEC and shall be duly authorized, validly issued and in compliance with all applicable federal and state securities laws, fully paid and nonassessable and not subject to or in violation of any preemptive rights. Mercantile shall maintain the effectiveness of such registration statement (and maintain current status of the prospectus contained therein) for as long as such options remain outstanding. Mercantile shall at and after the Effective Time have reserved sufficient shares of Mercantile Common Stock for issuance with respect to such options. Mercantile shall also take any action required to be taken under any applicable state blue sky or securities laws in connection with the issuance of such shares. 5.16 Best Efforts to Insure Pooling. Each of Mercantile and Seller ------------------------------ undertakes and agrees to use its best efforts to cause the Merger to qualify for pooling-of-interests accounting treatment. -34- 40 ARTICLE VI ---------- CONDITIONS 6.01 Conditions to Each Party's Obligation To Effect the Merger. The ---------------------------------------------------------- respective obligations of each party to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: (a) Shareholder Approval. The approval of this Agreement and -------------------- the Merger shall have received the requisite vote of shareholders of Seller at the special meeting of shareholders called pursuant to Section 5.03 hereof. (b) Regulatory Approval. This Agreement and the transactions ------------------- contemplated hereby shall have been approved by the Federal Reserve Board and any other federal and/or state regulatory agencies whose approval is required for consummation of the transactions contemplated hereby and all requisite waiting periods imposed by the foregoing shall have expired. (c) Effectiveness of Registration Statement. The Registration --------------------------------------- Statement shall have been declared effective and shall not be subject to a stop order or any threatened stop order. (d) No Judicial Prohibition. Neither Seller, Mercantile nor ----------------------- Merger Sub shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger. (e) Tax Opinion. Each of Buyers and Seller shall have received ----------- from Thompson Coburn an opinion (which opinion shall not have been withdrawn at or prior to the Effective Time) reasonably satisfactory in form and substance to it to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Code, and to the effect that, as a result of the Merger, except with respect to fractional share interests and assuming that such Seller Common Stock is a capital asset in the hands of the holder thereof at the Effective Time, (i) holders of Seller Common Stock who receive Mercantile Common Stock in the Merger will not recognize gain or loss for federal income tax purposes on the receipt of such stock, (ii) the basis of such Mercantile Common Stock will equal the basis of the Seller Common Stock for which it is exchanged, and (iii) and the holding period of such Mercantile Common Stock will include the holding period of the Seller Common Stock for which it is exchanged. 6.02 Conditions to Obligations of Seller. The obligations of Seller ----------------------------------- to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The representations and ----------------------------- warranties of Buyers set forth in Article III of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time, except (i) to the extent such representations and warranties are by their express provisions made as of a specified date or period, -35- 41 (ii) where the facts which caused the failure of any representation or warranty to be so true and correct have not resulted, and are not likely to result, in a Material Adverse Effect on Mercantile and its Subsidiaries, taken as a whole, and (iii) for the effect of transactions contemplated by this Agreement), and Seller shall have received a certificate of any Executive Vice President of Mercantile, signing solely in his capacity as an officer of Mercantile, to such effect. (b) Performance of Obligations. Buyers shall have performed in -------------------------- all material respects all obligations required to be performed by it under this Agreement prior to the Effective Time, and Seller shall have received a certificate of any Executive Vice President of Mercantile, signing solely in his capacity as an officer of Mercantile, to that effect. (c) Permits, Authorizations, etc. Buyers shall have obtained ----------------------------- any and all material permits, authorizations, consents, waivers and approvals required for the lawful consummation of the Merger. (d) No Material Adverse Effect. Since the date of this -------------------------- Agreement, there shall have been no Material Adverse Effect on Mercantile and its Subsidiaries, taken as a whole. (e) Opinion of Counsel. Mercantile shall have delivered to ------------------ Seller an opinion of Mercantile's counsel dated as of the Closing Date or a mutually agreeable earlier date in substantially the form set forth as Exhibit C to this Agreement. --------- 6.03 Conditions to Obligations of the Buyers. The obligations of the --------------------------------------- Buyers to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The representations and ------------------------------ warranties of Seller set forth in Article II of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time, except (i) to the extent such representations and warranties are by their express provisions made as of a specific date or period, (ii) where the facts which caused the failure of any representation or warranty to be so true and correct have not resulted, and are not likely to result, in a Material Adverse Effect on Seller and its Subsidiaries, taken as a whole, and (iii) for the effect of transactions contemplated by this Agreement) and Buyers shall have received a certificate of the Chief Executive Officer and Chief Financial Officer of Seller, signing solely in their capacities as officers of Seller, to such effect. (b) Performance of Obligations. Seller shall have performed in -------------------------- all material respects all obligations required to be performed by it under this Agreement prior to the Effective Time, and Buyers shall have received a certificate of the Chief Executive Officer and Chief Financial Officer, signing solely in their capacities as officers of Seller, to that effect. -36- 42 (c) Permits, Authorizations, etc. Seller shall have obtained ----------------------------- any and all material permits, authorizations, consents, waivers and approvals required for the lawful consummation by it of the Merger. (d) No Material Adverse Effect. Since the date of this -------------------------- Agreement, there shall have been no Material Adverse Effect on Seller and the Seller Subsidiaries, taken as a whole. (e) Opinion of Counsel. Seller shall have delivered to Buyers ------------------ an opinion of Seller's counsel dated as of the Closing Date or a mutually agreeable earlier date in substantially the form set forth as Exhibit D to this Agreement. --------- (f) Pooling Letter. The Buyers shall have received as soon as -------------- practicable after the date of this Agreement a letter of KPMG Peat Marwick LLP, reasonably satisfactory in form and substance to the Buyers, to the effect that the Merger will qualify for pooling-of- interests accounting treatment, which letter shall have not been withdrawn. ARTICLE VII ----------- TERMINATION, AMENDMENT AND WAIVER 7.01 Termination. This Agreement may be terminated at any time prior ----------- to the Closing Date, whether before or after approval by the shareholders of Seller: (a) by mutual consent by the Executive Committee of the Board of Directors of Mercantile and by the Board of Directors of Seller; (b) by the Executive Committee of the Board of Directors of Mercantile or the Board of Directors of Seller at any time after May 1, 1999 if the Merger shall not theretofore have been consummated (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein); (c) by the Executive Committee of the Board of Directors of Mercantile or the Board of Directors of Seller if (i) the Federal Reserve Board or any other federal and/or state regulatory agency whose approval is required for the consummation of the transactions contemplated hereby has denied approval of the Merger and such denial has become final and nonappealable or (ii) the shareholders of Seller shall not have approved this Agreement at the meeting referred to in Section 5.03; (d) by the Executive Committee of the Board of Directors of Mercantile, on the one hand, or by the Board of Directors of Seller, on the other hand, in the event of a material volitional breach by the other party to this Agreement of any representation, warranty, covenant or agreement contained herein, which breach is not cured within 30 days after written notice thereof is given to the breaching party by the non-breaching party or is not waived by the non-breaching party during such period; or -37- 43 (e) by the Executive Committee of the Board of Directors of Mercantile pursuant to and in accordance with the provisions of Section 5.06 hereof. 7.02 Effect of Termination. In the event of termination of this --------------------- Agreement as provided in Section 7.01 above, this Agreement shall forthwith become void and there shall be no liability on the part of Buyers or Seller or their respective officers or directors except as set forth in the second sentence of Section 5.01 and in Sections 5.08 and 8.02, and except that no termination of this Agreement pursuant to Section 7.01(d) shall relieve the breaching party of any liability to the non-breaching party hereto arising from the intentional, deliberate or willful breach of any representation, warranty, covenant or agreement contained herein, after giving notice to such breaching party and an opportunity to cure as set forth in Section 7.01(d). 7.03 Amendment. This Agreement, the Exhibits and the Schedules hereto --------- may be amended by the parties hereto, by action taken by or on behalf of the Executive Committee of the Board of Directors of Mercantile and the respective Boards of Directors of Merger Sub or Seller, at any time before or after approval of this Agreement by the shareholders of Seller; provided, however, that after any such approval by the shareholders of Seller no such modification shall (A) alter or change the amount or kind of Merger Consideration to be received by holders of Seller Common Stock as provided in this Agreement or (B) adversely affect the tax treatment to holders of Seller Common Stock as a result of the receipt of the Merger Consideration. This Agreement, the Exhibits and the Schedules hereto may not be amended except by an instrument in writing signed on behalf of each of Buyers and Seller. 7.04 Waiver. Any term, condition or provision of this Agreement may ------ be waived in writing at any time by the party which is, or whose shareholders or stockholders, as the case may be, are, entitled to the benefits thereof. ARTICLE VIII ------------ GENERAL PROVISIONS 8.01 Non-Survival of Representations, Warranties and Agreements. No ---------------------------------------------------------- investigation by the parties hereto made heretofore or hereafter shall affect the representations and warranties of the parties which are contained herein and each such representation and warranty shall survive such investigation. Except as set forth below in this Section 8.01, all representations, warranties and agreements in this Agreement of Buyers and Seller or in any instrument delivered by Buyers or Seller pursuant to or in connection with this Agreement shall expire at the Effective Time or upon termination of this Agreement in accordance with its terms. In the event of consummation of the Merger, the agreements contained in or referred to in Sections 1.05-1.11, 5.02(b), 5.08, 5.10, 5.13 and 5.15 shall survive the Effective Time. In the event of termination of this Agreement in accordance with its terms, the agreements contained in or referred to in the second sentence of Section 5.01 and Sections 5.08, 7.02 and 8.02 shall survive such termination. 8.02 Indemnification. Buyers and Seller (hereinafter, in such --------------- capacity being referred to as the "Indemnifying Party") agree to indemnify and hold harmless each other and their officers, directors and controlling persons (each such other party being hereinafter referred to, individually and/or collectively, as the "Indemnified Party") against any and all losses, claims, damages or liabilities, joint or several, to which the Indemnified Party may become subject under the Securities Act, the Exchange Act -38- 44 or other federal or state law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof): (a) arise primarily out of any information furnished to the Indemnified Party by the Indemnifying Party and included in the Registration Statement as originally filed or in any amendment therefor and supplement thereof, or in the Proxy Statement, or in any amendment therefor or supplement thereof, or are based primarily upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement as originally filed or in any amendment therefor and supplement thereof, or in the Proxy Statement, or in any amendment therefor or supplement thereof, and provided for inclusion thereof by the Indemnifying Party or (b) arise primarily out of or are based primarily upon the omission or alleged omission by the Indemnifying Party to state in the Registration Statement as originally filed or in any amendment therefor and supplement thereof, or in the Proxy Statement, or in any amendment therefor and supplement thereof, a material fact required to be stated therein or necessary to make the statements made therein not misleading, and agrees to reimburse each such Indemnified Party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action. 8.03 No Assignment; Successors and Assigns. This Agreement shall be ------------------------------------- binding upon and inure to the benefit of the parties hereto and their respective successors (including any corporation deemed to be a successor corporation of any of the parties by operation of law) and assigns, but neither this Agreement nor any right or obligation set forth in any provision hereof may be transferred or assigned (except by operation of law) by any party hereto without the prior written consent of all other parties, and any purported transfer or assignment in violation of this Section 8.03 shall be void and of no effect. There shall not be any third party beneficiaries of any provisions hereof except for Sections 1.09, 1.10, 1.11, 5.10, 5.13, 5.15 and 8.02 which may be enforced against Mercantile or Seller, as the case may be, by the parties therein identified or described. 8.04 Severability. Nothing in this Agreement shall be construed to ------------ require any party (or any subsidiary of a party) to take any action or fail to take any action in violation of any applicable law, rule or regulation. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Agreement. 8.05 No Implied Waiver. No failure or delay on the part of any party ----------------- hereto to exercise any right, power or privilege hereunder or under any instrument executed pursuant hereto shall operate as a waiver nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 8.06 Headings. Article, section, subsection and paragraph titles, -------- captions and headings herein are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. 8.07 Entire Agreement. This Agreement and the Schedules and Exhibits ---------------- hereto constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior negotiations, representations, warranties, commitments, offers, letters of interest or intent, proposal letters, contracts, writings or other agreements or understandings with respect thereto. No waiver, and no modification or amendment, of any provision of this Agreement, shall be effective unless specifically made in writing and duly signed by all parties thereto. -39- 45 8.08 Counterparts. This Agreement may be executed in one or more ------------ counterparts, and any party to this Agreement may execute and deliver this Agreement by executing and delivering any of such counterparts, each of which when executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. 8.09 Notices. All notices and other communications hereunder shall be ------- in writing and shall be deemed to be duly received (a) on the date given if delivered personally or by cable, telegram, telex or facsimile or (b) on the date received if mailed by registered or certified mail (return receipt requested), to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to the Buyers: Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, MO 63166-0524 Attention: John W. Rowe Executive Vice President Facsimile: (314) 425-2752 Copy to: Jon W. Bilstrom, Esq. General Counsel Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, MO 63166-0524 Facsimile: (314) 425-1386 and Robert M. LaRose, Esq. Thompson Coburn One Mercantile Center St. Louis, Missouri 63101 Facsimile: (314) 552-7000 -40- 46 (ii) if to Seller: First Financial Bancorporation 204 East Washington Street Iowa City, IA 52240 Attention: Robert M. Sierk President and Chief Executive Officer Facsimile: (319) 337-7299 Copy to: Richard G. Clemens, Esq. Sidley & Austin One First National Plaza Chicago, IL 60603 Facsimile: (312) 853-7036 8.10 Governing Law. This Agreement shall be governed by and ------------- controlled as to validity, enforcement, interpretation, effect and in all other respects by the internal laws of the State of Missouri applicable to contracts made in that state. -41- 47 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective corporate seals to be affixed hereto, all as of the date first written above. Attest: MERCANTILE BANCORPORATION INC. /s/ David W. Grant By: /s/ John W. Rowe - --------------------------- ------------------------------------------- David W. Grant John W. Rowe Executive Vice President, Mercantile Bank National Association, Authorized Officer Attest: AMERIBANC, INC. /s/ David W. Grant By: /s/ John W. Rowe - --------------------------- ------------------------------------------- David W. Grant John W. Rowe Vice President Attest: FIRST FINANCIAL BANCORPORATION /s/ Larry D. Ward By: /s/ Robert M. Sierk - --------------------------- ------------------------------------------- Larry D. Ward Robert M Sierk President and Chief Executive Officer -42- EX-2.2 3 STOCK OPTION AGREEMENT 1 STOCK OPTION AGREEMENT ---------------------- STOCK OPTION AGREEMENT ("Option Agreement") dated as of May 7, 1998, by and between MERCANTILE BANCORPORATION INC. ("Buyer"), a Missouri corporation registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "Holding Company Act"), and FIRST FINANCIAL BANCORPORATION ("Seller"), an Iowa corporation registered as a bank holding company under the Holding Company Act. W I T N E S S E T H: - - - - - - - - - - WHEREAS, Buyer and Seller are prepared to execute and deliver an Agreement and Plan of Merger dated as of even date herewith (the "Merger Agreement") providing for the merger of Seller with and into a wholly owned subsidiary of Buyer; and WHEREAS, as a condition to Buyer's entering into the Merger Agreement, Buyer has required that Seller agree, and Seller has agreed, to grant to Buyer the option set forth herein to purchase authorized but unissued shares of the common stock, $1.25 par value, of Seller ("Seller Common Stock"). NOW, THEREFORE, in consideration of the premises herein contained, the parties agree as follows: 1. Definitions. Capitalized terms used but not defined herein ----------- shall have the same meanings as in the Merger Agreement. 2. Grant of Option. Subject to the terms and conditions set forth --------------- herein, Seller hereby grants to Buyer an option (the "Option") to purchase up to 707,189 shares of Seller Common Stock (representing approximately 19.9% of the issued and outstanding shares of Seller Common Stock) at a price per share equal to $37.75 (the "Purchase Price") payable in cash as 2 provided in Section 4 hereof. In no event shall shares of Seller Common Stock for which the Option is exercisable exceed 19.9% of the issued and outstanding shares of Seller Common Stock, without giving effect to any shares subject to or issued pursuant to the Option. 3. Exercise of Option. ------------------ (a) If not then in material breach of the Merger Agreement, Buyer may exercise the Option, in whole or in part, at any time or from time to time if a Purchase Event (as defined below) shall have occurred; provided, -------- however, that: (i) to the extent the Option shall not have been exercised, - ------- it shall terminate and be of no further force and effect upon the earlier to occur of (A) the Effective Time of the Merger and (B) the termination of the Merger Agreement in accordance with Article VII thereof, provided that in the -------- case of a termination by Buyer pursuant to Section 7.01(d) arising from the volitional breach by Seller of any of its representations, warranties or covenants in the Merger Agreement, the Option shall not terminate until the date that is 12 months following such termination; (ii) if the Option cannot be exercised on such day because of any injunction, order or similar restraint issued by a court of competent jurisdiction, the Option shall expire on the 30th business day after such injunction, order or restraint shall have been dissolved or when such injunction, order or restraint shall have become permanent and no longer subject to appeal, as the case may be; and (iii) that any such exercise shall be subject to compliance with applicable law, including the Holding Company Act. (b) As used herein, a "Purchase Event" shall mean any of the following events: (i) Seller or any of its Subsidiaries, without having received prior written consent from Buyer, shall have entered into, authorized, recommended, proposed or publicly announced its intention to enter into, authorize, recommend or propose, an agreement, arrangement or understanding with any person (other than Buyer or any of its -2- 3 Subsidiaries) to (A) effect a merger or consolidation or similar transaction involving the acquisition of Seller or any of its Subsidiaries, (B) purchase, lease or otherwise acquire 15% or more of the assets of Seller or any of its Subsidiaries or (C) purchase or otherwise acquire (including by way of merger, consolidation, share exchange or similar transaction) Beneficial Ownership of securities representing 15% or more of the voting power of Seller or any of its Subsidiaries (in each case, other than any such merger, consolidation, purchase, lease, share exchange or similar transaction between or among any two or more Seller Subsidiaries); (ii) any person (other than Buyer or any Subsidiary of Buyer, or Seller or any Subsidiary of Seller in a fiduciary capacity) shall have acquired Beneficial Ownership or the right to acquire Beneficial Ownership of 15% or more of the voting power of Seller; or (iii) (1) the holders of Seller Common Stock shall not have approved the Merger Agreement at the meeting of such shareholders held for the purpose of voting on the Merger Agreement, (2) such meeting shall not have been held, (3) such meeting shall have been canceled prior to termination of the Merger Agreement in accordance with its terms or (4) Seller's Board of Directors shall have withdrawn or modified in a manner adverse to Buyer the recommendation of Seller's Board of Directors with respect to the Merger Agreement; in the case of each of (1), (2), (3) and (4) above, after an Extension Event. (c) As used herein, the term "Extension Event" shall mean any of the following events: (i) a Purchase Event described in Section 3(b)(i) or (ii) hereof; -3- 4 (ii) any person (other than Buyer or any of its Subsidiaries) shall have "commenced" (as such term is defined in Rule 14d-2 under the Exchange Act), or shall have filed a registration statement under the Securities Act with respect to, a tender offer or exchange offer to purchase shares of Seller Common Stock such that, upon consummation of such offer, such person would have Beneficial Ownership (as defined below) or the right to acquire Beneficial Ownership of 15% or more of the voting power of Seller; or (iii) any person (other than Buyer or any Subsidiary of Buyer, or Seller or any Subsidiary of Seller in a fiduciary capacity) shall have publicly announced its willingness, or shall have publicly announced a proposal, or publicly disclosed an intention to make a proposal, (x) to make an offer described in clause (ii) above, or (y) to engage in a transaction described in clause (i) above. (d) As used herein, the terms "Beneficial Ownership" and "Beneficially Own" shall have the meanings ascribed to them in Rule 13d-3 under the Exchange Act. (e) In the event Buyer wishes to exercise the Option, it shall deliver to Seller a written notice (the date of which being herein referred to as the "Notice Date") specifying (i) the total number of shares it intends to purchase pursuant to such exercise and (ii) a place and date not earlier than ten business days nor later than 30 calendar days from the Notice Date for the closing of such purchase (the "Closing Date"). 4. Payment and Delivery of Certificates. ------------------------------------ (a) At the closing referred to in Section 3 hereof, Buyer shall pay to Seller the aggregate Purchase Price for the shares of Seller Common Stock purchased pursuant to the exercise of the Option in immediately available funds by wire transfer to a bank account designated by Seller. -4- 5 (b) At such closing, simultaneously with the delivery of cash as provided in Section 4(a), Seller shall deliver to Buyer a certificate or certificates representing the number of shares of Seller Common Stock purchased by Buyer, registered in the name of Buyer or a nominee designated in writing by Buyer, and Buyer shall deliver to Seller a letter agreeing that Buyer shall not offer to sell, pledge or otherwise dispose of such shares in violation of applicable law or the provisions of this Option Agreement. (c) If at the time of issuance of any Seller Common Stock pursuant to any exercise of the Option, Seller shall have issued any share purchase rights or similar securities to holders of Seller Common Stock, then each such share of Seller Common Stock shall also represent rights with terms substantially the same as and at least as favorable to Buyer as those issued to other holders of Seller Common Stock. (d) Certificates for Seller Common Stock delivered at any closing hereunder shall be endorsed with a restrictive legend which shall read substantially as follows: The transfer of the shares represented by this certificate is subject to certain provisions of an agreement between the registered holder hereof and FIRST FINANCIAL BANCORPORATION, a copy of which is on file at the principal office of FIRST FINANCIAL BANCORPORATION, and to resale restrictions arising under the Securities Act of 1933, as amended, and any applicable state securities laws. A copy of such agreement will be provided to the holder hereof without charge upon receipt by FIRST FINANCIAL BANCORPORATION of a written request therefor. It is understood and agreed that the above legend shall be removed by delivery of substitute certificates without such legend if Buyer shall have delivered to Seller an opinion of counsel, in form and substance -5- 6 reasonably satisfactory to Seller and its counsel, to the effect that such legend is not required for purposes of the Securities Act and any applicable state securities laws and this Option Agreement. 5. Authorization, etc. ------------------ (a) Seller hereby represents and warrants to Buyer that: (i) Seller has full corporate authority to execute and deliver this Option Agreement and, subject to Section 11(i), to consummate the transactions contemplated hereby; (ii) such execution, delivery and consummation have been authorized by the Board of Directors of Seller, and no other corporate proceedings are necessary therefor; (iii) this Option Agreement has been duly and validly executed and delivered and represents a valid and legally binding obligation of Seller, enforceable against Seller in accordance with its terms; and (iv) Seller has taken all necessary corporate action to authorize and reserve and, subject to Section 11(i), permit it to issue and, at all times from the date hereof through the date of the exercise in full or the expiration or termination of the Option, shall have reserved for issuance upon exercise of the Option, 707,189 shares of Seller Common Stock, all of which, upon issuance pursuant hereto, shall be duly authorized, validly issued, fully paid and nonassessable, and shall be delivered free and clear of all claims, liens, encumbrances, restrictions (other than federal and state securities restrictions) and security interests and not subject to any preemptive rights. -6- 7 (b) Buyer hereby represents and warrants to Seller that: (i) Buyer has full corporate authority to execute and deliver this Option Agreement and, subject to Section 11(i), to consummate the transactions contemplated hereby; (ii) such execution, delivery and consummation have been authorized by all requisite corporate action by Buyer, and no other corporate proceedings are necessary therefor; (iii) this Option Agreement has been duly and validly executed and delivered and represents a valid and legally binding obligation of Buyer, enforceable against Buyer in accordance with its terms; and (iv) any Seller Common Stock or other securities acquired by Buyer upon exercise of the Option will not be taken with a view to the public distribution thereof and will not be transferred or otherwise disposed of except in compliance with the Securities Act and applicable state law. 6. Adjustment Upon Changes in Capitalization. In the event of ----------------------------------------- any change in Seller Common Stock by reason of stock dividends, split-ups, recapitalizations or the like, the type and number of shares subject to the Option, and the Purchase Price per share, as the case may be, shall be adjusted appropriately. In the event that any additional shares of Seller Common Stock are issued after the date of this Option Agreement (other than pursuant to an event described in the preceding sentence or pursuant to this Option Agreement), the number of shares of Seller Common Stock subject to the Option shall be adjusted so that, after such issuance, it equals at least 19.9% of the number of shares of Seller Common Stock then issued and outstanding, without giving effect to any shares of Seller Common Stock subject to or issued pursuant to the Option. -7- 8 7. Repurchase. ---------- (a) Subject to the giving of any notices and the receipt of any approvals as contemplated by Section 11(i), at the request of Buyer at any time commencing upon the first occurrence of a Purchase Event described in Section 3(b) hereof and ending 12 months immediately thereafter but not later than the termination of the Option pursuant to Section 3(a) hereof (the "Repurchase Period"), Seller (or any successor entity thereof) shall repurchase the Option from Buyer together with all (but not less than all, subject to Section 10) shares of Seller Common Stock purchased by Buyer pursuant hereto with respect to which Buyer then has Beneficial Ownership, at an aggregate price (per share, the "Per Share Repurchase Price") equal to the sum of: (i) The exercise price paid by Buyer for any shares of Seller Common Stock acquired pursuant to the Option; (ii) The difference between (A) the "Market/Tender Offer Price" for shares of Seller Common Stock (defined as the higher (x) of the highest price per share at which a tender or exchange offer has been made for shares of Seller Common Stock or (y) the highest closing sales price per share of Seller Common Stock reported by the Nasdaq National Market, in each case for any day within that portion of the Repurchase Period that precedes the date Buyer gives notice of the required repurchase under this Section 7) and (B) the exercise price as determined pursuant to Section 2 hereof (subject to adjustment as provided in Section 6), multiplied by the number of shares of Seller Common Stock with respect to which the Option has not been exercised, but only if the Market/Tender Offer Price is greater than such exercise price; and (iii) The difference between the Market/Tender Offer Price and the exercise price paid by Buyer for any shares of Seller Common Stock purchased pursuant -8- 9 to the exercise of the Option, multiplied by the number of shares so purchased, but only if the Market/Tender Offer Price is greater than such exercise price. (b) In the event Buyer exercises its rights under this Section 7, Seller shall, within 10 business days thereafter, pay the required amount to Buyer by wire transfer of immediately available funds to an account designated by Buyer and Buyer shall surrender to Seller the Option and the certificates evidencing the shares of Seller Common Stock purchased thereunder with respect to which Buyer then has Beneficial Ownership, and Buyer shall warrant that it has sole record and Beneficial Ownership of such shares and that the same are free and clear of all liens, claims, charges, restrictions and encumbrances of any kind whatsoever. (c) In determining the Market/Tender Offer Price, the value of any consideration other than cash shall be determined by an independent nationally recognized investment banking firm selected by Buyer and reasonably acceptable to Seller. 8. Repurchase at Option of Seller and First Refusal. ------------------------------------------------ (a) Except to the extent that Buyer shall have previously exercised its rights under Section 7, at the request of Seller during the six-month period commencing 12 months following the first occurrence of a Purchase Event, Seller may repurchase from Buyer, and Buyer shall sell the Option to Seller together with all (but not less than all, subject to Section 10) of the Seller Common Stock acquired by Buyer pursuant hereto and with respect to which Buyer has Beneficial Ownership at the time of such repurchase at a price per share equal to the greater of (i) the Per Share Repurchase Price or (ii) the sum of (A) the aggregate Purchase Price of the shares so repurchased plus (B) interest on the aggregate Purchase Price paid for the shares so repurchased from the date of purchase to the date of repurchase at the highest rate of interest announced by Buyer as its prime or base lending or reference -9- 10 rate during such period, less any dividends received on the shares so repurchased. Any repurchase under this Section 8(a) shall be consummated in accordance with Section 7(b). (b) If, at any time after the occurrence of a Purchase Event and prior to the earlier of (i) the expiration of 18 months immediately following such Purchase Event or (ii) the expiration or termination of the Option, Buyer shall desire to sell, assign, transfer or otherwise dispose of the Option or all or any of the shares of Seller Common Stock acquired by it pursuant to the Option, it shall give Seller written notice of the proposed transaction (an "Offeror's Notice"), identifying the proposed transferee, and setting forth the terms of the proposed transaction. An Offeror's Notice shall be deemed an offer by Buyer to Seller, which may be accepted within 10 business days of the receipt of such Offeror's Notice, on the same terms and conditions and at the same price at which Buyer is proposing to transfer the Option or such shares to a third party. In the event the proposed transaction involves the sale of the Option or the shares of Seller Common Stock purchased pursuant to the exercise of the Option for consideration other than cash, the value of such consideration shall be determined by an independent nationally recognized investment banking firm selected by Buyer and reasonably acceptable to Seller. The purchase of the Option or any such shares by Seller shall be closed within 10 business days of the date of the acceptance of the offer and the purchase price shall be paid to Buyer by wire transfer of immediately available funds to an account designated by Buyer. In the event of the failure or refusal of Seller to purchase the Option or all the shares covered by the Offeror's Notice or if the Federal Reserve Board or any other Regulatory Authority disapproves Seller's proposed purchase of the Option or such shares, Buyer may, within 60 days from the date of the Offeror's Notice, sell all, but not less than all, of the Option or such shares to such third party at no less than the price specified and on terms no more favorable to the purchaser than those set forth in the Offeror's Notice. The requirements of this Section 8(b) shall not apply to (i) any disposition as a result of which the proposed transferee -10- 11 would Beneficially Own not more than 2% of the voting power of Seller or (ii) any disposition of Seller Common Stock by a person to whom Buyer has sold shares of Seller Common Stock issued upon exercise of the Option. 9. Registration Rights. At any time after the exercise of the ------------------- Option by Buyer for an aggregate of at least 50% of the shares subject thereto, Seller shall, subject to the conditions set forth herein, if requested by Buyer, as expeditiously as practicable file a registration statement on a form for general use under the Securities Act if necessary in order to permit the sale or other disposition of the shares of Seller Common Stock that have been acquired upon exercise of the Option in accordance with the intended method of sale or other disposition requested by Buyer (it being understood and agreed that any such sale or other disposition shall be effected on a widely distributed basis so that, upon consummation thereof, no purchaser or transferee shall Beneficially Own more than 2% of the shares of Seller Common Stock then outstanding). Buyer shall provide all information reasonably requested by Seller for inclusion in any registration statement to be filed hereunder. Seller shall use its reasonable best efforts to cause such registration statement first to become effective and then to remain effective for such period not in excess of 90 days from the day such registration statement first becomes effective as may be reasonably necessary to effect such sales or other dispositions. The registration effected under this Section 9 shall be at Seller's expense except for underwriting discounts and commissions and the fees and disbursements of Buyer's counsel attributable to the registration of such Seller Common Stock. In no event shall Seller be required to effect more than one registration hereunder. The filing of the registration statement hereunder may be delayed for such period of time as may reasonably be required to facilitate any public distribution by Seller of Seller Common Stock or if a special audit of Seller would otherwise be required in connection therewith. If requested by Buyer in connection with such registration, Seller shall become a party to any underwriting agreement relating to the sale of such -11- 12 shares, but only to the extent of obligating itself in respect of representations, warranties, indemnities and other agreements customarily included in such underwriting agreements for parties similarly situated. 10. Severability. Any term, provision, covenant or restriction ------------ contained in this Option Agreement held by a court or a Regulatory Authority of competent jurisdiction to be invalid, void or unenforceable, shall be ineffective to the extent of such invalidity, voidness or unenforceability, but neither the remaining terms, provisions, covenants or restrictions contained in this Option Agreement nor the validity or enforceability thereof in any other jurisdiction shall be affected or impaired thereby. Any term, provision, covenant or restriction contained in this Option Agreement that is so found to be so broad as to be unenforceable shall be interpreted to be as broad as is enforceable. If for any reason such court or Regulatory Authority determines that applicable law will not permit Buyer or any other person to acquire, or Seller to repurchase or purchase, the full number of shares of Seller Common Stock provided in Section 2 hereof (as adjusted pursuant to Section 6 hereof), it is the express intention of the parties hereto to allow Buyer or such other person to acquire, or Seller to repurchase or purchase, such lesser number of shares as may be permissible, without any amendment or modification hereof. 11. Miscellaneous. ------------- (a) Expenses. Each of the parties hereto shall pay all costs -------- and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including fees and expenses of its own financial consultants, investment bankers, accountants and counsel, except as otherwise provided herein. (b) Entire Agreement. Except as otherwise expressly provided ---------------- herein, this Option Agreement and the Merger Agreement contain the entire agreement between the parties with respect to the transactions contemplated hereunder and supersedes all prior arrangements or understandings with respect thereto, written or oral. -12- 13 (c) Successors; No Third Party Beneficiaries. The terms and ---------------------------------------- conditions of this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Option Agreement, expressed or implied, is intended to confer upon any party, other than the parties hereto, and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Option Agreement, except as expressly provided herein. (d) Assignment. Other than as provided in Section 8 hereof, ---------- neither of the parties hereto may sell, transfer, assign or otherwise dispose of any of its rights or obligations under this Option Agreement or the Option created hereunder to any other person (whether by operation of law or otherwise), without the express written consent of the other party. (e) Notices. All notices or other communications that are ------- required or permitted hereunder shall be in writing and sufficient if delivered in accordance with Section 8.08 of the Merger Agreement (which is incorporated herein by reference). (f) Counterparts. This Option Agreement may be executed in ------------ counterparts, and each such counterpart shall be deemed to be an original instrument, but both such counterparts together shall constitute but one agreement. (g) Specific Performance. The parties hereto agree that if for -------------------- any reason Buyer or Seller shall have failed to perform its obligations under this Option Agreement, then either party hereto seeking to enforce this Option Agreement against such non-performing party shall be entitled to specific performance and injunctive and other equitable relief, and the parties hereto further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief. This provision is without prejudice to any other rights that either party hereto may have against the other party hereto for any failure to perform its obligations under this Option Agreement. -13- 14 (h) Governing Law. This Option Agreement shall be governed by ------------- and construed in accordance with the laws of the State of Missouri applicable to agreements made and entirely to be performed within such state. (i) Regulatory Approvals; Section 16(b). If, in connection ----------------------------------- with (A) the exercise of the Option under Section 3 or a sale by Buyer to a third party under Section 8, (B) a repurchase by Seller under Section 7 or a repurchase or purchase by Seller under Section 8, prior notification to or approval of the Federal Reserve Board, or any other Regulatory Authority is required, then the required notice or application for approval shall be promptly filed and expeditiously processed and periods of time that otherwise would run pursuant to such Sections shall run instead from the date on which any such required notification period has expired or been terminated or such approval has been obtained, and in either event, any requisite waiting period shall have passed. In the case of clause (A) of this subsection (i), such filing shall be made by Buyer, and in the case of clause (B) of this subsection (i), such filing shall be made by Seller, provided that each of Buyer and Seller shall use its best efforts to make all filings with, and to obtain consents of, all third parties and Regulatory Authorities necessary to the consummation of the transactions contemplated hereby, including, without limitation, applying to the Federal Reserve Board under the Holding Company Act for approval to acquire the shares issuable hereunder. Periods of time that otherwise would run pursuant to Sections 3, 7 or 8 shall also be extended to the extent necessary to avoid liability under Section 16(b) of the Exchange Act. (j) No Breach of Merger Agreement Authorized. Nothing ---------------------------------------- contained in this Option Agreement shall be deemed to authorize Seller to issue any shares of Seller Common Stock in breach of, or otherwise breach any of, the provisions of the Merger Agreement nor shall any action taken hereunder by Seller constitute a breach of any of the provisions of the Merger Agreement. (k) Waiver and Amendment. Any provision of this Option -------------------- Agreement may be waived at any time by the party that is entitled to the benefits of such provision. This Option -14- 15 Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. IN WITNESS WHEREOF, each of the parties hereto has executed this Option Agreement as of the date first written above. MERCANTILE BANCORPORATION INC. By: /s/ John W. Rowe --------------------------------------------- John W. Rowe Executive Vice President, Mercantile Bank National Association, Authorized Officer FIRST FINANCIAL BANCORPORATION By: /s/ Robert M. Sierk --------------------------------------------- Robert M. Sierk President and Chief Executive Officer -15- EX-2.3 4 FORM OF VOTING AGREEMENT 1 VOTING AGREEMENT This Voting Agreement dated as of May 7, 1998, is entered into by and between Mercantile Bancorporation Inc. ("Mercantile"), and the undersigned shareholder ("Shareholder") of First Financial Bancorporation, an Iowa corporation ("First Financial"). WHEREAS, First Financial, Mercantile and Ameribanc, Inc., a wholly owned subsidiary of Mercantile ("Ameribanc"), have proposed to enter into an Agreement and Plan of Merger (the "Agreement"), dated as of today, which contemplates the acquisition by Mercantile of 100% of the capital stock of First Financial (collectively, the "First Financial Stock") by means of a merger between First Financial and Ameribanc; and WHEREAS, Mercantile is willing to expend the substantial time, effort and expense necessary to implement the Merger only if Shareholder enters into this Voting Agreement; and WHEREAS, the undersigned shareholder of First Financial believes that the Merger is in her best interest and the best interest of First Financial. NOW, THEREFORE, in consideration of the premises, Shareholder hereby agrees as follows: 1. Voting Agreement. Shareholder shall vote all of the shares ---------------- of First Financial Stock she now owns of record or has voting control with respect to or hereafter acquires, in favor of the Merger at the meeting of shareholders of First Financial to be called for the purpose of approving the Merger (the "Meeting"). 2. No Competing Transaction. Shareholder shall not vote any ------------------------ of her shares of First Financial Stock in favor of any other merger or sale of all or substantially all the assets of First Financial to any person other than Mercantile or its affiliates until the effective time of the Merger, termination of the Agreement or abandonment of the Merger by the mutual agreement of First Financial and Mercantile, whichever comes first. 3. Transfers Subject to Agreement. Shareholder shall not ------------------------------ transfer her shares of First Financial Stock unless the transferee, prior to such transfer, executes a voting agreement with respect to the transferred shares substantially to the effect of this Voting Agreement and satisfactory to Mercantile. 4. No Ownership Interest. Nothing contained in this Voting --------------------- Agreement shall be deemed to vest in Mercantile any direct or indirect ownership or incidence of ownership of or with respect to any shares of First Financial Stock. All rights, ownership and economic benefits of and relating to the shares of First Financial Stock shall remain and belong to Shareholder, and Mercantile shall have no authority to manage, direct, superintend, restrict, regulate, govern or administer any of the policies or operations of First Financial or exercise any power or authority to direct Shareholder in the voting of any of her shares of First Financial Stock, except as otherwise expressly provided herein. 2 5. Evaluation of Investment. Shareholder, by reason of her ------------------------ knowledge and experience in financial and business matters, believes herself capable of evaluating the merits and risks of the potential investment in common stock of Mercantile, $0.01 par value ("Mercantile Common Stock"), contemplated by the Agreement. 6. Documents Delivered. Shareholder acknowledges having ------------------- reviewed the Agreement and its attachments and that reports, proxy statements and other information with respect to Mercantile filed with the Securities and Exchange Commission (the "Commission") were, prior to her execution of this Voting Agreement, available for inspection and copying at the Offices of the Commission and that Mercantile delivered the following such documents to First Financial: (a) Mercantile's Annual Report on Form 10-K for the year ended December 31, 1997; and (b) Mercantile's Current Reports on Form 8-K dated January 10, 1998 and January 30, 1998. 7. Amendment and Modification. This Voting Agreement may be -------------------------- amended, modified or supplemented at any time by the written approval of such amendment, modification or supplement by Shareholder and Mercantile. 8. Entire Agreement. This Voting Agreement evidences the ---------------- entire agreement among the parties hereto with respect to the matters provided for herein, and there are no agreements, representations or warranties with respect to the matters provided for herein other than those set forth herein and in the Agreement. 9. Severability. Nothing in this Agreement shall be construed ------------ to require any party to take any action or fail to take any action in violation of any applicable law, rule or regulation. The parties agree that if any provision of this Voting Agreement shall under any circumstances be deemed invalid or inoperative, this Voting Agreement shall be construed with the invalid or inoperative provisions deleted and the rights and obligations of the parties shall be construed and enforced accordingly. 10. Counterparts. This Voting Agreement may be executed in two ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11. Governing Law. The validity, construction, enforcement and ------------- effect of this Voting Agreement shall be governed by the internal laws of the State of Missouri, without regard to its conflict of laws principles. 12. Headings. The headings for the paragraphs of this Voting -------- Agreement are inserted for convenience only and shall not constitute a part hereof or affect the meaning or interpretation of this Voting Agreement. 13. Termination. This Voting Agreement shall terminate upon ----------- the consummation of the Merger or upon termination of the Agreement, whichever comes first. 14. Successors. This Voting Agreement shall be binding upon ---------- and inure to the benefit of Mercantile and its successors, and Shareholder and Shareholder's spouse and their -2- 3 respective executors, personal representatives, administrators, heirs, legatees, guardians and other legal representatives. This Voting Agreement shall survive the death or incapacity of Shareholder. This Agreement may be assigned by Mercantile only to an affiliate of Mercantile. MERCANTILE BANCORPORATION INC. By: --------------------------------------------- John W. Rowe, Executive Vice President Mercantile Bank National Association Authorized Officer SHAREHOLDER ------------------------------------------------- -3- EX-5.1 5 OPINION RE LEGALITY 1 [letterhead of Thompson Coburn] June 19, 1998 Mercantile Bancorporation Inc. P.O. Box 524 St. Louis, Missouri 63166-0524 Re: Registration Statement on Form S-4 ---------------------------------- Ladies and Gentlemen: We refer you to the Registration Statement on Form S-4 filed by Mercantile Bancorporation Inc. (the "Company") on June 19, 1998 (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended, pertaining to the proposed issuance by the Company of up to 3,194,844 shares of the Company's common stock, $0.01 par value (the "Shares"), in connection with the acquisition by merger of First Financial Bancorporation ("First Financial"), pursuant to the Agreement and Plan of Merger, dated May 7, 1998 (the "Merger Agreement"), by and among the Company, First Financial and Ameribanc, Inc., all as provided in the Registration Statement. In rendering the opinions set forth herein, we have examined such corporate records of the Company, such laws and such other information as we have deemed relevant, including the Company's Restated Articles of Incorporation and Bylaws, as amended and currently in effect, the resolutions adopted by the Company's Board of Directors relating to the merger transaction, certificates received from state officials and statements we have received from officers and representatives of the Company. In delivering this opinion, the undersigned assumed the genuineness of all signatures; the authenticity of all documents submitted to us as originals; the conformity to the originals of all documents submitted to us as certified, photostatic or conformed copies; the authenticity of the originals of all such latter documents; and the correctness of statements submitted to us by officers and representatives of the Company. Based only on the foregoing, the undersigned is of the opinion that: 1. The Company has been duly incorporated and is validly existing under the laws of the State of Missouri; and 2. The Shares to be sold by the Company, when issued as provided in the Merger Agreement, will be validly issued, fully paid and non-assessable. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm in the section of the Proxy Statement/Prospectus entitled "Legal Matters." Very truly yours, /s/ Thompson Coburn EX-8.1 6 OPINION RE TAX MATTERS 1 [letterhead of Thompson Coburn] June 19, 1998 Board of Directors First Financial Bancorporation 204 East Washington Street Iowa City, Iowa 52240 Ladies and Gentlemen: You have requested our opinion with regard to certain federal income tax consequences of the proposed merger (the "Merger") of First Financial Bancorporation ("FFB") with and into Ameribanc, Inc. ("Ameribanc"), a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"). In connection with the preparation of our opinion, we have examined and have relied upon the following: (i) The Agreement and Plan of Merger by and among MBI, Ameribanc, and FFB dated as of May 7, 1998, including the schedules and exhibits thereto (the "Agreement"); (ii) MBI's Registration Statement on Form S-4, including the Proxy Statement/Prospectus contained therein, filed with the Securities and Exchange Commission on June 19, 1998, (the "Registration Statement"); (iii) The representations and undertaking of MBI substantially in the form of Exhibit A hereto; (iv) The representations and undertakings of FFB substantially in the form of Exhibit B hereto; and (v) The Rights Agreement between MBI and Harris Trust and Savings Bank, as rights agent, dated May 20, 1998. Our opinion is based solely upon applicable law and the factual information and undertakings contained in the above-mentioned documents. In rendering our opinion, we have assumed the accuracy of all information and the performance of all undertakings contained in each of such documents. We also have assumed the authenticity of all original documents, the conformity of all copies to the original documents, and the genuineness of all signatures. We have not attempted to verify independently the accuracy of any information in any such document, and we have assumed that such documents accurately and completely set forth all material facts relevant to this opinion. All of our assumptions were made with your consent. If any fact or assumption described herein or below is incorrect, any or all of the federal income tax consequences described herein may be inapplicable. 2 First Financial Bancorporation June 19, 1998 Page 2 OPINION Subject to the foregoing, to the conditions and limitations expressed elsewhere herein, and assuming that the Merger is consummated in accordance with the Agreement, we are of the opinion that for federal income tax purposes: 1. The Merger will constitute a reorganization within the meaning of sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"). 2. Each stockholder of FFB who exchanges, in the Merger, shares of FFB common stock, par value $1.25 per share ("FFB Common Stock") solely for shares of MBI common stock, par value $.01 per share ("MBI Common Stock"): a) will recognize no gain or loss as a result of the exchange, except with regard to cash received in lieu of a fractional share, as discussed below (Code section 354(a)(1)); b) will have an aggregate basis for the shares of MBI Common Stock received (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 3, below) equal to the aggregate adjusted tax basis of the shares of FFB Common Stock surrendered (Code section 358(a)(1)); and c) will have a holding period for the shares of MBI Common Stock received (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 3, below) which includes the holding period of the shares of FFB Common Stock surrendered, provided that the shares of FFB Common Stock surrendered are held as capital assets at the time of the Merger (Code section 1223(1)). 3. Each stockholder of FFB who receives, in the Merger, cash in lieu of a fractional share of MBI Common Stock will be treated as if the fractional share had been received in the Merger and then redeemed by MBI. Provided that the shares of FFB Common Stock surrendered are held as capital assets at the time of the Merger, the receipt of such cash will cause the recipient to recognize capital gain or loss, equal to the difference between the amount of cash received and the portion of such holder's basis in the shares of MBI Common Stock allocable to the fractional share (Code sections 1001 and 1222; Rev. Rul. 66-365, 1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2 C.B. 574). 3 First Financial Bancorporation June 19, 1998 Page 3 * * * * * * * * * * * * We express no opinion with regard to (1) the federal income tax consequences of the Merger not addressed expressly by this opinion, including without limitation, (i) the tax consequences, if any, to those stockholders of FFB who acquired shares of FFB Common Stock pursuant to the exercise of employee stock options or otherwise as compensation, and (ii) the tax consequences to special classes of stockholders, if any, including without limitation, foreign persons, insurance companies, tax-exempt entities, retirement plans, and dealers in securities; and (2) federal, state, local, or foreign taxes (or any other federal, state, local, or foreign laws) not specifically referred to and discussed herein. Further, our opinion is based upon the Code, Treasury Regulations proposed or promulgated thereunder, and administrative interpretations and judicial precedents relating thereto, all of which are subject to change at any time, possibly with retroactive effect, and we assume no obligation to advise you of any subsequent change thereto. If there is any change in the applicable law or regulations, or if there is any new administrative or judicial interpretation of the applicable law or regulations, any or all of the federal income tax consequences described herein may become inapplicable. The foregoing opinion reflects our legal judgment solely on the issues presented and discussed herein. This opinion has no official status or binding effect of any kind. Accordingly, we cannot assure you that the Internal Revenue Service or any court of competent jurisdiction will agree with this opinion. We hereby consent to the filing of this letter as an exhibit to the Registration Statement and to all references made to this letter and to this firm in the Registration Statement. Very truly yours, /s/ Thompson Coburn EX-23.1 7 CONSENT OF EXPERT 1 Exhibit 23.1 ------------ Independent Auditors' Consent To the Board of Directors and Stockholders of Mercantile Bancorporation Inc.: We consent to the use of our report incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP St. Louis, Missouri June 18, 1998 EX-23.2 8 CONSENT OF EXPERT 1 Exhibit 23.2 ------------ CONSENT OF INDEPENDENT ACCOUNTANTS To the Board of Directors First Financial Bancorporation Iowa City, Iowa We hereby consent to the use in this Registration Statement on Form S-4 of our report, dated February 17, 1998, relating to the consolidated financial statements of First Financial Bancorporation and subsidiary. We also consent to the reference to our Firm under the captions "Relationship with Independent Accountants" and "Experts" in the prospectus. /s/ McGladrey & Pullen, LLP Davenport, Iowa June 16, 1998 EX-23.3 9 CONSENT OF EXPERT 1 Exhibit 23.3 ------------ CONSENT OF ABN AMRO INCORPORATED We hereby consent (i) to the use of our name and to the description of our draft opinion letter, which has been approved by us, under the captions "SUMMARY INFORMATION - Opinion of Financial Advisor to First Financial" and "TERMS OF THE PROPOSED MERGER - Opinion of Financial Advisor to First Financial" in; and (ii) to the inclusion of such draft opinion letter as Annex A to First Financial Bancorporation's Proxy Statement which is part of Mercantile Bancorporation Inc.'s Registration Statement on Form S-4 to be filed with the Securities and Exchange Commission on June 18, 1998, with this consent as an exhibit. Currently, we anticipate delivering to First Financial Bancorporation's Board of Directors an opinion of even date with the Proxy Statement in substantially the same form as our draft opinion. By giving such consent we do not thereby admit that we are experts with respect to any part of such Registration Statement within the meaning of the term "expert" as used in, or that may come within the category of persons whose consent is required under, Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission promulgated thereunder. ABN AMRO INCORPORATED By: /s/ John J. Harris ------------------------------------------ John J. Harris Managing Director Chicago, Illinois June 17, 1998 -----END PRIVACY-ENHANCED MESSAGE-----