As filed with the Securities and Exchange Commission on July 3, 2001
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MB-MIDCITY, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 6121 36-3132116
(State or other jurisdiction of incorporation (Primary Standard Industrial (I.R.S. Employer Identification No.)
or organization) Classification Code Number)
MITCHELL FEIGER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MB-MIDCITY, INC. MB-MIDCITY, INC.
1200 NORTH ASHLAND AVE. 1200 NORTH ASHLAND AVE.
CHICAGO, ILLINOIS 60622 CHICAGO, ILLINOIS 60622
(773) 278-4040 (773) 278-4040
(Address, including ZIP code, and telephone (Name, address, including ZIP code,
number, including area code, of registrant's and telephone number, including area
principal executive offices) code, of agent for service)
COPIES TO:
BARRY P. TAFF, P.C. LELAND HUTCHINSON, ESQ.
CRAIG M. SCHEER, ESQ. TERRENCE R. BRADY, ESQ.
SILVER, FREEDMAN & TAFF, L.L.P. WINSTON & STRAWN
1100 NEW YORK AVENUE, N.W. 35 WEST WACKER DRIVE
WASHINGTON, D.C. 20005 CHICAGO, ILLINOIS 60601
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in connection
with 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. / /
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
Calculation of Registration Fee
=========================================================================================================================
Proposed maximum Proposed maximum
Title of each class of Amount to offering price aggregate offering Amount of
securities to be registered be registered(1) per share(2) price(2) registration fee
-------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value 18,661,287 shares $20.89 $389,828,781 $97,458
-------------------------------------------------------------------------------------------------------------------------
(1) Based upon the estimated maximum number of shares of common stock, par
value $.01 per share, of MB-MidCity, Inc.(the "Company") to be issued upon
consummation of the merger (the "Merger") of each of MB Financial, Inc.
("MB Financial") and MidCity Financial Corporation ("MidCity Financial")
into the Company. In the Merger, each share of the common stock, par value
$.01 per share, of MB Financial will be exchanged for one share of Company
common stock, and each share of the common stock, par value $20 per share,
of MidCity Financial will be exchanged for 230.32955 shares of Company
common stock.
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rules 457(f)(1) and 457(c), and solely for purposes of
calculating the registration fee, the proposed maximum aggregate offering
price is $389,828,781 which equals the sum of (x) the average of the high
and low sale prices of the common stock of MB Financial of $24.23, as
reported on the Nasdaq National Market on June 28, 2001, multiplied by (y)
8,064,515 the maximum number of shares of MB Financial common stock
(including shares issuable pursuant to the exercise of outstanding options
to purchase MB Financial common stock) to be exchanged in the Merger, and
(y) the book value per share as of March 31, 2001 of the common stock of
MidCity Financial of $4,226.00, multiplied by 46,007, the total number of
shares of MidCity Financial common stock to be exchanged in the Merger. The
proposed maximum offering price per share is equal to the proposed maximum
aggregate offering price determined in the manner described in the
preceding sentence divided by the maximum number of shares of Company
common stock that could be issued in the Merger.
================================================================================
[MB FINANCIAL LOGO] [MIDCITY FINANCIAL LOGO]
TO THE STOCKHOLDERS OF MB FINANCIAL, INC. AND MIDCITY FINANCIAL CORPORATION:
A MERGER PROPOSAL - YOUR VOTE IS VERY IMPORTANT
MB Financial, Inc. and MidCity Financial Corporation have agreed to combine
in a merger of equals. The transaction will be effected by the merger of both MB
Financial and MidCity Financial into a newly formed company. This new company is
currently named "MB-MidCity, Inc.," but will assume the name "MB Financial,
Inc." after the merger. The merger is expected to create the third largest
banking organization headquartered in Chicago, Illinois in terms of asset size,
and we believe that the combination of our organizations' respective strengths
will result in a company well-positioned to become one of the premier business
banks in Chicago. In addition to Chicago, where its lead bank will be located,
the new company will have a presence in Oklahoma and Texas through its
subsidiary banks based in those states.
Holders of MB Financial common stock before the merger will receive one
share of common stock of the new company for each share held prior to the
merger. Each share of MidCity Financial common stock will be exchanged for
230.32955 shares of common stock of the new company, with cash paid in lieu of
fractional share interests. This consideration is fixed and will not be adjusted
prior to the merger regardless of stock price changes. We expect the merger to
be tax-free to both MB Financial and MidCity Financial stockholders, except for
taxes due on cash received by MidCity Financial stockholders in lieu of
fractional shares of the common stock of the new company.
MB Financial common stock is listed on The Nasdaq Stock Market National
Market system under the symbol "MBFI." The common stock of the new company will
be listed on The Nasdaq Stock Market National Market system and is expected to
assume the symbol MBFI after the merger. While MidCity Financial common stock is
traded in the "pink sheets" under the symbol "MCYF," it has historically traded
on a limited basis and generally in privately negotiated transactions.
Each of us will hold a special meeting of stockholders to consider and vote
upon adoption of the merger agreement. Further information about the merger and
the special meetings is contained in the accompanying joint proxy
statement-prospectus. YOU ARE URGED TO READ THE JOINT PROXY STATEMENT-PROSPECTUS
IN ITS ENTIRETY, ESPECIALLY THE SECTION DESCRIBING RISK FACTORS THAT BEGINS ON
PAGE __.
The dates, times and places of the special meetings are as follows:
FOR MB FINANCIAL STOCKHOLDERS FOR MIDCITY FINANCIAL STOCKHOLDERS
[Date, time and place] [Date, time and place]
THE BOARDS OF DIRECTORS OF BOTH MB FINANCIAL AND MIDCITY FINANCIAL HAVE
APPROVED THE MERGER AND RECOMMEND THAT YOU VOTE "FOR" ADOPTION OF THE MERGER
AGREEMENT.
Your vote is very important, regardless of the number of shares you own.
WHETHER OR NOT YOU PLAN TO ATTEND YOUR COMPANY'S SPECIAL MEETING, PLEASE VOTE AS
SOON AS POSSIBLE TO MAKE SURE THAT YOUR SHARES ARE REPRESENTED AT THAT MEETING.
IF YOU DO NOT VOTE, IT WILL HAVE THE SAME EFFECT AS VOTING AGAINST ADOPTION OF
THE MERGER AGREEMENT.
We strongly support this combination of our companies and join with our
boards of directors in recommending that you vote for adoption of the merger
agreement.
Sincerely,
Mitchell Feiger E.M. Bakwin
President and Chief Executive Officer Chairman and Chief Executive Officer
MB Financial, Inc. MidCity Financial Corporation
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN
CONNECTION WITH THE MERGER OR DETERMINED IF THIS DOCUMENT IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGER ARE NOT SAVINGS OR
DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF ANY BANK OR NONBANK SUBSIDIARY OF ANY
OF THE PARTIES, AND THEY ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY.
This joint proxy statement-prospectus is dated as of ____________, 2001 and is
first being mailed to stockholders on or about ____________, 2001.
ADDITIONAL INFORMATION
This joint proxy statement-prospectus incorporates important business and
financial information about MB Financial from other documents that are not
included in or delivered with this joint proxy statement-prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain the documents incorporated by reference in this joint
proxy statement-prospectus through the Securities and Exchange Commission
website at http://www.sec.gov or by requesting them in writing or by telephone
from MB Financial by contacting Doria Koros, Secretary, MB Financial, Inc., 1200
North Ashland Avenue, Chicago, Illinois 60622; telephone number (773) 645-7868.
Because MidCity Financial is not a reporting company with the SEC, all business
and financial information about MidCity Financial required to be included in
this joint proxy statement-prospectus is contained in this joint proxy
statement-prospectus and is not incorporated by reference from other documents.
IF YOU WOULD LIKE TO REQUEST ANY DOCUMENTS, PLEASE DO SO BY _______, 2001
IN ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETINGS. See "Where You Can Find
More Information" beginning on page __.
MB FINANCIAL, INC.
1200 North Ashland Avenue
Chicago, Illinois 60622
(773)278-4040
----------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF MB FINANCIAL STOCKHOLDERS
----------------------------------------------------------------------
- DATE: ____________, ______, 2001
- TIME: __:__ _.M., CHICAGO TIME
- PLACE:
CHICAGO, ILLINOIS
To MB Financial Stockholders:
We are pleased to notify you of and invite you to a special meeting of
stockholders. At the meeting, you will be asked to vote on the following
matters:
- adoption of the Amended and Restated Agreement and Plan of Merger,
dated as of April 19, 2001, by and among MidCity Financial
Corporation, MB Financial and MB-MidCity, Inc., pursuant to which each
of MidCity Financial and MB Financial will merge with and into
MB-MidCity, to be renamed MB Financial, Inc. after the merger, as
described in the attached joint proxy statement-prospectus; and
- any other business that may be properly submitted to a vote at the
special meeting or any adjournment or postponement of the special
meeting.
Common stockholders of record at the close of business on _______, 2001 are
entitled to notice of, and to vote at, the special meeting and any adjournments
or postponements of the special meeting. A list of stockholders entitled to vote
at the special meeting will be available for examination by any MB Financial
stockholder at the main office of MB Financial during ordinary business hours
for at least ten days prior to the special meeting, and also will be available
for inspection at the special meeting.
YOUR VOTE IS VERY IMPORTANT. To ensure that your shares are voted at the
special meeting, please complete, sign and date your proxy card and return it in
the enclosed envelope promptly. If you hold your shares in "street name" with a
bank or broker, check your proxy card to see if you can also vote by telephone
or through the internet.
By Order of the Board of Directors
Mitchell Feiger
PRESIDENT AND CHIEF EXECUTIVE OFFICER
_________, 2001
Chicago, Illinois
MIDCITY FINANCIAL CORPORATION
801 West Madison Street
Chicago, Illinois 60607
(312)421-7600
----------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF MIDCITY FINANCIAL STOCKHOLDERS
----------------------------------------------------------------------
- DATE: ____________, ______, 2001
- TIME: __:__ _.M., CHICAGO TIME
- PLACE:
CHICAGO, ILLINOIS
To MidCity Financial Stockholders:
We are pleased to notify you of and invite you to a special meeting of
stockholders. At the meeting, you will be asked to vote on the following
matters:
- adoption of the Amended and Restated Agreement and Plan of Merger,
dated as of April 19, 2001, by and among MidCity Financial, MB
Financial, Inc. and MB-MidCity, Inc., pursuant to which each of
MidCity Financial and MB Financial will merge with and into
MB-MidCity, to be renamed MB Financial, Inc. after the merger, as
described in the attached joint proxy statement-prospectus; and
- any other business that may be properly submitted to a vote at the
special meeting or any adjournment or postponement of the special
meeting.
Common stockholders of record at the close of business on _______, 2001 are
entitled to notice of, and to vote at, the special meeting and any adjournments
or postponements of the special meeting. A list of stockholders entitled to vote
at the special meeting will be available for examination by any MidCity
Financial stockholder at the main office of MidCity Financial during ordinary
business hours for at least ten days prior to the special meeting, and also will
be available for inspection at the special meeting.
Under Delaware law, holders of MidCity Financial common stock who submit a
written demand for appraisal of their shares and who perfect their appraisal
rights by complying with the other applicable statutory procedures under
Delaware law will be entitled to receive a cash payment for the fair value of
their shares as determined by the Delaware Chancery Court. A summary of the
applicable requirements of Delaware law is contained in the attached joint proxy
statement-prospectus under the caption "The Merger--Appraisal Rights." In
addition, the text of the applicable provisions of Delaware law is attached as
Appendix E to the attached joint proxy statement-prospectus.
YOUR VOTE IS VERY IMPORTANT. To ensure that your shares are voted at the
special meeting, please complete, sign and date your proxy card and return it in
the enclosed envelope promptly. If you hold your shares in "street name" with a
bank or broker, check your proxy card to see if you can also vote by telephone
or through the internet.
By Order of the Board of Directors
E.M. Bakwin
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
_________, 2001
Chicago, Illinois
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS...................................................1
SUMMARY...........................................................................................................3
The Companies................................................................................................3
The Special Meetings.........................................................................................4
Share Ownership of Management and Directors..................................................................4
The Merger...................................................................................................5
Comparison of Stockholder Rights.............................................................................9
Stock Price and Dividend Information........................................................................10
RISK FACTORS.....................................................................................................13
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS..................................................................14
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.................................................................16
How We Prepared the Financial Statements....................................................................16
Pooling of Interests Accounting Treatment...................................................................16
Merger-Related and Integration-Related Expenses.............................................................16
Periods Covered.............................................................................................16
Selected Consolidated Financial and Other Data of MB Financial, Inc.........................................17
Selected Consolidated Financial and Other Data of MidCity Financial Corporation.............................19
Selected Unaudited Pro Forma Condensed Combined Financial Data..............................................21
Comparative Unaudited Per Share Data........................................................................22
THE SPECIAL MEETINGS.............................................................................................23
MB Financial Special Meeting................................................................................23
MidCity Financial Special Meeting...........................................................................27
THE MERGER.......................................................................................................31
General.....................................................................................................31
Background of the Merger....................................................................................31
Reasons for the Merger and Recommendations of the Boards of Directors.......................................34
Opinion of MB Financial's Financial Advisor.................................................................36
Opinions of MidCity Financial's Financial Advisors..........................................................43
Consideration to be Received in the Merger..................................................................56
Exchange of Certificates....................................................................................57
Treatment of MB Financial Stock Options.....................................................................57
The Bank Merger.............................................................................................57
Accounting Treatment........................................................................................58
Material United States Federal Income Tax Consequences of the Merger........................................58
Appraisal Rights............................................................................................61
Restrictions on Resales by Affiliates.......................................................................62
Conduct of Business Pending the Merger......................................................................63
Representations and Warranties..............................................................................64
Conditions to Completion of the Merger......................................................................66
Waiver; Amendment...........................................................................................67
Termination of the Merger Agreement.........................................................................67
Fees Associated with Termination of the Merger Agreement....................................................68
Employee Benefit Matters....................................................................................69
Interests of Insiders in the Merger.........................................................................69
i
Voting Agreements...........................................................................................75
Expenses....................................................................................................75
Stock Listing...............................................................................................76
MANAGEMENT AFTER THE MERGER......................................................................................76
Board of Directors and Corporate Governance Provisions......................................................76
Executive Officers of the New Company.......................................................................80
Compensation of Directors and Executive Officers............................................................81
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS................................................................83
Unaudited Pro Forma Combined Balance Sheet As of March 31, 2001.............................................84
Notes to Unaudited Pro Forma Combined Balance Sheet.........................................................85
Unaudited Pro Forma Condensed Combined Statements of Income For the Three Months
Ended March 31, 2001......................................................................................86
Unaudited Pro Forma Condensed Combined Statements of Income For the Three Months
Ended March 31, 2000......................................................................................87
Unaudited Pro Forma Condensed Combined Statements of Income For the Year
Ended December 31, 2000...................................................................................88
Unaudited Pro Forma Condensed Combined Statements of Income For the Year
Ended December 31, 1999...................................................................................89
Unaudited Pro Forma Condensed Combined Statements of Income For the Year
Ended December 31, 1998...................................................................................90
BUSINESS OF MB FINANCIAL, INC....................................................................................90
General.....................................................................................................90
Recent Accounting Developments..............................................................................92
Additional Information......................................................................................92
BUSINESS OF MIDCITY FINANCIAL CORPORATION........................................................................92
General.....................................................................................................92
History and Development.....................................................................................92
Business Areas..............................................................................................93
Lending Activities..........................................................................................94
Investment Securities.......................................................................................96
Sources of Funds............................................................................................98
Competition................................................................................................100
Legal Proceedings..........................................................................................100
Personnel..................................................................................................100
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MIDCITY FINANCIAL CORPORATION ................................................101
General....................................................................................................101
Analysis of Net Interest Income............................................................................102
Comparison of Results of Operations for the Three Months Ended March 31, 2001 and 2000.....................105
Comparison of Results of Operations For the Years Ended December 31, 2000 and 1999.........................106
Comparison of Results of Operations for the Years Ended December 31, 1999 and 1998.........................107
Comparison of Financial Condition at March 31, 2001 to December 31, 2000...................................107
Comparison of Financial Condition at December 31, 2000 to December 31, 1999................................108
Asset Quality..............................................................................................108
Asset Liability Management.................................................................................112
Liquidity..................................................................................................114
Capital Resources..........................................................................................115
Cash Flows.................................................................................................116
Recent Accounting Developments.............................................................................117
ii
SUPERVISION AND REGULATION......................................................................................117
General....................................................................................................117
Capital Adequacy...........................................................................................119
Prompt Corrective Action...................................................................................119
Dividends..................................................................................................120
FDIC Insurance Assessments.................................................................................120
Liability of Commonly Controlled Institutions..............................................................121
Transactions with Affiliates...............................................................................121
Community Reinvestment Act.................................................................................121
Interstate Banking and Branching...........................................................................121
Recent Legislation.........................................................................................122
Future Legislation and Changes in Regulations..............................................................122
DESCRIPTION OF CAPITAL STOCK OF THE NEW COMPANY.................................................................122
General....................................................................................................123
Common Stock...............................................................................................123
Preferred Stock............................................................................................123
Other Anti-Takeover Provisions.............................................................................124
COMPARISON OF STOCKHOLDER RIGHTS................................................................................124
Authorized Capital Stock...................................................................................124
Dividends..................................................................................................125
Advance Notice Requirements for Presentation of Business and Nominations of Directors
at Annual Meetings of Stockholders.......................................................................125
Cumulative Voting for Election of Directors................................................................126
Restrictions on Voting Rights..............................................................................126
Number and Classification of Directors.....................................................................126
Removal of Directors.......................................................................................127
Filling Vacancies on the Board of Directors................................................................127
Amendment of Corporate Governance Documents................................................................128
Business Combinations with Certain Persons.................................................................129
Prevention of Greenmail....................................................................................130
Super-Majority Stockholder Vote for Mergers, Acquisitions and Certain Other Transactions...................130
Non-Shareholder Constituency Provision.....................................................................130
Criteria for Evaluating Certain Offers.....................................................................131
Action By Stockholders Without a Meeting...................................................................131
Special Meetings of Stockholders...........................................................................131
Limitations on Directors' and Officers' Liability..........................................................131
Indemnification............................................................................................132
Appraisal Rights...........................................................................................133
Stockholder Inspection Rights..............................................................................133
LEGAL AND TAX MATTERS...........................................................................................134
EXPERTS.........................................................................................................134
STOCKHOLDER PROPOSALS...........................................................................................134
New Company................................................................................................134
MB Financial...............................................................................................134
MidCity Financial..........................................................................................135
iii
WHERE YOU CAN FIND MORE INFORMATION.............................................................................135
INDEX TO FINANCIAL STATEMENTS OF MIDCITY FINANCIAL CORPORATION..................................................F-1
APPENDICES
A Amended and Restated Agreement and Plan of Merger by and among MidCity
Financial, MB Financial and MB-MidCity, Inc.
B Opinion of Sandler O'Neill & Partners, L.P.
C Opinion of Hovde Financial LLC
D Opinion of Alex Sheshunoff & Co. LLP
E Delaware Statute Regarding Dissenters' Rights of Appraisal
F Form of Charter of New Company
G Form of Amended and Restated Bylaws of New Company
iv
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS
Q: WHY DO MB FINANCIAL AND MIDCITY FINANCIAL WANT TO MERGE?
A: We want to merge because we believe that by combining our complimentary
strengths, we will be well-positioned to be one of the premier business
banks in Chicago. MB Financial is strong in the areas of commercial
lending, equipment leasing, commercial real estate finance, long-term
healthcare and community reinvestment. MidCity Financial possesses
strengths in trust, investment and deposit services, as well as commercial
lending and other areas. The merger also presents opportunities for cost
savings and revenue enhancements that will serve the interests of
stockholders of both companies. MidCity Financial has historically paid a
dividend to its stockholders. The new company is expected to maintain a
dividend payout ratio of at least 25% of net income, an added benefit for
MB Financial stockholders, who currently do not receive a cash dividend.
MidCity Financial stockholders also may benefit from the liquidity gained
by owning shares in an actively traded public company.
Q: HOW WILL THE TRANSACTION BE EFFECTED?
A: MB Financial and MidCity Financial each will separately and simultaneously
merge into a newly formed company, with the new company as the surviving
entity. For simplicity, we refer to the mergers of our companies into the
new company as the "merger." The new company, currently named "MB-MidCity,
Inc.," will be renamed "MB Financial, Inc." upon completion of the merger.
Q: WHAT STOCKHOLDER APPROVALS ARE REQUIRED?
A: The holders of a majority of the outstanding shares of MB Financial common
stock as of the close of business on ________, 2001 and two-thirds of the
outstanding shares of MidCity Financial common stock as of the close of
business on ________, 2001 each must adopt the merger agreement.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Holders of MB Financial common stock before the merger will receive one
share of common stock of the new company for each share held prior to the
merger. Holders of MidCity Financial common stock will receive 230.32955
shares of common stock of the new company for each MidCity Financial share
held. Cash will be paid in lieu of fractional share interests in the new
company.
Q: WHAT WILL BE THE MANAGEMENT STRUCTURE OF THE NEW COMPANY?
A: The board of directors will consist of 17 members, with eight directors
designated by MB Financial and nine directors designated by MidCity
Financial. E.M. Bakwin, the Chairman of the Board and Chief Executive
Officer of MidCity Financial, will serve as Chairman of the Board of the
new company. Mitchell Feiger, the President and Chief Executive Officer of
MB Financial, will continue in the same positions with the new company. The
other senior management positions will be filled by a combination of MB
Financial and MidCity Financial executives.
Q: WHAT PERCENTAGES OF THE NEW COMPANY'S OUTSTANDING SHARES WILL BE HELD BY
THE MB FINANCIAL AND MIDCITY FINANCIAL STOCKHOLDERS?
A: Based on the number of shares of MB Financial and MidCity Financial common
stock currently outstanding, MB Financial's stockholders will own
approximately 40% and MidCity Financial's stockholders will own
approximately 60% of the new company's outstanding shares immediately after
the merger.
Q: WHEN DO YOU EXPECT THE MERGER WILL BE COMPLETED?
A: We expect to complete the merger late in the third quarter of 2001.
Because, however, the merger is subject to regulatory approvals and other
conditions to closing, we cannot predict the exact timing.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
joint proxy statement-prospectus, please respond by completing, signing and
dating your proxy card and returning it in the enclosed postage-paid
envelope as soon as possible so that your shares may be represented at your
company's special meeting. If you hold your shares in "street name" with a
bank or broker, check your proxy
card to see whether you may also vote by telephone or through the internet.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND YOUR COMPANY'S
SPECIAL MEETING, PLEASE VOTE PROMPTLY.
Q: WHAT IF I DON'T VOTE?
A: If you fail to respond, it will have the same effect as a vote against
adoption of the merger agreement.
If you are the record holder of your shares (meaning a stock certificate
has been issued in your name and/or your name appears on your company's
stock ledger) and you respond but do not indicate how you want to vote,
your proxy will be counted as a vote in favor of adoption of the merger
agreement.
If your shares are held in street name with a broker, your broker will vote
your shares on the merger agreement proposal ONLY if you provide
instructions to it on how to vote. Shares that are not voted because you do
not properly instruct your broker will have the effect of votes against
adoption of the merger agreement.
If you respond and abstain from voting, your abstention will have the same
effect as a vote against adoption of the merger agreement.
Q: CAN I CHANGE MY VOTE AFTER I HAVE DELIVERED MY PROXY?
A: Yes. You can change your vote at any time before the polls close at your
company's special meeting. If you are the record holder of your shares, you
can do this in one of three ways. First, you can submit a written statement
to the Secretary of MB Financial or MidCity Financial, as appropriate, that
you would like to revoke your proxy. Second, you can complete and submit a
new proxy. Finally, you can attend your company's special meeting and vote
in person.
If your shares are held with a bank, broker or other third party, you
should contact the holder of your shares to change your vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After we complete the merger, you will receive written instructions on
how to exchange your stock certificates for shares of the new company.
Please do not send in your stock certificates with your proxy.
Q: WHO SHOULD I CONTACT IF I HAVE QUESTIONS ABOUT THE SPECIAL MEETINGS OR THE
MERGER?
A: If you have any questions about the special meetings or the merger, you
should contact:
if you are a MB Financial stockholder:
MB FINANCIAL, INC.
Doria Koros
Secretary
1200 North Ashland Avenue
Chicago, Illinois 60622
Telephone: (773) 645-7868
if you are a MidCity Financial stockholder:
MIDCITY FINANCIAL CORPORATION
Ronald D. Santo
Executive Vice President and Secretary
801 West Madison Street
Chicago, Illinois 60607
Telephone: (312) 421-7600
2
SUMMARY
THIS SECTION HIGHLIGHTS SELECTED INFORMATION IN THIS JOINT PROXY
STATEMENT-PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION IMPORTANT TO
YOU. TO UNDERSTAND THE MERGER MORE FULLY AND FOR A MORE COMPLETE DESCRIPTION OF
THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ THIS ENTIRE DOCUMENT CAREFULLY,
INCLUDING THE APPENDICES, AND THE DOCUMENTS TO WHICH WE REFER IN THIS JOINT
PROXY STATEMENT-PROSPECTUS. A LIST OF THE DOCUMENTS INCORPORATED BY REFERENCE
APPEARS ON PAGE __ UNDER THE HEADING "WHERE YOU CAN FIND MORE INFORMATION."
THE COMPANIES
(PAGES __ AND __)
MB FINANCIAL, INC.
1200 North Ashland Avenue
Chicago, Illinois 60622
Telephone: (773) 278-4040
MB Financial, Inc., a Delaware corporation and a bank holding company, is
the parent company of Manufacturers Bank. Manufacturers Bank, an
Illinois-chartered commercial bank, concentrates its business efforts on serving
privately owned small and middle market businesses, such as manufacturers,
wholesalers, distributors, long-term health care operators and investors, and
real estate developers located throughout the Chicago metropolitan area.
Manufacturers Bank's business is focused on four areas: Commercial Banking;
Lease Banking; Korean Banking; and Retail Banking.
Manufacturers Bank has grown substantially in the last four years. It
acquired Peterson Bank in 1995 and U.S. Bank in 1997. In February 1999,
Manufacturers Bank merged with Avondale Federal Savings Bank. In May 2001, MB
Financial completed its acquisition of FSL Holdings, Inc. and FSL's subsidiary,
First Savings & Loan Association of South Holland, for aggregate cash
consideration of approximately $41.3 million. As of March 31, 2001, FSL Holdings
had consolidated assets of $220.9 million, consolidated liabilities of $187.7
million (including consolidated deposits of $174.3 million) and stockholders'
equity of $33.2 million. First Savings & Loan was merged into Manufacturers
Bank. Manufacturers Bank currently has 12 branch offices, located throughout the
Chicago metropolitan area.
As of March 31, 2001, MB Financial had consolidated assets of $1.5 billion,
consolidated liabilities of $1.4 billion (including consolidated deposits of
$1.1 billion) and stockholders' equity of $96.4 million.
MIDCITY FINANCIAL CORPORATION
801 West Madison Street
Chicago, Illinois 60607
Telephone: (312) 421-7600
MidCity Financial Corporation, a Delaware corporation and a bank holding
company, is the parent company of five subsidiary banks: The Mid-City National
Bank of Chicago (Chicago, Illinois); First National Bank of Morton Grove (Morton
Grove, Illinois); First National Bank of Elmhurst (Elmhurst, Illinois); Union
Bank and Trust Company (Oklahoma City, Oklahoma); and Abrams Centre National
Bank (Dallas, Texas).
MidCity Financial's banks have 25 branch office locations, including 19 in
the Chicago metropolitan area, five in the Oklahoma City, Oklahoma metropolitan
area and two in the Dallas, Texas metropolitan area. The banks provide a full
range of banking services to individual and corporate customers, with a focus on
commercial and industrial lending and wealth management services.
MidCity Financial has grown through a number of acquisitions in recent
years, including Clyde Federal Savings Bank (1991), First Western Savings and
Loan Association (1992), Peoples Federal Savings and Loan Association of Chicago
(1995), Abrams Centre National Bank (1997), the Waukegan, Illinois branch of
Republic Bank (1998) and Damen National Bank (1999).
As of March 31, 2001, MidCity Financial had consolidated assets of $1.8
billion, consolidated liabilities of $1.6 billion (including consolidated
deposits of $1.5 billion) and stockholders' equity of $194 million.
3
MB-MIDCITY, INC.
801 West Madison Street
Chicago, Illinois 60607
Telephone: (312) 421-7600
MB-MidCity, Inc. is a newly formed Maryland corporation that has not, to
date, conducted any activities other than those incident to its formation, the
matters contemplated by the merger agreement and the filing with the SEC of the
registration statement of which this joint proxy statement-prospectus is a part.
To accomplish the combination of MB Financial and MidCity Financial, each
company will separately and concurrently merge into MB-MidCity, Inc., with
MB-MidCity, Inc. as the surviving entity. For simplicity, the mergers of our
companies into MB-MidCity, Inc. are in most places in this joint proxy
statement-prospectus referred to as the "merger."
Upon the merger becoming effective, the name of MB-MidCity, Inc. will
change to "MB Financial, Inc." In most places in this joint proxy
statement-prospectus, we refer to MB-MidCity, Inc. as the "new company."
THE SPECIAL MEETINGS
(PAGES __ AND __)
MB FINANCIAL SPECIAL MEETING
The special meeting of MB Financial stockholders will be held on ______,
2001, at __:__ _.m., Chicago time, at ___________________, Chicago, Illinois,
unless adjourned or postponed. At this meeting, MB Financial stockholders will
be asked to:
1. adopt the merger agreement; and
2. act on any other business that may be properly submitted to a vote at
the meeting or any adjournments or postponements of the meeting.
You may vote at the MB Financial meeting if you owned MB Financial common
stock as of the close of business on ________, 2001. You may cast one vote for
each share of MB Financial common stock you owned at that time.
Adoption of the merger agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of MB Financial common stock.
The affirmative vote of the holders of a majority of the outstanding shares
of MB Financial common stock present in person or by proxy and voting on the
matter may authorize the adjournment or postponement of the MB Financial special
meeting. No proxy that is voted against the proposal to adopt the merger
agreement will be voted in favor of adjournment or postponement to solicit
further proxies for the proposal.
MIDCITY FINANCIAL SPECIAL MEETING
The special meeting of MidCity Financial stockholders will be held on
______, 2001, at __:__ _.m., Chicago time, at ___________________, Chicago,
Illinois, unless adjourned or postponed. At this meeting, MidCity Financial
stockholders will be asked to:
1. adopt the merger agreement; and
2. act on any other business that may be properly submitted to a vote at
the meeting or any adjournments or postponements of the meeting.
You may vote at the MidCity Financial meeting if you owned MidCity
Financial common stock as of the close of business on ________, 2001. You may
cast one vote for each share of MidCity Financial common stock you owned at that
time.
Adoption of the merger agreement requires the affirmative vote of the
holders of two-thirds of the outstanding shares of MidCity Financial common
stock.
The affirmative vote of the holders of a majority of the outstanding shares
of MidCity Financial common stock present in person or by proxy and voting on
the matter may authorize the adjournment or postponement of the MidCity
Financial special meeting. No proxy that is voted against the proposal to adopt
the merger agreement will be voted in favor of adjournment or postponement to
solicit further proxies for the proposal.
SHARE OWNERSHIP OF MANAGEMENT
AND DIRECTORS
On ________, 2001, the record date for the MB Financial special meeting,
the directors and executive officers of MB Financial and their affiliates
beneficially owned and were entitled to vote ________ shares of MB Financial
common stock, or ___% of the MB Financial shares outstanding on that date. On
that date, the directors and executive officers of MidCity Financial and their
affiliates beneficially owned and were entitled to vote ________ shares of MB
Financial common stock, or ___% of the MB Financial shares outstanding.
4
The MB Financial directors have entered into a voting agreement with
MidCity Financial under which each director has agreed to vote all of the
shares of MB Financial Common Stock he owns of record or beneficially and is
entitled to vote as of the record date for the MB Financial special meeting
in favor of adoption of the merger agreement. See "The Merger--Voting
Agreements."
On ______, 2001, the record date for the MidCity Financial special meeting,
the directors and executive officers of MidCity Financial and their affiliates
beneficially owned and were entitled to vote ________ shares of MidCity
Financial common stock, or ___% of the MidCity Financial shares outstanding on
that date. The directors and executive officers of MB Financial and their
affiliates did not beneficially own any shares of MidCity Financial common stock
on that date.
The MidCity Financial directors have entered into a voting agreement with
MB Financial under which each director has agreed to vote all of the shares of
MidCity Financial Common Stock he or she owns of record and is entitled to vote
as of the record date for the MidCity Financial special meeting in favor of
adoption of the merger agreement. See "The Merger--Voting Agreements."
THE MERGER
(PAGE __)
WE HAVE ATTACHED THE MERGER AGREEMENT TO THIS JOINT PROXY
STATEMENT-PROSPECTUS AS APPENDIX A. PLEASE READ THE MERGER AGREEMENT CAREFULLY.
IT IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
GENERAL
We are proposing to combine our companies in a "merger of equals"
transaction. The transaction will be effected by the simultaneous merger of each
of our companies into a newly formed company, MB-MidCity, Inc., with the new
company as the surviving entity.
WHAT MB FINANCIAL AND MIDCITY FINANCIAL STOCKHOLDERS WILL RECEIVE (PAGE __)
Holders of MB Financial common stock before the merger will receive one
share of common stock of the new company for each share held prior to the merger
(sometimes referred to in this document as the "MB Financial exchange ratio").
Each share of MidCity Financial common stock will be exchanged for 230.32955
shares of common stock of the new company (sometimes referred to in this
document as the "MidCity Financial exchange ratio"). MidCity Financial
stockholders will receive cash in lieu of fractional share interests in new
company common stock in an amount determined by multiplying the fractional share
interest by the average closing price of MB Financial common stock for five
trading days immediately preceding the effective time of the merger.
If the trading price of new company common stock were $____ per share (the
closing price of MB Financial common stock on _____, 2001), the value of
230.32955 shares of new company common stock would be $__________. The value of
the stock that you will receive in the merger will fluctuate as the prices of MB
Financial common stock (before the merger) and the new company common stock
(after the merger) change.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS (PAGE __)
TO MB FINANCIAL STOCKHOLDERS: The MB Financial board of directors believes
that the merger is fair to you and in your best interest. The board unanimously
voted to approve the merger agreement and unanimously recommends that you vote
FOR adoption of the merger agreement.
TO MIDCITY FINANCIAL STOCKHOLDERS: The MidCity Financial board of directors
believes that the merger is fair to you and in your best interest. The board
unanimously voted to approve the merger agreement and unanimously recommends
that you vote FOR adoption of the merger agreement.
OPINIONS OF FINANCIAL ADVISORS (PAGE __)
OPINION OF MB FINANCIAL'S FINANCIAL ADVISOR. In deciding to approve the
merger agreement, the MB Financial board of directors considered the opinion it
received from Sandler O'Neill & Partners, L.P. that as of April 19, 2001, and
after taking into account the MidCity Financial exchange ratio, the MB Financial
exchange ratio was fair to the stockholders of MB Financial from a financial
point of view.
A copy of the opinion of Sandler O'Neill is attached to this joint proxy
statement-prospectus as Appendix B. You should read this opinion in its entirety
to understand the assumptions made, matters considered and limitations of the
review undertaken by Sandler O'Neill & Partners, L.P. in providing its opinion.
5
OPINIONS OF MIDCITY FINANCIAL FINANCIAL ADVISORS. In deciding to approve
the merger agreement, the MidCity Financial board of directors considered the
opinions it received from Hovde Financial LLC and Alex Sheshunoff & Co., LLP
that as of April 19, 2001, and after taking into account the MB Financial
exchange ratio, the MidCity Financial exchange ratio was fair to the
stockholders of MidCity Financial from a financial point of view.
Copies of the opinions of Hovde Financial LLC and Alex Sheshunoff & Co. LLP
are attached to this joint proxy statement-prospectus as Appendices C and D,
respectively. You should read these opinions in their entirety to understand the
assumptions made, matters considered and limitations of the review undertaken by
Hovde Financial LLC and Alex Sheshunoff & Co. LLP in providing their opinions.
OWNERSHIP OF THE NEW COMPANY AFTER THE MERGER
Based on the number of shares of MB Financial common stock and MidCity
Financial common stock outstanding as of ______, 2001, the new company will
issue approximately 17.66 million shares of common stock in the merger.
Approximately 60% of these shares will be issued to MidCity Financial
stockholders, with the remaining 40% issued to MB Financial stockholders.
This information does not take into account currently outstanding MB
Financial stock options.
MANAGEMENT OF THE NEW COMPANY AFTER THE MERGER (PAGE __)
The board of directors of the new company will consist of 17 members, with
eight directors designated by MB Financial and nine directors designated by
MidCity Financial. E.M. Bakwin, the Chairman of the Board and Chief Executive
Officer of MidCity Financial, will serve as Chairman of the Board of the new
company. Mitchell Feiger, the President and Chief Executive Officer of MB
Financial, will continue in the same positions for the new company. The other
senior management positions will be filled by a combination of MB Financial and
MidCity Financial executives.
INTERESTS OF MB FINANCIAL AND MIDCITY FINANCIAL OFFICERS AND DIRECTORS IN THE
MERGER (PAGE __)
Some of the MB Financial and MidCity Financial directors and executive
officers may have interests in the merger that are different from, or in
addition to, their interests as stockholders in our companies. These interests
exist because of the rights that these directors and executive officers have
under the terms of their benefit and compensation plans and also, in the case of
the executive officers, under the terms of various agreements with MB Financial
and MidCity Financial. These agreements provide some executive officers with
severance benefits if their employment is terminated under specified
circumstances in connection with or following the merger. These interests also
arise from provisions of the merger agreement relating to director and officer
indemnification and insurance, retention bonuses and other employee benefits
after the merger and appointments to the board of directors of and other
management positions with the new company. In addition, stock options held by
certain directors and executive officers of MB Financial will vest early as a
result of the merger.
The members of the boards of directors of MB Financial and MidCity
Financial knew about and considered these additional interests when they
approved the merger agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE __)
We expect that the mergers of our companies into the new company will each
qualify as a "reorganization" under Section 368(a)(1) of the Internal Revenue
Code. Accordingly, none of MB Financial, MidCity Financial or the new company
should recognize any gain or loss for U.S. federal income tax purposes in the
merger, and no gain or loss should be recognized by the stockholders of MidCity
Financial or MB Financial who exchange their shares solely for shares of new
company common stock in the merger (except to the extent cash is paid in lieu of
a fractional share interest in new company common stock). It is a condition to
completion of the merger that each of us receive an opinion from our tax counsel
that these will be the federal income tax consequences of the merger.
The material federal income tax consequences of the transaction are
described in more detail on page __.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES THAT THE MERGER
WILL HAVE ON YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD
CONSULT YOUR PERSONAL TAX ADVISOR FOR A COMPLETE UNDERSTANDING OF THE TAX
CONSEQUENCES OF THE MERGER TO YOU.
6
ACCOUNTING TREATMENT (PAGE __)
It is intended that the merger will be accounted for as a pooling of
interests in accordance with accounting principles generally accepted in the
United States of America.
APPRAISAL RIGHTS (PAGE __)
Under Delaware law, MidCity Financial stockholders who submit a written
demand for appraisal of their shares and who perfect their appraisal rights by
complying with the other applicable statutory procedures required by Delaware
law will be entitled to receive, in lieu of the merger consideration issuable to
them pursuant to the merger agreement, payment in cash for the fair value of
their MidCity Financial shares as determined by the Delaware Chancery Court. See
" The Merger--Appraisal Rights." A copy of the relevant sections of Delaware law
governing this process is attached to this joint proxy statement-prospectus as
Appendix E.
MB Financial stockholders are not entitled to appraisal rights in
connection with the merger.
MERGER OF OUR ILLINOIS-BASED SUBSIDIARY BANKS (PAGE __)
Soon after the merger of our companies, Manufacturers Bank, The Mid-City
National Bank of Chicago, First National Bank of Elmhurst and First National
Bank of Morton Grove will be merged together. The Mid-City National Bank of
Chicago will be the surviving institution, which may adopt a new name,
determined by MB Financial and MidCity Financial prior to the merger of our
companies or by the new company after the merger of our companies. It is
expected that MidCity Financial's other subsidiary banks, Abrams Centre National
Bank and Union Bank and Trust Company, will be held as separate subsidiaries of
the new company.
REGULATORY APPROVALS REQUIRED
The merger of our companies must be approved by the Board of Governors of
the Federal Reserve System and the merger of our Illinois-based subsidiary banks
must be approved by the Office of the Comptroller of the Currency. In addition,
prior notice of the merger of our companies must be filed with the Texas
Department of Banking and the Oklahoma State Banking Department and prior notice
of the bank merger must be filed with the Illinois Office of Banks and Real
Estate.
The U.S. Department of Justice may review the impact of the mergers of our
companies and the banks on competition. Once the Federal Reserve board approves
the merger of our companies, we must wait for up to 30 days before we can
complete the merger. If, however, there are no adverse comments from the U.S.
Department of Justice, the merger may be completed on or after the 15th day
after final approval from the Federal Reserve Board. Similarly, after we receive
approval of the bank merger from the Office of the Comptroller of the Currency,
we must wait for up to 30 days before we can complete the bank merger. If,
however, there are no adverse comments from the U.S. Department of Justice, the
bank merger may be completed on or after the 15th day after final approval from
the Office of the Comptroller of the Currency.
As of the date of this joint proxy statement-prospectus, all of the
required applications or notices have been filed. There can be no assurance as
to whether all regulatory approvals will be obtained or as to the dates of the
approvals. There also can be no assurance that the regulatory approvals received
will not contain a condition or requirement that results in a failure to satisfy
the conditions to closing set forth in the merger agreement.
MB FINANCIAL STOCK OPTIONS (PAGE __)
Upon completion of the merger, each outstanding option to purchase MB
Financial common stock will be converted into an option to purchase common stock
of the new company, on the same terms and conditions in effect prior to the
merger. No adjustments will be made to the number of shares underlying the
option or the exercise price of the option. Under the terms of MB Financial's
1997 Omnibus Incentive Plan, upon completion of the merger, all outstanding
stock options granted under that plan which have not yet vested will vest and
become exercisable in full.
WHAT NEEDS TO BE DONE TO COMPLETE THE MERGER (PAGE __)
The completion of the merger depends on a number of conditions being
satisfied or, where permitted, waived. These conditions include:
- adoption of the merger agreement by MB Financial and MidCity Financial
stockholders;
7
- approval for listing on The Nasdaq Stock Market of the shares of new
company common stock to be issued in the merger;
- receipt of all required regulatory approvals;
- the absence of any injunction or other legal restraint blocking the
merger or any of the other transactions contemplated by the merger
agreement;
- receipt by each of us of an opinion of our tax counsel regarding the
federal income tax consequences of the merger;
- the receipt by each of us of a letter from our independent accountants
indicating that the merger will qualify for pooling of interests
accounting treatment;
- exercise of appraisal rights by the holders of not more than 5% of the
outstanding shares of MidCity Financial common stock;
- the accuracy of our respective representations and warranties in the
merger agreement;
- the performance by each of us in all material respects with our
respective obligations under the merger agreement; and
- the absence of any event or circumstance that has resulted in or is
reasonably likely to result in a material adverse effect on either of
us.
We cannot be certain when, or if, the conditions to the merger will be
satisfied or waived, or that the merger will be completed.
COVENANTS PENDING CLOSING (PAGE __)
Each of us has agreed to conduct our business in certain ways until the
merger is completed. See "The Merger--Conduct of Business Pending the Merger."
WAIVER AND AMENDMENT (PAGE __)
We can agree to amend the merger agreement and each of us can waive our
right to require the other party to adhere to the terms and conditions of the
merger agreement, where law allows. After MB Financial's or MidCity Financial's
stockholders have adopted the merger agreement, however, we may not change the
amount or form of consideration to be received by the MB Financial or MidCity
Financial stockholders in the merger without their consent to such a change.
TERMINATION OF THE MERGER AGREEMENT (PAGE __)
MB Financial and MidCity Financial can jointly agree to terminate the
merger agreement at any time. Either company may also terminate the merger
agreement:
- if a regulatory or other governmental authority does not permit
completion of the merger;
- if the merger has not been completed by April 19, 2002, unless the
failure to complete the merger is due to the failure of the company
seeking termination to fulfill its obligations under the merger
agreement;
- if either company's stockholders vote not to adopt the merger
agreement;
- if the other company materially breaches its representations and
warranties or obligations under the merger agreement and does not
timely cure the violation;
- prior to the adoption of the merger agreement by the other company's
stockholders, if the other company's board of directors fails to
recommend adoption of the merger agreement to the other company's
stockholders, or withdraws or modifies that recommendation in a manner
adverse to the company seeking termination;
- prior to adoption of the merger agreement by the terminating company's
stockholders, to allow the terminating company to enter into an
agreement with a third party for a merger or similar transaction, if
the board of directors of the terminating company has complied with
its obligations under the merger agreement with respect to these types
of transactions; or
- if a specified decline in the market value of MB Financial common
stock occurs relative to a decline in the value of an index based on
the stock prices of a select group of financial institution holding
companies.
8
FEES ASSOCIATED WITH TERMINATION OF THE MERGER AGREEMENT (PAGE __)
The merger agreement provides that in several circumstances, MB Financial
or MidCity Financial may be required to pay liquidated damages to the other of
$5.0 million. See "The Merger--Fees Associated with Termination of the Merger
Agreement."
COMPARISON OF STOCKHOLDER RIGHTS
(PAGE __)
MB Financial and MidCity Financial are incorporated under the laws of
the State of Delaware. The rights of holders of MB Financial common stock and
MidCity Financial common stock are governed by Delaware law and the
respective certificates of incorporation and bylaws of MB Financial and
MidCity Financial. In the merger, MB Financial and MidCity Financial
stockholders will, in exchange for their MB Financial and MidCity Financial
shares, receive shares of the common stock of the new company, which is
incorporated under the laws of the State of Maryland. The rights of holders
of new company common stock after the merger will be governed by Maryland law
and the charter and bylaws of the new company.
For a comparison of the rights of stockholders of MB Financial, MidCity
Financial and the new company, see "Comparison of Stockholder Rights."
9
STOCK PRICE AND DIVIDEND INFORMATION
MB FINANCIAL
MB Financial common stock is traded on The Nasdaq Stock Market National
Market system under the symbol "MBFI," and it is expected that the common stock
of the new company will be listed on The Nasdaq Stock Market National Market
system under that symbol. The following table sets forth the reported high and
low sales prices per share of MB Financial common stock for the periods
indicated. These prices do not include retail mark-ups, mark-downs or
commissions.
PRICE OF MB FINANCIAL
COMMON STOCK
---------------------
HIGH LOW
------ ------
1999 FISCAL YEAR
First Quarter ....................... $16.00 $13.38
Second Quarter ...................... 14.63 12.38
Third Quarter ....................... 14.50 12.38
Fourth Quarter ...................... 13.50 12.50
2000 FISCAL YEAR
First Quarter ....................... $12.75 $ 9.50
Second Quarter ...................... 12.63 8.97
Third Quarter ....................... 14.13 11.75
Fourth Quarter ...................... 13.75 10.50
2001 FISCAL YEAR
First Quarter ....................... $17.25 $13.00
Second Quarter....................... 26.70 15.85
Third Quarter (through _____, 2001)..
MB Financial has not paid cash dividends in the past, and does not intend
to pay any cash dividends prior to the merger.
10
MIDCITY FINANCIAL
MidCity Financial common stock is traded in the "pink sheets" under the
symbol "MCYF." However, it has historically traded on a limited basis and
generally in privately negotiated transactions. Except for those trades reported
by certain internet-based bulletin board services purporting to monitor trading
activities on the "pink sheets," MidCity Financial does not have the ability to
monitor the sales price of its common stock in transactions to which it is not a
party. Furthermore, MidCity Financial is not able to verify the accuracy or
completeness of the internet-based bulletin board information. The following
table sets forth for the periods indicated the high and low sales prices per
share based on data provided by the internet-based bulletin board services and
actual private transactions between third party buyers and sellers known to
management, as well as the quarterly cash dividends per share.
HIGH LOW DIVIDENDS
--------- --------- ---------
1999
First Quarter ................ $6,000.00 $5,100.00 $15.00
Second Quarter ............... 6,000.00 5,100.00 15.00
Third Quarter ................ 5,200.00 5,200.00 20.00
Fourth Quarter ............... 6,100.00 5,800.00 20.00
2000
First Quarter ................ $6,300.00 $6,300.00 $20.00
Second Quarter ............... 6,300.00 5,500.00 20.00
Third Quarter ................ 5,525.00 5,000.00 35.00
Fourth Quarter ............... 4,775.00 4,400.00 35.00
2001
First Quarter ................ $ --(1) $ --(1) $35.00
Second Quarter................ 4,400.00 4,400.00 $35.00
Third Quarter
(through __, 2001)..........
----------
(1) No known transactions.
MidCity has historically paid a quarterly cash dividend in the month
following the end of each calendar quarter. Prior to the merger, MidCity
Financial is permitted under the merger agreement to continue to pay regular
quarterly cash dividends of $35.00 per share, consistent with past practices.
Following the merger, the new company is expected to maintain an annual dividend
payout ratio, meaning the percentage of net income paid out as cash dividends,
of at least 25%. The bylaws of the new company will provide that a decision to
maintain a dividend payout ratio of less than 25% must be approved by two-thirds
of the entire board of directors of the new company. As described in "Management
After the Merger," this bylaw provision will expire on the date of the third
annual meeting of stockholders of the new company after the merger or the
consummation of a business combination approved by two-thirds of the entire
board of directors which results in the stockholders of the new company owning
less than 51% of the resulting entity in the business combination, whichever
occurs first.
11
In addition to the dividend payout provision of the new company's bylaws,
which the new company's board of directors will be empowered to amend or
eliminate prior to the expiration date described above if the board acts by the
required vote of its members, the timing and amount of dividends paid on new
company common stock will depend upon the earnings, cash requirements and
financial condition of the new company, as well as other factors deemed relevant
by the new company's board of directors. Also, the primary source for dividends
paid to new company stockholders is expected to be dividends paid to the new
company from its subsidiary banks. There are various regulatory restrictions on
the payment of dividends by the banks. See "Supervision and
Regulation--Dividends."
The following table sets forth the last reported sale prices per share of
MB Financial common stock and the equivalent per share prices for MidCity
Financial common stock giving effect to the merger on (i) April 19, 2001, the
last trading day preceding public announcement of the signing of the merger
agreement; and (ii) ______, 2001, the last practicable date prior to the mailing
of this joint proxy statement-prospectus.
EQUIVALENT PRICE PER
MB FINANCIAL MIDCITY FINANCIAL
COMMON STOCK SHARE(1)
April 19, 2001 ................. $16.50 $3,800.44
________, 2001 .................
----------
(1) The equivalent price per share of MidCity Financial common stock at each
specified date was determined by multiplying: (i) the last reported sale
price of MB Financial common stock on that date by (ii) 230.32955, the
number of new company shares to be issued for each MidCity Financial share.
As of __________, 2001, the ________ outstanding shares of MB Financial
common stock were held by approximately _____ record owners and the 46,007
outstanding shares of MidCity Financial common stock by approximately 197 record
owners.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS JOINT PROXY STATEMENT-PROSPECTUS, INCLUDING THE MATTERS
ADDRESSED UNDER THE CAPTION "DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS,"
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN DECIDING WHETHER TO
VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
DUE TO MARKET PRICE FLUCTUATIONS, YOU CANNOT BE SURE OF THE VALUE OF THE STOCK
THAT YOU WILL RECEIVE IN THE MERGER.
Upon completion of the merger, all shares of MB Financial and MidCity
Financial common stock will be converted into shares of new company common
stock. The exchange ratios at which the shares will be converted are fixed and,
while each party has the right to terminate the merger agreement if a specified
decline in the market value of MB Financial common stock occurs, there will be
no adjustments to the exchange ratios for changes in the market price of MB
Financial common stock. See "The Merger--Termination of the Merger Agreement."
Furthermore, there can be no assurance that either party will exercise its right
to terminate due to such a price decline, should this price decline occur. Any
change in the price of MB Financial common stock prior to the completion of the
merger will affect the value of the new company stock that you will receive on
the date of the merger. Changes in MB Financial's stock price may result from a
variety of factors, including general market and economic conditions, the future
financial condition and operating results of MB Financial, changes in the
business, operations and prospects of MB Financial, as well as regulatory
considerations. Many of these factors are beyond the control of MB Financial.
The price of new company common stock upon completion of the merger may
vary from the price of MB Financial on the date the merger agreement was
executed, on the date of this joint proxy statement-prospectus and on the date
of the special meetings. Because the date the merger is completed will be later
than the date of the special meetings, the price of MB Financial common stock on
the date of the special meetings may not be indicative of its price on the date
the merger is completed.
THE ANTICIPATED BENEFITS OF THE MERGER MAY NEVER BE REALIZED.
The success of the merger will depend, in part, on the new company's
ability to realize the anticipated cost savings, revenue enhancements, growth
opportunities and synergies of combining MB Financial and MidCity Financial.
Inherent uncertainties exist in integrating the operations of two companies. In
addition, the markets in which the new company will operate are highly
competitive. The new company also could lose key personnel. These factors could
contribute to the new company not achieving the expected benefits from the
merger within the desired time frames, if at all.
MIDCITY FINANCIAL'S STOCKHOLDERS ARE EXPECTED TO CONTROL APPROXIMATELY 60% OF
THE OUTSTANDING SHARES OF THE NEW COMPANY IMMEDIATELY AFTER THE MERGER.
For MB Financial stockholders, one important factor to consider is that
immediately after the merger, MidCity Financial's stockholders will control more
than a majority of the new company's outstanding shares. Thus, if all or nearly
all of the former MidCity stockholders voted their new company shares in concert
on a particular matter submitted to a vote of the new company stockholders, the
former MidCity stockholders likely would determine the outcome of the vote,
regardless of how the former MB Financial stockholders voted.
CHANGES IN INTEREST RATES COULD REDUCE THE NEW COMPANY'S INCOME AND CASH FLOWS.
After the merger, the new company's net income and cash flows will, like
the net income and cash flows of MB Financial and MidCity Financial, depend to a
great extent on the difference between the interest earned on interest-earning
assets such as loans and investment securities, and the interest paid on
interest-bearing liabilities such as deposits and borrowings. The interest
earned and paid on assets and liabilities will be highly sensitive to many
factors which are beyond the new company's control, including general economic
conditions and the policies
13
of various governmental and regulatory agencies, in particular, the Federal
Reserve Board. Changes in monetary policy, including changes in interest
rates, will influence the origination of loans, the purchase of investments,
the generation of deposits and the rates received on loans and investment
securities and paid on deposits. Fluctuations in these areas could adversely
affect the new company.
CHANGES IN LOCAL ECONOMIC CONDITIONS COULD ADVERSELY AFFECT THE NEW COMPANY'S
LOAN PORTFOLIO.
Most of the loans in the new company's loan portfolio after the merger will
be to businesses and individuals in the Chicago metropolitan area. Unfavorable
or worsening economic conditions in this area could impact the new company
adversely, as the ability of borrowers to pay their loans according to the terms
of the loans and the value of collateral securing these loans may be adversely
affected.
GOVERNMENTAL REGULATION AND LEGISLATION COULD LIMIT THE NEW COMPANY'S FUTURE
GROWTH.
Like MB Financial and MidCity Financial and their subsidiary banks, the new
company and its subsidiaries will be subject to extensive state and federal
regulation, supervision and legislation that govern almost all aspects of the
operations of the new company and its subsidiaries. See "Supervision and
Regulation." These laws and regulations may change from time to time and are
primarily intended for the protection of consumers, depositors and the deposit
insurance funds. The impact of any changes to these laws and regulations may
negatively impact the new company's ability to expand its services and to
increase the value of its business. While we cannot predict what effect any
presently contemplated or future changes in the laws or regulations or their
interpretations would have on the new company, these changes or interpretations
could be materially adverse to stockholders of the new company.
IF THE NEW COMPANY DOES NOT ADJUST TO RAPID CHANGES IN THE FINANCIAL SERVICES
INDUSTRY, ITS FINANCIAL PERFORMANCE MAY SUFFER.
The new company's ability to continue our history of strong financial
performance and return on investment to stockholders will depend in part on its
ability to expand its scope of available financial services as needed to meet
the needs and demands of its customers. In addition to the challenge of
attracting and retaining customers for traditional banking services, competitors
include securities dealers, brokers, mortgage bankers, investment advisors and
finance and insurance companies who seek to offer one-stop financial services to
their customers that may include services that banks have not been able or
allowed to offer to their customers in the past. The increasingly competitive
environment is a result primarily of changes in regulation, technology and
product delivery systems, and the accelerating pace of consolidation among
financial service providers.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This document, including information incorporated into this document by
reference, contains statements about MB Financial, MidCity Financial and the new
company which we believe are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements include information regarding the financial condition, results of
operations and businesses of MB Financial and MidCity Financial before the
merger and the new company after the merger. They also include information
relating to the synergies, efficiencies, cost savings and revenue enhancements
that are expected to be realized from the merger.
The sections of this document which contain forward-looking statements
include "Questions and Answers About the Merger and the Special Meetings," o
"Summary," o The Merger--Background of the Merger," "--Reasons for the Merger
and Recommendations OF the Boards of Directors," "Opinion of MB Financial's
Financial Advisor" and "--Opinions of MidCity Financial's Financial Advisors,"
and o "Unaudited Pro Forma Condensed Combined Financial Information."
Forward-looking statements are also identified by words such as "believes,"
"anticipates," "estimates," "projects," "expects," "intends," "plans," "should,"
"potential," or similar expressions.
14
Forward-looking statements involve certain risks and uncertainties. You
should understand that the following important factors, in addition to those
discussed elsewhere in this document and in the documents which are
incorporated into this joint proxy statement-prospectus by reference, could
affect the future results of the new company after the merger, and could
cause those results to differ materially from those expressed in the
forward-looking statements:
- expected cost savings and synergies from the merger might not be
realized within the expected time frame;
- revenues following the merger could be lower than expected;
- costs or difficulties related to the integration of the businesses of
MB Financial and MidCity might be greater than expected;
- deposit attrition, operating costs, customer loss and business
disruption before and after the merger might be greater than expected;
- competitive pressures among depository institutions, particularly in
the Chicago banking market;
- the credit risks of lending activities;
- changes in the interest rate environment and in the demand for loans;
- real estate values;
- general economic conditions, either nationally or in the states in
which the new company will be doing business, might be less favorable
than expected;
- new legislation or regulatory changes;
- changes in accounting principles, policies or guidelines; and
- other economic, competitive, governmental, regulatory and
technological factors affecting the operations, pricing, products and
services of MB Financial and MidCity Financial before the merger and
of the new company after the merger.
Further information on other factors which could affect the results or
outcomes projected in forward-looking statements is included in MB Financial's
SEC filings incorporated by reference into this joint proxy
statement-prospectus. See "Where You Can Find More Information."
15
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
HOW WE PREPARED THE FINANCIAL STATEMENTS
We are providing the following information to aid you in your analysis of
the financial aspects of the merger. This information is derived from (1) MB
Financial's audited financial statements for the years ended December 31, 2000,
1999, 1998, 1997 and 1996 and unaudited financial statements for the three
months ended March 31, 2001 and 2000 and (2) MidCity Financial's audited
financial statements for the years ended December 31, 2000, 1999, 1998, 1997 and
1996 and unaudited financial statements for the three months ended March 31,
2001 and 2000. Data at and for the three months ended March 31, 2001 may not be
indicative of results for any future period or periods.
The following information is only a summary. You should read it together
with MB Financial's historical financial statements and related notes contained
in its Annual Report on Form 10-K for the year ended December 31, 2000 and
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2001
filed with the SEC and MidCity Financial's historical financial statements and
related notes contained in this joint proxy statement-prospectus. See "Where You
Can Find More Information" and "Index to Financial Statements of MidCity
Financial Corporation."
POOLING OF INTERESTS ACCOUNTING TREATMENT
We expect that the merger will be accounted for as a pooling-of-interests.
This means that, for accounting and financial reporting purposes, we will treat
our companies as if they had always been combined. For a more detailed
description of pooling of interests accounting, see "The Merger--Accounting
Treatment."
We have presented unaudited pro forma condensed combined financial
information that reflects the pooling-of-interests method of accounting to give
you a better picture of the types of changes to our financial statement that
will be made to reflect the merger. We prepared the pro forma condensed combined
statements of income and pro forma combined balance sheet by adding or combining
the historical amounts of each company. The accounting policies of MB Financial
and MidCity Financial are substantially similar. Consequently, we did not make
adjustments to the unaudited pro forma condensed combined financial statements
to conform the accounting policies of the combining companies. The pro forma
information, while helpful in illustrating the financial characteristics of the
combined company under one set of assumptions, is not necessarily indicative of
the results of operations which would have occurred had MB Financial and MidCity
Financial constituted a single entity since January 1, 1998, and does not
attempt to predict or suggest future results.
MERGER-RELATED AND INTEGRATION-RELATED EXPENSES
We expect that we will incur restructuring and merger-related expenses as a
result of combining our companies. We estimate that merger-related fees and
expenses, consisting primarily of SEC filing fees, fees and expenses of
investment bankers, attorneys and accountants, and financial printing and other
related charges, will be approximately $4.1 million. We estimate that pre-tax
costs of approximately $15.5 million will be incurred for severance and other
integration-related expenses, including the elimination of duplicate facilities
and excess capacity, operational realignment and related workforce reductions.
These expenditures are necessary to reduce costs and operate efficiently. These
costs will be charged to operations in the relevant period and therefore are not
reflected in the unaudited pro forma combined statements of income. These
charges are reflected in the unaudited pro forma combined balance sheet as of
March 31, 2001.
PERIODS COVERED
The unaudited pro forma condensed combined statements of income combine MB
Financial's historical results for the three month periods ended March 31, 2001
and 2000, and the years ended 2000, 1999 and 1998 with MidCity Financial's
results for the same periods, giving effect to the merger as if it had occurred
as of the first day of each period presented. The unaudited pro forma combined
balance sheet combines the historical consolidated
16
statements of financial condition of MB Financial and MidCity Financial as of
March 31, 2001, giving effect to the merger as if it had occurred on March
31, 2001. The selected unaudited pro forma condensed combined financial data
have been derived from and should be read in conjunction with the unaudited
pro forma combined financial statements and related notes contained elsewhere
in this joint proxy statement-prospectus. See "Unaudited Pro Forma Combined
Financial Statements."
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF MB FINANCIAL, INC.
AT OR
FOR THE THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
------- ------ ------- -------- ------- -------- -------
(In thousands, except common share data)
STATEMENT OF INCOME DATA:
Interest income......... $ 27,326 $ 23,606 $ 104,090 $ 82,291 $ 57,632 $ 51,686 $ 39,530
Interest expense........ 16,302 12,725 59,441 41,767 29,826 25,172 18,180
------- ------- -------- ------- ------- ------- -------
Net interest income..... 11,024 10,881 44,649 40,524 27,806 26,514 21,350
Provision for loan losses 750 750 3,090 1,260 750 971 572
------- ------- -------- ------- ------- ------- -------
Net interest income after 10,131
provision for loan losses 10,274 41,559 39,264 27,056 25,543 20,778
Other income(1)......... 3,030 2,772 10,722 9,062 9,940 4,935 2,939
Other expense........... 8,943 8,961 35,745 33,560 27,136 24,195 16,868
------- ------- -------- ------- ------- ------- -------
Income before income taxes 3,942
and minority interest. 4,361 16,536 14,766 9,860 6,283 6,849
Applicable income taxes. 1,386 1,255 4,931 4,812 3,605 2,402 2,576
------- ------- -------- ------- ------- ------- -------
Income before minority 2,975 2,687 11,605 9,954 6,255 3,881 4,273
interest.............
Minority interest....... -- -- -- -- -- (432) (636)
------- ------- -------- ------- ------- ------- -------
Net income.............. 2,975 2,687 11,605 9,954 6,255 3,449 3,637
Preferred stock dividend -- -- -- -- 1,085 276 --
------- ------- -------- ------- ------- ------- -------
Net income available to
common stockholders.. $2,975 2,687 $11,605 $9,954 $5,170 $3,173 $3,637
======= ======= ======== ======= ======= ======= =======
COMMON SHARE DATA(2):
Basic earnings per common
share................ $0.42 $.38 $1.64 $1.51 $1.26 $0.76 $0.88
Diluted earnings per
common share......... 0.42 .38 1.64 1.51 1.25 0.76 0.88
Book value per common 13.65 11.53 12.99 11.24 11.46 10.20 9.41
share................
Weighted average common
shares outstanding... 7,064,515 7,064,515 7,064,515 6,586,596 4,093,254 4,151,036 4,143,938
Dividend payout ratio... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Cash dividends per -- -- -- -- -- -- --
common share.........
----------
(1) For the year ended December 31, 1998, other income included a $4.1 million
gain on the sale of Coal City National Bank.
(2) The information subsequent to December 31, 1998 reflects the merger of
Avondale Financial Corporation and MB Financial.
17
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------------------- -----------------------------------------------------------
(Dollars in thousands)
BALANCE SHEET DATA:
Cash and due from banks.... $ 27,386 $ 21,994 $ 31,989 $ 29,420 $ 23,669 $ 36,302 $ 31,465
Investment securities...... 213,960 266,750 233,063 271,313 223,162 141,927 109,981
Federal funds sold......... -- -- -- -- 20,350 37,400 20,800
Loans, gross............... 1,124,086 928,567 1,057,163 903,126 548,353 527,321 388,302
Allowance for loan losses.. 16,129 12,248 13,837 12,197 6,344 7,922 4,692
Total assets............... 1,497,990 1,357,422 1,458,248 1,309,426 871,891 802,696 587,798
Deposits................... 1,065,242 956,922 1,069,264 936,075 645,661 684,060 509,717
Short-term and long-term
borrowings.............. 321,296 300,074 281,210 277,267 167,555 50,428 25,399
Stockholders' equity....... 96,430 81,449 91,741 79,378 46,860 52,526 39,126
PERFORMANCE RATIOS:
Return on average assets... 0.82% 0.82% 0.84% 0.84% 0.76% 0.54% 0.75%
Return on average equity... 12.80% 13.15% 13.86% 13.79% 11.16% 7.08% 9.74%
Net interest margin on a
fully tax equivalent basis.. 3.38% 3.72% 3.62% 3.75% 3.68% 4.12% 4.23%
Loans to deposits.......... 105.52% 97.04% 98.87% 96.48% 84.92% 77.09% 76.18%
ASSET QUALITY RATIOS:
Non-performing loans to
total loans............. 0.69% 1.16% 0.53% 1.18% 0.89% 1.87% 0.35%
Non-performing assets to
total assets............ 0.53% 0.83% 0.39% 0.84% 0.61% 1.70% 0.23%
Allowance for loan losses
to total loans.......... 1.43% 1.32% 1.31% 1.35% 1.16% 1.50% 1.21%
Non-performing loans to
allowance for loan losses.. 48.35% 88.28% 40.62% 87.73% 76.83% 124.73% 28.92%
Net loan charge-offs to
average loans........... 0.04% 0.08% 0.15% 0.63% 0.36% 0.07% --%
CAPITAL RATIOS:(1)
Tier 1 capital (to risk-
weighted assets)........ 8.34% 8.63% 8.49% 8.85% 7.38% 7.09% 8.00%
Total capital (to risk-
weighted assets)........ 9.57% 9.74% 9.60% 10.01% 10.00% 10.00% 10.14%
Tier 1 capital (to average
assets)................. 7.47% 7.40% 7.38% 7.47% 5.25% 5.15% 6.16%
Average equity to average
assets.................. 6.38% 6.26% 6.03% 6.06% 6.67% 6.72% 6.57%
OTHER:
Banking facilities......... 13 13 13 12 8 11 6
Full-time equivalent
employees............... 304 336 306 312 243 287 199
----------
(1) Ratios presented are for MB Financial on a consolidated basis.
18
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF MIDCITY FINANCIAL CORPORATION
AT OR
FOR THE THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- -------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
(In thousands, except share data)
STATEMENT OF INCOME DATA:
Interest income................ $ 30,962 $ 30,224 $ 123,898 $ 14,660 $ 107,152 $ 101,903 $ 96,241
Interest expense............... 15,786 14,403 61,786 52,363 49,488 48,583 45,802
------- ------- -------- -------- -------- -------- --------
Net interest income............ 15,176 15,821 62,112 62,297 57,664 53,320 50,439
Provision for loan losses...... 10 1,268 5,073 1,405 770 645 918
------- ------- -------- -------- -------- -------- --------
Net interest income after
provision for loan losses... 15,166 14,553 57,039 60,892 56,894 52,675 49,521
Noninterest income............. 3,363 2,481 9,726 10,587 9,953 7,874 7,378
Noninterest expense............ 11,878 12,272 48,154 44,596 43,139 37,373 37,524
------- ------- -------- -------- -------- -------- --------
Income before income taxes..... 6,651 4,762 18,611 26,883 23,708 23,176 19,375
Applicable income taxes........ 2,302 858 3,255 8,463 7,237 6,922 5,339
------- ------- -------- -------- -------- -------- --------
Net income..................... $4,349 $3,904 $15,356 $18,420 $16,471 $16,254 $14,036
====== ====== ======= ======= ======= ======= =======
SHARE DATA:
Basic and diluted earnings per
share....................... $94.53 $84.86 $333.78 $398.24 $347.83 $342.91 $295.69
Book value per share........... $4,226 $3,865 $4,033 $3,809 $3,529 $3,256 $2,963
Weighted average shares
outstanding................. 46,007 46,007 46,007 46,254 47,354 47,400 47,469
Cash dividends per share....... $35.00 $20.00 $125.00 $75.00 $60.00 $56.00 $44.00
Dividend payout ratio.......... 37.03% 23.57% 37.45% 18.83% 17.25% 16.33% 14.88%
BALANCE SHEET DATA:
Cash and due from banks........ $53,401 $55,892 $67,535 $56,813 $52,836 $52,121 $57,297
Investment securities.......... 712,291 686,910 710,093 711,657 747,699 758,529 724,376
Federal funds sold............. 66,275 13,025 29,775 7,700 20,275 16,450 1,900
Loans, gross................... 944,747 952,540 960,187 959,879 780,154 687,185 640,339
Allowance for loan loss........ 12,936 12,074 12,999 9,410 9,564 9,341 8,548
Total assets................... 1,834,009 1,770,881 1,829,103 1,797,881 1,643,378 1,560,377 1,461,904
Deposits....................... 1,570,979 1,530,624 1,570,131 1,544,916 1,447,396 1,380,091 1,304,125
Short-term borrowings and
Federal Home Loan Bank
advances.................... 53,275 49,645 57,187 62,154 15,858 11,578 4,109
Stockholders' equity........... 194,403 177,814 185,565 175,261 165,241 154,329 140,485
19
AT OR
FOR THE THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- -------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
(In thousands, except share data)
PERFORMANCE RATIOS:
Return on average assets........ 0.97% 0.87% 0.85% 1.06% 1.04% 1.09% 0.98%
Return on average equity........ 9.25 8.89 8.55 10.90 10.18 10.96 10.73
Net interest margin............. 3.70 3.91 3.82 3.95 4.00 3.95 3.95
Loans to deposits............... 60.14 62.23 61.15 62.13 53.95 49.79 49.10
ASSET QUALITY RATIOS:
Non-performing loans to 0.94 0.54 1.12 0.66 0.26 0.16 0.49
total loans..................
Non-performing assets to
total assets................. 0.51 0.34 0.62 0.39 0.15 0.10 0.25
Allowance for loan loss
to total loans............... 1.37 1.27 1.35 0.98 1.22 1.36 1.33
Non-performing loans to
allowance for loan loss...... 68.49 42.36 82.74 66.95 25.90 13.07 36.61
Net loan charge-offs to average
loans........................ 0.01 0.07 0.16 0.23 0.08 0.04 0.22
CAPITAL RATIOS:
Tier I capital (to risk-
weighted assets)............. 15.59 15.21 15.65 14.94 16.77 17.24 18.09
Total capital (to risk-weighted
assets)...................... 16.77 16.36 16.86 15.83 17.79 18.34 19.20
Tier I capital (to average 9.48 9.04 9.28 8.68 9.91 9.45 9.56
assets)......................
OTHER:
Banking facilities 26 26 26 26 22 19 19
Full-time equivalent employees.. 494 467 479 480 457 531 508
----------
(1) Ratios presented are for MidCity Financial on a consolidated basis.
20
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
AT OR FOR THE THREE MONTHS ENDED AT OR FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------------------- -------------------------------------------
2001 2000 2000 1999 1998
------------- --------------- ------------ ------------- -----------
(In thousands, except common share data)
STATEMENT OF INCOME DATA:
Interest income.................... $ 58,288 $ 53,830 $ 227,988 $ 196,951 $ 164,784
Interest expense................... 32,088 27,128 121,227 94,130 79,314
------ ------ ------- ------ ------
Net interest income................ 26,200 26,702 106,761 102,821 85,470
Provision for loan losses.......... 760 2,018 8,163 2,665 1,520
------ ------ ------- ------ ------
Net interest income after
provision for loan losses....... 25,440 24,684 98,598 100,156 83,950
Other income....................... 6,393 5,253 20,448 19,649 19,893
Other expenses..................... 20,821 21,233 83,899 78,156 70,275
------ ------ ------- ------ ------
Income taxes before income
taxes........................... 11,012 8,704 35,147 41,649 33,568
Applicable income taxes............ 3,688 2,113 8,186 13,275 10,842
------ ------ ------- ------ ------
Net income......................... 7,324 6,591 26,961 28,374 22,726
Preferred stock dividend........... -- -- -- -- 1,085
------ ------ ------- ------ ------
Net income available to common
stockholders.................... $7,324 $6,591 $26,961 $28,374 $21,641
======= ====== ======= ======= =======
COMMON SHARE DATA:
Basic earnings per common
share........................... $0.41 $0.37 $1.53 $1.65 $1.44
Diluted earnings per common
share........................... $0.41 $0.37 $1.53 $1.64 $1.44
Basic weighted average shares
outstanding..................... 17,661,287 17,661,287 17,661,287 17,240,259 15,000,280
Diluted weighted average shares
outstanding..................... 17,749,347 17,661,287 17,668,906 17,251,721 15,038,022
BALANCE SHEET DATA:
Total assets....................... $3,337,199 $3,128,303 $3,287,351 $3,107,307 $2,515,269
Investment securities.............. 921,321 953,660 943,156 982,970 970,861
Loans, net......................... 2,039,768 1,856,785 1,990,514 1,841,398 1,312,599
Total deposits..................... 2,636,221 2,487,546 2,639,395 2,480,991 2,093,057
Total borrowings................... 374,571 349,719 338,397 339,421 183,413
Total stockholders' equity......... 276,433 259,263 277,306 254,639 212,101
21
COMPARATIVE UNAUDITED PER SHARE DATA
The following summary presents selected comparative unaudited per share
data for MB Financial and MidCity Financial on a historical basis, and on a pro
forma combined basis and pro forma combined basis per MidCity Financial
equivalent share assuming the merger had been effective during the periods
presented and accounted for under the pooling of interests accounting method.
The pro forma MidCity Financial equivalent information shows the effect of the
merger from the perspective of a MidCity Financial stockholder; this information
was computed by multiplying the combined pro forma amounts for the merger by
230.32955, the number of new company shares to be issued for each MidCity
Financial share.
COMBINED MIDCITY
MIDCITY PRO FORMA FINANCIAL
MB FINANCIAL FINANCIAL AMOUNTS FOR THE EQUIVALENT
AS REPORTED AS REPORTED MERGER PER SHARE
------------ ------------- --------------- ------------
BOOK VALUE PER SHARE AT:
March 31, 2001............................... $ 13.65 $ 4,226.00 $ 15.65 $ 3,604.66
December 31, 2000............................ 12.99 4,033.00 15.70 3,616.17
CASH DIVIDENDS DECLARED PER COMMON SHARE FOR
THE:
Three months ended March 31, 2001............ $ -- $35.00 $ -- $ --
Three months ended March 31, 2000............ -- 20.00 -- --
Year ended December 31, 2000................. -- 125.00 -- --
Year ended December 31, 1999................. -- 75.00 -- --
Year ended December 31, 1998................. -- 60.00 -- --
BASIC EARNINGS PER SHARE FOR THE:
Three months ended March 31, 2001............ $0.42 $94.53 $0.41 $94.44
Three months ended March 31, 2000............ 0.38 84.86 0.37 85.22
Year ended December 31, 2000................. 1.64 333.78 1.53 352.40
Year ended December 31, 1999................. 1.51 398.24 1.65 380.04
Year ended December 31, 1998................. 1.26 347.83 1.44 331.67
DILUTED EARNINGS PER SHARE FOR THE:
Three months ended March 31, 2001............ $0.42 $94.53 $0.41 $94.44
Three months ended March 31, 2000............ 0.38 84.86 0.37 85.22
Year ended December 31, 2000................. 1.64 333.78 1.53 352.40
Year ended December 31, 1999................. 1.51 398.24 1.64 377.74
Year ended December 31, 1998................. 1.25 347.83 1.44 331.67
22
THE SPECIAL MEETINGS
MB FINANCIAL SPECIAL MEETING
TIME AND PLACE OF THE SPECIAL MEETING:
___________, _________, 2001
__:____ _.m., Chicago time
Chicago, Illinois
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING. At the MB Financial
special meeting of stockholders, MB Financial stockholders will be asked to
consider and vote upon: (i) the adoption of the merger agreement; and (ii) any
other matters that may properly come before the MB Financial meeting, including
approval of any adjournment or postponement of the meeting. As of the date of
this document, the MB Financial board of directors is not aware of any other
business to be presented for consideration at the MB Financial special meeting
other than the matters described in this document.
RECORD DATE; VOTING RIGHTS OF STOCKHOLDERS. The MB Financial board of
directors has fixed the close of business on ________, 2001 as the record date
for stockholders entitled to notice of and to vote at the MB Financial special
meeting. Only holders of record of MB Financial common stock on the record date
are entitled to notice of and to vote at the MB Financial special meeting. Each
share of MB Financial common stock that you own as of the close of business on
the record date entitles you to one vote. On the MB Financial record date, there
were ___________ shares of MB Financial common stock outstanding and entitled to
vote at the MB Financial special meeting, held by approximately _____
stockholders of record.
VOTE REQUIRED. The affirmative vote of the holders of at least a majority
of the outstanding shares of MB Financial common stock is required to adopt the
merger agreement. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" ADOPTION OF THE MERGER AGREEMENT.
Because approval of the proposal to adopt the merger agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of MB
Financial common stock, abstentions and failures to vote on this proposal will
have the same effect as votes against the proposal. If your shares are held in
"street name" with a broker, your broker will likely not be able to vote your
shares on the merger agreement without instructions from you. Such shares are
referred to as "broker non-votes," which will have the same effect as votes
against adoption of the merger agreement.
The affirmative vote of the holders of a majority of the shares of MB
Financial common stock present and voting on the matter may authorize the
adjournment or postponement of the MB Financial special meeting. No proxy that
is voted against adoption of the merger agreement will be voted in favor of
adjournment or postponement to solicit further proxies for that proposal.
VOTING OF PROXIES. You may vote in person at the MB Financial special
meeting or by proxy. To ensure your representation at the MB Financial special
meeting, we recommend you vote by proxy even if you plan to attend the MB
Financial special meeting. You can always change your vote at the meeting. If
your shares are held in street name with a bank or broker and you wish to vote
at the MB Financial special meeting, you will need to contact your bank or
broker to obtain authorization to do so.
Voting instructions are included on your proxy card. If you properly give
your proxy and submit it in time to vote, your shares will be voted as you have
directed. You may vote for, against or abstain with respect to the adoption of
the merger agreement. If you are the record holder of your shares and submit
your proxy without specifying a voting instruction, your shares will be voted
"FOR" the adoption of the merger agreement. If your
23
shares are held in street name with a broker and you fail to provide voting
instructions, then as described above under "-- Vote Required," your broker
will likely not be permitted to vote your shares on the merger agreement.
If any other matters are properly presented for consideration at the MB
Financial special meeting, the persons named in the form of proxy sent to record
holders will have the discretion to vote on those matters in accordance with
their best judgment. If a proposal to adjourn the MB Financial special meeting
is properly presented, the persons named in the form of proxy sent to record
holders will not have discretion to vote shares voted against the proposal to
adopt the merger agreement in favor of adjournment to solicit further proxies
for that proposal. The MB Financial board is not aware of any other matters to
be presented at the MB Financial special meeting other than those described in
the notice of the MB Financial special meeting.
You might receive more than one proxy card depending on how your shares are
held. For example, you may hold some of your shares individually, some jointly
with your spouse and some in trust for your children -- in which case you will
receive three separate proxy cards to vote. Please complete and return all
cards.
REVOCABILITY OF PROXIES. If you are the record holder of your shares, you
may revoke your proxy before it is voted by:
- submitting a new proxy with a later date;
- notifying the secretary of MB Financial in writing before the MB
Financial special meeting that you have revoked your proxy; or
- voting in person at the MB Financial special meeting.
If your shares are held in street name, contact your bank or broker if you wish
to revoke your proxy.
PROXY SOLICITATION COSTS. MB Financial will pay its own costs of soliciting
proxies. In addition to this mailing, MB Financial directors, officers and
employees may also solicit proxies personally, electronically or by telephone.
MB Financial also will reimburse brokers, banks and other nominees for their
expenses in sending these materials to their customers and obtaining their
voting instructions.
DO NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARDS. AFTER COMPLETION OF
THE MERGER, YOU WILL RECEIVE A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE
SURRENDER OF YOUR MB FINANCIAL STOCK CERTIFICATES.
SECURITY OWNERSHIP. The following table sets forth, as of ________, 2001,
certain information as to the beneficial ownership of MB Financial common stock
by:
(1) those persons or entities known by MB Financial to beneficially own
more than 5% of the outstanding shares of MB Financial common stock;
(2) MB Financial's directors and executive officers, individually; and
(3) MB Financial's directors and executive officers as a group.
An asterisk denotes beneficial ownership of less than one percent.
24
Amount and Percent of
Nature of Outstanding
Beneficial Shares of Common
Name and Address of Beneficial Owner Ownership Stock
---------------------------------------------------------------- ---------- ----------------
Greater than 5% owners:
Financial Institution Partners, LP 402,838(1) 5.70%
Financial Institution Partners II, LP
Financial Institution Partners III, LP
Hovde Capital, Inc.
Hovde Capital, LLC
Hovde Capital, Ltd.
1824 Jefferson Place, N.W.
Washington, D.C. 20036
Eric D. Hovde
1826 Jefferson Place, N.W.
Washington, D.C. 20036
Steven D. Hovde
1629 Colonial Parkway
Inverness, Illinois 60067
Directors and Executive Officers, Individually(2)(3)
Robert S. Engelman, Jr. 324,994 4.46
Chairman of the Board
R. Thomas Eiff 33,021 *
Director
Alfred Feiger 74,085 1.05
Director
Mitchell Feiger 240,512 3.38
President, Chief Executive Officer and
Director of MB Financial; Chairman of the
Board of Manufacturers Bank
Burton J. Field 74,422 1.05
Director of MB Financial; President and Chief
Executive Officer of Manufacturers Bank
Lawrence E. Gilford 103,051 1.46
Director
Richard I. Gilford 150,764 2.13
Director
David L. Husman 118,726 1.68
Director
Arthur L. Knight, Jr. 25,797 *
Director
25
Peter G. Krivkovich 21,507 *
Director
Clarence Mann 220,260 3.11
Director
Hipolito Roldan 11,820 *
Director
Jill E. York 3,596 *
Vice President and Chief Financial
Officer of MB Financial; Senior Vice
President, Chief Financial Officer and
Director of Manufacturers Bank
Thomas D. Panos 68,324 *
Executive Vice President, Senior Lending
Officer and Director of Manufacturers Bank
Directors and executive officers as a group (14 persons) 1,468,081 19.72
----------
(1) As disclosed to MB Financial by the group.
(2) The address for each director and executive officer is: c/o MB Financial
Inc., 1200 North Ashland Avenue, Chicago, Illinois 60622.
(3) Includes shares held directly, in retirement accounts, in a fiduciary
capacity or by certain affiliated entities or members of the named
individuals' families, with respect to which shares the named individuals
and group may be deemed to have sole or shared voting and/or dispositive
powers. Also includes shares subject to options which are currently
exercisable or which will become exercisable within 60 days of _________,
2001, as follows: Mr. Engelman - 220,385 shares; Mr. Eiff - 27,160 shares;
Mr. Alfred Feiger - 6,291shares; Mr. Mitchell Feiger - 42,418 shares; Mr.
Field - zero shares; Mr. Lawrence Gilford - 6,501 shares; Mr. Richard
Gilford - 7,164 shares; Mr. Husman - 5,029 shares; Mr. Knight - 9,464
shares; Mr. Krivkovich - 13,466 shares; Mr. Mann - 6,810 shares; Mr. Roldan
- 8,194 shares; Ms. York - zero shares; Mr. Panos - 27,722 shares; and all
directors and executive officers as a group 380,604 shares.
VOTING AGREEMENT. The MB Financial directors have entered into a voting
agreement with MidCity Financial under which each director has agreed to vote
all of the shares of MB Financial Common Stock he owns of record or beneficially
and is entitled to vote as of the record date for the MB Financial special
meeting in favor of adoption of the merger agreement. See "The Merger--Voting
Agreements."
26
MIDCITY FINANCIAL SPECIAL MEETING
TIME AND PLACE OF THE SPECIAL MEETING:
___________, _________, 2001
__:___ _.m., Chicago time
Chicago, Illinois
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING. At the MidCity Financial
special meeting of stockholders, MidCity Financial stockholders will be asked to
consider and vote upon: (i) the adoption of the merger agreement; and (ii) any
other matters that may properly come before the MidCity Financial special
meeting, including approval of any adjournment or postponement of the meeting.
As of the date of this document, the MidCity Financial board of directors is not
aware of any other business to be presented for consideration at the MidCity
Financial special meeting other than the matters described in this document.
RECORD DATE; VOTING RIGHTS OF STOCKHOLDERS. The MidCity Financial board of
directors has fixed the close of business on ________, 2001 as the record date
for stockholders entitled to notice of and to vote at the MidCity Financial
special meeting. Only holders of record of MidCity Financial common stock on the
record date are entitled to notice of and to vote at the MidCity Financial
special meeting. Each share of MidCity Financial common stock that you own as of
the close of business on the record date entitles you to one vote. On the
MidCity Financial record date, there were ___________ shares of MidCity
Financial common stock outstanding and entitled to vote at the MidCity Financial
special meeting, held by approximately _____ stockholders of record.
VOTE REQUIRED. The affirmative vote of the holders of at least two-thirds
of the outstanding shares of MidCity Financial common stock is required to adopt
the merger agreement. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT.
Because approval of the proposal to adopt the merger agreement requires the
affirmative vote of the holders of two-thirds of the outstanding shares of
MidCity Financial common stock, abstentions and failures to vote on this
proposal will have the same effect as votes against the proposal. If your shares
are held in "street name" with a broker, your broker will likely not be able to
vote your shares on the merger agreement without instructions from you. Such
shares are referred to as "broker non-votes," which will have the same effect as
votes against adoption of the merger agreement.
The affirmative vote of the holders of a majority of the shares of MidCity
Financial common stock present and voting on the matter may authorize the
adjournment or postponement of the MidCity Financial special meeting. No proxy
that is voted against adoption of the merger agreement will be voted in favor of
adjournment or postponement to solicit further proxies for that proposal.
VOTING OF PROXIES. You may vote in person at the MidCity Financial special
meeting or by proxy. To ensure your representation at the MidCity Financial
special meeting, we recommend you vote by proxy even if you plan to attend the
MidCity Financial special meeting. You can always change your vote at the
meeting. If your shares are held in street name with a bank or broker and you
wish to vote at the MidCity Financial special meeting, you will need to contact
your bank or broker to obtain authorization to do so.
Voting instructions are included on your proxy card. If you properly give
your proxy and submit it in time to vote, your shares will be voted as you have
directed. You may vote for, against or abstain with respect to the adoption of
the merger agreement. If you are the record holder of your shares and submit
your proxy without specifying a voting instruction, your shares will be voted
"FOR" the adoption of the merger agreement. If your shares are held in street
name with a broker and you fail to provide voting instructions, then as
described above under "-- Vote Required," your broker will likely not be
permitted to vote your shares on the merger agreement.
27
If any other matters are properly presented for consideration at the
MidCity Financial special meeting, the persons named in the form of proxy
sent to record holders will have the discretion to vote on those matters in
accordance with their best judgment. If a proposal to adjourn the MidCity
Financial special meeting is properly presented, the persons named in the
form of proxy sent to record holders will not have discretion to vote shares
voted against the proposal to adopt the merger agreement in favor of
adjournment to solicit further proxies for that proposal. The MidCity
Financial board is not aware of any other matters to be presented at the
MidCity Financial special meeting other than those described in the notice of
the MidCity Financial special meeting.
You might receive more than one proxy card depending on how your shares are
held. For example, you may hold some of your shares individually, some jointly
with your spouse and some in trust for your children -- in which case you will
receive three separate proxy cards to vote. Please complete and return all
cards.
REVOCABILITY OF PROXIES. You may revoke your proxy before it is voted by:
- submitting a new proxy with a later date;
- notifying the secretary of MidCity Financial in writing before the
MidCity Financial special meeting that you have revoked your proxy; or
- voting in person at the MidCity Financial special meeting.
If your shares are held in street name, contact your bank or broker if you wish
to revoke your proxy.
PROXY SOLICITATION COSTS. MidCity Financial will pay its own costs of
soliciting proxies. In addition to this mailing, MidCity Financial directors,
officers and employees may also solicit proxies personally, electronically or by
telephone. MidCity Financial will reimburse brokers, banks and other nominees
for their expenses in sending these materials to their customers and obtaining
their voting instructions.
DO NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARDS. AFTER COMPLETION OF
THE MERGER, YOU WILL RECEIVE A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE
SURRENDER OF YOUR MIDCITY FINANCIAL STOCK CERTIFICATES.
SECURITY OWNERSHIP. The following table sets forth, as of ________, 2001,
certain information as to the beneficial ownership of MidCity Financial common
stock by:
(1) those persons or entities known by MidCity Financial to beneficially
own more than 5% of the outstanding shares of MidCity Financial common
stock;
(2) MidCity Financial's directors and executive officers, individually;
and
(3) MidCity Financial's directors and executive officers as a group.
An asterisk denotes beneficial ownership of less than one percent.
28
Percent of
Amount and Outstanding
Nature of Shares of
Beneficial Common
Name of Beneficial Owner (1) Ownership Stock
------------------------------ ----------- -----------
E.M. Bakwin 24,798(2) 53.90%
Chairman and Chief Executive Officer of MidCity Financial
Patrick Henry 8,734(3) 19.11
Director
Thomas H. Harvey 7,591(4) 16.52
Director
Robert N. Bloch 2,475(5) 5.38
Kenneth A. Skopec 2,477(6) 5.38
Director and President of
MidCity Financial;
Chief Executive Officer of The
Mid-City National Bank of Chicago
Ronald D. Santo 348 *
Director, Executive Vice President and
Secretary of MidCity Financial;
President of The Mid-City National
Bank of Chicago; Chief Executive Officer
of First National Bank of Elmhurst
William F. McCarty, III 187(7) *
Senior Vice President of MidCity Financial;
President and Chief Executive Officer of
First National Bank of Morton Grove
Richard S. Holmstrom 87 *
Director
Eugene Sawyer 2 *
Director
Jack C. Chen 1 *
Director
James N. Hallene 1 *
Director
Leslie S. Hindman 1 *
Director
Directors and executive officers as a group (10 persons) 36,987 80.39
----------
(1) The address for each person listed except Mr. Bloch is c/o MidCity
Financial Corporation, 801 West Madison Street, Chicago, Illinois 60607.
The address for Mr. Bloch is 2714 Divisadero Street, San Francisco,
California 94123.
29
(2) Includes 15,072 shares of MidCity Financial common stock owned by third
parties, some of whom are relatives of Mr. Bakwin, over which he exercises
sole voting control; 1,027 shares owned by Mr. Harvey for which Mr. Bakwin
can exercise voting control; 86 shares held in trust for Mr. Harvey for
which Mr. Bakwin is sole trustee; 52 shares held in trust for an unrelated
third party over which he, as co-trustee with Mr. Marshall S. Leaf and Mr.
Skopec, exercises voting control; 2,227 shares held in the Blanche Morris
1966 Trust over which he, as co-trustee with Mr. Henry and Mr. Skopec,
exercises voting control; 1,448 shares held in trust for Mr. Harvey's
family members, over which he, as co-trustee with Mr. Harvey, can exercise
voting control; 63 shares held in trust for Mr. Skopec's family members,
over which he, as co-trustee with Mr. Skopec, can exercise voting control;
100 shares held in the Bakwin Family Irrevocable Trust over which he, as
co-trustee with Mr. Harvey, exercises voting control; and 10 shares held in
trust over which he, as co-trustee with Mr. Skopec and Mr. J. Neis, can
exercise voting control.
(3) Includes 2,227 shares referred to in footnote (2) and 6,381 shares held in
trust for Mr. Henry's children over which he, as co-trustee with Mrs. Karen
C. Reid and Mr. William J. Campbell, Jr., exercises voting control.
(4) Includes 1,027 shares, 86 shares, 1,448 shares and 100 shares referred to
in footnote (2).
(5) Includes 240 shares held by family members over which he can exercise
voting control.
(6) Includes 52 shares, 2,227 shares, 63 shares and 10 shares referred to in
footnote (2); also includes 40 shares held in joint tenancy with Mr.
Skopec's wife.
(7) Includes 135 shares held by family members over which Mr. McCarty exercises
voting control.
VOTING AGREEMENT. The MidCity Financial directors have entered into a
voting agreement with MB Financial under which each director has agreed to vote
all of the shares of MidCity Financial Common Stock he or she owns of record and
is entitled to vote as of the record date for the MidCity Financial special
meeting in favor of adoption of the merger agreement. See "The Merger--Voting
Agreements."
30
THE MERGER
THE INFORMATION IN THIS JOINT PROXY STATEMENT-PROSPECTUS CONCERNING THE
TERMS OF THE MERGER IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE MERGER AGREEMENT, WHICH IS ATTACHED AS APPENDIX A AND INCORPORATED INTO
THIS JOINT PROXY STATEMENT-PROSPECTUS BY REFERENCE. YOU ARE URGED TO READ THE
MERGER AGREEMENT IN ITS ENTIRETY.
GENERAL
MB Financial and MidCity Financial have agreed to combine in a "merger of
equals." Pursuant to the merger agreement, MB Financial and MidCity Financial
each will separately and simultaneously merge into a newly formed company, with
the new company as the surviving entity. Unless both MB Financial and MidCity
Financial agree to a later date, on or before the fifth business day after all
of the conditions to completion of the transaction have been satisfied or
waived, a certificate of merger for each of the two mergers will be filed with
the Delaware Secretary of State and articles of merger for each of the two
mergers will be filed with the Maryland State Department of Assessments and
Taxation, and the mergers will contemporaneously become effective. For
simplicity, we have in most places in this joint proxy statement-prospectus
referred to the mergers of our companies into the new company as the "merger."
We sometimes refer to the time at which the merger becomes effective as the
"effective time."
Upon completion of the merger, the new company, currently named
"MB-MidCity, Inc.," will be renamed "MB Financial, Inc." Each share of MB
Financial common stock prior to the merger will be exchanged for one share of
the common stock of the new company. Each share of MidCity Financial common
stock will be exchanged for 230.32955 shares of new company common stock, with
cash paid in lieu of fractional share interests. See "--Consideration to be
Received in the Merger."
Based on the number of shares of MB Financial and MidCity Financial common
stock outstanding as of __________, 2001, the stockholders of MB Financial will
own approximately 40% and the stockholders of MidCity Financial will own
approximately 60% of the outstanding shares of the new company after the merger.
The corporate headquarters of the new company will be located at the current
headquarters of MidCity Financial.
BACKGROUND OF THE MERGER
In January 2000, the MidCity Financial board of directors met to discuss
MidCity Financial's strategic alternatives as a community bank with
approximately $1.8 billion in assets headquartered in Chicago, Illinois. The
board believed a review of strategic alternatives was appropriate in light of
its desire to provide liquidity to MidCity Financial stockholders and to develop
a succession plan for current management. A nationally recognized investment
banking firm (which is not acting as a financial advisor to MidCity Financial in
connection with the merger with MB Financial) was engaged by MidCity Financial
to assist the board in its review.
Following its engagement, the investment banking firm met with the
Strategic Planning Committee of the MidCity Financial board of directors.
Several possible strategic alternatives were discussed, including an executive
search for additional senior management, a special dividend, a stock split and
initial public offering, a sale of MidCity Financial in whole or in part, and a
spin-off of MidCity's Abrams Centre National Bank and Union Bank and Trust
Company subsidiaries. The investment banking firm reviewed with the committee
the potential valuation ranges of MidCity Financial under each of the potential
strategies. Following its review and consideration of the alternatives
presented, the committee determined to investigate further the possibility of
the sale of MidCity Financial.
After meeting with the Strategic Planning Committee, the investment banking
firm attended a meeting of the MidCity Financial board of directors at which the
firm presented a list of banking companies which it believed might have an
interest in merging with or acquiring MidCity Financial. After reviewing the
list, the board authorized the investment banking firm to make confidential
inquiries to 17 of the companies listed. Of the companies contacted by the
investment banking firm, eleven expressed interest in either an acquisition of
or
31
merger with MidCity Financial, or the purchase of one or more, but not all,
of MidCity Financial's subsidiary banks. None of the six other companies
contacted expressed an interest in a transaction with MidCity Financial or
any of its subsidiary banks.
On March 6, 2000, the investment banking firm met with MidCity Financial's
board of directors to discuss the expressions of interest received. The board
determined that six of these expressions of interest were worthy of its
consideration; each was a proposal for the purchase of one or more, but not all,
of MidCity Financial's subsidiary banks. On March 21, 2000, the investment
banking firm and MidCity Financial's legal counsel, Winston & Strawn, met with
MidCity Financial's board of directors to further discuss the six expressions of
interest. After considering the prices proposed and the tax effects of a sale of
one or more subsidiary banks, the MidCity Financial board of directors decided
not to further pursue these expressions of interest and determined that the best
course for the time being was for MidCity Financial to remain independent.
Following this decision to remain independent, the MidCity Financial board
of directors continued its ongoing evaluation of other strategic opportunities.
At a meeting held on April 12, 2000, the board decided to increase the annual
dividend to up to 40% of the prior years' net earnings, and to seek tax and
regulatory approval to spin-off MidCity Financial's Abrams Centre National Bank
and Union Bank and Trust Company subsidiaries. The board also discussed the
possibility of splitting the MidCity Financial common stock following the
spin-off and becoming a reporting company with the SEC.
In September 2000, MidCity Financial was approached by a community-based
bank holding company headquartered in a Chicago suburb about the possibility of
a merger of equals transaction. In connection with this potential transaction,
the MidCity Financial Strategic Planning Committee engaged Hovde Financial LLC
as MidCity Financial's financial advisor. After Hovde's engagement,
representatives of Hovde held ongoing discussions with the Strategic Planning
Committee and the MidCity Financial board of directors on the universe of
strategic options available to MidCity Financial; these discussions included,
among other things, the proposed merger of equals transaction with the
community-based bank holding company, as well as the possibility of MidCity
Financial pursuing certain acquisitions. On December 14, 2000, at a regular
meeting of the MidCity Financial board of directors, the board discussed the
potential merger of equals transaction with the community-based bank holding
company. Following this discussion, the board authorized management to begin
negotiations with the company for the terms of a definitive agreement.
After the December 14 board meeting, MidCity Financial and the other
company entered into a confidentiality agreement and commenced negotiations. The
parties were unable to agree on the terms of a transaction, however, and after
approximately one month the negotiations were terminated. After these
negotiations ended, a representative of Hovde suggested to members of the
MidCity Financial Strategic Planning Committee that they consider the
possibility of a merger of equals transaction with MB Financial. After
discussing this possibility, the members told the Hovde representative that they
would be interested in further exploring such a transaction.
The Hovde representative then contacted Mitchell Feiger, President and
Chief Executive Officer of MB Financial, and asked Mr. Feiger whether he would
be willing to meet with members of MidCity Financial's Strategic Planning
Committee to discuss a possible merger of equals transaction. Mr. Feiger told
the Hovde representative that he would be interested in attending such a
meeting. On January 17, 2001, Mr. Feiger met with E.M. Bakwin, Chairman and
Chief Executive Officer of MidCity Financial and a member of the Strategic
Planning Committee, as well as three other members of the Strategic Planning
Committee and the Hovde representative. Shortly after this meeting, Mr. Feiger
spoke with several MB Financial directors by telephone and informed them of his
discussions regarding MidCity Financial. The consensus after talking with the
directors was for Mr. Feiger to continue these discussions. The MidCity
Financial Strategic Planning Committee members who attended the meeting with Mr.
Feiger likewise agreed that they should continue to explore the possibility of a
merger with MB Financial. At their suggestion, Mr. Feiger met with Kenneth A.
Skopec, President and a director of MidCity Financial, on January 22, 2001 to
discuss various logistical issues, including how to proceed with negotiations
and due diligence investigations.
32
On January 29, 2001, MB Financial and MidCity Financial began the due
diligence process by exchanging documents containing information about each
company. On January 30, 2001, at a regular meeting of the MB Financial board
of directors, the board discussed the possible transaction with MidCity
Financial, and was informed of the steps Mr. Feiger had taken up to that
point. The board also discussed MB Financial's overall strategy of being a
business bank focused on serving small and middle market businesses in the
Chicago metropolitan area, and continuing to grow in asset size through
transactions that would create operational efficiencies and enhance
stockholder value. Believing a merger with MidCity Financial would fit well
within this strategy, the board agreed to continue discussions with MidCity
Financial and the due diligence review.
On February 6, 2001, MB Financial engaged Sandler O'Neill & Partners, L.P.
to act as its financial advisor in connection with the transaction. Throughout
February 2001, meetings were held at which the parties and their financial
advisors discussed the operating philosophies and strategies of the two
companies and the merits of combining the two organizations, including the
potential impact of the merger on earnings per share and the anticipated
cost-savings and revenue enhancements. On February 21, 2001, several members of
the boards of directors of both companies met to introduce themselves and to
discuss the strategic merits of the transaction in general terms. At a regular
meeting of the MB Financial board of directors held on February 27, 2001, the
board again discussed the proposed merger and the benefits of the transaction,
and agreed to a continuation of negotiations with MidCity Financial.
On March 16, 2001, the Executive Committee of the MB Financial board of
directors met to review the progress of negotiations, and to discuss the
strategic and financial benefits to MB Financial stockholders and the risks of
the proposed transaction. On March 21, 2001, MB Financial was presented with a
draft merger agreement prepared by Winston & Strawn. On March 27, 2001, the
MidCity Financial Strategic Planning Committee met with representatives of Hovde
and Winston & Strawn to review the proposed transaction with MB Financial, as
well as two other indications of interest which MidCity Financial had recently
received from a community banking institution (for a merger) and a savings and
loan association (for an acquisition of MidCity Financial), both serving the
Chicago metropolitan area. Representatives of Winston & Strawn made a detailed
presentation to the members of the committee regarding the fiduciary obligations
of the MidCity Financial directors to MidCity Financial and its stockholders.
After reviewing the three possible transactions, the members of the Strategic
Planning Committee unanimously agreed to continue negotiations with MB
Financial.
By the beginning of April 2001, many of the operational, corporate
governance, regulatory, accounting and legal issues concerning the transaction
had been resolved. The percentages of ownership of the combined company by the
MB Financial and MidCity Financial stockholders continued to be discussed, along
with several other open issues.
On April 3, 2001, the MidCity Financial Strategic Planning Committee met
again with Winston & Strawn, as well as representatives of Alex Sheshunoff & Co.
LLP, which had been retained as an additional financial advisor to MidCity
Financial because of the level of beneficial ownership by Hovde and its
affiliated entities of MB Financial common stock. Representatives of Sheshunoff
presented a preliminary report containing an analysis of the proposed merger, a
comparison of the financial performance of MB Financial to that of a peer group,
and other relevant financial analyses, including an analysis of earnings per
share accretion and book value dilution to MidCity Financial as a result of the
proposed MidCity Financial exchange ratio. Based on this preliminary report, the
members of the Strategic Planning Committee agreed to continue negotiations with
MB Financial.
The MB Financial board of directors met on April 9, 2001 to again review
the transaction, and to discuss the terms of the merger agreement. The results
of MB Financial's due diligence investigation of MidCity Financial were
discussed. MB Financial's special counsel, Silver, Freedman & Taff, L.L.P.,
reviewed the terms of the merger agreement with the board, and discussed the
directors' fiduciary duties to MB Financial and its stockholders in considering
the transaction. Representatives of Sandler O'Neill and members of MB
Financial's senior management made presentations to the MB Financial board on
the proposed transaction, including historical and pro forma financial analyses,
an evaluation of the performance of MidCity Financial relative to its peers and
a comparison of the proposed merger with MidCity Financial to other merger of
equals transactions in
33
the banking industry. After thorough discussion, the MB Financial board of
directors determined that it would approve the merger agreement, subject to
satisfactory resolution of certain open issues and the receipt of the
fairness opinion from Sandler O'Neill.
At a regular meeting of the MidCity Financial board of directors held on
April 11, 2001, representatives of Winston & Strawn again discussed with the
directors their fiduciary obligations to MidCity Financial and its stockholders.
The directors discussed the results of MidCity Financial's due diligence
investigation of MB Financial, the goals in seeking strategic alternatives and
the details of the proposed transaction with MB Financial, as well as the two
other expressions of interest reviewed by the Strategic Planning Committee on
March 27, 2001. The MidCity Financial board of directors met again on April 12,
2001, with representatives of Hovde, Sheshunoff and Winston & Strawn in
attendance. Hovde and Sheshunoff presented separate reports, each containing
detailed analyses of the proposed merger with MB Financial, a comparison of the
financial performance of MB Financial with a peer group and other relevant
financial analyses, including an analysis of earnings per share accretion and
book value dilution to MidCity Financial as a result of the proposed MidCity
Financial exchange ratio. After considering this information, the MidCity
Financial board of directors determined that the proposed terms of the merger
with MB Financial were superior to the terms proposed by the two other financial
institutions that had submitted expressions of interest in a transaction with
MidCity Financial.
Over the next several days, the parties continued to negotiate the
resolution of the open issues. On April 17, 2001, MidCity Financial's board of
directors and senior management met again with representatives of Winston &
Strawn, Hovde and Sheshunoff to discuss the proposed merger with MB Financial
and the status of the merger negotiations. Representatives of Winston & Strawn
reviewed with the board the terms of the proposed definitive merger agreement.
Sheshunoff confirmed its analysis of the transaction and provided to the MidCity
Financial board of directors its oral opinion, confirmed in writing as of the
date of the merger agreement, that the proposed MidCity Financial exchange
ratio, after taking into account the proposed MB Financial exchange ratio, was
fair from a financial point of view to the stockholders of MidCity Financial.
Hovde also confirmed its analysis of the transaction and provided to the board
of directors its oral opinion, confirmed in writing, that the proposed MidCity
Financial exchange ratio, after taking into account the proposed MB Financial
exchange ratio, was fair from a financial point of view to the stockholders of
MidCity Financial. A detailed discussion among the MidCity Financial board of
directors, senior management and the financial and legal advisors followed.
Following these deliberations, the MidCity Financial board of directors
unanimously voted to approve the merger agreement subject to the satisfactory
resolution of the few remaining open issues, instructed MidCity Financial's
Strategic Planning Committee to negotiate the resolution of these issues and
instructed MidCity Financial's Chairman and Chief Executive Officer to execute
the merger agreement and related documents on MidCity Financial's behalf upon
satisfactory resolution of the issues.
On April 18, 2001, the Strategic Planning Committee of the MidCity
Financial board of directors met to consider proposed resolutions of the
remaining open issues. Following a detailed discussion, the members of the
Strategic Planning Committee decided unanimously to approve the proposed
resolutions. On April 19, 2001, the members of the MB Financial board of
directors also agreed to these proposed resolutions, Sandler O'Neill issued its
opinion that the proposed MB Financial exchange ratio, after taking into account
the proposed MidCity Financial exchange ratio, was fair from a financial point
of view to the stockholders of MB Financial, and the MB Financial board of
directors unanimously approved the merger agreement. The merger agreement was
executed by the parties on the evening of April 19, 2001, and all of the
directors of MidCity Financial and MB Financial executed the voting agreements
under which they agreed to vote all of their shares of MidCity Financial and MB
Financial common stock in favor of adoption of the merger agreement. On April
20, 2001, MB Financial and MidCity Financial issued a joint press release
announcing the execution of the merger agreement.
REASONS FOR THE MERGER AND RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
REASONS FOR THE MERGER. MB Financial's board of directors and MidCity
Financial's board of directors have each determined that the merger is in the
best interests of their respective companies and stockholders. In reaching their
determinations and their decisions to approve the merger agreement, the boards
of directors of MB Financial and MidCity Financial considered a number of
factors, including, but not limited to, the following:
34
- Information concerning the business, earnings, operations, financial
condition, prospects, capital levels and asset quality of MB Financial
and MidCity Financial, both individually and as combined.
- The terms of the merger agreement and the other documents executed in
connection with the merger.
- The MB Financial and MidCity Financial exchange ratios and the
relative contributions of each of the parties to the new company with
respect to market capitalization, financial condition and results of
operations.
- The anticipated percentage ownership of the new company immediately
after the merger by the stockholders of MB Financial and MidCity
Financial.
- The estimation by each party's management that the merger will be
accretive to both companies' earnings per share for 2002 under
generally accepted accounting principles as well as cash earnings per
share for that year.
- The estimation by each party's management that the merger will result
in pre-tax cost savings for the new company of approximately $8.2
million for the year ended December 31, 2002, as well as revenue
enhancements.
- The management structure of the new company after the merger, as
described under "Management After the Merger."
- How the terms of the merger agreement and the planned management
structure for after the merger compare with other recent merger of
equals transactions in the banking industry.
- The integration capabilities of MB Financial and MidCity Financial.
- The historical stock prices of MB Financial and MidCity Financial.
- The current and prospective economic, competitive and regulatory
environment facing financial institutions in general and MB Financial
and MidCity Financial in particular.
- The results of due diligence investigations, including assessments of
credit policies, asset quality, interest rate risk, litigation and
adequacy of loan loss reserves.
- The prospects for growth and expanded products and services, and other
anticipated impacts of the merger on depositors, employees, customers
and communities served by MB Financial and MidCity Financial.
- The interests of MB Financial's directors and executive officers in
the merger, in addition to their interests as stockholders, as
described under "--Interests of Insiders in the Merger."
- The likelihood that the requisite regulatory approvals of the merger
will be obtained.
- The nature and compatibility of the respective management and business
philosophies of MB Financial and MidCity Financial.
- The intended tax treatment of the merger as a tax-free reorganization
and the intended accounting treatment of the merger as a pooling of
interests.
35
- In the case of MB Financial's board of directors, the board's belief
that the merger fits well within MB Financial's strategy of continued
growth.
- In the case of MB Financial's board of directors, the financial
analyses of and presentation by Sandler O'Neill & Partners, L.P.,
as well as Sandler O'Neill's opinion rendered to the MB Financial
board of directors that, as of April 19, 2001, the MB Financial
exchange ratio, after taking into account the MidCity Financial
exchange ratio, was fair to the stockholders of MB Financial from a
financial point of view.
- In the case of MidCity Financial's board of directors, MidCity
Financial's alternatives to the merger, including the range of
possible values of those alternatives and the timing and likelihood of
actually receiving those values.
- In the case of MidCity Financial's board of directors, the financial
analyses of and presentations by Hovde Financial LLC and Alex
Sheshunoff & Co. LLP, as well as the respective opinions of these
firms rendered to the MidCity Financial board of directors that, as of
April 19, 2001, the MidCity Financial exchange ratio, after taking
into account the MB Financial exchange ratio, was fair to the
stockholders of MidCity Financial from a financial point of view.
The MB Financial board of directors and the MidCity Financial board of
directors recognized that there could be no assurance about future results,
including results expected or considered in the factors listed above, such as
estimated revenue enhancements, cost savings and earnings accretion. The above
discussion of the information and factors considered by the MB Financial and
MidCity Financial boards of directors is not exhaustive, but includes all
material factors considered by the boards. In view of the wide variety of
factors considered by the boards of directors of MB Financial and MidCity
Financial in connection with the evaluation by each board of the merger and the
complexity of such matters, neither board considered it practical to, nor did
either board attempt to, quantify, rank or otherwise assign relative weights to
the specific factors that it considered in reaching its decision, though
individual directors may have given differing weights to different factors. The
MB Financial and MidCity Financial boards of directors each conducted a
discussion of the factors described above, including asking questions of the
management and legal and financial advisors of their respective companies,
before making a determination that the merger was in the best interests of their
respective companies and stockholders. The MB Financial board of directors
relied on the experience and expertise of Sandler O'Neill, and the MidCity
Financial board of directors relied on the experience and expertise of Hovde and
Sheshunoff, for quantitative analysis of the financial terms of the merger. See
"The Merger-Opinion of MB Financial's Financial Advisor" and "-Opinions of
MidCity Financial's Financial Advisors."
RECOMMENDATION OF THE MB FINANCIAL BOARD OF DIRECTORS. MB Financial's board
of directors believes that the terms of the merger are fair to, and in the best
interests of, MB Financial and its stockholders and unanimously recommends that
MB Financial stockholders vote "FOR" adoption of the merger agreement.
RECOMMENDATION OF THE MIDCITY FINANCIAL BOARD OF DIRECTORS. MidCity
Financial's board of directors believes that the terms of the merger are fair
to, and in the best interests of, MidCity Financial and its stockholders and
unanimously recommends that MidCity Financial stockholders vote "FOR" adoption
of the merger agreement.
OPINION OF MB FINANCIAL'S FINANCIAL ADVISOR
By letter agreement dated as of February 6, 2001, MB Financial retained
Sandler O'Neill & Partners, L.P. as an independent financial advisor in
connection with MB Financial's consideration of a possible merger with MidCity
Financial. At the request of MB Financial's board of directors, representatives
of Sandler O'Neill attended the April 9, 2001 meeting at which the board
determined to approve the merger agreement, subject to satisfactory resolution
of certain open issues. At that meeting, Sandler O'Neill made a presentation to
the MB Financial board of directors on the financial terms of the proposed
transaction. On April 19, 2001, the date of the merger agreement, Sandler
O'Neill issued its opinion that, as of that date, the MB Financial exchange
ratio, after taking into account the MidCity Financial exchange ratio, was fair
to MB Financial stockholders from a financial
36
point of view. The full text of Sandler O'Neill's opinion is attached as
Appendix B to this joint proxy statement-prospectus. The opinion outlines the
procedures followed, assumptions made, matters considered and qualifications
and limitations on the review undertaken by Sandler O'Neill in rendering the
opinion. The description of the opinion set forth below is qualified in its
entirety by reference to the opinion. MB Financial stockholders are urged to
read the opinion carefully and in its entirety in connection with their
consideration of the proposed merger.
SANDLER O'NEILL'S OPINION WAS DIRECTED TO THE MB FINANCIAL BOARD OF
DIRECTORS AND WAS PROVIDED TO THE BOARD FOR ITS INFORMATION IN CONNECTION WITH
ITS CONSIDERATION OF THE MERGER. THE OPINION IS DIRECTED ONLY TO THE FAIRNESS OF
THE MB FINANCIAL EXCHANGE RATIO TO MB FINANCIAL STOCKHOLDERS FROM A FINANCIAL
POINT OF VIEW. IT DOES NOT ADDRESS THE UNDERLYING BUSINESS DECISION OF MB
FINANCIAL TO ENGAGE IN THE MERGER OR ANY OTHER ASPECT OF THE MERGER AND IS NOT A
RECOMMENDATION TO ANY MB FINANCIAL STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE MB FINANCIAL SPECIAL MEETING WITH RESPECT TO THE MERGER OR ANY OTHER
MATTER.
In arriving at its opinion, Sandler O'Neill reviewed and considered, among
other things:
- the merger agreement and certain of the exhibits and schedules
thereto;
- certain publicly available financial statements and other historical
financial information of MB Financial that they deemed relevant;
- certain publicly available financial statements and other historical
financial information of MidCity Financial that they deemed relevant;
- projected earnings per share estimates for MB Financial for the years
ending December 31, 2001 and 2002 provided by MB Financial, consensus
earnings per share estimates for MB Financial for the years ending
December 31, 2001 and 2002 published by IBES and the views of senior
management of MB Financial, based on limited discussions with members
of senior management, regarding MB Financial's past and present
business, financial condition, results of operations and future
prospects;
- projected earnings per share estimates for MidCity Financial for the
years ending December 31, 2001 and 2002 provided by MidCity Financial,
and the views of senior management of MidCity Financial, based on
limited discussions with members of senior management, regarding
MidCity Financial's past and present business, financial condition,
results of operations and future prospects;
- the pro forma financial impact of the merger, taking into
consideration the amounts and timing of the transaction costs and cost
savings, which the managements of MB Financial and MidCity Financial
estimate will result from the merger;
- the relative contributions of MB Financial and MidCity Financial to
the combined company;
- the publicly reported historical price and trading activity for MB
Financial's common stock;
- a comparison of certain financial and stock market information for MB
Financial and certain financial information for MidCity Financial with
similar publicly available information for certain other companies the
securities of which are publicly traded;
- the financial terms of certain recent business combinations in the
financial institutions industry, including certain business
combinations structured as mergers of equals, to the extent publicly
available;
37
- the current market environment generally and the banking environment
in particular; and
- such other information, financial studies, analyses and investigations
and financial, economic and market criteria as they considered
relevant.
In performing its reviews and analyses and in rendering its opinion,
Sandler O'Neill assumed and relied upon the accuracy and completeness of all
the financial information, analyses and other information that was publicly
available or otherwise furnished to, reviewed by or discussed with it and
further relied on the assurances of management of MB Financial and MidCity
Financial that they were not aware of any facts or circumstances that would
make such information inaccurate or misleading. Sandler O'Neill was not asked
to and did not undertake an independent verification of the accuracy or
completeness of any of such information and they do not assume any
responsibility or liability for the accuracy or completeness of any of such
information. Sandler O'Neill did not make an independent evaluation or
appraisal of the assets, the collateral securing assets or the liabilities,
contingent or otherwise, of MB Financial or MidCity Financial or any of their
respective subsidiaries, or the collectibility of any such assets, nor was it
furnished with any such evaluations or appraisals. Sandler O'Neill is not an
expert in the evaluation of allowances for loan losses and it has not made an
independent evaluation of the adequacy of the allowance for loan losses of MB
Financial or MidCity Financial, nor has it reviewed any individual credit
files relating to MB Financial or MidCity Financial. With MB Financial's
consent, Sandler O'Neill has assumed that the respective allowances for loan
losses for both MB Financial and MidCity Financial are adequate to cover such
losses and will be adequate on a pro forma basis for the new company. In
addition, Sandler O'Neill has not conducted any physical inspection of the
properties or facilities of MB Financial or MidCity Financial. Sandler
O'Neill is not an accounting firm and they have relied, with MB Financial's
consent, on the reports of the independent accountants of MB Financial and
MidCity Financial for the accuracy and completeness of the audited financial
statements furnished to them.
With the consent of MB Financial, the earnings projections for MB Financial
and MidCity Financial on a stand-alone basis used and relied upon by Sandler
O'Neill in its analyses were reviewed with management and were based on internal
projections of MB Financial and MidCity Financial. For the year ending December
31, 2002, Sandler O'Neill's analyses assumed a projected earnings per share of
$2.16 for MB Financial and $421.67 for MidCity Financial. For periods after
2002, Sandler O'Neill used earnings per share estimates provided by management
for MB Financial and assumed an annual growth rate on MidCity Financial's
earning assets of approximately 5%. With respect to such estimates and with
respect to all projections of transaction costs and expected cost savings
prepared by and reviewed with the managements of MB Financial and MidCity
Financial and used by Sandler O'Neill in its analyses, Sandler O'Neill assumed,
with MB Financial's consent, that they reflected the best currently available
estimates and judgments of the respective managements of the respective future
financial performances of MB Financial and MidCity Financial and that such
performances will be achieved. Sandler O'Neill expressed no opinion as to such
financial projections or estimates or the assumptions on which they were based.
The earnings projections furnished to Sandler O'Neill were prepared by the
senior managements of MB Financial and MidCity Financial for internal purposes
only and not with a view toward public disclosure. Those projections, as well as
the other earnings estimates used and relied upon by Sandler O'Neill in its
analyses, were based on numerous variables and assumptions that are inherently
uncertain; accordingly, actual results could vary materially from those set
forth in such projections and estimates.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
its opinion. Sandler O'Neill assumed, in all respects material to its analysis,
that all of the representations and warranties contained in the merger agreement
and all related agreements are true and correct, that each party to such
agreements will perform all of the covenants required to be performed by such
party under such agreements and that the conditions precedent in the Agreement
are not waived. Sandler O'Neill also assumed, with MB Financial's consent, that
there has been no material change in MB Financial's or MidCity Financial's
assets, financial condition, results of operations, business or prospects since
the date of the last publicly filed financial statements available to them, that
MB Financial and MidCity Financial will remain as going concerns for all periods
relevant to its analyses, and that the merger of MB Financial into the new
company and the merger of MidCity Financial into the new company each will be
38
accounted for as a pooling of interests and will qualify as a tax-free
reorganization for federal income tax purposes.
In rendering its opinion, Sandler O'Neill performed a variety of
financial analyses. The following is a summary of the material analyses
performed by Sandler O'Neill, but is not a complete description of all the
analyses underlying Sandler O'Neill's opinion. The summary includes
information presented in tabular format. IN ORDER TO FULLY UNDERSTAND THE
FINANCIAL ANALYSES, THESE TABLES MUST BE READ TOGETHER WITH THE ACCOMPANYING
TEXT. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE
FINANCIAL ANALYSES. The preparation of a fairness opinion is a complex
process involving subjective judgments as to the most appropriate and
relevant methods of financial analysis and the application of those methods
to the particular circumstances. The process, therefore, is not necessarily
susceptible to a partial analysis or summary description. Sandler O'Neill
believes that its analyses must be considered as a whole and that selecting
only portions of the factors and analyses, or attempting to ascribe relative
weights to such factors and analyses, could create an incomplete view of the
evaluation process underlying its opinion. Also, no company included in
Sandler O'Neill's comparative analyses described below is identical to MB
Financial or MidCity Financial and no transaction is identical to the merger.
Accordingly, an analysis of comparable companies or transactions is not
merely mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the trading values or merger
transaction values, as the case may be, of MB Financial or MidCity Financial
and the companies to which they are being compared.
In performing its analyses, Sandler O'Neill also made numerous assumptions
with respect to industry performance, business and economic conditions and
various other matters, many of which cannot be predicted and are beyond the
control of MB Financial, MidCity Financial and Sandler O'Neill. The analyses
performed by Sandler O'Neill are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses. Sandler O'Neill prepared its analyses solely for purposes of
rendering its opinion and provided such analyses to the MB Financial board at
the April 19, 2001 meeting. Estimates on the values of companies do not purport
to be appraisals or necessarily reflect the prices at which companies or their
securities may actually be sold. Such estimates are inherently subject to
uncertainty and actual values may be materially different. Accordingly, Sandler
O'Neill's analyses do not necessarily reflect the value of MB Financial common
stock or MidCity Financial common stock or the prices at which MB Financial
common stock or MidCity Financial common stock may be sold at any time.
STOCK TRADING HISTORY. Sandler O'Neill reviewed the history of the reported
trading prices and volume of MB Financial common stock and the relationship
between the movements in the prices of MB Financial common stock to movements in
certain stock indices, including the Standard & Poor's 500 Index, the Nasdaq
Bank Index and the median performance of a composite peer group selected by
Sandler O'Neill. During the one year period ended April 19, 2001, MB Financial's
common stock outperformed each of the indices to which it was compared. MidCity
Financial is a private company and there were minimal shares traded during the
review period.
BEGINNING INDEX VALUE ENDING INDEX VALUE
APRIL 19, 2000 APRIL 19, 2001
--------------------- ------------------
MB Financial 100.00% 178.38%
Peer Group 100.00 106.16
Nasdaq Bank Index 100.00 125.65
S&P 500 Index 100.00 86.16
COMPARABLE COMPANY ANALYSIS. Sandler O'Neill used publicly available
information to compare selected financial information for MB Financial and
MidCity Financial with two groups of commercial banks selected by Sandler
O'Neill. The regional group consisted of MB Financial, MidCity Financial and the
following 15 publicly traded regional commercial banks:
39
Capitol Bancorp Ltd. Chemical Financial Corp.
Community Trust Bancorp First Busey Corp.
First Financial Corp. First Merchants Corp.
Heartland Financial USA Inc. Independent Bank Corp.
Irwin Financial Corp. MBT Financial Corp.
Mid-America Bancorp Midwest Banc Holdings Inc.
Mississippi Valley Bancshares Republic Bancorp Inc.
Wintrust Financial Corp.
The highly valued group consisted of the following 14 publicly traded
commercial banks which had a return on average equity greater than 16% (based on
last twelve months' earnings) and a price-to-tangible book value greater than
200%:
Cathay Bancorp Inc. CCBT Financial Cos.
Community Bank System Inc. CVB Financial Corp.
East West Bancorp Inc. Frontier Financial Corp.
Irwin Financial Corp. Midwest Banc Holdings Inc.
Mississippi Valley Bancshares S&T Bancorp Inc.
Sterling Bancshares Inc. Texas Regional Bancshares Inc.
TrustCo Bank Corp of NY United National Bancorp
The analysis compared publicly available financial information for MB
Financial, MidCity Financial and the median data for the regional group and
highly valued group as of and for each of the years ended December 31, 1995
through 2000. The table below sets forth the comparative data as of and for the
twelve months ended December 31, 2000 with pricing data as of April 19, 2001
(Source: SNL DATA SOURCE).
Highly
MB MidCity Regional Valued
Financial Financial Group Group
--------- --------- -------- --------
Total assets $1,458,248 $1,831,953 $1,783,791 $2,187,090
Tangible equity / total assets 5.30% 9.03% 7.48% 7.77%
Intangible assets / total equity 15.77% 9.34% 9.34% 4.15%
Net loans / total assets 74.66% 51.42% 71.75% 64.42%
Gross loans / total deposits 103.11% 61.39% 91.25% 84.11%
Total borrowings / total assets 17.57% 4.27% 12.53% 18.22%
Non-performing assets / total assets 0.38% 0.56% 0.43% 0.28%
Loan loss reserves / gross loans 1.26% 1.29% 1.29% 1.39%
Net interest margin 3.62% 3.76% 3.82% 4.41%
Non-interest income / average assets 0.75% 0.56% 0.89% 0.92%
Fees/revenues 18.96% 13.81% 18.96% 17.97%
Non-interest expense / average assets 2.57% 2.71% 2.78% 2.37%
Efficiency ratio 61.14% 64.30% 56.30% 46.49%
Return on average assets 0.84% 0.88% 1.06% 1.55%
Return on average equity 13.86% 8.89% 13.78% 19.53%
EPS growth rate 8.61% (14.08)% 11.96% 13.78%
Price / tangible book value per share 150.82% NA 166.73% 226.04%
Price / earnings per share 10.06x NA 11.65x 12.68x
Dividend yield 0.0% NA 2.81% 2.43%
Dividend payout ratio 0.0% 31.97% 34.24% 30.49%
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Sandler O'Neill reviewed 14
transactions structured as mergers of equals announced since January 1, 1995
involving publicly traded commercial banks and savings institutions with
transaction values greater than $100 million. For each transaction, Sandler
O'Neill reviewed the
40
ratio of the transaction price to the acquired
institution's estimated earnings per share, premium to market based on the
acquired institution's price one day prior to announcement of the transaction,
ownership split and board split. The results of this analysis are set forth
below.
Ownership Board
Transaction Date Split Split
-------------------------------- ------- ------- -------
First Union Corp./Wachovia Corp. 4/15/01 70%/30% 50%/50%
New York Community Bancorp/
Richmond County Financial Corp. 3/17/01 62/38 55/45
Firstar Corp./U.S. Bancorp 10/4/00 50/50 56/44
National Commerce/CCB Financial 3/20/00 53/47 50/50
Fleet Financial Group/BankBoston 3/14/99 62/38 55/45
UNUM Corp./Provident 11/23/98 58/42 53/47
Star Banc/Firstar 11/22/98 46/51 56/44
Norwest/Wells Fargo 7/1/98 47/53 50/50
Citizens Bancshares/Mid Am 5/25/98 49/51 50/50
Bank One/First Chicago/NBD 4/13/98 60/40 50/50
NationsBank/BankAmerica 4/13/98 55/45 55/45
Travelers/Citicorp 4/6/98 50/50 50/50
Chemical Banking Corp./Chase Manhattan 8/28/95 57/43 57/43
NBD Corp./First Chicago 7/12/95 49/51 50/50
MB FINANCIAL/MIDCITY FINANCIAL 4/19/01 40/60 47/53
DISCOUNTED DIVIDEND STREAM AND TERMINAL VALUE ANALYSIS. Sandler O'Neill
performed an analysis which estimated the future stream of dividend flows of MB
Financial through December 31, 2004 under various circumstances, assuming MB
Financial's current dividend payout ratio and that MB Financial performed in
accordance with the earnings estimates prepared by management. To approximate
the terminal value of MB Financial common stock at December 31, 2004, Sandler
O'Neill applied price/earnings multiples ranging from 8x to 20x and applied
multiples of tangible book value ranging from 100% to 250%. The dividend income
streams and terminal values were then discounted to present values using
different discount rates ranging from 9% to 15% chosen to reflect different
assumptions regarding required rates of return of holders or prospective buyers
of MB Financial common stock. As illustrated in the following table, this
analysis indicated an imputed range of values per share of MB Financial common
stock of $13.77 to $42.67 when applying the price/earnings multiples and $10.96
to $33.93 when applying multiples of tangible book value. Based on the closing
price of MB Financial common stock on April 19, 2001 of $16.50 and the MB
Financial exchange ratio of one share of new company common stock for each share
of MB Financial common stock, the implied transaction value per share of MB
Financial common stock was $16.50.
Price/Earnings Multiples Tangible Book Value Multiples
------------------------------------------- --------------------------------------------
Discount
Rate 8x 12x 16x 20x 1.0x 1.5x 2.0x 2.50x
-------- ------ ------ ------ ------ ------ ------ ------ ------
9% $17.07 $25.60 $34.13 $42.67 $13.57 $20.36 $27.15 $33.93
11 15.87 19.84 31.74 39.67 12.62 18.93 25.24 31.55
13 14.78 22.16 29.55 36.94 11.75 17.63 23.50 29.38
15 13.77 20.66 27.55 34.44 10.96 16.43 21.91 27.39
Sandler O'Neill also performed an analysis which estimated the future
stream of dividend flows of MidCity Financial through December 31, 2004 under
various circumstances, assuming MidCity Financial's current dividend payout
ratio and that MidCity Financial performed in accordance with the earnings
estimates reviewed with management. For periods after 2002, Sandler O'Neill
assumed an annual growth rate of earning assets of approximately 5.0%. To
approximate the terminal value of MidCity Financial common stock at December 31,
2004, Sandler O'Neill applied price/earnings multiples ranging from 8x to 20x
and applied multiples of tangible book value ranging from 100% to 250%. The
dividend income streams and terminal values were then discounted to present
values using different discount rates ranging from 9% to 15% chosen to reflect
41
different assumptions regarding required rates of return of holders or
prospective buyers of MidCity Financial common stock. As illustrated in the
following table, this analysis indicated an imputed range of values per share of
MidCity Financial common stock of $2,549 to $7,178 when applying the
price/earnings multiples and $3,203 to $9,201 when applying multiples of
tangible book value. Based on the closing price of MB Financial common stock on
April 19, 2001 of $16.50 and the MidCity Financial exchange ratio of 230.32955
shares of new company common stock for each share of MidCity Financial common
stock, Sandler O'Neill calculated an implied transaction value per share of
MidCity Financial common stock of $3,800.44.
Price/Earnings Multiples Tangible Book Value Multiples
------------------------------------------- --------------------------------------------
Discount
Rate 8x 12x 16x 20x 1.0x 1.5x 2.0x 2.50x
-------- ------ ------ ------ ------ ------ ------ ------ ------
9% $3,122 $4,474 $5,826 $7,178 $3,932 $5,688 $7,445 $9,201
11 2,914 4,171 5,428 6,685 3,667 5,300 6,933 8,567
13 2,724 3,894 5,065 6,235 3,425 4,945 6,466 7,987
15 2,549 3,640 4,731 5,822 3,203 4,620 6,038 7,455
Sandler O'Neill discussed the above ranges of values with the MB Financial
board of directors, with particular focus on the range of values indicated by
applying price/earnings multiples of 10x to 14x and price/tangible book values
of 150% to 225%. In connection with its analyses, Sandler O'Neill considered and
discussed with the MB Financial board of directors how the present value
analysis would be affected by changes in the underlying assumptions, including
variations with respect to the growth rate of assets, net income and dividend
payout ratio. Sandler O'Neill noted that the discounted dividend stream and
terminal value analysis is a widely used valuation methodology, but the results
of such methodology are highly dependent upon the numerous assumptions that must
be made, and the results thereof are not necessarily indicative of actual values
or future results.
PRO FORMA MERGER ANALYSIS. Sandler O'Neill analyzed certain potential pro
forma effects of the merger, based upon (1) the MB Financial exchange ratio of
1.0 and an implied transaction value of $16.50 per share of MB Financial common
stock, (2) the MidCity Financial exchange ratio of 230.32955 and an implied
transaction value of $3,800.44 per share of MidCity Financial common stock, (3)
the earnings per share estimates and projections of MB Financial and MidCity
Financial referred to above, and (4) assumptions regarding the economic
environment, accounting and tax treatment of the merger, charges and transaction
costs associated with the merger and operating efficiencies determined by the
senior managements of MB Financial and MidCity Financial. The analysis indicated
that for the year ending December 31, 2002, the first full year following the
merger, the merger would be accretive to MB Financial's projected earnings per
share. Also, the analysis indicated that the merger would be accretive to
MidCity Financial's earnings per share for the same period. The actual results
achieved by MB Financial, MidCity Financial or the new company may vary from
projected results and the variations may be material.
MB Financial MidCity Financial
---------------------------- ------------------------------
Stand-alone Pro Forma Stand-alone Pro Forma (1)
----------- --------- ----------- -------------
Projected 2002 EPS $2.16 $2.24 $421.67 $515.93
----------
(1) Determined by multiplying the MB Financial value by the MidCity exchange
ratio.
42
CONTRIBUTION ANALYSIS. Sandler O'Neill reviewed the relative contributions
to be made by MB Financial and MidCity Financial to the new company based on
financial information of MB Financial and MidCity Financial for the period ended
March 31, 2001, adjusted in the case of MB Financial for its then-pending
acquisition of FSL Holdings, Inc. (completed in May 2001). The percentage of pro
forma shares owned was determined using the MB Financial exchange ratio of 1.0
and the MidCity Financial exchange ratio of 230.32955. This analysis indicated
that the implied contributions to the new company were as follows:
MB Financial MidCity Financial
------------ -----------------
Total assets 46.05% 53.95%
Total cash and securities 26.70 73.30
Total net loans 54.44 45.56
Total goodwill 54.74 45.26
Total deposits 43.60 56.40
Total borrowings 81.52 18.48
Tangible equity 29.18 70.82
Total equity 32.38 67.62
2001 estimated net income 45.48 54.52
Percentage of pro forma 40.00 60.00
shares owned(1)
----------
(1) Based on total number of shares of new company common stock projected to be
outstanding upon completion of the merger without giving effect to the
outstanding options to acquire shares of MB Financial. Assuming full
exercise of all outstanding options, the percentage ownership would be
42.7% for MB Financial and 57.3% for MidCity Financial.
Sandler O'Neill is a nationally recognized investment banking firm whose
principal business specialty is financial institutions. In the ordinary course
of its investment banking business, Sandler O'Neill is regularly engaged in the
valuation of financial institutions and their securities in connection with
mergers and acquisitions and other corporate transactions. Sandler O'Neill has
previously rendered investment banking services to MB Financial unrelated to the
merger, for which Sandler O'Neill received customary compensation. MB Financial
selected Sandler O'Neill to act as its financial advisor on the basis of Sandler
O'Neill's reputation and its prior experience and familiarity with MB Financial.
MB Financial has agreed to pay Sandler O'Neill a transaction fee of
$925,000 in connection with the merger, of which $231,250 has been paid and the
balance of which is contingent, and payable, upon closing of the merger. MB
Financial has also paid Sandler O'Neill a fee of $150,000 for rendering its
fairness opinion, which will be credited against that portion of the transaction
fee due upon closing of the merger. MB Financial has also agreed to reimburse
Sandler O'Neill for its reasonable out-of-pocket expenses incurred in connection
with its engagement up to a maximum of $15,000 and to indemnify Sandler O'Neill
and its affiliates and their respective partners, directors, officers,
employees, agents, and controlling persons against certain expenses and
liabilities, including liabilities under securities laws. In the ordinary course
of its business as a broker-dealer, Sandler O'Neill may purchase securities from
and sell securities to MB Financial and MidCity Financial and may actively trade
the equity or debt securities of MB Financial and MidCity Financial and their
respective affiliates for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
OPINIONS OF MIDCITY FINANCIAL'S FINANCIAL ADVISORS
MidCity Financial engaged Hovde Financial LLC and Alex Sheshunoff & Company
LLP as its financial advisors in connection with the merger based on their
experience and expertise. Hovde and Alex Sheshunoff are nationally recognized
investment banking firms that have substantial experience in transactions
similar to the merger.
OPINION OF HOVDE FINANCIAL LLC. The board of directors of MidCity Financial
has requested that Hovde render its opinion with respect to the fairness, from a
financial point of view, of the MidCity Financial exchange ratio from the
standpoint of the MidCity Financial stockholders. IN EVALUATING THE HOVDE
OPINION,
43
STOCKHOLDERS SHOULD TAKE INTO ACCOUNT THE FACT THAT HOVDE-AFFILIATED ENTITIES
OWN MORE THAN 5% OF OUTSTANDING SHARES OF MB FINANCIAL COMMON STOCK. BECAUSE
OF THE HOVDE-AFFILIATED ENTITIES' INVESTMENT INTEREST IN MB FINANCIAL, THE
MIDCITY FINANCIAL BOARD OF DIRECTORS SOUGHT AND OBTAINED THE OPINION OF
SHESHUNOFF WITH RESPECT TO THE FAIRNESS OF THE MIDCITY FINANCIAL EXCHANGE
RATIO, FROM A FINANCIAL POINT OF VIEW, TO THE STOCKHOLDERS OF MIDCITY
FINANCIAL.
On April 18, 2001, Hovde rendered its oral opinion that, as of such date,
the MidCity Financial exchange ratio was fair, from a financial point of view,
to the holders of MidCity Financial's common stock. This opinion was confirmed
in writing as of April 19, 2001, the date on which the merger agreement was
executed. In requesting Hovde's advice and opinion, no limitations were imposed
by MidCity Financial upon Hovde with respect to the investigations made or
procedures followed by it in rendering its opinion.
THE FULL TEXT OF THE OPINION OF HOVDE, DATED APRIL 19, 2001, WHICH
DESCRIBES THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS JOINT PROXY
STATEMENT-PROSPECTUS AS APPENDIX C. MIDCITY FINANCIAL STOCKHOLDERS SHOULD READ
THIS OPINION IN ITS ENTIRETY. HOVDE'S OPINION IS DIRECTED ONLY TO THE FAIRNESS,
FROM A FINANCIAL POINT OF VIEW, OF THE MIDCITY FINANCIAL EXCHANGE RATIO, AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY MIDCITY FINANCIAL STOCKHOLDER AS TO
HOW THE STOCKHOLDER SHOULD VOTE AT THE MIDCITY FINANCIAL SPECIAL MEETING. THE
SUMMARY OF THE OPINION OF HOVDE SET FORTH IN THIS JOINT PROXY
STATEMENT-PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION.
Hovde, as part of its investment banking business, is continually engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bidding, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Hovde is familiar with
MidCity Financial, having acted as its financial advisor in connection with, and
having participated in the negotiations leading to, the merger agreement. Hovde
is also familiar with MB Financial, as from time to time it has provided
investment banking and financial advisory services to MB Financial for which it
previously has received fees. In the course of its daily trading activities,
investment funds controlled by an affiliate (as such term is defined in Rule
12g-2 promulgated under the Securities Exchange Act of 1934, as amended) of
Hovde and its affiliates may from time to time effect transactions and hold
securities of MidCity Financial and MB Financial. As of the date of its opinion,
Hovde-affiliated entities held no shares of MidCity Financial common stock and
402,838 shares of MB Financial common stock.
Hovde will receive a fee contingent upon the completion of the merger for
services rendered in connection with advising MidCity Financial regarding the
merger, including the fairness opinion and financial advisory services provided
to MidCity Financial. As of the date of this joint proxy statement-prospectus,
this fee would have been approximately $2.1 million. Hovde has received $50,000
of this fee to date.
The following is a summary of the analyses performed by Hovde in connection
with its fairness opinion. Certain of these analyses were presented to the
MidCity Financial board of directors. The summary set forth below does not
purport to be a complete description of either the analyses performed by Hovde
in rendering its opinion or the presentation made by Hovde to the MidCity
Financial board of directors, but it does summarize all of the material analyses
performed and presented by Hovde.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances. In arriving at its
opinion, Hovde did not attribute any particular weight to any analysis and
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Hovde may have given
various analyses more or less weight than other analyses. Accordingly, Hovde
believes that its analyses and the following summary must be considered as a
whole and that selecting portions of its analyses, without considering all
factors and analyses, could create an incomplete view of the process underlying
the analyses set forth in its report to the MidCity Financial board of directors
and its fairness opinion.
44
In performing its analyses, Hovde made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of MidCity Financial and MB
Financial. The analyses performed by Hovde are not necessarily indicative of
actual value or actual future results, which may be significantly more or
less favorable than suggested by these analyses. These analyses were prepared
solely as part of Hovde's analysis of the fairness of the MidCity Financial
exchange ratio, from a financial point of view, to the MidCity Financial
stockholders. The analyses do not purport to be an appraisal or to reflect
the prices at which a company might actually be sold or the prices at which
any securities may trade at the present time or at any time in the future.
Hovde's opinion does not address the relative merits of the merger as
compared to any other business combination in which MidCity Financial might
engage. In addition, as described above, Hovde's opinion to the MidCity
Financial board of directors was one of many factors taken into consideration
by the MidCity Financial board of directors in making its determination to
approve the merger agreement.
During the course of Hovde's engagement and for the purposes of the opinion
discussed herein, Hovde has:
- reviewed the merger agreement;
- reviewed certain historical publicly available business and financial
information concerning MidCity Financial and MB Financial;
- reviewed certain internal financial statements and other financial and
operating data concerning MidCity Financial and MB Financial;
- analyzed certain financial projections prepared by the managements of
MidCity Financial and MB Financial;
- conducted meetings with members of the senior management of MidCity
Financial and MB Financial for the purpose of reviewing the future
prospects of MidCity Financial and MB Financial, including financial
forecasts related to the respective businesses, earnings, assets,
liabilities and the amount and timing of cost savings and revenue
enhancements (referred to below as the "synergies") expected to be
achieved as a result of the merger;
- reviewed historical market prices and trading volumes for MidCity
Financial common stock and MB Financial common stock;
- evaluated the pro forma ownership of new company common stock by
MidCity Financial's stockholders relative to the pro forma
contribution of MidCity Financial's assets, liabilities, equity and
earnings to the new company;
- reviewed the terms of recent merger and acquisition transactions, to
the extent publicly available, involving banks and bank holding
companies that Hovde considered relevant;
- analyzed the pro forma impact of the merger on the new company's
post-merger earnings per share, consolidated capitalization and
financial ratios; and
- performed such other analyses and considered such other factors as
Hovde has deemed appropriate.
In rendering this opinion, Hovde has assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations contained in the materials provided to Hovde by
MidCity Financial and MB Financial and in the discussions with MidCity Financial
and MB Financial managements. In that regard, Hovde has assumed that the
financial forecasts, including, without limitation, the synergies and
projections regarding under-performing and non-performing assets and net
charge-offs have been
45
reasonably prepared on a basis reflecting the best currently available
information and judgments and estimates of MidCity Financial and MB Financial
and that these forecasts will be realized in the amounts and at the times
contemplated thereby. Hovde is not an expert in the evaluation of loan and
lease portfolios for purposes of assessing the adequacy of the allowances for
losses with respect thereto and have assumed that such allowances for MidCity
Financial and MB Financial are in the aggregate adequate to cover such
losses. Hovde was not retained to and did not conduct a physical inspection
of any of the properties or facilities of MidCity Financial or MB Financial.
In addition, Hovde has not reviewed individual credit files nor has it made
an independent evaluation or appraisal of the assets and liabilities of
MidCity Financial and MB Financial and Hovde was not furnished with any such
evaluations or appraisals.
IMPLIED OFFER VALUE ANALYSIS BASED ON MB FINANCIAL HISTORICAL TRADING
VALUATION. Hovde reviewed the implied offer value per share for MidCity
Financial common stock based on the price of MB Financial common stock at
different intervals during the period commencing April 6, 2001, using the 5-day,
10-day, 20-day and 30-day closing average closing price of MB Financial common
stock during such period. Using such average closing prices, Hovde observed that
the implied offer value per share to MidCity Financial stockholders was as
follows:
Implied
Implied value per aggregate value
MB Financial share to MidCity to MidCity
average closing Financial Financial
price stockholders stockholders
----------------- ------------------- -----------------
Last trading day $16.375 $3,711.65 $173,522,135
Last 5 Trading Days $16.238 $3,739.98 $172,065,079
Last 10 Trading Days $16.244 $3,741.42 $172,131,309
Last 20 Trading Days $15.906 $3,663.68 $168,554,898
Last 30 Trading Days $15.888 $3,659.36 $168,356,209
As of __________, 2001, based upon the most recent closing price for MB
Financial common stock of $_______, the implied offer value for MidCity
Financial common stock was $________, or an aggregate value of $_____________.
DISCOUNTED CASH FLOW ANALYSIS. Hovde estimated the present value of the
MidCity Financial common stock by using 2001-2003 cash earnings of $20.9
million, $23.0 million and $26.1 million, respectively, and 2001-2003 aggregate
dividends of $6.4 million per annum. In arriving at the terminal value of
MidCity Financial's earnings stream at the end of 2003, Hovde assumed a terminal
value multiple at a range of 12.0, 13.5 and 15.0. The terminal value was then
discounted, along with yearly cash flows for 2001 through 2003, at range of
discount rates of 13.0%, 15.0% and 17.0% to arrive at the present value for
MidCity Financial's common stock. These rates and values were chosen to reflect
different assumptions regarding the required rates of return of holders or
prospective buyers of MidCity Financial common stock. This analysis and its
underlying assumptions yielded a range of value for MidCity Financial of
approximately $209.9 million to $286.8 million.
Hovde also estimated the present value of the MB Financial common stock by
using 2001-2003 cash earnings of $16.5 million, $18.9 million and $21.8 million,
respectively, and no dividends during 2001-2003. In arriving at the terminal
value of MB Financial's earnings stream at the end of 2003, Hovde assumed a
terminal value multiple at a range of 12.0, 13.5 and 15.0. The terminal value
was then discounted, along with yearly cash flows for 2001 through 2003, at
range of discount rates of 13.0%, 15.0% and 17.0% to arrive at the present value
for MB Financial's common stock. These rates and values were chosen to reflect
different assumptions regarding the required rates of return of holders or
prospective buyers of MB Financial common stock. This analysis and its
underlying assumptions yielded a range of value for MB Financial of
approximately $163.6 million to $227.0 million.
Hovde also estimated the present value of the new company common stock
after the merger by using 2001-2003 cash earnings of $41.8 million, $49.7
million and $53.0 million, respectively, and 2001-2003
46
aggregate dividends of $10.7 million per annum. In arriving at the terminal
value of pro forma company's earnings stream at the end of 2003, Hovde
assumed a terminal value multiple at a range of 12.0, 13.5 and 15.0. The
terminal value was then discounted, along with yearly cash flows for 2001
through 2003, at range of discount rates of 13.0%, 15.0% and 17.0% to arrive
at the present value for the new company's common stock. These rates and
values were chosen to reflect different assumptions regarding the required
rates of return of holders or prospective buyers of new company common stock.
This analysis and its underlying assumptions yielded a range of value for the
new company of approximately $420.6 million to $576.1 million.
Hovde then highlighted the impact in net present value to the stockholders
of MidCity Financial on a standalone basis in comparison to the new company. As
such, Hovde noted that stockholders of MidCity Financial would experience
appreciation of net present value in the range of 20.2% to 20.5%.
CONTRIBUTION ANALYSIS. Hovde prepared a contribution analysis showing
percentages of assets, loans, deposits, equity and tangible equity at December
31, 2000 on actual basis and at December 31, 2001 on estimated basis for MidCity
Financial and for MB Financial, and actual fiscal year 2000 net income on GAAP
basis and cash basis, and estimated fiscal years 2001-2003 net income on GAAP
basis and cash basis that would be contributed to the new company on a pro-forma
basis by MidCity Financial and MB Financial. These contribution percentages were
compared to the 60.00% of the new company common shares outstanding that holders
of MidCity Financial common stock would own.
MidCity Financial MB Financial
Contribution Contribution
----------------- ------------
BALANCE SHEET
-------------
Total Assets - 12/31/00 55.64% 44.36%
Loans & Leases - 12/31/00 46.53 53.47
Deposits - 12/31/00 59.49 40.51
Equity - 12/31/00 66.92 33.08
Tangible Equity - 12/31/00 68.61 31.39
Total Assets - Estim. 12/31/01 52.18 47.82
Loans - Estim. 12/31/01 44.28 55.72
Deposits - Estim. 12/31/01 55.86 44.14
Equity - Estim. 12/31/01 66.36 33.64
Tangible Equity - Estim. 12/31/01 69.64 30.36
INCOME STATEMENT
----------------
GAAP Net Income - 2000 56.96 43.04
Cash Net Income - 2000 55.41 44.59
GAAP Net Income - Estim. 2001 57.58 42.42
Cash Net Income - Estim. 2001 55.90 44.10
GAAP Net Income - Estim. 2002 55.91 44.09
Cash Net Income - Estim. 2002 54.95 45.05
GAAP Net Income - Estim. 2003 55.04 44.96
Cash Net Income - Estim. 2003 54.47 45.53
47
FINANCIAL IMPLICATIONS TO MIDCITY FINANCIAL STOCKHOLDERS. Hovde prepared an
analysis of the financial implications to the holders of MidCity Financial
common stock. This analysis indicated the level of accretion to GAAP earnings
per share, cash earnings per share, dividends per share and tangible book value
per share that a stockholder of MidCity Financial would achieve on a pro forma
equivalent basis, assuming the MidCity Financial exchange ratio of 230.32955 and
including projected cost savings and revenue enhancement opportunities. The
table below summarizes these results:
Per Share
--------------------------------------------------------------------------------
GAAP Earnings Cash Earnings
--------------------------------- -----------------------------------------
2001 2002 2003 2001 2002 2003
------- ------- ------- --------- --------- ---------
MidCity Financial standalone $422.52 $467.61 $535.16 $ 455.13 $ 500.22 $ 567.76
Pro Forma $497.01 $603.20 $648.59 $ 545.23 $ 647.49 $ 690.58
% Accretion/Dilution 17.6% 29.0% 21.2% 19.8% 29.4% 21.6%
Per Share
--------------------------------------------------------------------------------
Dividends Tangible Book Value
--------------------------------- -----------------------------------------
2001 2002 2003 2001 2002 2003
------- ------- ------- --------- --------- ---------
MidCity Financial standalone $140.00 $140.00 $140.00 $3,941.60 $4,301.81 $4,729.58
Pro Forma $140.00 $140.00 $140.00 $3,256.26 $3,531.90 $3,909.50
% Accretion/Dilution 0.0% 0.0% 0.0% (17.4)% (17.9)% (17.3)%
COMPARATIVE SHAREHOLDER RATES OF RETURN. Hovde presented an analysis of
comparative theoretical shareholder returns in several scenarios, including (i)
MidCity Financial remaining independent; (ii) MidCity Financial being acquired
in 2003; (iii) MidCity Financial merging with MB Financial under the terms of
the merger agreement; and (iv) MidCity Financial merging with MB Financial under
the terms of the merger agreement and the new company in turn being acquired in
2003. This analysis, which was based on the net present value of projected
dividend streams and projected common stock valuations, using historical
operating and acquisition price-to-earnings multiples, indicated total
shareholder returns of 14.25% if MidCity Financial remained independent, 28.17%
if MidCity Financial were acquired in 2003, 25.61% if MidCity Financial merged
with MB Financial, and 48.42% if MidCity Financial merged with MB Financial and
the new company in turn were acquired in 2003.
ANALYSIS OF SELECTED MERGERS. As part of its analysis, Hovde reviewed
comparable size merger of equals transactions involving banks nationwide
announced since January 1, 1995, in which the pro forma assets were between $2
billion and $10 billion (referred to as the "Merger of Equals Group"). This
Merger of Equals Group consisted of the following 4 transactions:
Resulting Pro Forma Announced
Company's Name Assets ($000) Date
-------------- ------------- ----
New York Community Bancorp 7,928,201 03/27/01
Chemical Financial Corp. 2,985,654 08/22/00
Pacific Capital Bancorp 2,423,447 07/20/98
Sky Financial Group, Inc. 3,570,226 05/21/98
Hovde also highlighted the difference in the stock performance of the
Merger of Equals Group from the day of the announcement of the applicable
transaction to April 6, 2001, in comparison to the performance of the Nasdaq
Bank Index during the same period of time. This analysis indicated that (i) New
York Community Bancorp had a return of 8.31% versus Nasdaq Bank Index return of
-1.96%, for a net difference of +10.27%; (ii) Chemical Financial Corp. had a
return of 21.35% versus Nasdaq Bank Index return of 10.95%, for a net difference
48
of +10.40%; (iii) Pacific Capital Bancorp had a return of -18.22% versus Nasdaq
Bank Index return of -15.56%, for a net difference of -2.66%; and (iv) Sky
Financial Group, Inc. had a return of 18.55% versus Nasdaq Bank Index return of
-19.29%, for a net difference of +37.84%.
COMPARABLE COMPANY ANALYSIS. Using publicly available information, Hovde
compared the stock market valuation of MidCity Financial on standalone basis, MB
Financial on standalone basis and the new company with the following comparable
Midwestern publicly traded banking institutions:
Company Name Headquarters Market Cap ($M)
------------ ------------ ---------------
AMCORE Financial, Inc. Rockford, IL 516.8
Associated Banc-Corp Green Bay, WI 2,146.5
Citizens Banking Corp Flint, MI 1,148.4
Corus Bankshares Inc. Chicago, IL 735.4
First Midwest Bancorp, Inc. Itasca, IL 1,172.9
First Oak Brook Bancshares Oak Brook, IL 123.0
1st Source Corp. South Bend, IN 390.8
Midwest Banc Holdings Inc. Melrose Park, IL 171.8
Mississippi Valley Bancshares St. Louis, MO 326.5
Old Second Bancorp, Inc. Aurora, IL 145.8
Wintrust Financial Corp. Lake Forest, IL 156.1
Indications of such financial performance and stock market valuation
included the calculation of price-to-book value, price-to-tangible book value,
price-to-2001 estimated GAAP earnings and price-to-2001 estimated cash earnings,
utilizing the most recent price of MidCity Financial common stock of $4,400
(last traded in November 2000) and the price of MB Financial common stock on
April 6, 2001 of $16.38 for both MB Financial and the new company.
Price to Book Price to Tang. Price to 2001 Est. Price to 2001
Value (x) Book Value (x) GAAP EPS (x) Est. Cash EPS(x)
------------- -------------- ------------------ ----------------
MidCity Financial 1.09 1.20 10.4 9.7
MB Financial 1.26 1.50 8.1 7.0
New Company 1.01 1.16 7.6 6.9
Comparable Company Median 1.69 1.85 10.7 10.6
Hovde also noted that if the new company were to trade at the comparable
company median price-to-2001 estimated cash earnings of 10.6x, the price per
share for the new company common stock would increase to $25.20.
49
TRANSACTION MULTIPLE ANALYSIS. Based on the MidCity Financial exchange
ratio of 230.32955 and MB Financial common stock closing price as of April 6,
2001 of $16.38, Hovde calculated the implied price-to-2000 actual GAAP earnings,
price-to-2000 actual cash earnings, price-to-2001 estimated GAAP earnings,
price-to-2001 estimated cash earnings, price-to-book value and price-to-tangible
book value. The following is a summary of Hovde's findings:
Implied Multiples Based on MB Financial
Price of:
------------------------------------------
$16.38 at 04/06/01 $20.40 at 05/14/01
------------------ ------------------
Price-to-2000 actual GAAP earnings 11.30 14.10
Price-to-2000 actual cash earnings 10.30 12.80
Price-to-2001 estimated GAAP earnings 8.90 11.10
Price-to-2001 estimated cash earnings 8.30 10.30
Price-to-book value 0.94 1.16
Price-to-tangible book value 1.03 1.28
LIQUIDITY ANALYSIS. Hovde noted that one of the goals of MidCity Financial
management was to increase the liquidity of the MidCity Financial common stock.
In its review of stock trading history since January 1, 2000 through April 6,
2001, for both MidCity Financial common stock and MB Financial common stock,
Hovde discovered that MidCity Financial common stock traded only during 13 out
of 66 calendar weeks, while MB Financial common stock traded during all 66 out
of 66 calendar weeks. Excluding two weeks of abnormally high trading volume for
MidCity Financial common stock within this time period, MB Financial's common
stock traded approximately 700% more in average weekly dollar volume than
MidCity Financial common stock. Moreover, MB Financial had seven market makers
and a typical bid-ask spread of approximately 1.53% of the bid. In contrast,
MidCity Financial had no market makers and a typical bid-ask spread of
approximately 6.38%.
Based upon the foregoing analyses and other investigations and assumptions
set forth in its opinion, without giving specific weightings to any one factor
or comparison, Hovde determined that the MidCity Financial exchange ratio, after
taking into account the MB Financial exchange ratio, was fair from a financial
point of view to the MidCity Financial stockholders.
OPINION OF ALEX SHESHUNOFF & COMPANY LLP. MidCity Financial retained Alex
Sheshunoff & Co. LLP to provide its opinion of the fairness of the MidCity
Financial exchange ratio, after taking into account the MB Financial exchange
ratio, to MidCity's Financial stockholders from a financial point of view. As
part of its investment banking business, Sheshunoff is regularly engaged in the
valuation of securities in connection with mergers and acquisitions and
valuations for estate, corporate and other purposes. MidCity Financial's board
of directors decided to retain Sheshunoff based on its experience as a financial
advisor in mergers and acquisitions of financial institutions, and its knowledge
of financial institutions. On April 18, 2001, Sheshunoff rendered its oral
opinion that, as of such date, the MidCity Financial exchange ratio was fair,
from a financial point of view, to the holders of MidCity Financial's common
stock. This opinion was confirmed in writing as of April 19, 2001, the date on
which the merger agreement was executed.
The full text of Sheshunoff's written opinion, which sets forth, among
other things, the assumptions made, procedures followed, matters considered, and
limitations on the review undertaken, is attached in the Appendix D to this
joint proxy statement-prospectus. MidCity Financial's stockholders are urged to
read the Sheshunoff opinion carefully and in its entirety. Sheshunoff's opinion
is addressed to MidCity Financial's board of directors and does not constitute a
recommendation to any stockholder of MidCity Financial as to how such
stockholder should vote at the MidCity Financial special meeting. Sheshunoff's
opinion does not address the relative merits of the merger as compared to any
alternative business transaction that might be available to MidCity Financial.
50
In connection with its opinion, Sheshunoff, among other things:
- Evaluated MidCity Financial's consolidated results based upon a review
of its annual financial statements for the three-year period ended
December 31, 2000;
- Reviewed Call Report information as of December 31, 2000 for MidCity
Financial's subsidiary banks;
- Conducted conversations with executive management regarding recent and
projected financial performance of MidCity Financial;
- Compared MidCity Financial's recent operating results with those of
certain other banks in the U.S. which have recently been acquired for
cash, stock, or other forms of consideration;
- Compared MidCity Financial's recent operating results with those of
certain other banks in the U.S. which have recently been involved in a
merger-of equals;
- Compared the pricing multiples for MidCity Financial in the merger to
those of certain other banks in the U.S. which have recently been
acquired for cash, stock, or other forms of consideration;
- Analyzed the net present value of the after-tax cash flows MidCity
Financial could produce as an independent company under its current
business strategy through the year 2005, based on assumptions provided
by management;
- Held discussions with MidCity Financial's and MB Financial's
management concerning each company's recent financial performance and
future prospects as an independent and combined company;
- Reviewed the due diligence report on MB Financial's loan portfolio and
loan loss reserves prepared by MidCity Financial. Sheshunoff relied
upon this review in forming its opinion and did not independently
review or evaluate MB Financial's or MidCity Financial's asset quality
or loss reserve adequacy;
- Reviewed projections of MidCity Financial and MB Financial as a
combined company as prepared for the management of MidCity Financial
and MB Financial by their respective advisors. Sheshunoff did not
independently evaluate the accuracy or reasonableness of the
projections or the asset growth rates, cost savings and revenue
enhancements assumed in the pro-form projections for the combined
companies following the merger;
- Reviewed a copy of the merger agreement;
- Reviewed recent trading prices and volume for MB Financial and the
lack of any trading market for MidCity Financial;
- Reviewed MB Financial's financial performance for the past three years
ended December 31, 2000 as reported in its annual reports to
stockholders and Annual Reports on Form 10-K;
- Reviewed the pro-forma impact on MB Financial of the then-pending cash
acquisition of FSL Holdings, Inc. (completed in May 2001).
- Performed such other analyses as it deemed appropriate.
51
In connection with its review, Sheshunoff relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it
or made publicly available, and Sheshunoff did not assume any responsibility
for independent verification of such information. With respect to the
internal confidential financial projections, Sheshunoff assumed that such
projections were reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the future financial
performance of MidCity Financial and did not independently verify the
validity of such assumptions. Sheshunoff did not make any independent
evaluation or appraisal of the assets or liabilities of MidCity Financial,
nor was Sheshunoff furnished with any such appraisals. Sheshunoff did not
examine any individual loan files of MidCity Financial. Sheshunoff is not an
expert in the evaluation of loan portfolios for the purposes of assessing the
adequacy of the allowance for losses with respect thereto and has assumed
that such allowances for each of the companies are in the aggregate, adequate
to cover such losses.
With respect to MB Financial, Sheshunoff relied solely upon publicly
available data regarding MB Financial's financial condition and performance.
Sheshunoff met with and discussed this publicly available information with the
management of MB Financial. Sheshunoff did not conduct any independent
evaluation or appraisal of the assets, liabilities or business prospects of MB
Financial, was not furnished with any evaluations or appraisals, and did not
review any individual credit files of MB Financial.
The operating results for the new company following the merger and for
MidCity Financial as an independent company that Sheshunoff relied upon were
prepared by the combined companies' management for the new company and by
MidCity Financial's management for MidCity Financial as an independent company.
Sheshunoff assumed based on management representations that these projections
and assumptions reflect the best current estimates of the new company's and
MidCity Financial's independent performance. Actual results may vary from the
projected performance and such variances, positive or negative, could be
material. No assurance can be given that the new company or MidCity Financial as
an independent company will achieve the results Sheshunoff used in preparing its
opinion. Sheshunoff's opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to Sheshunoff as
of, April 18, 2001. Market, economic and other events occurring after that date
could materially affect the projections and assumptions used in preparing
Sheshunoff's opinion.
In connection with rendering its opinion, Sheshunoff performed a variety of
financial analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
or summary description. Moreover, the evaluation of the fairness, from a
financial point of view, of the MidCity Financial exchange ratio is to some
extent a subjective one based on the experience and judgment of Sheshunoff and
not merely the result of mathematical analysis of financial data. Accordingly,
notwithstanding the separate factors summarized below, Sheshunoff believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the evaluation process
underlying its opinion. The ranges of valuations resulting from any particular
analysis described below should not be taken to be Sheshunoff's view of the
actual value of MidCity Financial.
In performing its analyses, Sheshunoff made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of MidCity Financial. The analyses
performed by Sheshunoff are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses. The analyses do not purport to be appraisals or to reflect the
prices at which a company might actually be sold. In addition, Sheshunoff's
analyses should not be viewed as determinative of MidCity Financial's Board's or
MidCity Financial's management's opinion with respect to the value of MidCity
Financial.
52
The following is a summary of the analyses performed by Sheshunoff in
connection with its opinion:
ANALYSIS OF SELECTED TRANSACTIONS. Sheshunoff performed an analysis of
premiums paid in selected pending or recently completed acquisitions of banking
organizations. Three sets of comparable transactions were analyzed to ensure a
thorough comparison.
The first set of comparable transactions were comprised of select
merger-of-equal transactions announced since January 1, 1999. The selected
transactions reviewed included the following:
First Union Corp./ Wachovia Corp.
South Alabama Bancorp./ Peoples BancTrust Co.
Southern Community Bancorp/ Peninsula Bancorp Inc.
Chemical Financial Corp./ Shoreline Financial Corp.
Umpqua Holdings Corp./ VRB Bancorp
Shore Bancshares Inc./ Talbot Bancshares Inc.
Cooper Lake Financial Corp./ Delta Bank
Marathon Financial Corp./ Rockingham Heritage Bank
Valley Capital Corp./ State Capital Corp.
National Commerce Bancorp./ CCB Financial Corp.
Commonwealth Bancshares Inc./ Commonwealth Financial Corp.
First Sterling Banks Inc./ Main Street Banks Inc.
Walden Holding Company/ Rainbow Investment Company
BankIllinois Financial Corp./ First Decatur Bancshares
First Capital Inc./ HCB Bancorp
Harbor Bancorp Inc./ Bank of the Pacific
Sharon Bancshares Inc./ First Northwest Bankshares, Inc.
South Branch Valley/ Potomac Valley Bank
Fleet Financial Group/ BankBoston Corp.
The following table compares information with respect to the merger and the
medians, means, highs and lows for the selected transactions. The analysis
assumes normalized last twelve months earnings for MidCity Financial of $18.9
million.
Selected Transactions
--------------------------------------------
The Merger(1) Mean Median High Low
------------- ---- ------ ---- ---
Multiple of Price to Tangible Book Value 1.03x 1.85x 1.35x 4.04x 0.98x
Multiple of Price to Last Twelve Months Earning 9.13x 13.22x 12.82x 20.53x 9.13x
Multiple of Price to Assets 9.5% 16.8% 16.0% 29.7% 9.8%
Multiple of Price to Deposits 11.0% 32.0% 20.4% 184.0% 12.9%
----------
(1) Based on MB Financial's trading price of $16.35 per share on close on
business dated April 17, 2001.
The second set of comparable transactions were comprised of select
merger-of-equal transactions announced since January 1, 1999 with deal values
over $100 million. The selected transactions reviewed included the following:
First Union Corp./ Wachovia Corp.
Chemical Financial Corp./ Shoreline Financial Corp.
National Commerce Bancorp./ CCB Financial Corp.
BankIllinois Financial Corp./ First Decatur Bancshares
Fleet Financial Group/ BankBoston Corp.
53
The following table compares information with respect to the merger and the
medians, means, highs and lows for the selected transactions. The analysis
assumes normalized last twelve months earnings for MidCity Financial of $18.9
million.
Selected Transactions
--------------------------------------------
The Merger(1) Mean Median High Low
------------- ---- ------ ---- ---
Multiple of Price to Tangible Book Value 1.03x 2.97x 2.65x 4.04x 2.56x
Multiple of Price to Last Twelve Months Earning 9.13x 17.33x 17.47x 20.53x 13.84x
Multiple of Price to Assets 9.5% 20.9% 22.1% 24.1% 16.5%
Multiple of Price to Deposits 11.0% 31.9% 33.0% 38.0% 21.8%
----------
(1) Based on MB Financial's trading price of $16.35 per share on close on
business dated April 17, 2001.
The third set of comparable transactions were comprised of select bank
acquisition transactions announced since January 1, 1999 in which the seller was
located in the Midwest and reported total assets between $1 billion and $10
billion. The selected transactions reviewed included the following:
Harris Bankcorp Inc./ First National Bancorp Inc.
Fifth Third Bancorp/ Capital Holdings Inc.
Wells Fargo & Co./ Brenton Banks Inc.
Wells Fargo & Co./ First Commerce Bancshares Inc.
Old Kent Financial Corp./ Grand Premier Financial
Fifth Third Bancorp/ CNB Bancshares Inc.
Citizens Banking Corp./ F&M Bancorp.
Old Kent Financial Corp./ Pinnacle Banc Group Inc.
The following table compares information with respect to the merger and the
medians, means, highs and lows for the selected transactions. The analysis
assumes normalized last twelve months earnings for MidCity Financial of $18.9
million.
Selected Transactions
--------------------------------------------
The Merger(1) Mean Median High Low
------------- ---- ------ ---- ---
Multiple of Price to Tangible Book Value 1.03x 2.59x 2.46x 3.59x 1.97x
Multiple of Price to Last Twelve Months Earning 9.13x 19.65x 17.84x 32.97x 12.34x
Multiple of Price to Assets 9.5% 23.3% 21.8% 32.4% 13.6%
Multiple of Price to Deposits 11.0% 30.3% 27.7% 47.3% 17.0%
----------
(1) Based on MB Financial's trading price of $16.35 per share on close on
business dated April 17, 2001.
DISCOUNTED CASH FLOW ANALYSIS. Sheshunoff estimated the present value of
future cash flows that would accrue to a holder of a share of MidCity Financial
common stock assuming that MidCity Financial were to remain independent and the
stockholder held the stock for five years and then sold it at the end of that
period. The analysis was based on earnings forecast prepared by MidCity
Financial management on a stand-alone, independent basis for 2001 to 2005.
MidCity Financial's terminal value was determined by using price/earnings
multiples ranging between 8x and 15x. The terminal value and dividends received
were discounted at rates ranging between 12% and 15%. These rates were selected
because, in Sheshunoff's experience, they represent risk-adjusted rates of
return that investors in securities such as MidCity Financial's common stock
would require. On the basis of these assumptions, Sheshunoff calculated present
values per share ranging between $2,583 and $4,945 versus the value of the
consideration payable to MidCity Financial stockholders in the merger, as of
April 17, 2000, of $3,766.
Sheshunoff also estimated the present value of future cash flows that would
accrue to a holder of 230.32955 shares of new company common stock assuming that
the merger were to occur and assuming the stockholder held the stock through
2005 and sold it at the end of 2005. This analysis was based on several
assumptions including the new company's estimated pro forma earnings per share.
Terminal value was determined
54
by using price/earnings multiples ranging between 8x and 15x. The terminal
value and dividends received were discounted at rates ranging between 13% and
17%. On the basis of these assumptions, Sheshunoff calculated present values
of 230.32955 shares ranging between $3,161 and $6,590.
Sheshunoff stated that the discounted cash flow analysis is a widely-used
valuation methodology but noted that it relies on numerous assumptions,
including asset and earnings growth rates, terminal values and discount rates.
The analysis did not purport to be indicative of the actual values or expected
values of MidCity Financial common stock.
PRO FORMA ANALYSES. Sheshunoff analyzed the pro forma impact of the merger
on earnings per share from the point of view of the holders of both MidCity
Financial and MB Financial common stock. Based upon the earnings and synergies
estimates from the managements of each of MidCity Financial and MB Financial,
this analysis indicated that the merger would be earnings accretive to the
holders of MidCity Financial common stock by 29% in 2002, 34% in 2003 and 39% in
2004. This analysis indicated that the merger would be earnings accretive to the
holders of MB Financial common stock by 11% in 2002, 7% in 2003 and 7% in 2004.
These analyses were based on managements' estimates of earnings and
synergies. For all of the above analyses, the actual results achieved by the new
company following the merger will vary from the projected results, and the
variations may be material.
CONTRIBUTION ANALYSIS. Sheshunoff analyzed the relative contribution of
MidCity Financial and MB Financial to certain pro forma balance sheet and income
statement items of the new company. The contribution analysis showed that
MidCity Financial would contribute approximately 71.1% of the combined total
tangible equity and 57.3% of the combined net income, 52.6% of the combined
total assets and 59.5% of the combined total core deposits. Sheshunoff compared
the relative contribution of such balance sheet and income statement items with
the estimated pro forma ownership of 59.8% for MidCity Financial stockholders
based on the MidCity Financial exchange ratio of 230.32955.
COMPARABLE COMPANY ANALYSIS. Sheshunoff compared selected balance sheet
data, asset quality, capitalization and profitability measures and market
statistics using financial data at or for the twelve months ended December 31,
2001 and market data as of April 17, 2001 for MB Financial to a group of
selected Midwestern bank holding companies which Sheshunoff deemed to be
relevant. Additionally, estimated earnings per share data were derived from
Institutional Broker's Estimate System (IBES) unless otherwise noted.
The group consisted of 28 Midwestern bank holding companies with assets
between $1 billion and $2 billion and included the following:
Allegiant Bancorp, Inc. German American Bancorp Mississippi Valley Bancshares, Inc.
BancFirst Ohio Corp. Great Southern Bancorp, Inc. National City Bancorporation
Capitol Bancorp Ltd. Heartland Financial USA, Inc. Old Second Bancorp, Inc.
Chemical Financial Corporation Independent Bank Corporation Peoples Bancorp Inc.
Farmers Capital Bank Corporation Indiana United Bancorp Republic Bancorp, Inc.
First Busey Corporation Lakeland Financial Corporation Second Bancorp, Incorporated
First Financial Corporation Main Street Trust, Inc. State Financial Services Corporation
First Merchants Corporation MBT Financial Corporation UNB Corporation
First National Bancorp, Incorporated Mid-America Bancorp
First Oak Brook Bancshares, Inc. Midwest Banc Holdings, Inc.
55
The following table is a review of the financial performance ratios of MB
Financial compared to its peers:
FINANCIAL PERFORMANCE RATIOS MB FINANCIAL PEER AVERAGE
---------------------------- ------------ ------------
Return on Average Assets 0.84% 1.01%
Return on Average Equity 13.86% 12.99%
Net Interest Margin 3.61% 3.94%
Efficiency Ratio 61.14% 57.89%
Non Interest Income/Average Assets 0.75% 0.95%
Tangible Equity to Tangible Assets 5.35% 7.58%
Non-performing assets /Total Loans 0.55% 0.69%
+ Other Real Estate Owned
MARKET PERFORMANCE RATIOS MB FINANCIAL PEER AVERAGE
---------------------------- ------------ ------------
Price/Tangible Book 1.49x 1.74x
Price/LTM Earnings 9.97x 11.36x
Price/Estimated 2001 Estimated EPS 9.03x 10.62x
Sheshunoff also compared selected stock market results of MB Financial to
the publicly available corresponding data of other composites which Sheshunoff
deemed to be relevant, including SNL Securities, L.P.'s (SNL) index of all
publicly traded banks, the aforementioned Comparable and the S&P 500.
No company or transaction used in the comparable company and comparable
transaction analyses is identical to MidCity Financial or the merger.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of MidCity Financial and other factors that could
affect the public trading value of the companies to which they are being
compared. Mathematical analysis (such as determining the average or median) is
not in itself a meaningful method of using comparable transaction data or
comparable company data.
Pursuant to an engagement letter dated April 2, 2001, between MidCity
Financial and Sheshunoff, MidCity Financial agreed to pay Sheshunoff a fee of
$450,000. MidCity Financial also agreed to indemnify and hold harmless
Sheshunoff and its officers and employees against certain liabilities in
connection with its services under the engagement letter, except for liabilities
resulting from the negligence of Sheshunoff.
The Sheshunoff fairness opinion is directed only to the question of whether
the MidCity Financial exchange ratio is fair from a financial perspective and
does not constitute a recommendation to any MidCity Financial stockholder to
vote in favor of adopting the merger agreement or to the relative merits of the
merger compared to any alternative transaction that might be available to
MidCity Financial.
Based on the results of the various analyses described above, Sheshunoff
concluded that the MidCity Financial exchange ratio, after taking into account
the MB Financial exchange ratio, is fair to the stockholders of MidCity
Financial from a financial point of view.
CONSIDERATION TO BE RECEIVED IN THE MERGER
Each share of MB Financial common stock outstanding immediately prior to
the effective time will, at the effective time, be converted into the right
to receive one share of common stock of the new company (sometimes referred
to in this document as the "MB Financial exchange ratio"). Each share of
MidCity Financial common stock outstanding immediately prior to the effective
time will, at the effective time, be converted into the right to receive
230.32955 shares of common stock of the new company (sometimes referred to in
this document as the "MidCity Financial exchange ratio"). The MB Financial
and MidCity Financial exchange ratios will be proportionately adjusted if,
prior to the effective time, either MB Financial or MidCity Financial changes
the number of shares of its common stock issued and outstanding through a
stock split, stock dividend, recapitalization or similar transaction.
56
If the trading price of new company common stock were $____ per share (the
closing price of MB Financial common stock on _____, 2001), the value of
230.32955 shares of new company common stock would be $__________. The value of
the consideration that you will receive in the merger will fluctuate as the
market price of MB Financial common stock (before the merger) and the new
company common stock (after the merger) changes. An increase in the market price
of the stock will increase the value of the consideration you will receive in
the merger. A decrease will have the opposite effect. Neither the MB Financial
exchange ratio nor the MidCity Financial exchange ratio will be adjusted for any
change in the market prices of MB Financial common stock or MidCity Financial
common stock. As described below under "--Termination of the Merger Agreement,"
each of MB Financial and MidCity Financial will have the right to terminate the
merger agreement in the event of a specified decline in the market value of MB
Financial common stock. There can be no assurance, however, that either party
will exercise its right to terminate the merger agreement should such a decline
in market value occur.
Cash will be paid in lieu of any fractional share of new company common
stock that would otherwise be issuable to a MidCity stockholder in connection
with the merger in an amount determined by multiplying the stockholder's
fractional share interest by the average closing sale price of MB Financial
common stock for the five trading days immediately preceding the effective time.
No interest will be paid on the cash payable in lieu of fractional share
interests.
EXCHANGE OF CERTIFICATES
Within 15 business days after the effective time, LaSalle Bank, N.A. or
another bank or trust company selected by MB Financial or MidCity Financial
(referred to below as the "exchange agent") will send to each holder of record
of MB Financial common stock and MidCity Financial common stock a letter of
transmittal for use in the exchange and instructions explaining how to surrender
MB Financial and MidCity Financial common stock certificates to the exchange
agent. Holders of MB Financial common stock and MidCity Financial common stock
who surrender their certificates to the exchange agent, together with a properly
completed letter of transmittal, will receive the certificates representing the
shares of new company common stock issuable to them and, in the case of holders
of MidCity Financial common stock, checks for the cash in lieu of their
fractional share interests in new company common stock. Holders of unexchanged
shares of MB Financial common stock and MidCity Financial common stock will not
be entitled to receive any dividends or other distributions payable by the new
company after the effective time until their certificates are surrendered. When
those certificates are surrendered, any unpaid dividends or distributions with
respect to the shares of new company common stock will be paid, without
interest. MB FINANCIAL COMMON STOCK CERTIFICATES AND MIDCITY FINANCIAL COMMON
STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY AND SHOULD NOT
BE FORWARDED TO THE EXCHANGE AGENT UNTIL YOU RECEIVE THE LETTER OF TRANSMITTAL.
TREATMENT OF MB FINANCIAL STOCK OPTIONS
At the effective time of the merger, each option granted by MB Financial to
purchase shares of MB Financial common stock which is outstanding and
unexercised immediately prior to the effective time will be assumed by the new
company and represent an option to purchase new company common stock. The option
will be subject to the same terms and conditions after the merger as it is
immediately prior to the merger. No adjustment will be made to the exercise
price or number of shares purchasable under the option unless the MB Financial
exchange ratio is adjusted, in which case an appropriate and corresponding
adjustment will be made to the exercise price and number of shares. Under the
terms of MB Financial's 1997 Omnibus Incentive Plan, upon completion of the
merger, all outstanding stock options granted under that plan which have not yet
vested will vest and become exercisable in full. See "-- Interests of Insiders
in the Merger-Accelerated Vesting of MB Financial Stock Options."
THE BANK MERGER
Soon after the effective time of the merger of our companies, MB
Financial's subsidiary bank, Manufacturers Bank, and MidCity Financial's
subsidiary banks based in Illinois, The Mid-City National Bank of Chicago,
First National Bank of Elmhurst and First National Bank of Morton Grove, will
be merged together. The Mid-City National Bank of Chicago will be the
surviving institution, which may adopt a new name, determined by
57
MB Financial and MidCity Financial prior to the effective time or by the new
company after the effective time. MidCity Financial's other subsidiary banks,
Abrams Centre National Bank and Union Bank and Trust Company, are expected to
be held as separate subsidiaries of the new company after the merger.
ACCOUNTING TREATMENT
It is intended that the merger will be accounted for under the
pooling-of-interests method of accounting in accordance with accounting
principles generally accepted in the United States of America. Under the
pooling-of-interests method of accounting, the assets and liabilities of MB
Financial and MidCity Financial will be carried forward at their historical
recorded bases to the consolidated balance sheet of the new company. The new
company's results of operations will include the results of both MB Financial
and MidCity Financial for the entire fiscal year in which the merger occurs and
all future periods.
As of the date of this joint proxy statement-prospectus, neither MB
Financial nor MidCity Financial is aware of any reason why the merger will not
qualify for pooling-of-interests accounting treatment. It is a condition to the
completion of the merger that MB Financial receive a letter from its independent
auditors, McGladrey & Pullen, LLP, and MidCity Financial receive a letter from
its independent auditors, KPMG LLP, to the effect that the merger will qualify
for pooling-of-interests accounting treatment. See "--Conditions to Completion
of the Merger."
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary discusses the material U.S. federal income tax
consequences of the merger to U.S. persons who hold shares of MB Financial
common stock and MidCity Financial common stock and exchange their shares for
shares of new company common stock, and as applicable, cash in lieu of
fractional shares of new company common stock in the merger. This discussion is
based upon the Internal Revenue Code of 1986, as amended, Treasury regulations,
administrative rulings and judicial decisions currently in effect, all of which
are subject to change, possibly with retroactive effect. The discussion assumes
that MB Financial stockholders hold their MB Financial common stock and will
hold their new company common stock, and that MidCity Financial stockholders
hold their MidCity Financial common stock and will hold their new company common
stock, as a capital asset within the meaning of Section 1221 of the Internal
Revenue Code. Further, the discussion does not address all aspects of U.S.
federal income taxation that may be relevant to a particular stockholder in
light of his, her or its personal investment circumstances or to stockholders
subject to special treatment under the U.S. federal income tax laws, including,
without limitation:
- insurance companies;
- tax-exempt organizations;
- dealers or brokers in securities or foreign currency;
- banks or trusts;
- persons that hold their MB Financial common stock or MidCity Financial
common stock as part of a straddle, a hedge against currency risk or a
constructive sale or conversion transaction;
- foreign holders;
- persons that have a functional currency other than the U.S. dollar;
- investors in pass-through entities;
- stockholders who acquired their MB Financial common stock or MidCity
Financial common stock through the exercise of options or otherwise as
compensation or through a tax-qualified retirement plan; or
58
- holders of options granted under any MB Financial benefit plan.
Furthermore, this discussion does not consider the potential effects of any
state, local or foreign tax laws.
None of MB Financial, MidCity Financial or the new company has requested a
ruling from the U.S. Internal Revenue Service with respect to any of the U.S.
federal income tax consequences of the merger and, as a result, there can be no
assurance that the Internal Revenue Service will not disagree with or challenge
any of the conclusions described below.
Silver, Freedman & Taff, L.L.P, counsel to MB Financial, has delivered its
opinion to MB Financial and Winston & Strawn, counsel to MidCity Financial, has
delivered its opinion to MidCity Financial to the effect that, on the basis of
the facts, representations and assumptions set forth in such opinion:
- the merger of MB Financial into the new company and the merger of
MidCity Financial into new company will each constitute a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code;
- no gain or loss will be recognized by the new company, MB Financial,
or MidCity Financial as a result of the merger; and
- no gain or loss will be recognized by:
- holders of MB Financial common stock on the exchange of their MB
Financial common stock for new company common stock; or
- holders of MidCity Financial common stock on the exchange of
their MidCity Financial common stock for new company common
stock, except with respect to cash received by holders of MidCity
Financial common stock in lieu of fractional shares of new
company common stock.
Copies of these opinions are attached as exhibits 8.1 and 8.2 to the
registration statement of which this joint proxy statement-prospectus forms a
part. These opinions are based on customary assumptions and representations made
by MB Financial, MidCity Financial and the new company. An opinion of counsel is
not binding on the Internal Revenue Service or a court. As a result, none of MB
Financial, MidCity Financial and the new company can assure you that the
opinions will not be challenged by the Internal Revenue Service or sustained by
a court if challenged by the Internal Revenue Service. Any change in currently
applicable law, which may or may not be retroactive, or a failure of any factual
representation or assumption to be correct and complete in all material
respects, could affect the continuing validity of the opinion of Silver,
Freedman & Taff, L.L.P. and/or the opinion of Winston & Strawn.
ADJUSTED BASIS AND HOLDING PERIOD. The aggregate adjusted basis of the new
company common stock received in the merger by:
- a holder of MB Financial common stock will be equal to the aggregate
adjusted basis of the holder's MB Financial common stock exchanged for
that new company common stock; and
- a holder of MidCity Financial common stock will be equal to the
aggregate adjusted basis of the holder's MidCity Financial common
stock exchanged for that new company common stock reduced by the
amount allocable to the fractional share interest in new company
common stock for which cash is received.
The holding period of the new company common stock received in the
merger by:
59
- a holder of MB Financial common stock will include the holding period
of the holder's MB Financial common stock exchanged for that new
company common stock; and
- a holder of MidCity Financial common stock will include the holding
period of the holder's MidCity Financial common stock exchanged for
that new company common stock.
If you own both MB Financial shares and MidCity Financial shares or own
blocks of MB Financial shares or MidCity Financial shares with different tax
bases or holding periods, you are urged to consult your own tax advisor with
respect to the application of the foregoing rules to your particular situation.
CASH IN LIEU OF FRACTIONAL SHARE INTERESTS. The receipt of cash in lieu of
a fractional share of new company common stock by a holder of MidCity Financial
common stock will result in taxable gain or loss to such holder for U.S. federal
income tax purposes based upon the difference between the amount of cash
received by such holder and the holder's adjusted tax basis in the fractional
share as set forth above. The gain or loss generally will constitute capital
gain or loss and will constitute long-term capital gain or loss if the holder's
holding period is greater than 12 months as of the date of the merger. The
deductibility of capital losses is subject to limitations for both individuals
and corporations.
APPRAISAL RIGHTS. The opinions of Silver, Freedman & Taff, L.L.P. and
Winston & Strawn discussed above do not apply to holders of MidCity Financial
common stock who exercise appraisal rights. A holder of MidCity Financial common
stock who exercises appraisal rights generally will recognize taxable capital
gain or loss based upon the difference between the amount of cash received by
such holder and the holder's tax basis in the shares of MidCity Financial common
stock exchanged, provided that the payment is not treated as a dividend. A sale
of shares based on the exercise of appraisal rights will not be treated as a
dividend if the stockholder exercising the rights owns no shares in the new
company immediately after the merger, after giving effect to constructive
ownership rules under the Internal Revenue Code. If the stockholder owns shares
in the new company (either actually or constructively) after the merger, the
determination of whether the sale of shares based on the exercise of appraisal
rights will be treated as a dividend requires a more complicated analysis.
Stockholders should consult their own tax advisors as to the proper tax
treatment in this case.
BACKUP WITHHOLDING. Certain non-corporate MidCity Financial stockholders
may be subject to backup withholding at a 31% rate on cash payments received
instead of fractional shares of new company common stock. Backup withholding
will not apply, however, to a MidCity Financial stockholder who:
- furnishes a correct taxpayer identification number and certifies that
he, she or it is not subject to backup withholding on the substitute
Form W-9 or successor form included in the letter of transmittal to be
delivered to MidCity Financial stockholders following the completion
of the merger;
- provides a certification of foreign status on Form W-8 or successor
form; or
- is otherwise exempt from backup withholding.
REPORTING REQUIREMENTS. A holder of MB Financial common stock or MidCity
Financial common stock receiving new company common stock as a result of the
merger may be required to retain records related to such holder's MB Financial
common stock and MidCity Financial common stock, as the case may be, and file
with its federal income tax return, a statement setting forth facts relating to
the merger. Holders of MB Financial common stock and MidCity Financial common
stock are urged to consult their own tax advisors with respect to this statement
and any other tax reporting requirements.
THIS SUMMARY IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF
ALL POTENTIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.
THIS SUMMARY DOES NOT ADDRESS TAX CONSEQUENCES THAT MAY VARY WITH, OR ARE
CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES. MOREOVER, THE SUMMARY DOES NOT
ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF
THE MERGER. THE SUMMARY DOES NOT ADDRESS
60
THE TAX CONSEQUENCES OF ANY TRANSACTION OTHER THAN THE MERGER. ACCORDINGLY,
EACH MB FINANCIAL AND MIDCITY FINANCIAL STOCKHOLDER IS STRONGLY URGED TO
CONSULT WITH A TAX ADVISOR TO DETERMINE THE PARTICULAR FEDERAL, STATE, LOCAL
OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES OF THE MERGER TO THE HOLDER.
APPRAISAL RIGHTS
Pursuant to Section 262 of the Delaware General Corporation Law, any
MidCity Financial stockholder may dissent from the merger and elect to have the
fair value of his or her shares judicially determined and paid in cash, but only
if the stockholder complies with the provisions of Section 262. MB Financial
stockholders do not have this right to dissent from the merger.
The following is a brief summary of the statutory procedures to be followed
by MidCity Financial stockholders in order to perfect appraisal rights under
Delaware law. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SECTION 262 OF THE DELAWARE GENERAL CORPORATION
LAW, A COPY OF WHICH IS ATTACHED AS APPENDIX E TO THIS JOINT PROXY
STATEMENT-PROSPECTUS.
To dissent from the merger and demand appraisal, a MidCity Financial
stockholder must satisfy the following conditions:
- deliver a written demand for appraisal to MidCity Financial before the
vote on the adoption of the merger agreement;
- not vote in favor of the merger agreement (the return of a signed
proxy which does not specify a vote against the merger agreement or a
direction to abstain, will constitute a waiver of the stockholder's
right of appraisal); and
- continuously hold the MidCity Financial shares from the date of the
making of the demand through the time the merger is completed.
If a MidCity Financial stockholder fails to comply with any of these
conditions and the merger becomes effective, he or she will only be entitled to
receive the consideration provided in the merger agreement. Failure by a MidCity
Financial stockholder to vote on the merger agreement will not constitute a
waiver of appraisal rights. Voting against the merger agreement will not satisfy
the requirement of a written demand for appraisal.
All written demands for appraisal should be addressed to: MidCity Financial
Corporation, 801 West Madison, Chicago, Illinois 60607, Attention: Ronald D.
Santo, Secretary, before the vote concerning the merger agreement at the MidCity
Financial special meeting, and should be executed by, or on behalf of, the
holder of record. If MidCity Financial shares are owned of record in a fiduciary
capacity, as by a trustee, guardian or custodian, execution of a demand for
appraisal should be made in such capacity. If MidCity Financial shares are owned
of record by more than one person, as in a joint tenancy or tenancy in common,
such demand must be executed by or for all joint owners. An authorized agent,
including one for two or more joint owners, may execute the demand for appraisal
for a stockholder of record; however, the agent must identify the record owner
or owners and expressly disclose the fact that, in executing the demand, he or
she is acting as agent for the record owner. A record owner, such as a broker,
who holds MidCity Financial shares as a nominee for others may exercise his or
her rights of appraisal with respect to the shares held for one or more
beneficial owners, while not exercising such right for other beneficial owners.
In such case, the written demand should set forth the number of shares as to
which the record owner dissents. Where no number of shares is expressly
mentioned, the demand will be presumed to cover all shares of MidCity Financial
common stock in the name of such record owner.
Within 10 days after the merger, the new company must give written notice
that the merger has become effective to each holder of MidCity Financial shares
who filed a written demand for appraisal and who did not vote in favor of the
merger agreement. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of the notice, demand in writing from the new
company the appraisal of his or her MidCity Financial shares. Within 120 days
after the completion of the merger, either the new company, or any MidCity
Financial
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stockholder who has complied with Section 262, may file a petition in the
Delaware Court of Chancery demanding a determination of the value of the MidCity
Financial shares held by all stockholders entitled to appraisal of their shares.
It is currently expected that the new company will not file such a petition.
Because the new company has no obligation to file such a petition, the failure
of a stockholder to do so within the period specified could nullify the
stockholder's previous written demand for appraisal.
If a petition for appraisal is duly filed by a MidCity Financial
stockholder and a copy is delivered to the new company, the new company will
then be obligated within 20 days of receipt of such copy to provide the Court of
Chancery with a duly verified list containing the names and addresses of all
stockholders who have demanded an appraisal of their shares and with whom
agreement as to the value of such shares has not been reached. After notice to
such stockholders, the Court of Chancery is empowered to conduct a hearing to
determine those stockholders who have complied with Section 262 and who have
become entitled to appraisal rights.
The Court of Chancery will then appraise the MidCity Financial shares,
determining their fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger. When the value is determined, the
Court will direct the payment by the new company of such value, with interest
thereon, simple or compound, if the Court so determines, to the stockholders
entitled to receive the amount.
Stockholders of MidCity Financial who are considering seeking an appraisal
should bear in mind that the fair value of their MidCity Financial shares
determined under Section 262 could be more than, the same as or less than the
consideration they are to receive pursuant to the merger agreement if they do
not seek appraisal of their shares.
Costs of the appraisal proceeding may be assessed against the stockholder
by the court as the court deems equitable in the circumstances.
FAILURE TO COMPLY STRICTLY WITH THESE PROCEDURES WILL CAUSE THE STOCKHOLDER TO
LOSE HIS OR HER APPRAISAL RIGHTS. CONSEQUENTLY, ANY MIDCITY FINANCIAL
STOCKHOLDER WHO DESIRES TO EXERCISE HIS OR HER APPRAISAL RIGHTS IS URGED TO
CONSULT A LEGAL ADVISOR BEFORE ATTEMPTING TO EXERCISE THESE RIGHTS.
RESTRICTIONS ON RESALES BY AFFILIATES
This joint proxy statement-prospectus does not cover any resales of the new
company common stock to be issued in the merger, and no person is authorized to
make any use of this joint proxy statement-prospectus in connection with any
such resale.
All shares of new company common stock issued to the stockholders of MB
Financial and MidCity Financial in connection with the merger will be freely
transferable, except for shares issued to any person who is deemed to be an
"affiliate" of MB Financial or MidCity Financial under the Securities Act of
1933 at the time of the special meetings. Persons who may be deemed affiliates
for this purpose generally include directors, executive officers and the holders
of 10% or more of the outstanding shares of common stock of MB Financial or
MidCity Financial. Affiliates may not sell their shares of new company common
stock received by them in the merger except pursuant to:
- Rule 145 under the Securities Act of 1933;
- an effective registration statement under the Securities Act of 1933
covering the resale of those shares; or
- any available exemption from the registration requirements of the
Securities Act of 1933 other than Rule 145.
Generally, pursuant to Rule 145, during the one-year period following
completion of the merger, affiliates of MB Financial and MidCity Financial may
resell publicly the new company common stock received by them in
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connection with the merger if they comply with certain limitations as to the
amount of new company common stock sold in any three-month period and as to
the manner of sale. After the initial one-year period, affiliates of MB
Financial and MidCity Financial who are not affiliates of the new company may
resell their shares without restriction.
SEC guidelines for use of the pooling-of-interests method of accounting
also limit sales by affiliates of MB Financial and MidCity Financial. The
guidelines provide that the pooling-of-interests method of accounting generally
will not be challenged on the basis of sales by affiliates if they do not
dispose of any of the shares of either combining company they owned prior to the
completion of a merger, or shares of the surviving company received in
connection with a merger during the period beginning 30 days before the
completion of the merger and ending when financial results covering at least 30
days of post-merger operations of the surviving company have been published.
The merger agreement requires MB Financial and MidCity Financial to use
commercially reasonable efforts to cause each of their respective affiliates to
execute an agreement which is intended to ensure the affiliate's compliance with
the Securities Act of 1933 and that the person will not take any steps that
would cause the merger not to qualify for pooling-of-interests accounting
treatment.
CONDUCT OF BUSINESS PENDING THE MERGER
In general, MB Financial and MidCity Financial are required to conduct
their business in the ordinary course, use commercially reasonable efforts to
preserve intact their business organizations, employees and advantageous
business relationships, and not take any action that would adversely affect or
delay the obtainment of the required regulatory approvals or the consummation of
the merger. In addition, MB Financial and MidCity Financial have agreed that, in
addition to the other restrictions set forth in the merger agreement, neither
will undertake any of the following activities without the prior written consent
of the other, subject to the exceptions noted below and the exceptions set forth
in the merger agreement:
- the incurrence of additional indebtedness, other than in the ordinary
course of business or, in the case of MB Financial, in connection with
funding the acquisition of FSL Holdings;
- the split or reclassification of any capital stock;
- paying any dividends or other distributions on its capital stock,
other than the payment by MidCity Financial of regular quarterly cash
dividends of not more than $35.00 per share;
- purchasing or otherwise acquiring its securities;
- granting any stock appreciation rights or rights to acquire any shares
of its capital stock, other than, in the case of MB Financial, grants
of stock options in the ordinary course of business in July
2001consistent with past practice and stock options to directors of MB
Financial pursuant to their election to receive options in lieu of
directors' fees;
- issuing any additional shares of capital stock, other than, in the
case of MB Financial, pursuant to outstanding stock options and to
directors of MB Financial pursuant to their election to receive shares
of MB Financial common stock in lieu of directors' fees;
- selling, encumbering or otherwise disposing of any of its material
properties or assets or canceling, releasing or assigning any
indebtedness owed to it, other than in the ordinary course of business
or, in the case of MB Financial, the encumbrance of assets in
connection with funding the acquisition of FSL Holdings or the sale of
assets acquired from FSL Holdings;
- make any material new investments;
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- entering into, modifying or terminating material contracts;
- increasing employee compensation or benefits or entering into any
employment or similar agreement;
- settling any material lawsuit except in the ordinary course of
business;
- knowingly taking any action which would prevent or impede the merger
from qualifying for pooling of interests accounting treatment or as a
tax-free reorganization within the meaning of Section 368 of the
Internal Revenue Code;
- amending its certificate of incorporation and bylaws;
- restructuring or materially changing its investment securities
portfolio or gap position, or the manner in which the portfolio is
classified or reported, other than in connection with MB Financial's
acquisition of FSL Holdings;
- voluntarily changing its deposit mix or increasing or decreasing the
interest rate paid on its deposits except in a manner consistent with
past practice;
- opening or closing any branch office, other than, in the case of MB
Financial, in connection with the acquisition of FSL Holdings;
- materially changing its loan underwriting or approval policies;
- investing in new subsidiaries;
- materially changing its interest rate and other risk management
policies and practices; or
- changing its accounting principles, practices or methods, other than
as required by accounting principles generally accepted in the United
States of America or regulatory guidelines.
In addition to the restrictions listed above, MB Financial and MidCity
Financial have agreed that neither company will encourage or enter into
negotiations for any third party proposal for the sale of all or substantially
all of its business or assets, or the acquisition of its voting securities or
the merger of it or any of its subsidiaries with another company (referred to as
an "acquisition proposal"). Notwithstanding this agreement, if it receives an
acquisition proposal and its stockholders have not yet voted on the merger
agreement, MB Financial or MidCity Financial may provide information to and
negotiate with the third party which submitted the proposal if MB Financial's or
MidCity Financial's board of directors determines in good faith that to do so
would be consistent with its fiduciary duties to stockholders. Either company
must keep the other informed if it receives an acquisition proposal.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, MB Financial and MidCity Financial have made
certain representations and warranties to each other. The more significant of
these relate to:
- corporate organization and existence;
- capitalization;
- ownership of subsidiaries;
- corporate authorization to enter into the merger agreement and to
consummate the merger;
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- absence of any breach of organizational documents, law or certain
material agreements as a result of the merger;
- regulatory approvals required in connection with the merger;
- timely filing of reports with regulatory agencies;
- financial statements;
- fees paid to financial advisors;
- absence of certain changes in each party's business from December 31,
2000 through the date of the merger agreement;
- litigation;
- tax matters;
- employee benefits and labor matters;
- in the case of MB Financial, filings with the SEC;
- compliance with laws;
- certain contracts;
- Community Reinvestment Act rating;
- absence of agreements between either party and regulatory agencies and
other bank regulatory matters;
- risk management instruments, such as interest rate swaps and caps;
- undisclosed liabilities;
- insurance policies;
- environmental matters;
- inapplicability to the merger of the Delaware takeover laws;
- absence of material interests of certain persons;
- the delivery of fairness opinions by the financial advisors;
- real estate loans and investments;
- in the case of MidCity Financial, the classification of its investment
portfolio as available for sale;
- the tax consequences and accounting treatment of the merger; and
- the ability to qualify as a financial holding company.
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For a complete description of these representations and warranties, see
Articles III and IV of the merger agreement, a copy of which is attached as
Appendix A to this joint proxy statement-prospectus.
CONDITIONS TO COMPLETION OF THE MERGER
MUTUAL CLOSING CONDITIONS. The obligations of MB Financial and MidCity
Financial to complete the merger are subject to the satisfaction or waiver of
the following conditions:
- adoption of the merger agreement by the stockholders of MB Financial
and MidCity Financial;
- qualification for listing on The Nasdaq Stock Market of the shares of
the new company common stock to be issued in the merger;
- receipt of all regulatory approvals required to complete the merger
and the other transactions contemplated by the merger agreement and
the expiration of all statutory waiting periods;
- the Registration Statement on Form S-4, which includes this joint
proxy statement-prospectus, being effective and not subject to any
stop order by the SEC;
- absence of any legal prohibition on completing the merger;
- receipt by MB Financial of an opinion of its tax counsel and receipt
by MidCity Financial of an opinion of its tax counsel concluding that:
(1) the merger of MB Financial into the new company and the merger of
MidCity Financial into the new company each will qualify as a
tax-free reorganization;
(2) none of MB Financial, MidCity Financial or the new company will
recognize any gain or loss as a result of the merger; and
(3) the merger will be tax-free to the stockholders of MB Financial
and MidCity Financial, except to the extent MidCity Financial
stockholders receive cash in lieu of fractional share interests
in new company common stock;
- receipt by MB Financial of a letter from its independent accountants
and receipt by MidCity Financial of a letter from its independent
accountants to the effect that the merger will qualify for pooling of
interests accounting treatment; and
- the holders of no more than 5% of the outstanding shares of MidCity
Financial common stock assert appraisal rights under Delaware law as
dissenting stockholders.
ADDITIONAL CLOSING CONDITIONS FOR THE BENEFIT OF MB FINANCIAL. In addition
to the mutual closing conditions, MB Financial's obligation to complete the
merger is subject to the satisfaction or waiver of the following conditions:
- accuracy, as of the date of the merger agreement and as of the
closing, of the representations and warranties made by MidCity
Financial to the extent specified in the merger agreement;
- performance in all material respects by MidCity Financial of the
obligations required to be performed by it at or prior to closing;
- nothing has occurred that is reasonably likely to have a material
adverse affect on MidCity Financial; and
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- MB Financial receives a certificate signed by the Chief Executive
Officer and Chief Financial Officer of MidCity Financial certifying
that the three preceding conditions have been met.
ADDITIONAL CLOSING CONDITIONS FOR THE BENEFIT OF MIDCITY FINANCIAL. In
addition to the mutual closing conditions, MidCity Financial's obligation to
complete the merger is subject to the satisfaction or waiver of the following
conditions:
- accuracy, as of the date of the merger agreement and as of the
closing, of the representations and warranties made by MB Financial to
the extent specified in the merger agreement;
- performance in all material respects by MB Financial of the
obligations required to be performed by it at or prior to closing;
- nothing has occurred that is reasonably likely to have a material
adverse affect on MB Financial; and
- MidCity Financial receives a certificate signed by the Chief Executive
Officer and Chief Financial Officer of MB Financial certifying that
the three preceding conditions have been met.
WAIVER; AMENDMENT
MB Financial and MidCity Financial can agree to amend the merger agreement
and each of them can waive their right to require the other party to adhere to
the terms and conditions of the merger agreement, where law allows. After MB
Financial's or MidCity Financial's stockholders have adopted the merger
agreement, however, the amount or form of consideration to be received by the MB
Financial or MidCity Financial stockholders in the merger may not be changed
without their consent.
TERMINATION OF THE MERGER AGREEMENT
MB Financial and MidCity Financial can mutually agree at any time to
terminate the merger agreement prior the effective time of the merger. In
addition, either the board of directors of MB Financial or the board of
directors of MidCity Financial may terminate the merger agreement:
- if a regulatory authority does not grant an approval needed to
complete the merger or a court or other governmental body issues a
final, non-appealable order prohibiting the merger;
- if the merger has not been completed by April 19, 2002, unless the
failure to complete the merger by that date is due to the failure of
the party seeking termination to fulfill its obligations under the
merger agreement;
- if the other party materially breaches its representations and
warranties or obligations under the merger agreement and does not cure
the violation within 45 days after being notified of the breach, or
the breach by its nature or timing cannot be cured prior to the
closing date of the merger;
- at any time following either party's special meeting of stockholders
to vote on the merger agreement if, at that meeting, the stockholders
voted not to adopt the merger agreement;
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- at any time prior to the adoption of the merger agreement by the other
party's stockholders, if the other party's board of directors failed
to recommend adoption of the merger agreement to the other party's
stockholders, or withdrew or modified that recommendation in a manner
adverse to the party seeking termination;
- prior to adoption of the merger agreement by the terminating party's
stockholders, to allow the terminating party to enter into an
agreement with a third party with respect to an acquisition proposal
if the board of directors of the terminating party has complied with
its obligations with respect to acquisition proposals (see "--Conduct
of Business Pending the Merger," above); or
- if, during the ten-day period beginning on the date on which the last
required regulatory approval for the merger has been received
(referred to as the "determination date") the terminating party's
board of directors, by vote of a majority of the entire board,
determines to terminate the merger agreement, and both of the
following two conditions are met:
(1) the average closing price per share of MB Financial common stock
for the 20 consecutive trading day period ending on the
determination date is less than $13.29; and
(2) the ratio obtained by dividing the average closing price of MB
Financial common stock determined under item 1 above by $16.50 is
less than the ratio computed by (a) dividing the weighted average
closing price of an index of 20 other financial institution
holding companies on the determination date by $____, and (b)
subtracting .15 from that quotient.
The financial institution holding companies which comprise the index are
identified in Section 8.1(j) of the merger agreement.
FEES ASSOCIATED WITH TERMINATION OF THE MERGER AGREEMENT
MidCity Financial must pay liquidated damages of $5.0 million in cash to MB
Financial if:
(1) the MB Financial board of directors, prior to adoption of the merger
agreement by the MidCity Financial stockholders, elects to terminate
the merger agreement under its right to do so because the MidCity
Financial board of directors has failed to recommend adoption of the
merger agreement to the stockholders of MidCity Financial or withdrawn
or modified its recommendation in a manner adverse to MB Financial;
(2) the MidCity Financial board of directors, prior to adoption of the
merger agreement by the MidCity Financial stockholders, elects to
terminate the merger agreement under its right to do so for the sole
purpose of allowing MidCity Financial to enter into an agreement with
a third party for an acquisition proposal; or
(3) MidCity Financial receives an acquisition proposal from a third party
prior to the time the MidCity Financial stockholders vote on the
merger agreement, and then (a) the MidCity Financial stockholders fail
to adopt the merger agreement and (b) within one year after the
termination of the merger agreement MidCity Financial enters into an
agreement to engage in, or consummates, an acquisition proposal, other
than an acquisition by MidCity Financial of another entity for cash or
MidCity common stock representing less than 20% of the outstanding
MidCity Financial shares after giving effect to the acquisition.
MB Financial must pay liquidated damages of $5.0 million in cash to MidCity
Financial if:
(1) the MidCity Financial board of directors, prior to adoption of the
merger agreement by the MB Financial stockholders, elects to terminate
the merger agreement under its right to do so because
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the MB Financial board of directors has failed to recommend
adoption of the merger agreement to the stockholders of MB
Financial or withdrawn or modified its recommendation in a manner
adverse to MidCity Financial;
(2) the MB Financial board of directors, prior to adoption of the merger
agreement by the MB Financial stockholders, elects to terminate the
merger agreement under its right to do so for the sole purpose of
allowing MB Financial to enter into an agreement with a third party
for an acquisition proposal; or
(3) MB Financial receives an acquisition proposal from a third party prior
to the time the MB Financial stockholders vote on the merger
agreement, and then (a) the MB Financial stockholders fail to adopt
the merger agreement and (b) within one year after the termination
of the merger agreement MB Financial enters into an agreement to
engage in, or consummates, an acquisition proposal, other than an
acquisition by MB Financial of another entity for cash or MB common
stock representing less than 20% of the outstanding MB Financial
shares after giving effect to the acquisition.
EMPLOYEE BENEFIT MATTERS
After the effective time, the benefit plans of MB Financial and MidCity
Financial will remain in effect until the new company adopts new benefit plans
or merges or combines the MB Financial and MidCity Financial benefit plans. The
new company will honor in accordance with their terms all benefits vested as of
the effective time under the MB Financial and MidCity Financial benefit plans.
Pursuant to the merger agreement, MB Financial and MidCity Financial are
coordinating their efforts toward establishing a retention and severance program
in an effort to provide for equitable treatment of similarly situated employees
of MB Financial and MidCity Financial and their subsidiaries.
Additional information regarding employee benefits and related matters,
particularly concerning directors and executive officers, is contained under
"--Interests of Insiders in the Merger."
INTERESTS OF INSIDERS IN THE MERGER
MB FINANCIAL'S EMPLOYMENT AGREEMENT WITH MITCHELL FEIGER. MB Financial has
an employment agreement with Mitchell Feiger, its President and Chief Executive
Officer and a director of MB Financial, for a three-year term which is extended
by one day on a daily basis (so that the term of the agreement is always three
years) unless MB Financial gives notice that the extensions will cease. The
agreement provides for an annual base salary of not less than $325,000,
discretionary bonuses and participation in benefit plans and the receipt of
fringe benefits to the same extent as the other executive officers of MB
Financial and Manufacturers Bank. The agreement will be assumed by the new
company after the merger and, as discussed under "Management After the Merger,"
Mr. Feiger will serve as President and Chief Executive Officer of the new
company after the merger.
If within 18 months after a change in control of MB Financial or
Manufacturers Bank (which will occur upon completion of the merger), Mr. Feiger
voluntarily terminates his employment, he will be entitled to receive a lump sum
severance amount equal to 299% of his "base amount" (as defined in Section 280G
of the Internal Revenue Code) of compensation. He also will be entitled to
receive, at his cost, the health and other benefits described in item (2) below.
If Mr. Feiger's employment is involuntarily terminated by MB Financial or
Manufacturers Bank during the term of his agreement, then:
(1) he will receive monthly until the end of the agreement's term 1/12th
of his annual salary and 1/12th of the average annual amount of cash
bonus and cash incentive compensation for the two full fiscal years
preceding the date of termination, subject to reduction by the amount
of any cash income earned from providing services to another company
prior to the end of the agreement's term;
(2) he will for the remainder of his life be entitled to the same health
and dental benefits and long- term disability insurance coverage as he
would have received if still employed, subject to reduction to the
extent he receives equivalent or better benefits from another
employer; the cost of these benefits will be borne by MB Financial
prior to the end of the agreement's term and by Mr. Feiger after the
end of the agreement's term;
(3) there will be full vesting of any unvested stock options that he
holds, which will be exercisable for at least 90 days after the
termination;
(4) there will be full vesting of any unvested amounts under any other
benefit plan in which he is a participant; and
(5) if the involuntary termination occurs within 18 months after a change
in control of MB Financial or Manufacturers Bank (which will occur
upon completion of the merger), he also will receive a lump sum
severance amount of 299% of his base amount, reduced by the present
value of the monthly payments to be made pursuant to the provision
described in item (1) above.
MB Financial's board of directors has approved an amendment to Mr. Feiger's
employment agreement, subject to the concurrence of the MidCity Financial board
of directors, which would provide that, among other things, in the event of an
involuntary termination of Mr. Feiger's employment within two years (as opposed
to 18 months) after a change in control (other than the one arising as a result
of the merger), he would be entitled to receive the lump sum change in control
severance amount described in item (5) above without any reduction for the value
of the monthly payments to be made pursuant to item (1) above.
To the extent payment to Mr. Feiger of the lump sum severance amount of
299% of his base amount, whether following a voluntary or an involuntary
termination of employment, together with any other payments to Mr. Feiger in
connection with the change in control, would result in the payment of a
"parachute payment" (as defined in Section 280G of the Internal Revenue Code),
then the severance amount will be reduced to avoid the payment of a parachute
payment.
The term "involuntary termination" is defined to include termination of
employment by MB Financial or Manufacturers Bank (other than for cause or due to
death, disability, retirement or specified violations of law)
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without Mr. Feiger's consent or by Mr. Feiger following a material reduction of
or interference with his duties, responsibilities or benefits without his
consent. The term "voluntary termination" is defined as termination of
employment by Mr. Feiger other than for a reason constituting involuntary
termination.
Based on current compensation levels and assuming the remaining term of his
agreement is three years, if Mr. Feiger's employment were involuntarily
terminated within 18 months after a change in control, he would be entitled to a
monthly payment of approximately $41,016 for the next three years (assuming no
reduction for cash income earned from another employer). Because the present
value of these monthly payments exceeds 299% of Mr. Feiger's base amount, he
would not, under these circumstances, be entitled to any lump sum severance
amount in addition to the monthly payments. Assuming current compensation
levels, if Mr. Feiger's employment were voluntarily terminated within 18 months
after a change in control, he would be entitled to a lump sum severance amount
of approximately $990,572, subject to cutback if any other payments or benefits
are received by him which must be taken into account in the parachute payment
calculation.
MANUFACTURERS BANK'S EMPLOYMENT AGREEMENT WITH BURTON J. FIELD.
Manufacturers Bank has an employment agreement with Burton J. Field, its
President and Chief Executive Officer and a director of MB Financial, for a
three-year term which is extended by one year on an annual basis, unless
Manufacturers Bank gives notice that the term will not be extended. The
agreement provides for an annual base salary of not less than $400,000,
discretionary bonuses and participation in benefit plans and the receipt of
fringe benefits to the same extent as the other executive officers of MB
Financial and Manufacturers Bank.
If within 18 months after a change in control of MB Financial or
Manufacturers Bank (which will occur upon completion of the merger), Mr. Field
voluntarily terminates his employment, he will be entitled to receive a lump sum
severance amount equal to 299% of his "base amount" (as defined in Section 280G
of the Internal Revenue Code) of compensation. He also will be entitled to
receive, at his cost, the health and other benefits described in item (2) below.
If Mr. Field's employment is involuntarily terminated by MB Financial or
Manufacturers Bank during the term of his agreement, then:
(1) he will receive monthly until the end of the agreement's term 1/12th
of his annual salary and 1/12th of the average annual amount of cash
bonuses for the two full fiscal years preceding the date of
termination, subject to reduction by the amount of any cash income
earned from providing services to another company prior to the end of
the agreement's term;
(2) he will for the remainder of his life be entitled to the same health
and dental benefits and long- term disability insurance coverage as he
would have received if still employed, subject to reduction to the
extent he receives equivalent or better benefits from another employer
and provided that Mr. Field will bear the entire cost of these
benefits after the end of the agreement's term;
(3) Manufacturers Bank will continue to pay the premiums on specified life
and disability insurance policies for specified time periods;
(4) there will be full vesting of any unvested stock options that he
holds, which will be exercisable for at least one year after the
termination;
(5) there will be full vesting of any unvested amounts under any other
benefit plan in which he is a participant; and
(6) if the involuntary termination occurs within 18 months after a change
in control of MB Financial or Manufacturers Bank (which will occur
upon completion of the merger), he also will receive a lump sum
severance amount of 299% of his base amount, reduced by the present
value of the monthly payments to be made pursuant to the provision
described in item (1) above.
To the extent payment to Mr. Field of the lump sum severance amount of 299%
of his base amount, whether following a voluntary or an involuntary termination
of employment, together with any other payments to Mr. Field in connection with
the change in control, would result in the payment of a "parachute payment" (as
defined in Section
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280G of the Internal Revenue Code), then the severance amount will be reduced to
avoid the payment of a parachute payment.
The terms "involuntary termination" and "voluntary termination" have the
same meanings as under Mr. Feiger's employment agreement.
Based on current compensation levels and assuming the remaining term of his
agreement is three years, if Mr. Field's employment were involuntarily
terminated within 18 months after a change in control, he would be entitled to a
monthly payment of approximately $43,099 for the next three years (assuming no
reduction for cash income earned from another employer). Because the present
value of these monthly payments exceeds 299% of Mr. Field's base amount, he
would not, under these circumstances, be entitled to any lump sum severance
amount in addition to the monthly payments. Assuming current compensation
levels, if Mr. Field's employment were voluntarily terminated within 18 months
after a change in control, he would be entitled to a lump sum severance amount
of approximately $1,037,345, subject to cutback if any other payments or
benefits are received by him which must be taken into account in the parachute
payment calculation.
CHANGE IN CONTROL SEVERANCE AGREEMENTS WITH OFFICERS OF MB FINANCIAL AND
MANUFACTURERS BANK. Manufacturers Bank is a party to change in control severance
agreements with seven officers, including Jill E. York, Vice President and Chief
Financial Officer of MB Financial and Senior Vice President and Chief Financial
Officer of Manufacturers Bank, Thomas D. Panos, Executive Vice President and
Senior Lending Officer of Manufacturers Bank, and five other persons with the
title of Senior Vice President or above. Each agreement provides that if the
officer's employment is involuntarily terminated in connection with or within
one year after a change in control of MB Financial or Manufacturers Bank (which
will occur upon consummation of the merger), the officer will receive a lump sum
severance amount equal to 100% of the officer's "base amount" (as defined in
Section 280G of the Internal Revenue Code) of compensation and continuation of
group life insurance, health and disability insurance benefits for one year
after termination. To the extent the payments to and the value of benefits
provided to the officer under his or her agreement, together with any other
payments to and the value of any other benefits to be provided to the officer in
connection with the change in control, would result in the payment of a
"parachute payment" (as defined in Section 280G of the Internal Revenue Code),
then the payments and benefits under the agreement will be reduced to avoid the
payment of an excess parachute payment.
The term "involuntary termination" is defined in the change in control
severance agreements to mean termination of employment by Manufacturers Bank
(other than for cause or due to death, disability, retirement or specified
violations of law) without the officer's consent or by the officer following a
material reduction of or interference with his or her duties, responsibilities
or benefits without his or her consent.
The merger agreement permits the amendment prior to the merger of the
change in control severance agreements with senior vice presidents or persons
with equivalent responsibilities to provide for the severance amount and
continuation of benefits if termination of employment occurs within two years
after a change in control, including a change in control occurring as a result
of the merger. The merger agreement also permits MB Financial and/or
Manufacturers Bank, prior to the merger, to enter into change in control
severance agreements with senior vice presidents (or persons with equivalent
responsibilities) or adopt a change in control severance plan for their benefit
providing up to one year's salary for each covered employee if he or she is
involuntarily terminated without cause in connection with or within 24 months
after a change in control, including a change in control arising from the
merger.
Based on current compensation levels, if their employment were terminated
in connection with or within the requisite period after a change in control, Ms.
York and Mr. Panos would be entitled to lump sum severance payments equal to
approximately $150,000 and $187,811, respectively.
ACCELERATED VESTING OF MB FINANCIAL STOCK OPTIONS. Options granted under MB
Financial's 1997 Omnibus Incentive Plan to purchase an aggregate of _____ shares
of MB Financial common stock held by directors and executive officers of MB
Financial will, under the terms of that plan, become exercisable prior to their
scheduled vesting dates upon completion of the merger.
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CHANGE IN CONTROL SEVERANCE AGREEMENTS WITH OFFICERS OF MIDCITY FINANCIAL.
MidCity Financial has entered into change in control severance agreements with
15 officers, including E.M. Bakwin, Chairman and Chief Executive Officer of
MidCity Financial, Kenneth A. Skopec, President and a director of MidCity
Financial, Ronald D. Santo, Executive Vice President and a director of MidCity
Financial, and William F. McCarty III, Senior Vice President of MidCity
Financial. The agreements pay benefits if:
(1) the executive is involuntarily terminated without just cause within
two years after a change in control;
(2) the executive voluntarily terminates his employment for good reason
within two years after a change in control;
(3) a successor to MidCity Financial, such as one resulting from a merger,
fails to assume the agreement;
(4) MidCity Financial or its successor breaches the agreement; or
(5) the executive is involuntarily terminated without just cause within
six months before a change in control and the termination was made in
connection with the change in control.
The benefits payable under the agreements are:
(1) the executive's annual base salary times a multiplier (three, in the
case of Messrs. Bakwin, Skopec, Santo and McCarty, two in the case of
ten other officers and 1.5 in the case of the one remaining officer);
(2) an amount equal to the executive's average annual bonus over the last
three years (or, if the executive has been employed for less than
three years, over the executive's entire period of employment) times a
multiplier (three, in the case of Messrs. Bakwin, Skopec, Santo and
McCarty, two in the case of ten other officers and 1.5 in the case of
the one remaining officer);
(3) the right to immediate payment of the then-current value of his or her
vested benefits, if any, under the MidCity Financial Corporation
Supplemental Profit Sharing Plan;
(4) continued medical, disability and other welfare plan benefits for a
specified period of time (three years in the case of Messrs. Bakwin,
Skopec, Santo and McCarty and one year in the case of all other
officers); and
(5) the right to purchase the whole life insurance policy MidCity
Financial holds on the executive for its cash surrender value.
In addition, under the agreements with Messrs. Bakwin, Skopec, Santo and
McCarty, if the executive's employment is involuntarily terminated without just
cause, or if the executive voluntarily terminates his or her employment for good
reason, in the third year after a change in control, the executive will be
entitled to a lump sum payment of one times the executive's base salary.
To the extent the amount of severance benefits payable to an executive
under his or her change in control severance agreement would result in the
payment of a "parachute payment" (as defined in Section 280G of the Internal
Revenue Code), then the amount will be reduced to avoid the payment of a
parachute payment.
A "change in control" for purposes of the agreements occurs if any one or
more of the following events occur:
- a person or group of persons (including individuals and companies) who
are not descendants of Edward Morris and Helen Swift acquire at least
35% of the voting power of MidCity Financial's
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stock;
- during a 24-month period, a majority of the board of directors of
MidCity Financial changes, provided that individuals approved by at
least a two-thirds vote of the individuals who were members of the
board at the beginning of the 24-month period are not considered new
directors;
- at least 75% of the assets of MidCity Financial are sold, or MidCity
Financial is dissolved or liquidated, or dissolves or liquidates at
least 75% of its assets; or
- the board of directors of MidCity Financial agrees by a two-thirds
vote that a change in control of MidCity Financial is about to occur.
It is not expected that the board of directors of MidCity Financial will
determine that the merger with MB Financial will constitute a change in control
for purposes of the change in control severance agreements. The merger agreement
provides, however, that if any MidCity Financial employee who is covered by a
change in control severance agreement is involuntarily terminated by the
employer without cause at the effective time of the merger or within twenty-four
months after the effective time, the employee will nevertheless be entitled to
the benefits payable under his or her change in control severance agreement.
Because they will not continue as employees with the new company or any of
its subsidiaries after the merger, the employment of each of Messrs. Bakwin and
Skopec will be involuntarily terminated by the employer at the effective time of
the merger, entitling them to maximum cash payments under their change in
control severance agreements of $1.40 million and $1.57 million, respectively,
based upon their respective parachute payment limitations, subject to cutback if
any other payments or benefits are received by them which must be taken into
account in the parachute payment calculation. Assuming current compensation
levels, if the employment of Messrs. Santo and McCarty is terminated within the
time period and under the circumstances entitling them to full severance
benefits under their change in control severance agreements, they will be
entitled to receive maximum cash payments under their agreements of $830,071 and
$467,808, respectively, based upon their respective parachute payment
limitations, subject to cutback if any other payments or benefits are received
by them which must be taken into account in the parachute payment calculation.
MIDCITY FINANCIAL CORPORATION SEVERANCE PLAN. MidCity Financial maintains a
severance plan that applies to all of the employees of MidCity Financial and its
subsidiary banks. The severance plan pays benefits to any such employee who is
terminated for any reason other than voluntary resignation by the employee or
termination by the employer for cause, so long as the employee signs a release
of claims and any other documents MidCity Financial may require him or her to
sign. The benefits payable under the plan are as follows:
- for employees with one to five years of service, one week's pay per
year of service;
- for employees with six to fifteen years of service, five weeks'
salary, plus one and one-half weeks' salary for each year of service
beyond five years; and
- for employees with more than fifteen years of service, twenty weeks'
salary, plus two weeks' salary for each year of service above fifteen.
In addition, the plan provides that a Senior Vice President will, regardless of
years of service, receive a severance benefit of no less than fifty-two weeks'
salary, plus an amount equal to his or her average annual bonus over the last
three years prior to his or her termination of employment (or, if the employee
has been employed for less than three years, over the employee's entire period
of employment). Although they are covered by the severance plan, executives who
are parties to change in control severance agreements are not entitled to
receive severance pay under the severance plan if they are receiving benefits
under their change in control severance agreements. So, for example, an
executive with a change in control severance agreement who is involuntarily
terminated, but not for cause, will receive benefits under the severance plan if
he or she is terminated under circumstances that do not meet the criteria for
payment under the change in control severance agreement.
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MIDCITY FINANCIAL CORPORATION RETENTION BONUS PLAN. The MidCity Financial
Corporation Retention Bonus Plan covers approximately fifty-five employees of
MidCity Financial and its subsidiaries, including Messrs. McCarty and Santo, who
have been chosen for participation by the board of directors of MidCity
Financial. Under the retention bonus plan, a participant's retention bonus will
be determined by the plan committee in an amount not to exceed 50% of the
participant's annual base salary. By the terms of the plan, the aggregate amount
of retention bonuses paid to all participants may not exceed $2,250,000.
The retention bonus plan provides for the payment of a retention bonus to a
participant who, 60 days after a change in control of MidCity Financial or a
subsidiary of MidCity Financial has occurred, remains employed by MidCity
Financial or a subsidiary of MidCity Financial (or a successor of either
following a merger constituting a change in control). If the participant's
employment terminates before the end of the 60-day period due to death,
disability, transfer to employment with an affiliate of the entity that acquired
MidCity Financial, termination without cause, or voluntary termination for good
reason, he or she is also entitled to the retention bonus.
For purposes of the retention bonus plan, a "change in control" of MidCity
Financial is deemed to occur under the same circumstances as under the change in
control severance agreements. As with the change in control severance
agreements, it is not expected that the board of directors of MidCity Financial
will determine that the merger with MB Financial will constitute a change in
control for purposes of the retention bonus plan. Under the merger agreement,
MidCity Financial and MB Financial have agreed to coordinate in establishing a
retention and severance program in an effort to retain and provide incentives to
key personnel for the benefit of the new company and its subsidiaries. It is
expected that MB Financial and MidCity Financial will agree on a program that
will provide to MidCity Financial employees retention benefits substantially
similar to those set forth in MidCity Financial's existing retention bonus plan,
in which case it is not expected that the MidCity Financial board of directors
will declare that the merger constitutes a change in control of MidCity
Financial. Based on the foregoing, it is expected that Messrs. McCarty and Santo
will be entitled to retention bonuses of 50% of their annual base salaries, or
$87,500 and $105,000, respectively.
DIRECTORS AND OFFICERS AFTER THE MERGER. Certain directors and executive
officers of MB Financial and MidCity Financial will serve as directors and
executive officers of the new company after the merger. See "Management After
the Merger."
INDEMNIFICATION AND DIRECTOR AND OFFICER LIABILITY INSURANCE COVERAGE. The
merger agreement provides that upon completion of the merger, the new company
will indemnify and hold harmless to the fullest extent permitted by law any
person who, prior to completion of the merger, was a director, an officer or an
employee of MB Financial, MidCity Financial or the new company or any of their
subsidiaries, against losses, expenses and other liabilities with respect to
claims based on or relating to the fact that the person was a director, an
officer or an employee before completion of the merger or based on or relating
to the merger agreement and the transactions contemplated by the merger
agreement. The merger agreement also provides that for six years after the
merger, the new company will continue to maintain the officers and directors
liability insurance policy of MB Financial with coverage for the past acts and
omissions of individuals serving as directors and officers of MB Financial,
MidCity Financial and their subsidiaries immediately prior to the merger. In
lieu of this obligation of the new company, MidCity Financial and/or MB
Financial, at the election of MB Financial, may elect to obtain, prior to the
merger, six-year tail coverage under its existing officers and directors
liability insurance policies for the past acts and omissions of the individuals
serving as its directors and officers (and the directors and officers of its
subsidiaries) prior to the merger.
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VOTING AGREEMENTS
The MB Financial directors have entered into a voting agreement with
MidCity Financial under which each director has agreed to vote all of the shares
of MB Financial common stock that he owns of record or beneficially and is
entitled to vote as of the record date for the MB Financial special meeting in
favor of adoption of the merger agreement. Similarly, the MidCity Financial
directors have entered into a voting agreement with MB Financial under which
each director has agreed to vote all of the shares of MidCity Financial common
stock that he or she owns of record and is entitled to vote as of the record
date of the MidCity Financial special meeting in favor of adoption of the merger
agreement. Both voting agreements prohibit the directors from transferring any
voting interest in their shares except to a person who agrees to be bound by the
voting agreement.
Pursuant to their voting agreement with MidCity Financial, the MB Financial
directors have agreed to vote an aggregate of _______ shares of MB Financial
common stock in favor of adoption of the merger agreement, representing ___% of
the outstanding shares of MB Financial common stock as of the record date for
the MB Financial special meeting. Pursuant to their voting agreement with MB
Financial, the MidCity Financial directors have agreed to vote an aggregate of
_______ shares of MidCity Financial common stock in favor of adoption of the
merger agreement, representing ___% of the outstanding shares of MidCity
Financial common stock as of the record date for the MidCity Financial special
meeting.
EXPENSES
All expenses incurred in connection with the merger agreement and the
merger will be paid by the party incurring the expenses, except that the
printing and mailing expenses of this joint proxy statement-prospectus, all fees
to be paid to regulatory agencies in connection with the merger and the bank
merger and all expenses associated with forming the new company will be borne
equally by MB Financial and MidCity Financial. In addition, the fees payable to
The Nasdaq Stock Market in excess of $17,500 to list the shares of new company
common stock to be issued in the merger will be borne entirely by MidCity
Financial.
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STOCK LISTING
MB Financial common stock is listed on The Nasdaq Stock Market National
Market system under the symbol "MBFI." It is a condition to consummation of the
merger that the new company common stock to be issued in the merger will be
approved for listing on The Nasdaq Stock Market. See "-- Conditions to
Completion of the Merger." It is expected that the new company, the name of
which will change to "MB Financial, Inc." upon the effective time of the merger,
will assume the "MBFI" symbol for its common stock.
MANAGEMENT AFTER THE MERGER
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE PROVISIONS
Pursuant to the merger agreement and as will be provided in the bylaws of
the new company, until either the third annual meeting of stockholders of the
new company held after the merger or the consummation of a business combination
approved by two-thirds of the entire board of directors of the new company
resulting in the stockholders of the new company owning less than 51% of the
resulting entity (whichever occurs first), the following will apply:
1. E.M. Bakwin, the Chairman and Chief Executive Officer of MidCity Financial,
will be Chairman of the Board of Directors of the new company. Mitchell
Feiger, the President and Chief Executive Officer of MB Financial, will be
the President and Chief Executive Officer of the new company. If Mr. Bakwin
is unable or unwilling to serve or continue to serve, his replacement will
be selected by a majority of the MidCity Financial-designated directors
(defined in item 2 below). If Mr. Feiger is unable or unwilling to serve
or continue to serve, his replacement will be selected by a majority of
the MB Financial-designated directors (defined in item 2 below).
2. The board of directors of the new company will consist of 17 members, eight
of whom are designated by the board of directors of MB Financial (referred
to as the "MB Financial-designated directors") and nine of whom are
designated by the board of directors of MidCity Financial (referred to as
the "MidCity Financial-designated directors"). The classes of directors
with terms expiring at the first and second annual meetings of stockholders
of the new company will each be comprised of three MB Financial-designated
directors and three MidCity Financial-designated directors. The class
expiring at the third annual meeting of stockholders will be comprised of
two MB Financial-designated directors and three MidCity
Financial-designated directors.
3. Any vacancy on the board of directors of the new company created by the
departure of a MB Financial-designated director will be filled by an
individual nominated by a majority vote of the continuing MB
Financial-designated directors and appointed by a majority of the remaining
members of the board, subject to their fiduciary duties, and all vacancies
created by the departure of a MidCity Financial-designated director will be
filled by an individual nominated by a majority vote of the continuing
MidCity Financial-designated directors and appointed by a majority of the
remaining members of the board, subject to their fiduciary duties.
4. The number of directors of the new company may be changed upon the vote of
a majority of the MB Financial-designated directors and a majority of the
MidCity Financial-designated directors and two-thirds of the entire board
of directors. Any vacancy created by an increase in the size of the board
of directors will be filled by a nominee chosen by a vote of two-thirds of
the entire board of directors.
5. The new company board of directors will, subject to the fiduciary duties of
its members, nominate and recommend all incumbents for re-election as
directors; this provision does not apply to persons who became directors
pursuant to the provision described in item 4 above.
6. The new company board of directors will have an Executive/Strategic
Planning Committee, to be comprised of eight members. The Chairman of this
committee will be an individual nominated by
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a majority vote of the MidCity Financial-designated directors. The
Chairman of each other committee will be an individual nominated by a
majority vote of the members of the committee. All committees will be
comprised of an equal number of MB Financial and MidCity
Financial-designated directors, to be selected by the MB Financial and
MidCity Financial-designated directors, respectively, unless waived by a
majority of the MB Financial or MidCity Financial-designated directors.
7. A vote of two-thirds of the entire board of directors of the new company
will be required to approve any of the following:
- a sale of the new company or any of its subsidiaries or a sale or
other disposition of all or substantially all of the assets of the new
company or any of its subsidiaries;
- the acquisition of another company or the merger or consolidation of
the new company with another company;
- the removal of the Chief Executive Officer of the new company for any
reason other than for cause;
- allowing the new company, on a consolidated basis, to exceed an 80%
loan to deposit ratio (excluding lease loans where the related lessee
has outstanding securities rated investment grade or where the related
lessee would be viewed under the underwriting policies of the new
company and its subsidiaries as an investment grade company);
- allowing the new company, on a consolidated basis, to exceed a 90%
loan to deposit ratio (including all lease loans);
- maintaining an annual dividend payout ratio of less than 25% of net
income (not including extraordinary or non-recurring gains); or
- allowing the new company or any of its depository institution
subsidiaries to maintain a Leverage Ratio of less than 7.0%, Tier 1
Capital Ratio of less than 8.0% or Total Capital Ratio of less than
11.0%.
8. By a majority vote, the MB Financial-designated directors will be entitled
to nominate one MB Financial-designated director and the MidCity
Financial-designated directors will be entitled to nominate one MidCity
Financial-designated director each to serve as a Vice Chairman of the board
of directors of the new company; these nominees must be appointed by the
board subject to the fiduciary duties of its members.
9. The provisions of the new company bylaws described in items 1-8 above may
not be amended without the vote of a majority of the MB
Financial-designated directors and a majority of the MidCity
Financial-designated directors and two-thirds of the entire board of
directors of the new company.
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The boards of directors of MB Financial and MidCity Financial have
designated the individuals named below to serve as directors of the new company.
These designations may be changed at any time prior to the merger.
Director
Name Age Designee of Since(1) Term Expiring
------------------------------- --- ------------------------ -------- -------------
E.M. Bakwin, Chairman 73 MidCity Financial 1981 2004
Mitchell Feiger 43 MB Financial 1992 2004
James N. Hallene 40 MidCity Financial 2000 2004
Leslie S. Hindman 46 MidCity Financial 1998 2004
David Husman 66 MB Financial 1992 2004
Robert S. Engelman, Jr. 59 MB Financial 1993 2003
Alfred Feiger 76 MB Financial 1992 2003
Richard I. Gilford 76 MB Financial 1992 2003
Thomas H. Harvey 40 MidCity Financial 1995 2003
Ronald D. Santo 58 MidCity Financial 1990 2003
Eugene Sawyer 66 MidCity Financial 1991 2003
Burton J. Field 65 MB Financial 1992 2002
Lawrence E. Gilford 77 MB Financial 1992 2002
Patrick Henry 61 MidCity Financial 1981 2002
Richard J. Holmstrom 43 MidCity Financial 1998 2002
Clarence Mann 76 MB Financial 1992 2002
Kenneth A. Skopec 66 MidCity Financial 1981 2002
----------
(1) Denotes year in which the individual first became a director of MB
Financial or MidCity Financial. For MB Financial designees, includes
service on the board of directors of Coal City Corporation which was merged
into MB Financial (known prior to the merger as Avondale Financial Corp.)
in February 1999.
Set forth below is a description of the business experience for at least
the past five years of each of the individuals listed above.
E.M. BAKWIN. Mr. Bakwin has served as Chairman of the Board and Chief
Executive Officer of MidCity Financial since 1981. Mr. Bakwin also has served as
a director of The Mid-City National Bank of Chicago since 1961, First National
Bank of Morton Grove since 1982, Union Bank and Trust Company since 1988, Abrams
Centre National Bank since 1997 and Chairman of the Board of The Mid-City
National Bank of Chicago since 1967. Mr. Bakwin is Mr. Harvey's first cousin
once removed and Mr. Henry's first cousin by marriage.
MITCHELL FEIGER. Mr. Feiger is President and Chief Executive Officer of MB
Financial, as well as Chairman of the Board of Manufacturers Bank. Mr. Feiger
began his career with Touche Ross & Company in 1982, and then in 1984 joined
Affiliated Banc Group, Inc., a bank holding company, where he worked in various
capacities until eventually becoming Executive Vice President of Affiliated Banc
Group. Mr. Feiger became President and a director of Coal City Corporation in
1992, and became President and Chief Executive Officer of MB Financial in
February 1999 upon the merger of Coal City with MB Financial. Mitchell Feiger is
Alfred Feiger's son.
JAMES N. HALLENE. Mr. Hallene has been the owner and managing principal of
Capital Concepts, LLC since 1999. He also has served as a director of The
Mid-City National Bank of Chicago since 2000. From 1983 to 1998, Mr. Hallene
worked in various capacities for First Chicago Corporation, eventually becoming
Group Head of Private Banking and Wealth Management of American National Bank.
LESLIE S. HINDMAN. Ms. Hindman served as Chairman of Eppraisals.com from
1999 to June, 2001 and was the President of Sotheby's Midwest auction facility
from 1997 to 1999. Ms. Hindman also has served as a director of The Mid-City
National Bank of Chicago since 1998. In addition, she is the host of the
television shows "At the
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Auction with Leslie Hindman" and "The Appraisal Fair." Ms. Hindman also is a
syndicated columnist with the Chicago Tribune.
DAVID L. HUSMAN. Mr. Husman served as a director of the seven banks that
were owned by Affiliated Banc Group. Mr. Husman is an attorney and is in the
real estate and investment business.
ROBERT S. ENGELMAN, JR. Mr. Engelman, Chairman of the Board of MB
Financial, joined MB Financial in 1993 as President and Chief Executive Officer
and a director and served as President and Chief Executive Officer until the
merger of MB Financial with Coal City Corporation in February 1999. Prior to
joining MB Financial, Mr. Engelman was the Chairman of the Board and Chief
Executive Officer of University Financial Corporation and its wholly-owned
subsidiary, First Federal of Elgin, FSA, Elgin, Illinois.
ALFRED FEIGER. Mr. Feiger served as Chairman of the Board and Chief
Executive Officer of Coal City Corporation until the merger of Coal City with MB
Financial in February 1999. Mr. Feiger has over 50 years of banking and finance
company experience, having served in various executive capacities during such
period. Mr. Feiger also served as a director of the seven banks that were owned
by Affiliated Banc Group and was President of Affiliated Banc Group's Western
National Bank of Cicero. Alfred Feiger is Mitchell Feiger's father.
RICHARD I. GILFORD. Mr. Gilford has over 50 years of banking experience,
having served in various executive capacities during such period. Mr. Gilford
also served as a director of the seven banks that were owned by Affiliated Banc
Group and was Chairman of the Board of Affiliated Asset-Based Lending Services,
a subsidiary of Affiliated Banc Group. Mr. Gilford is a trustee of Mt. Sinai
Hospital in Chicago. Richard Gilford is the cousin of Lawrence Gilford.
THOMAS H. HARVEY. Mr. Harvey has served as President of the Energy
Foundation since 1990. He also has served as a director of The Mid-City National
Bank of Chicago and First National Bank of Morton Grove since 1995. Mr. Harvey
is Mr. Bakwin's first cousin once removed.
RONALD D. SANTO. Mr. Santo has served as Executive Vice President of
MidCity Financial since 1998 and Secretary of MidCity Financial since 1981,
President of The Mid-City National Bank of Chicago since 1998 and a director of
The Mid-City National Bank of Chicago since 1988, and Chief Executive Officer
and a director of First National Bank of Elmhurst since 1986 and Vice Chairman
of the Board of First National Bank of Elmhurst since 1993.
EUGENE SAWYER. Mr. Sawyer has served as Vice President of Crown Energy,
Inc. since 1994. He also has served as a director of The Mid-City National Bank
of Chicago since 1989 and First National Bank of Morton Grove since 1991. Mr.
Sawyer is a former Mayor of the City of Chicago.
BURTON J. FIELD. Mr. Field has served as President and Chief Executive
Officer of Manufacturers Bank since 1983 and as a director of Manufacturers Bank
since 1977. Mr. Field has over 40 years of banking and finance experience,
mainly in the areas of commercial lending and leasing. Mr. Field joined
Manufacturers Bank in 1970.
LAWRENCE E. GILFORD. Mr. Gilford has over 50 years of banking experience,
having served in various executive capacities during such period. He also served
as a director of the seven banks that were owned by Affiliated Banc Group and
was President of Affiliated Banc Group's North Shore National Bank. Mr. Gilford
served as President of the Chicago Chapter of the Illinois Bankers Association,
is a trustee of the Rush North Shore Medical Center, and is a Board Member of
the Chicago Chapter of the Jewish Community Center and the Jewish Federation of
Palm Springs, California. Lawrence Gilford is the cousin of Richard Gilford.
PATRICK HENRY. Mr. Henry has served as Chairman of the Board of Verado
Energy, Inc., an independent oil and gas company, since 1987. He has served as a
director of The Mid-City National Bank of Chicago since 1976. Mr. Henry is Mr.
Bakwin's first cousin by marriage.
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RICHARD J. HOLMSTROM. Mr. Holmstrom has since 1995 been a partner in and is
a co-founder of Menlo Equities, LLC. He also has served as a director of The
Mid-City National Bank of Chicago and First National Bank of Morton Grove since
1998.
CLARENCE MANN. Mr. Mann has over 45 years of banking experience, having
served in various executive capacities during such period. Mr. Mann also served
as a director of the seven banks that were owned by Affiliated Banc Group and
was President of both Franklin Park Bank and First State Bank of Franklin Park,
both of which were owned by Affiliated Banc Group.
KENNETH A. SKOPEC. Mr. Skopec has served as President of MidCity Financial
since 1981, Chief Executive Officer and a director of The Mid-City National Bank
of Chicago since 1965 and Vice Chairman of The Mid-City National Bank of Chicago
since 1988, Chairman of the Board of First National Bank of Elmhurst since 1986,
Vice Chairman of the Board of Union Bank and Trust Company since 1988 and
Chairman of the Board of Abrams Centre National Bank since 1997.
EXECUTIVE OFFICERS OF THE NEW COMPANY
The principal executive officers of the new company upon completion of the
merger will be as follows:
Name Age Title
---- --- -----
Mitchell Feiger 43 President and Chief Executive Officer
Jill E. York 37 Senior Vice President and Chief Financial Officer
Ronald D. Santo 58 Chairman of Illinois-based Bank, Group President
Thomas D. Panos 45 Executive Vice President-Commercial Banking
Burton J. Field 65 President and Chief Executive Officer of Illinois-based Bank
William F. McCarty III 44 Executive Vice President-Wealth Management, Operations
Thomas P. FitzGibbon, Jr. 57 Senior Vice President-Retail Banking
Jeffrey L. Husserl 41 Senior Vice President-Human Resources
Set forth below is a description of the business experience for at least
the past five years of each of the individuals listed above who will not also
serve as a director of the new company.
JILL E. YORK. Ms. York has served as Vice President and Chief Financial
Officer of MB Financial since joining MB Financial in August 2000, and also
serves as Senior Vice President and Chief Financial Officer and a director of
Manufacturers Bank. Ms. York previously served as a partner with the public
accounting firm of McGladrey & Pullen, LLP. She was employed in the public
accounting sector for 15 years and is a member of the Illinois CPA Society, the
American Institute of Certified Accountants and the Community Bankers
Association of Illinois.
THOMAS D. PANOS. Mr. Panos has served as Executive Vice President and
Senior Lending Officer and a director of Manufacturers Bank since March 1996.
Mr. Panos was Senior Vice President and Manager of Corporate Banking (in
Illinois) for First Bank System from 1994 to 1996, and he served Boulevard Bank
in various lending and management capacities since 1982. Mr. Panos has over 24
years of banking experience.
WILLIAM F. MCCARTY III. Mr. McCarty has served as Senior Vice President of
MidCity Financial since 1998, President and a director of First National Bank of
Morton Grove since 1992, and Chief Executive Officer and
80
Chairman Pro Tem of the Board of First National Bank of Morton Grove since
1997. He also serves as a director of The Mid-City National Bank of Chicago.
Mr. McCarty joined The MidCity National Bank of Chicago in 1982 and has over
22 years of experience in the banking industry.
THOMAS P. FITZGIBBON, JR. Mr. FitzGibbon serves as Senior Vice President
and Chief Retail Banking Officer of Manufacturers Bank. He has held the position
of Chief Retail Banking Officer since May 2000 and the title of Senior Vice
President since the merger of Manufacturers Bank with Avondale Federal Savings
Bank in February 1999. He also serves as President of Manufacturers Community
Development Corporation, a subsidiary of Manufacturers Bank. Prior to the merger
with Avondale, Mr. FitzGibbon served as Vice President of Avondale Federal
Savings Bank from the time of joining Avondale in 1995. Mr. FitzGibbon served as
Vice President of Comerica Bank-Illinois from 1990-1995 and Executive Vice
President and Chief Lending Officer of Columbia First Bank, FSB, Arlington,
Virginia, from 1985 to 1990. Mr. FitzGibbon has been a principal officer in the
banking industry since 1970.
JEFFREY L. HUSSERL. Mr. Husserl has served as Senior Vice
President-Administration and Chief Human Resources Officer of Manufacturers
Bank since joining Manufacturers Bank in 1999. From 1994 until joining
Manufacturers Bank in 1999, Mr. Husserl served as Director of Human Resources
for Allied Van Lines. Mr. Husserl came to Manufacturers Bank with 17 years of
experience in various industries, including manufacturing, transportation and
financial services.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION PAID BY THE NEW COMPANY. Each director of the new company will
receive compensation for his service as a director as determined by the board of
directors of the new company. The new company has not yet paid any compensation
to its current executive officers or any person who is expected to become an
executive officer. The form and amount of compensation to be paid to each of the
new company's executive officers in any future period will be determined by the
compensation committee of the new company's board of directors.
COMPENSATION PAID BY MB FINANCIAL. For information regarding compensation
paid for the year ended December 31, 2000 to the directors and executive
officers of MB Financial who will become directors and executive officers of the
new company after the merger, as well the employment and change-in-control
severance agreements with these executive officers and certain transactions
involving these directors and executive officers, see MB Financial's proxy
statement for its 2001 annual meeting of stockholders, the relevant portions of
which are incorporated by reference into MB Financial's Annual Report on Form
10-K for the year ended December 31, 2000. See "Where You Can Find More
Information."
COMPENSATION PAID BY MIDCITY FINANCIAL. Set forth below is information
concerning the compensation paid by MidCity Financial to its directors and
executive officers and certain transactions with directors and executive
officers.
DIRECTOR COMPENSATION. Each director of MidCity Financial currently
receives $1,650 per board meeting attended, and each outside director also
receives $700 per board committee meeting attended.
81
EXECUTIVE COMPENSATION. The following table sets forth certain information
with respect to annual and other compensation paid to MidCity Financial's Chief
Executive Officer and its three most highly compensated executive officers other
than the chief executive officer, for the fiscal years ended December 31, 2000,
1999 and 1998.
FISCAL ANNUAL ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
--------------------------- ---- ------ ----- ---------------
E. M. Bakwin, Chairman of the Board 2000 $328,000 $240,000 $57,470
and Chief Executive Officer 1999 314,000 220,000 56,670
1998 300,000 200,000 53,100
Kenneth A. Skopec, President 2000 380,000 240,000 74,000
1999 366,000 220,000 72,730
1998 352,000 200,000 67,560
Ronald D. Santo, Executive Vice- 2000 200,000 135,000 45,500
President and Secretary 1999 192,500 125,000 44,700
1998 185,000 115,000 41,100
William F. McCarty III, Senior Vice 2000 153,750 60,000 33,375
President 1999 135,000 50,000 30,625
1998 119,500 46,000 26,978
----------
(1) Consists of contributions by MidCity Financial to its profit sharing plan
and supplemental profit sharing plan on the executives' behalf, aggregating
10% of salary and bonus for 2000, and 10.5% for 1999 and 1998. MidCity
Financial has a profit sharing plan for all salaried employees. Plan
participants are entitled to withdraw their vested amounts from the plan
upon cessation of their employment from MidCity Financial for any reason.
In 1989, MidCity Financial adopted a supplemental profit sharing plan for a
select group of management employees; the supplemental profit sharing plan
provides benefits that would have been provided under the profit sharing
plan except that they exceed the maximum amounts payable through the profit
sharing plan under certain limits imposed by ERISA and the Internal Revenue
Code. Amounts are provided on an unfunded basis based on compensation paid
on or after January 1, 1989.
Each of Messrs. Bakwin, Skopec, Santo and McCarty is a party to a change in
control severance agreement with MidCity Financial. These agreements are
described under "The Merger--Interests of Insiders in the Merger-Change in
Control Severance Agreements with Officers of MidCity Financial."
CERTAIN TRANSACTIONS. Certain directors and executive officers of MidCity
Financial and its subsidiaries, as well as the associates of these persons, are
customers of and engage in banking transactions with the bank subsidiaries of
MidCity Financial in the ordinary course of business. All loans and commitments
to make loans included in these transactions are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons not employed by or affiliated
with MidCity Financial and its subsidiaries, and do not involve more than the
normal risk of collectibility or present other unfavorable features.
82
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined balance sheet as of March 31,
2001 combines the historical consolidated balance sheets of MB Financial and its
subsidiaries and MidCity Financial and its subsidiaries as if the merger had
occurred on March 31, 2001, after giving effect to certain pro forma adjustments
described in the accompanying notes. The following unaudited pro forma combined
condensed statements of income for the three-month periods ended March 31, 2001
and 2000 and for each of the years in the three-year period ended December 31,
2000 present the combined historical results of operations of MB Financial and
its subsidiaries and MidCity Financial and its subsidiaries as if the merger had
occurred on the first day of each period presented. The fiscal year end of each
of MB Financial and MidCity Financial is December 31. Pro forma per share
amounts are based on the MB Financial exchange ratio of one share of new company
common stock for each share of MB Financial common stock and the MidCity
Financial exchange ratio of 230.32955 shares of new company common stock for
each share of MidCity Financial common stock. The merger is expected to close in
the third quarter of 2001.
The unaudited pro forma combined financial statements and related footnotes
account for the merger using the pooling-of-interests method of accounting.
Under the pooling-of-interests method of accounting, the recorded assets,
liabilities, stockholders' equity, income and expenses of MB Financial and
MidCity Financial are combined and recorded at their historical cost-based
amounts, except as described below and in the footnotes. The accounting policies
of MB Financial and MidCity Financial are substantially similar.
The unaudited pro forma combined financial statements are for illustrative
purposes only. The companies may have performed differently had they been
combined during the periods presented. You should not rely on the unaudited pro
forma combined financial information as being indicative of the historical
results that we would have had or the future results that the new company will
experience after the merger. These unaudited pro forma combined financial
statements should be read in conjunction with, and are qualified in their
entirety by, the separate historical consolidated financial statements and
related notes of MB Financial and MidCity Financial. See "Where You Can Find
More Information" and "Index to Financial Statements of MidCity Financial
Corporation."
83
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF MARCH 31, 2001
MidCity
MB Financial, Financial, Pro Forma Pro Forma
Inc. Corp. Adjustments Combined
-------------- ---------- ------------ ----------
(In thousands)
ASSETS:
Cash and due from banks........................ $ 27,386 $53,401 $ -- $ 80,787
Other interest bearing deposits................ 2,456 -- -- 2,456
Federal funds sold............................. -- 66,275 -- 66,275
Investment securities available for sale....... 213,960 707,361 -- 921,321
Stock in Federal Home Loan Bank................ 4,540 4,930 -- 9,470
Loans, net..................................... 1,107,957 931,811 -- 2,039,768
Lease investments, net......................... 51,077 -- -- 51,077
Premises and equipment, net.................... 15,229 34,497 -- 49,726
Cash surrender value of life insurance......... 32,226 -- -- 32,226
Interest only receivables...................... 8,496 -- -- 8,496
Intangibles, net............................... 14,033 16,284 -- 30,317
Accrued interest receivable.................... 10,415 14,994 -- 25,409
Other assets................................... 10,215 4,456 5,200(2) 19,871
---------- ---------- ------ ----------
Total assets.................................. $1,497,990 $1,834,009 $5,200 $3,337,199
========== ========== ====== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES:
Deposits:
Noninterest bearing........................... $ 141,762 $ 249,974 $ -- $ 391,736
Interest bearing.............................. 923,480 1,321,005 -- 2,244,485
---------- ---------- -------- ----------
Total deposits................................ 1,065,242 1,570,979 -- 2,636,221
---------- ---------- -------- ----------
Short-term borrowings......................... 289,554 33,275 -- 322,829
Long-term borrowings.......................... 31,742 20,000 -- 51,742
Other liabilities............................. 15,022 15,352 19,600 (2) 49,974
---------- ---------- -------- ----------
Total liabilities............................. 1,401,560 1,639,606 19,600 3,060,766
---------- ---------- -------- ----------
Common stock.................................. 71 1,000 (894)(1) 177
Additional paid-in capital.................... 50,656 24,052 894 (1) 75,602
Retained earnings............................. 46,766 170,819 (14,400)(2) 194,591
(8,594)(1)
Accumulated other comprehensive
income (loss)................................ (1,063) 7,126 -- 6,063
Less treasury stock at cost................... -- (8,594) 8,594 (1) --
---------- ---------- -------- ----------
Total stockholders' equity.................... 96,430 194,403 (14,400) 276,433
========== ========== ======== ==========
Total liabilities and stockholders' equity.... $1,497,990 $1,834,009 $ 5,200 $3,337,199
========== ========== ======== ==========
84
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
1. STOCKHOLDERS' EQUITY - In connection with the merger, a new holding
company, MB-MidCity, Inc., has been established. Each outstanding share of
MidCity Financial common stock will be converted into 230.32955 shares of
new company common stock and each share of MB Financial common stock will
be converted into one share of new company common stock. Each share of new
company common stock has a par value of $.01 per share. MidCity Financial
and MB Financial had 46,007 and 7,064,515 shares of common stock
outstanding as of March 31, 2001, respectively. The pro forma average share
amounts for MidCity Financial were adjusted for the MidCity Financial
exchange ratio of 230.32955. The common stock in the unaudited pro forma
balance sheet has been adjusted to reflect the reclassification of MB
Financial additional paid in capital and the elimination of treasury stock.
2. MERGER - RELATED COSTS - Transaction costs of the merger (primarily
investment banking and other professional fees) and costs to combine
operations are expected to be approximately $19.6 million on a pre-tax
basis, or approximately $14.4 million on an after-tax basis. The Unaudited
Pro Forma Condensed Combined Statements of Income on the pages that follow
do not reflect these charges. The Unaudited Pro Forma Combined Balance
Sheet on the prior page reflects these expected merger charges. It is
anticipated that most of the cash charges will be incurred and recognized
during the third quarter 2001. The following table provides details of the
estimated charges by type of cost:
Type of Cost Amount
------------------------------------------------------------------------- --------------
(In Thousands)
Transaction Costs $ 4,100
Costs to combine operations:
Severance and other employee termination costs 7,000
Duplicative systems and facilities costs 4,000
Change in valuation reserve related to deferred state income taxes 3,000
Other costs incidental to the merger 1,500
-------
19,600
Income tax benefit of expected merger adjustment (5,200)
-------
Net merger charges $14,400
=======
85
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 2001
Combined
MidCity Pro Forma
MB Financial Financial Amounts
------------- --------- ----------
(Dollars in thousands, except per share data)
Interest income........................................ $27,326 $30,962 $58,288
Interest expense....................................... 16,302 15,786 32,088
------ ------ ------
Net interest income.................................. 11,024 15,176 26,200
Provision for loan losses.............................. 750 10 760
------ ------ ------
Net interest income after provision for loan losses.. 10,274 15,166 25,440
Other income........................................... 3,030 3,363 6,393
Other expenses......................................... 8,943 11,878 20,821
------ ------ ------
Income before income taxes............................. 4,361 6,651 11,012
Applicable income taxes................................ 1,386 2,302 3,688
----- ----- -----
Net income........................................... $ 2,975 $ 4,349 $ 7,324
====== ====== ======
Preferred stock dividend............................... -- -- --
Net income available to common stockholders.......... $ 2,975 $ 4,349 $ 7,324
====== ====== ======
Earnings per share:
Basic................................................ $0.42 $94.53 $0.41
===== ====== =====
Diluted.............................................. $0.42 $94.53 $0.41
===== ====== =====
Weighted average shares:
Basic................................................ 7,064,515 46,007 17,661,287
========= ====== ==========
Diluted.............................................. 7,152,575 46,007 17,749,347
========= ====== ==========
86
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 2000
Combined
MidCity Pro Forma
MB Financial Financial Amounts
------------- --------- ----------
(Dollars in thousands, except per share data)
Interest income........................................ $23,606 $30,224 $53,830
Interest expense....................................... 12,725 14,403 27,128
------ ------ ------
Net interest income.................................. 10,881 15,821 26,702
Provision for loan losses.............................. 750 1,268 2,018
------ ------ ------
Net interest income after provision for loan losses.. 10,131 14,553 24,684
Other income........................................... 2,772 2,481 5,253
Other expenses......................................... 8,961 12,272 21,233
------ ------ ------
Income before income taxes............................. 3,942 4,762 8,704
Applicable income taxes................................ 1,255 858 2,113
------ ------ ------
Net income........................................... $ 2,687 $ 3,904 $ 6,591
====== ====== ======
Preferred stock dividend............................... -- -- --
Net income available to common stockholders.......... $ 2,687 $ 3,904 $ 6,591
====== ====== ======
Earnings per share:
Basic................................................ $0.38 $84.86 $0.37
===== ====== =====
Diluted.............................................. $0.38 $84.86 $0.37
===== ====== =====
Weighted average shares:
Basic................................................ 7,064,515 46,007 17,661,287
========= ====== ==========
Diluted.............................................. 7,064,515 46,007 17,661,287
========= ====== ==========
87
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 2000
Combined
MidCity Pro Forma
MB Financial Financial Amounts
------------- --------- ----------
(Dollars in thousands, except per share data)
Interest income........................................ $104,090 $123,898 $227,988
Interest expense....................................... 59,441 61,786 121,227
------- ------- -------
Net interest income.................................. 44,649 62,112 106,761
Provision for loan losses.............................. 3,090 5,073 8,163
------- ------- -------
Net interest income after provision for loan losses.. 41,559 57,039 98,598
Other income........................................... 10,722 9,726 20,448
Other expenses......................................... 35,745 48,154 83,899
------- ------- -------
Income before income taxes............................. 16,536 18,611 35,147
Applicable income taxes................................ 4,931 3,255 8,186
------- ------- -------
Net income........................................... $ 11,605 $ 15,356 $ 26,961
======= ======= =======
Preferred stock dividend............................... -- -- --
Net income available to common stockholders.......... $ 11,605 $ 15,356 $ 26,961
======= ======= =======
Earnings per share:
Basic................................................ $1.64 $333.78 $1.53
===== ======= =====
Diluted.............................................. $1.64 $333.78 $1.53
===== ======= =====
Weighted average shares:
Basic................................................ 7,064,515 46,007 17,661,287
========= ====== ==========
Diluted.............................................. 7,072,134 46,007 17,668,906
========= ====== ==========
88
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 1999
Combined
MidCity Pro Forma
MB Financial Financial Amounts
------------- --------- ----------
(Dollars in thousands, except per share data)
Interest income........................................ $82,291 $114,660 $196,951
Interest expense....................................... 41,767 52,363 94,130
------ ------- -------
Net interest income.................................. 40,524 62,297 102,821
Provision for loan losses.............................. 1,260 1,405 2,665
------ ------- -------
Net interest income after provision for loan losses.. 39,264 60,892 100,156
Other income........................................... 9,062 10,587 19,649
Other expenses......................................... 33,560 44,596 78,156
------ ------- -------
Income before income taxes............................. 14,766 26,883 41,649
Applicable income taxes................................ 4,812 8,463 13,275
------ ------- -------
Net income........................................... $ 9,954 $ 18,420 $ 28,374
====== ======= =======
Preferred stock dividend............................... -- -- --
Net income available to common stockholders.......... $ 9,954 $ 18,420 $ 28,374
====== ======= =======
Earnings per share:
Basic................................................ $1.51 $398.24 $1.65
===== ======= =====
Diluted.............................................. $1.51 $398.24 $1.64
===== ======= =====
Weighted average shares:
Basic................................................ 6,586,596 46,254 17,240,259
========= ====== ==========
Diluted.............................................. 6,598,058 46,254 17,251,721
========= ====== ==========
89
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 1998
Combined
MidCity Pro Forma
MB Financial Financial Amounts
------------- --------- ----------
(Dollars in thousands, except per share data)
Interest income........................................ $57,632 $107,152 $164,784
Interest expense....................................... 29,826 49,488 79,314
------ ------- -------
Net interest income.................................. 27,806 57,664 85,470
Provision for loan losses.............................. 750 770 1,520
------ ------- -------
Net interest income after provision for loan losses.. 27,056 56,894 83,950
Other income........................................... 9,940 9,953 19,893
Other expenses......................................... 27,136 43,139 70,275
------ ------- -------
Income before income taxes............................. 9,860 23,708 33,568
Applicable income taxes................................ 3,605 7,237 10,842
------ ------- -------
Net income........................................... $ 6,255 $ 16,471 $ 22,726
====== ======= =======
Preferred stock dividend............................... 1,085 -- 1,085
Net income available to common stockholders.......... $ 5,170 $ 16,471 $ 21,641
====== ======= =======
Earnings per share:
Basic................................................ $1.26 $347.83 $1.44
===== ======= =====
Diluted.............................................. $1.25 $347.83 $1.44
===== ======= =====
Weighted average shares:
Basic................................................ 4,093,254 47,354 15,000,280
========= ====== ==========
Diluted.............................................. 4,130,996 47,354 15,038,022
========= ====== ==========
BUSINESS OF MB FINANCIAL, INC.
GENERAL
MB Financial was incorporated in Delaware in 1995 and is a bank holding
company under the federal Bank Holding Company Act of 1956 and the Illinois Bank
Holding Company Act of 1957. MB Financial conducts a commercial banking business
through Manufacturers Bank, an Illinois banking corporation. As of March 31,
2001, MB Financial had consolidated assets of $1.5 billion, consolidated
liabilities of $1.4 billion (including consolidated deposits of $1.1 billion)
and stockholders' equity of $96.4 million.
Manufacturers Bank has grown substantially in the last four years. It
acquired Peterson Bank in 1995 and U.S. Bank in 1997. In February 1999,
Manufacturers Bank merged with Avondale Federal Savings Bank. In May 2001, MB
Financial completed its acquisition of FSL Holdings, Inc. and FSL's subsidiary,
First Savings & Loan Association of South Holland, for aggregate cash
consideration of approximately $41.3 million. As of March 31, 2001, FSL Holdings
had consolidated assets of $220.9 million, consolidated liabilities of $187.7
million (including consolidated deposits of $174.3 million) and stockholders'
equity of $33.2 million. First Savings & Loan was
90
merged into Manufacturers Bank. Manufacturers Bank currently has 12 branch
offices, located throughout the Chicago metropolitan area.
Manufacturers Bank concentrates its business efforts on serving privately
owned small and middle market businesses, such as manufacturers, wholesalers,
distributors, long-term health care operators and investors, and real estate
developers located throughout the Chicago metropolitan area. Manufacturers
Bank's business is focused on four areas: Commercial Banking; Lease Banking;
Korean Banking; and Retail Banking.
COMMERCIAL BANKING. The Commercial Banking group focuses on serving
privately-owned companies run by entrepreneurs, including manufacturers,
wholesalers, distributors, home developers, long-term health care operators,
real estate operators and investors, and selected types of service companies.
Manufacturers Bank provides a full set of credit, deposit, cash management and
investment products to these companies. These products are specifically designed
for companies with sales between $5 million and $50 million. Credit products
include: working capital loans and lines of credit, including accounts
receivable and inventory financing; equipment loans and leasing; business
acquisition loans; owner-occupied real estate loans; and financial, performance
and commercial letters of credit. Deposit and cash management products include:
Corporate InterConnect - an internet cash management product for businesses;
zero balance accounts; automated tax payments; ATM access; merchant credit card
program; telephone banking; lockbox; direct deposit; account reconciliation;
checking accounts and investment services. For real estate operators and
investors, Manufacturers Bank also offers the following products: commercial
mortgages; residential, commercial, retail and industrial construction loans;
land acquisition and development loans; and industrial revenue bond financing.
LEASE BANKING. The target market for the Lease Banking group consists of
small and medium size equipment leasing companies located throughout the United
States. Manufacturers Bank has provided Lease Banking services to these
companies for more than 25 years. Competition in servicing this equipment
leasing market generally comes from large banks, financing companies, large
industrial companies and some community banks in certain segments of the
business. Manufacturers Bank provides rapid service and decision making and
flexible financial solutions to meet its customers' needs in this market.
Manufacturers Bank provides full banking services for these leasing companies by
financing the debt portion of leveraged leases (referred to as "lease loans"),
providing short-term and long-term equity financing, making working capital and
bridge loans, and investing directly in leased equipment. The volume of lease
loans is closely managed in order to control Manufacturers Bank's liquidity and
the level of total risk adjusted assets.
KOREAN BANKING. The Korean Banking group focuses on the expanding Korean
community located principally on the north side of Chicago and in Chicago's
northwestern suburbs. Manufacturers Bank serves ethnic Korean consumers and
Korean-owned businesses by providing complete banking services using the Korean
language. Korean commercial customers tend to be small owner-operated, cash
businesses, such as dry cleaners, gift shops and restaurants. While continuing
to serve these customers, Manufacturers Bank is also targeting those
Korean-owned businesses with annual sales between $2 million and $20 million.
Personnel in the Korean Banking group, as well as a number of other individuals
in key service positions at Manufacturers Bank, speak and conduct business in
Korean. Manufacturers Bank's automated telephone account access services are
provided in the Korean language as well. Competition in this growing market
segment is quite limited because of the need to provide all banking services in
Korean.
RETAIL BANKING. The target market for the Retail Banking group consists of
consumers who live or work near Manufacturers Bank offices. Manufacturers Bank
offers a full set of consumer products to these individuals, including checking
accounts, savings accounts, money market accounts, time deposit accounts,
secured and unsecured consumer loans, residential mortgage loans, and a variety
of fee for service products, such as money orders and travelers checks.
Manufacturers Bank also offers brokerage services which include sales of
non-FDIC insured investment products to its client base.
91
RECENT ACCOUNTING DEVELOPMENTS
In September 1999, the Financial Accounting Standards Board issued an
exposure draft on business combinations and intangible assets. In December 2000,
the Financial Accounting Standards Board reached a tentative decision to modify
the approach taken in the exposure draft regarding goodwill. Under the revised
approach, goodwill would not be amortized against earnings. Instead, goodwill
would be reviewed for impairment and written down and expensed only in the
period in which the recorded value exceeded its fair value. The tentative
decision would require goodwill to be reviewed upon occurrence of events
indicating that goodwill of the reporting unit might be impaired. Amortization
of currently recorded goodwill would cease based upon transition guidance in the
standard. A final decision by the Financial Accounting Standards Board on the
treatment of this issue has not yet been made.
It is expected that if the final pronouncement is issued consistent with
the tentative conclusions, the financial condition and results of operations of
MB Financial would be significantly affected due to the elimination of goodwill
amortization expense.
ADDITIONAL INFORMATION
For additional information about MB Financial, see "Selected Consolidated
Financial and Other Data of MB Financial, Inc." and "Unaudited Pro Forma
Condensed Combined Financial Information" in this joint proxy
statement-prospectus. You should also see the documents filed by MB Financial
with the SEC which are incorporated by reference into this joint proxy
statement-prospectus, as described under "Where You Can Find More Information."
BUSINESS OF MIDCITY FINANCIAL CORPORATION
GENERAL
MidCity Financial was incorporated in Delaware in 1981 under the name
Mid-Citco Incorporated and changed its name to MidCity Financial Corporation in
1995. MidCity Financial is a bank holding company under the Federal Bank Holding
Company Act of 1956 and the Illinois Bank Holding Company Act of 1957. As of
March 31, 2001, MidCity Financial had consolidated assets of $1.8 billion,
consolidated liabilities of $1.6 billion (including consolidated deposits of
$1.5 billion) and consolidated stockholders' equity of $194 million. MidCity
Financial's principal business offices are located at 801 West Madison Street,
Chicago, Illinois.
MidCity Financial owns all of the issued and outstanding shares of common
stock of The Mid-City National Bank of Chicago, First National Bank of Morton
Grove, First National Bank of Elmhurst (known as "Bank of Elmhurst" until its
conversion from a state-chartered institution to a national bank in 1997), Union
Bank and Trust Company, Mid-City Information Services, Inc. and Abrams Centre
Bancshares Incorporated, which in turn owns all of the issued and outstanding
shares of common stock of Abrams Centre National Bank.
HISTORY AND DEVELOPMENT
MidCity Financial was originally established as a one-bank holding company
for The Mid-City National Bank of Chicago after the board of directors of The
MidCity National Bank of Chicago concluded in 1981 that it would be desirable to
reorganize the bank into a one-bank holding company. This decision was motivated
primarily by an amendment to the Illinois Bank Holding Company Act, which,
subject to certain geographic limitations, permitted Illinois bank holding
companies to own more than one bank. The board of directors believed that under
the new law, The Mid-City National Bank of Chicago's strong capital base could
be utilized to increase the return on equity to the bank's shareholders through
the acquisition of one or more additional banks.
The Mid-City National Bank of Chicago's shareholders approved the
reorganization in January 1982, and the transaction was completed in February
1982. Later that same year, MidCity Financial acquired First National
92
Bank of Morton Grove for $6.23 million in cash. At the time of the
acquisition, First National Bank of Morton Grove had total assets of $121
million.
In 1984, The Mid-City National Bank of Chicago assumed from the Federal
Deposit Insurance Corporation, in its capacity as receiver, approximately $29.3
million of deposit liabilities of the failed United of America Bank, Chicago,
Illinois, in exchange for cash and certain other assets. The Mid-City National
Bank of Chicago paid $1.65 million to the Federal Deposit Insurance Corporation
for the right to assume these deposit liabilities, which were used in connection
with the establishment of an additional branch location.
In 1986, MidCity Financial acquired First National Bank of Elmhurst for
$11.4 million in cash. At the time of the acquisition, First National Bank of
Elmhurst had total assets of approximately $80 million.
In 1988, E. M. Bakwin, Chairman and Chief Executive Officer of MidCity
Financial, assumed from the Federal Deposit Insurance Corporation, in its
capacity as receiver, approximately $180 million of deposit liabilities of the
failed Union Bank and Trust Company of Oklahoma City in exchange for $10 million
in capital and certain other assets. MidCity Financial provided the necessary
capital in the form of non-voting stock. In September 1988, MidCity Financial
purchased 100% of the voting stock of Union Bank and Trust Company from Mr.
Bakwin and became the sole stockholder of Union Bank and Trust Company.
In 1991, The Mid-City National Bank of Chicago assumed from the Resolution
Trust Corporation, in its capacity as receiver, approximately $165 million of
deposit liabilities of the failed Clyde Federal Savings Association in exchange
for cash and certain other assets. The Mid-City National Bank of Chicago paid
$11 million to the Resolution Trust Corporation for the right to assume these
deposit liabilities. Six of the seven branch offices of Clyde Federal became
branch offices of The Mid-City National Bank of Chicago.
In 1992, Union Bank and Trust Company acquired First Western Savings and
Loan Association for $5.89 million in cash. First Western's four offices became
branch offices of Union Bank and Trust Company. At the time of the acquisition,
First Western had deposits of approximately $130 million.
In 1995, The Mid-City National Bank of Chicago acquired Peoples Federal
Savings and Loan Association of Chicago for $6 million in cash. At the time of
the acquisition, Peoples had total assets of approximately $30 million.
In 1997, MidCity Financial expanded its presence in the southwest by
acquiring Abrams Centre Bancshares, Inc., in Dallas, Texas, the parent company
of Abrams Centre National Bank, for $12.5 million in cash. At the time of the
acquisition, Abrams Centre National Bank had approximately $72 million in
assets.
In 1998, First National Bank of Morton Grove assumed the deposits and
acquired certain assets of the Waukegan Road Branch of Republic Bank. For a
premium for $1.5 million, First National Bank of Morton Grove assumed $18
million in deposit liabilities.
In 1999, MidCity Financial acquired Damen Financial Corporation,
Schaumburg, Illinois, the parent company of Damen National Bank, for $50 million
in cash. Damen National Bank's three branch offices became branch offices of The
Mid-City National Bank of Chicago. At the time of the acquisition, Damen
Financial had approximately $220 million in assets.
MidCity Financial currently owns five banks, located in Northern Illinois,
Oklahoma City and Dallas, which have a combined 25 branch offices.
BUSINESS AREAS
MidCity Financial concentrates its efforts on serving small and middle
market business, such as manufacturers, wholesalers, and distributors in the
Chicago, Oklahoma City and Dallas metropolitan areas. Through its acquisition
program and careful selection of officers and employees, MidCity Financial
attempts to
93
position itself to take a leading role in filling this niche in the
market. MidCity Financial offers traditional community bank services and
products.
COMMERCIAL BANKING. The commercial banking area focuses on serving
privately owned companies, including manufacturers, wholesalers, distributors,
home developers, real estate operators and investors as well as selected types
of service companies. MidCity Financial provides a full set of credit, deposit,
cash management and investment products to these companies. These products are
specifically designed for small to medium sized businesses.
MidCity Financial's strategy is to provide rapid service, customer access
to decision-makers, flexible loan underwriting, modern, technologically advanced
banking products and talented, experienced lending officers. The goal of MidCity
Financial in the commercial banking area is to build a high quality, controlled
risk loan portfolio that consistently grows in excess of average market growth.
RETAIL BANKING. The target market for retail banking consists of consumers
who live or work near MidCity Financial's offices. MidCity Financial offers a
full set of consumer products to these individuals, including checking accounts,
savings accounts, money market accounts, time deposits, secured and unsecured
consumer loans, residential mortgage loans, home equity loans and a variety of
fee for service products such as money orders and travelers checks. Internet
banking launched in January 2001 on a newly redesigned website blending the
MidCity Financial tradition of service with customer demand for convenience.
WEALTH MANAGEMENT. Recognizing customer demand for one-stop financial
management, MidCity Financial focused on its insurance services efforts in the
third quarter of 2000. The first product, Payment Protection, a form of credit
life and disability insurance, was introduced in MidCity Financial's
Illinois-based banks during the fourth quarter of 2000. In order to expand
market share, a product and service timeline has been implemented for 2001.
MidCity Financial also stepped up its focus on Investment Centers during the
second half of 2000 by placing licensed financial advisors at each bank and
instituting employee referral training sessions and introduced comprehensive
business and marketing plans for 2001. In addition, MidCity Financial continues
to provide traditional trust services such as personal service agencies,
personal investment advisories, employee benefit agencies and employee benefit
investment advisories as well as corporate services and land trust services.
LENDING ACTIVITIES
As of March 31, 2001, MidCity Financial's outstanding loans, net of
allowance for loan losses, totaled $931.8 million, representing 50.81% of its
total consolidated assets. MidCity Financial is primarily a business lender and
a substantial portion of its loan portfolio consists of loans to businesses or
for business purposes. Of the total loans outstanding as of March 31, 2001,
commercial real estate and commercial loans represented 40.16% and 29.43% of the
portfolio, while residential real estate comprised 27.46% and consumer and all
other loans represented 2.95%. Virtually all of MidCity Financial's loans are
made to businesses or individuals in the markets they serve in the Chicago,
Oklahoma City and Dallas metropolitan areas.
MidCity Financial's underwriting philosophy is to lend money to companies
or individuals who have a record of success in their business or job, as
demonstrated by sufficient cash flow on a historical basis to fully service
their loans. Additionally, borrowers generally have a second source of repayment
without having to liquidate loan collateral. The owners of business borrowers
are normally required to personally guarantee commercial loans.
The primary source of income for MidCity Financial is interest on loans.
Net loans as a percentage of total assets increased to 51.8% as of December 31,
2000 from 43.2% at December 31, 1996. Total loans increased by $315.4 million
during this period. The majority of the increase from 1996 to 1997 was due to
the acquisition of Abrams Centre Bancshares, Inc. and its subsidiary, Abrams
Centre National Bank, which had total loans of $32.3 million at the acquisition
date. The majority of the increase from 1998 to 1999 resulted from the
acquisition of Damen Financial Corporation, which had total loans of $117.0
million at the acquisition date.
94
The following table sets forth MidCity Financial's loan portfolio in
dollars and as a percentage of the portfolio at the dates indicated
AT DECEMBER 31,
-------------------------------------------------------------------------------------------
AT MARCH 31, 2001 2000 1999 1998 1997 1996
----------------- ---------------- ---------------- ---------------- ---------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
Commercial and $278,245 29.43% $286,489 29.80% $270,233 28.12% $257,271 32.91% $217,597 31.62% $202,975 31.62%
industrial loans.
Real estate loans. 639,324 67.62 644,943 67.10 653,163 67.97 474,393 60.68 413,351 60.07 376,934 58.72
Consumer loans.... 25,856 2.73 27,835 2.90 35,573 3.70 48,044 6.15 54,699 7.95 59,669 9.29
Other loans....... 2,036 0.22 1,962 0.20 2,056 0.21 2,048 0.26 2,475 0.36 2,388 0.37
------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross loans 945,461 100.00% 961,229 100.00% 961,025 100.00% 781,756 100.00% 688,122 100.00% 641,966 100.00%
====== ====== ====== ====== ====== ======
Less: unearned
income, unamor-
tized loan fees
and costs........ (714) (1,042) (1,146) (1,602) (937) (1,627)
Allowance for loan
losses........... (12,936) (12,999) (9,410) (9,564) (9,341) (8,548)
-------- ------- ------- ------- ------- -------
Net loans $931,811 $947,188 $950,469 $770,590 $677,844 $631,791
======= ======= ======= ======= ======= =======
COMMERCIAL LENDING. MidCity Financial makes commercial loans to small and
middle market businesses. The borrowers tend to be privately owned and are
generally manufacturers, wholesalers, distributors and selected types of service
providers. The loan products offered are primarily working capital loans and
lines of credit. These general product classifications include accounts
receivable and inventory financing, equipment loans and business acquisition
loans. MidCity Financial also offers financial, performance and commercial
letters of credit. Most commercial loans are short term in nature, being one
year or less, with a maximum term of five years.
MidCity Financial's lines of credit are typically secured, established for
one year and are subject to renewal upon satisfactory review of the borrower's
financial statements and credit history. Secured short-term commercial business
loans are usually collateralized by accounts receivable, equipment or real
estate. The owners of the business typically personally guarantee such loans.
Interest rates tend to be at or above the prime rate, although there has been
considerable recent pressure to make loans at a spread above the London
Interbank Offered Rate, commonly referred to as "LIBOR."
REAL ESTATE LENDING. MidCity Financial originates commercial real estate
mortgage loans that are generally secured by one or more of the following kinds
of properties: multi-unit real estate; owner and non-owner occupied commercial
and industrial property, as well as residential property for development.
MidCity Financial's commercial mortgage loans are generally made at fixed rates,
although some float with the prime rate. Terms of up to fifteen years are
offered on fully amortizing loans, but most loans are structured with a balloon
payment at maturity of ten years or less. In making the decision as to whether
to make a commercial real estate loan, MidCity Financial considers the
qualifications of the borrower as well as the value of the underlying property.
Some factors considered are the net operating income of the mortgaged property
before debt service and depreciation, the debt service ratio (the net ratio of
the property's net cash flow to debt service requirements), the ratio of the
loan amount to the appraised value and the creditworthiness of the prospective
borrower.
MidCity Financial also originates residential real estate loans secured by
first and second mortgages on single family real estate. Terms for first
mortgages range from fifteen years to thirty years. Terms for second mortgages
range from thirty-six months to fifteen years. In making the decision as to
whether to make a residential real estate loan, MidCity Financial considers the
qualifications of the borrower as well as the value of the underlying property.
Real estate loans increased by $178.8 million from December 31,1998 to
December 31,1999. This increase was primarily attributable to the acquisition of
Damen Financial Corporation, which had a $110.0 million portfolio of residential
mortgages.
95
CONSUMER LENDING. MidCity Financial originates consumer loans secured by
new and used automobiles as well as various other types of collateral. Terms on
automobile loans range from 36 to 60 months. Check credit is also offered as
well as Visa cards issued through Elan Financial Services. Elan is not
affiliated with MidCity Financial.
LOAN APPROVAL POLICY. Generally, each lending officer may approve a loan
within a specified limit, the maximum of which is $1.0 million. Loans in excess
of $1.0 million but less than $6.0 million must be approved by the Executive
Loan Committee, and loans in excess of $6.0 million must be approved by the
lending bank's board of directors.
LOAN MATURITIES. The following table sets forth the maturities of MidCity
Financial's loan portfolio at March 31, 2001. Loans are classified according to
sensitivity to changes in interest rates.
DUE IN ONE YEAR OR DUE AFTER ONE YEAR
LESS THROUGH FIVE YEARS DUE AFTER FIVE YEARS
------------------------ ---------------------- --------------------
FLOATING FLOATING FLOATING
FIXED RATE FIXED RATE FIXED RATE TOTAL
-------- ------------ -------- --------- -------- ------- --------
(IN THOUSANDS)
Commercial and industrial
loans.................... $75,195 $150,717 $41,849 $7,324 $3,160 $ -- $278,245
Real estate loans.......... 124,548 119,710 287,611 27,191 79,152 1,112 639,324
Consumer loans............. 15,677 85 10,005 -- 89 -- 25,856
Other loans................ 2,036 -- -- -- -- -- 2,036
-------- -------- -------- ------- ------- ------- --------
Total...................... $217,456 $270,512 $339,465 $34,515 $82,401 $1,112 $945,461
======== ======== ======== ======= ======= ====== ========
INVESTMENT SECURITIES
MidCity Financial maintains an investment portfolio consisting primarily of
securities of the U.S. Treasury and agencies of, and corporations sponsored by,
the U.S. Government, as well as obligations of state and political subdivisions,
mortgage backed securities, corporate and equity securities. The investment
portfolio is managed to maximize yield over the long term in a manner that is
consistent with liquidity needs, pledging requirements, asset/liability
strategies and safety/soundness concerns. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of MidCity Financial
Corporation--Asset and Liability Management" and "--Liquidity."
96
The following table sets forth as of the dates indicated the amortized cost
and fair value of MidCity Financial's investment portfolio by accounting
classification category and type of security.
AT DECEMBER 31,
---------------------------------------------------------------
AT MARCH 31, 2001 2000 1999 1998
------------------ -------------------- ------------------- -------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE COST VALUE
--------- ----- --------- ------ ---------- ----- --------- ------
(IN THOUSANDS)
AVAILABLE-FOR-SALE:
U.S. Treasury securities........... $ 24,021 $ 24,235 $ 10,039 $ 10,063 $ 8,859 $ 8,762 $ 17,930 $ 18,027
U.S. Government agency securities.. 304,786 311,112 19,667 19,855 7,197 6,974 2,215 2,225
Obligations of states and
political subdivisions........... 90,081 91,376 -- -- -- -- -- --
Mortgage-backed securities......... 245,016 246,432 7,398 7,295 11,251 10,886 13,279 13,258
Corporate securities............... 27,111 27,544 1,028 1,028 -- -- -- --
Equity securities.................. 10,157 11,592 10,071 11,541 9,151 10,340 4,017 5,363
-------- -------- -------- -------- -------- -------- -------- --------
Total available-for-sale........... $701,172 $712,291 $ 48,203 $ 49,782 $ 36,458 $ 36,962 $ 37,441 $ 38,873
======== ======== ======== ======== ======== ======== ======== ========
HELD-TO-MATURITY:
U.S. Treasury securities........... $ -- $ -- $ 13,993 $ 14,023 $ 67,085 $ 67,036 $128,571 $130,222
U.S. Government agency securities.. -- -- 269,091 271,306 157,624 153,916 159,436 160,334
Obligations of states and
political subdivisions........... -- -- 91,626 91,980 95,647 94,560 83,650 85,059
Mortgage-backed securities......... -- -- 254,848 253,832 317,988 309,294 292,264 291,828
Corporate securities............... -- -- 30,753 30,838 36,351 36,249 44,905 45,945
-------- -------- -------- -------- -------- -------- -------- --------
Total held-to-maturity............. $ -- $ -- $660,311 $661,979 $674,695 $661,055 $708,826 $713,388
======== ======== ======== ======== ======== ======== ======== ========
U.S. Treasury securities consist of fixed rate securities with maturities
of less than two years. U.S. Government agency securities generally consist of
fixed rate securities with maturities of less than five years. Obligations of
states and political subdivisions consist of investment grade and local
non-rated issues with maturities of less than five years. The average life of
the mortgage-backed portfolio was 3.3 years at March 31, 2001. Corporate
securities consist of investment grade bonds with maturities of less than three
years.
Equity securities consist of Federal Reserve Bank stock, Federal Home Loan
Bank stock and other securities. At March 31, 2001, MidCity Financial held $1.8
million in Federal Reserve Bank stock and $4.9 million in Federal Home Loan Bank
stock, as required by law.
There are no securities of any single issuer, other than the U.S. Treasury
or U.S. Government agencies and U.S. Government-sponsored corporations, which
had a book value in excess of 10% of MidCity Financial's stockholders' equity at
March 31, 2001.
97
The following table sets forth certain information regarding contractual
maturities and the weighted average yields of MidCity Financial's securities
portfolio at March 31, 2001.
DUE IN ONE YEAR OR DUE AFTER ONE YEAR DUE AFTER FIVE YEARS
LESS THROUGH FIVE YEARS THROUGH TEN YEARS DUE AFTER TEN YEARS TOTAL
-------------------- ------------------- -------------------- --------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE
COST RATE COST RATE COST RATE COST RATE COST RATE
--------- -------- --------- -------- --------- -------- ---------- -------- --------- -------
(DOLLARS IN THOUSANDS)
U.S. Treasury
securities......... $ 23,018 5.97% $ 1,003 6.38% $ -- --% $ -- --% $ 24,021 5.99%
U.S. Government
agency securities.. 105,377 6.03 199,409 6.13 -- -- -- -- 304,786 6.10
Obligations of
states and political
subdivisions..... 22,103 5.25 67,978 5.25 -- -- -- -- 90,081 5.25
Mortgage-backed
securities....... 92,756 6.66 128,527 6.53 17,324 6.70 6,409 7.06 245,016 6.61
Corporate
securities....... 11,266 7.64 15,845 6.47 -- -- -- -- 27,111 6.96
------- ------- ------ ----- -------
$254,520 $412,762 $17,324 $6,409 $691,015
======= ====== =====
Equity securities.. 10,157 10,157
------- ------
$264,677 $701,172
======= =======
SOURCES OF FUNDS
GENERAL. Deposits, long-term and short-term borrowings, loan and investment
security repayments and prepayments, proceeds from the sale of securities and
cash flows generated from operations are the primary sources of MidCity
Financial's funding for lending, investing, and other general purposes.
Loan repayments are a relatively predictable source of funds except during
periods of significant interest rate declines, while deposit flows tend to
fluctuate with prevailing interest rates, money market conditions, general
economic conditions and competition.
DEPOSITS. MidCity Financial offers a variety of deposit accounts with a
range of interest rates and terms. MidCity Financial's core deposits consist of
savings accounts, demand deposits, NOW accounts, money market accounts and
non-public certificates of deposit. These deposits, along with public fund
deposits and long-term and short-term borrowings, are used to support MidCity
Financial's asset base. Most of MidCity Financial's deposits are obtained from
the geographic areas which surround each of its banking offices. MidCity
Financial relies primarily on customer service and long standing relationships
with customers to attract and retain deposits; however, market interest rates
and rates that are offered by competing financial institutions significantly
affect MidCity Financial's ability to attract and retain deposits.
BORROWINGS. MidCity Financial has access to a variety of borrowing sources
to support its asset base. These sources include federal funds purchased and
Federal Home Loan Bank advances. The Federal Home Loan Bank advances were
acquired in the July 1, 1999 Damen Financial Corporation acquisition. While
MidCity Financial has the liquidity to pay off these instruments, it has not
done so due to the substantial prepayment penalties that would be incurred.
MidCity Financial also offers a deposit account that sweeps balances in excess
of an agreed upon target amount into overnight repurchase agreements. As
business customers have become more sophisticated in managing their daily cash
position, demand for the sweep product has increased and balances have grown
from $23.5 million at December 31, 1999 to $30.1 million at December 31, 2000 to
$32.3 million at March 31, 2001.
98
The following table sets forth certain information regarding the MidCity
Financial's borrowings for the periods indicated.
FOR THE
THREE
MONTHS
ENDED FOR THE YEAR ENDED DECEMBER 31,
MARCH 31, ---------------------------------
2001 2000 1999 1998
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
FEDERAL FUNDS PURCHASED:
Average balance outstanding $ 201 $ 5,550 $10,583 $ 2,745
Maximum outstanding at any month-end during the period 1,000 31,500 25,225 29,500
Balance outstanding at the end of period 1,000 5,100 3,700 --
Weighted average interest rate during the period 6.11% 6.57% 5.34% 5.20%
Weighted average interest rate at end of period 5.25 6.25 5.25 --
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
Average balance outstanding $30,353 $27,697 $17,053 $ 9,376
Maximum outstanding at any month-end during the period 32,275 30,087 23,454 15,915
Balance outstanding at the end of period 32,275 30,087 23,454 15,858
Weighted average interest rate during the period 5.46% 5.15% 4.61% 5.10%
Weighted average interest rate at end of period 5.11 5.47 4.71 4.79
FEDERAL HOME LOAN BANK ADVANCES:
Average balance outstanding $20,933 $27,697 $24,168 $ --
Maximum outstanding at any month-end during the period 21,000 34,000 54,500 --
Balance outstanding at the end of period 20,000 22,000 35,000 --
Weighted average interest rate during the period 6.20% 6.29% 6.00% --
Weighted average interest rate at end of period 6.04 6.21 6.14 --
The following table sets forth the distribution of MidCity Financial's
average deposit accounts for the periods indicated.
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED --------------------------------------------------------------------
MARCH 31, 2001 2000 1999 1998
---------------------- --------------------- --------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- --------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
Demand deposit - non-interest $ 255,092 15.80% $ 273,715 17.08% $ 274,702 17.66% $ 261,222 18.50%
bearing
NOW accounts 98,972 6.13 99,625 6.22 102,316 6.58 98,200 6.96
Money market deposit accounts 275,661 17.08 270,278 16.86 265,665 17.08 224,341 15.89
Savings deposits 192,780 11.94 213,917 13.34 239,155 15.38 196,748 13.94
Time deposits 740,080 45.86 686,788 42.84 621,789 39.97 619,151 43.85
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total deposits $1,562,585 96.81% $1,544,323 96.34% $1,503,627 96.67% $1,399,662 99.14%
========== ===== ========== ===== ========== ===== ========== =====
The following table sets for the maturities of certificates of deposits and
other time deposits at March 31, 2001 and December 31, 2000.
AT AT
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
(IN THOUSANDS)
Maturing within three months $292,362 $213,776
After three but within six months 226,564 199,805
After six but within twelve months 137,719 204,410
After twelve months 91,134 117,841
-------- --------
Total $747,779 $735,832
======== ========
99
COMPETITION
Vigorous competition exists in the major markets areas in which MidCity
Financial and its subsidiary banks operate. Competition includes not only
commercial banks but also other financial institutions, including savings and
loan associations and credit unions, money market and other mutual funds,
mortgage companies, leasing and finance companies and a variety of financial
services and advisory companies.
LEGAL PROCEEDINGS
MidCity Financial and its subsidiaries are involved from time to time as
plaintiff or defendant in various legal actions arising in the normal course of
business. While the ultimate outcome of pending proceedings cannot be predicted
with certainty, it is the opinion of MidCity Financial's management, after
consultation with counsel representing MidCity Financial and its subsidiaries in
these proceedings, that the resolution of these proceedings should not have a
material adverse effect on MidCity Financial's consolidated financial condition
or results of operations.
PERSONNEL
As of March 31, 2001, MidCity Financial had 361 full-time employees and 150
part-time employees. The employees are not represented by a collective
bargaining unit, and MidCity Financial considers its relationship with its
employees to be good.
100
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MIDCITY FINANCIAL CORPORATION
THE FOLLOWING DISCUSSION AND ANALYSIS IS INTENDED TO REVIEW THE SIGNIFICANT
FACTORS AFFECTING THE FINANCIAL CONDITION OF MIDCITY FINANCIAL AS OF MARCH 31,
2001 AND DECEMBER 31, 2000 AND 1999 AND RESULTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 2001 AND 2000 AND EACH OF THE YEARS IN THE THREE-YEAR
PERIOD ENDED DECEMBER 31, 2000. ON JULY 1, 1999, MIDCITY FINANCIAL ACQUIRED
DAMEN FINANCIAL CORPORATION FOR $50.5 MILLION IN CASH. THIS TRANSACTION IMPACTS
THE COMPARATIVE INFORMATION PRESENTED BELOW. THIS DISCUSSION SHOULD BE READ IN
CONJUNCTION WITH THE "SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF MIDCITY
FINANCIAL CORPORATION," "BUSINESS OF MIDCITY FINANCIAL CORPORATION" AND THE
CONSOLIDATED FINANCIAL STATEMENTS OF MIDCITY FINANCIAL CORPORATION AND RELATED
NOTES INCLUDED IN THIS JOINT PROXY STATEMENT-PROSPECTUS.
GENERAL
The profitability of MidCity Financial's operations depends primarily on
its net interest income, which is the difference between total interest earned
on interest earning assets and total interest paid on interest bearing
liabilities. MidCity Financial's net income is affected by its provision for
loan losses as well as non-interest income and other non-interest expenses.
Non-interest income consists of service fees, net gains (losses) on the sale of
securities available for sale and other operating income. Other non-interest
expenses include salaries and employee benefits along with occupancy and
equipment expenses, amortization expense and other operating expenses.
The amount of net interest income is affected by changes in the volume and
mix of earning assets, the level of interest rates earned, the volume and mix of
interest bearing liabilities and the level of interest rates paid. The provision
for loan losses is dependent on changes in the loan portfolio and management's
assessment of the portfolio's collectibility as well as economic and market
conditions. Other non-interest income and other non-interest expenses are
impacted by growth of operations and growth in the number of accounts through
both acquisitions and core banking business growth. Growth in operations affects
other expenses as a result of additional employees, branch facilities and
promotional marketing expenses. Growth in the number of accounts affects other
income including service fees as well as other expenses such as computer
services, supplies, postage, telephone and other miscellaneous expenses.
101
ANALYSIS OF NET INTEREST INCOME
INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES. The following
tables set forth the average daily balances, income from interest earning
assets, expenses of interest bearing liabilities, their associated annualized
yields or interest rates and net interest income, as well as interest rate
spread and net annualized yield on interest earning assets for the periods
presented.
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------
2001 2000
-------------------------------- ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- --------- -------- ---------- --------- --------
(DOLLARS IN THOUSANDS)
INTEREST EARNING ASSETS
Loans (1) (2)(3)......................... $945,441 $19,630 8.42% $955,539 $19,502 8.21%
Investment Securities:
Taxable................................. 612,113 9,579 6.35 611,968 9,557 6.28
Exempt from federal income taxes(3)..... 89,214 1,387 6.31 93,242 1,466 6.32
Due from banks........................... 10,448 147 5.70 2,422 44 7.36
Federal funds sold....................... 51,922 700 5.47 12,051 169 5.65
---------- ------- ---- ---------- ------- ----
Total interest earning assets........... 1,709,138 31,443 7.46% 1,675,222 30,738 7.38%
------- ---- ------- -----
Non interest earning assets.............. 110,079 114,624
---------- ----------
Total assets............................. $1,819,217 $1,789,846
========== ==========
INTEREST BEARING LIABILITIES
Deposits:
NOW and money market.................... $374,633 $3,153 3.41% $373,908 $3,395 3.65%
Savings................................. 192,780 936 1.97 255,161 1,805 2.82
Time.................................... 740,080 10,966 6.01 633,972 8,290 5.26
Short-term borrowed funds................ 30,554 411 5.46 32,516 414 5.12
Federal Home Loan Bank advances.......... 20,933 320 6.20 32,121 499 6.25
---------- ------- ---- ---------- ------ ----
Total interest bearing liabilities...... 1,358,980 15,786 4.71% 1,327,678 14,403 4.36%
------- ---- ------ ----
Noninterest bearing deposits............. 255,092 271,402
Other non interest bearing liabilities... 13,975 13,004
Stockholders' equity..................... 191,170 177,762
---------- ----------
Total liabilities and Stockholders'
equity................................... $1,819,217 $1,789,846
========== ==========
Net interest income/interest $15,657 2.75% $16,335 3.02%
rate spread(4)...........................
Net interest margin(5).................. 3.72% 3.92%
----------
(1) Nonaccrual loans are included in average loans.
(2) Interest income includes loan origination fees of $339,000 and $214,000 for
the three months ended March 31, 2001 and 2000, respectively.
(3) Non-taxable interest income is presented on a fully tax equivalent basis
assuming a 35% tax rate.
(4) Interest rate spread represents the difference between the average yield on
interest earning assets and the average cost of interest bearing
liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest earning assets.
102
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------ ------------------------------- ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- -------- ------ ----------- --------- ------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
INTEREST EARNING ASSETS
Loans (1)(2)(3)............... $949,636 $79,665 8.39% $872,995 $70,454 8.07% $716,903 $60,621 8.46%
Investment Securities:
Taxable...................... 614,382 38,826 6.32 658,606 39,880 6.06 662,757 41,600 6.28
Exempt from federal income
taxes(3)...................... 92,380 5,867 6.35 90,871 5,813 6.40 90,335 5,756 6.37
Due from banks................ 2,202 150 6.81 1,744 64 3.66 395 21 5.23
Federal funds sold............ 25,116 1,588 6.32 13,630 694 5.09 24,130 1,310 5.43
---------- -------- ----- ---------- ------- ---- ---------- -------- ----
Total interest earning
assets........................ 1,683,716 126,096 7.49% 1,637,846 116,905 7.14% 1,494,520 109,308 7.31%
-------- ---- ------- ---- -------- ----
Non interest earning assets.. 113,800 100,824 92,708
---------- ---------- ----------
Total assets.................. $1,797,516 $1,738,670 $1,587,228
========== ========== ==========
INTEREST BEARING LIABILITIES
Deposits:
NOW and money market......... $369,902 $14,155 3.83% $367,993 $11,841 3.22% $322,541 $10,260 3.18%
Savings...................... 213,917 5,185 2.42 239,155 6,509 2.72 196,748 5,279 2.68
Time......................... 686,788 39,033 5.68 621,791 31,214 5.02 619,151 33,327 5.38
Short-term borrowed funds..... 30,908 1,670 5.40 27,635 1,350 4.89 12,121 622 5.13
Federal Home Loan Bank
advances...................... 27,697 1,743 6.29 24,168 1,449 6.00 -- -- --
---------- -------- ----- ---------- ------- ---- ---------- -------- ----
Total interest bearing
liabilities.................. 1,329,212 61,786 4.65% 1,280,742 52,363 4.09% 1,150,561 49,488 4.30%
-------- ---- ------- ---- -------- ----
Noninterest bearing deposits.. 273,715 274,690 261,222
Other non interest bearing
liabilities................... 15,029 14,238 15,151
Stockholders' equity.......... 179,560 169,000 160,294
---------- ---------- ----------
Total liabilities and
Stockholders' equity.......... $1,797,516 $1,738,670 $1,587,228
========== ========== ==========
Net interest income/interest
rate spread(4)............... $64,310 2.84% $64,542 3.05% $59,820 3.01%
Net interest margin(5)....... 3.82% 3.94% 4.00%
----------
(1) Nonaccrual loans are included in average loans.
(2) Interest income includes loan origination fees of $905,000, $1,111,000 and
$1,121,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
(3) Non-taxable interest income is presented on a fully tax equivalent basis
assuming a 35% tax rate.
(4) Interest rate spread represents the difference between the average yield on
interest earning assets and the average cost of interest bearing
liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest earning assets.
103
RATE - VOLUME ANALYSIS. The following tables set forth the extent to which
changes in interest rates and changes in volumes of interest earning assets and
interest bearing liabilities have historically affected MidCity Financial's
interest income and interest expense for the periods presented. Information is
provided on changes in each category attributable to (i) changes due to volume
(changes in volume multiplied by prior period rate); (ii) changes due to rate
(changes in rate multiplied by current period volume); and (iii) total changes.
The combined rate and volume variances have been allocated to each category
based upon the ratio of absolute changes in each.
THREE MONTHS ENDED
MARCH 31, 2001
COMPARED TO
THREE MONTHS ENDED
MARCH 31, 2000
-------------------------------
CHANGE CHANGE
DUE TO DUE TO TOTAL
VOLUME RATE CHANGE
-------- --------- --------
(IN THOUSANDS)
INTEREST EARNING ASSETS
Loans(1)................................................... $(256) $384 $128
Investment securities:
Taxable................................................... -- 22 22
Exempt from federal income taxes(1)....................... (74) (5) (79)
Due from banks............................................. 112 (9) 103
Federal funds sold......................................... 536 (5) 531
------ ------ -------
Total decrease (increase) in interest income............... 318 387 705
------ ------ -------
INTEREST BEARING LIABILITIES
Deposits:
NOW and money market...................................... (13) 255 242
Savings deposits.......................................... 308 561 869
Time deposits............................................. (1,533) (1,143) (2,676)
Short-term borrowed funds.................................. 176 (173) 3
Federal Home Loan Bank advances............................ 18 161 179
------ ------ -------
Total decrease (increase) in interest expense.............. 1,044 (339) 1,383
------ ------ -------
(Decrease) increase in net interest income................ $(726) $48 $(678)
===== ====== =======
----------
(1) Non-taxable investment income is presented on a fully tax equivalent basis
assuming a 35% tax rate.
104
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2000 COMPARED TO 1999 1999 COMPARED TO 1998
--------------------------------- ----------------------------------
CHANGE CHANGE CHANGE CHANGE
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
VOLUME RATE CHANGE VOLUME RATE CHANGE
-------- -------- ------- ------- -------- -------
(In thousands)
INTEREST EARNING ASSETS
Loans(1)................................. $6,429 $2,782 $9,211 $12,597 $(2,764) $9,833
Investment securities:
Taxable................................. (2,795) 1,741 (1,054) (251) (1,469) (1,720)
Exempt from federal income taxes(1)..... 96 (42) 54 34 23 57
Deposits in banks........................ 31 55 86 49 (6) 43
Federal funds sold....................... 726 168 894 (534) (82) (616)
-------- -------- ------- -------- ------- -------
Total increase (decrease) in interest
income................................... 4,487 4,704 9,191 11,895 (4,298) 7,597
-------- -------- ------- -------- ------- -------
INTEREST BEARING LIABILITIES
Deposits:
NOW and money market.................... (73) (2,241) (2,314) (1,463) (118) (1,581)
Savings................................. 612 712 1,324 (1,154) (76) (1,230)
Time.................................... (3,694) (4,125) (7,819) (133) 2,246 2,113
Short-term borrowed funds................ (177) (143) (320) (758) 30 (728)
Federal Home Loan Bank advances.......... (222) (72) (294) (1,449) -- (1,449)
-------- -------- ------- -------- ------- -------
Total (increase) decrease in interest
expense.................................. (3,554) (5,869) (9,423) (4,957) 2,082 (2,875)
-------- -------- ------- -------- ------- -------
Increase (decrease) in net interest
income.................................. $933 $(1,165) $(232) $6,938 $(2,216) $4,722
======== ======== ======= ======== ======= =======
----------
(1) Non-taxable investment income is presented on a fully tax equivalent basis
assuming a 35% tax rate.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001
AND 2000
GENERAL. Year to date net income for the three-month period ending March
31, 2001 of $4.3 million is $445,000, or 11.40%, above the total of $3.9 million
for the same 2000 period. Key ratios also improved, with return on average
assets increasing nine basis points, from 0.87% for the first quarter of 2000 to
0.97% for the first quarter of 2001, and return on average equity growing by
thirty-two basis points, from 8.89% for the first quarter of 2000 to 9.25% for
the first quarter of 2001.
NET INTEREST INCOME. Net interest income decreased $645,000, or 4.08%, to
$15.2 million for the three-month period ended March 31, 2001 from $15.8 million
in the comparable 2000 period. The decline in net interest income resulted from
a $1.4 million, or 9.60%, increase in interest expense which was partially
offset by a $738,000, or 2.44%, increase in interest income. Interest income
rose primarily due to a $33.9 million, or 2.02%, increase in average earning
assets, while interest expense grew as average total interest bearing
liabilities increased by $31.3 million, or 2.36%, and the cost of these
liabilities increased by thirty-five basis points to 4.71%. The growth in
average earning assets occurred primarily in average federal funds sold, which
increased by $39.9 million, or 330.85%, to $51.9 million. The increase in
average interest bearing liabilities resulted from a $106.1 million, or 16.74%,
increase in average time deposits which was partially offset by a $62.4 million,
or 24.45%, decline in average savings deposits as depositors repositioned their
funds into higher yielding time deposit products. MidCity Financial's net
interest margin expressed on a fully tax-equivalent basis for the three-month
period ended March 31, 2001 of 3.72% represents a twenty basis point decline
from 3.92% for the comparable period in 2000.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $10,000 for
the first three months of 2001, a decline of $1.3 million from the same period
in 2000 due to the expectation in 2000 of an increase in charge-offs as a result
of deterioration in a number of large commercial real estate loans. The
allowance for loan losses represented 1.37% of total loans at March 31, 2001
compared to 1.12% of total loans at March 31, 2000. Management believes the
allowance for loan losses is adequate to cover probable loan losses within the
loan portfolio during the three months ended March 31, 2000 and 2001.
105
NON-INTEREST INCOME. Non-interest income increased by $882,000, or 35.55%,
to $3.4 million for the three months ended March 31, 2001, compared to $2.5
million for the same period in 2000. The increase is attributable to $887,000 in
gains realized on the sale of available for sale securities during the 2001
period. Trust fees decreased $88,000 due to lower market values on trust assets
upon which fees are based.
NON-INTEREST EXPENSE. Non-interest expense declined $394,000, or 3.21%, to
$11.9 million for the three-months ended March 31, 2001 from $12.3 million for
the comparable 2000 period. The decrease is attributable to expenses accrued
during the first three months of 2000 related to strategic initiatives MidCity
Financial was exploring.
INCOME TAXES. MidCity Financial recorded income tax expense of $2.3 million
for the three months ended March 31, 2001, an increase of $1.4 million compared
to $858,000 for the comparable 2000 period. The increase reflects a $1.9 million
increase in income before taxes in 2001. The effective tax rate increased to
34.6% for the three-months ended March 31, 2001 from 18.0% for the three month
period ended March 31, 2000. The increase in the effective rate in 2001 was
due to the reversal of a portion of valuation reserves on state income tax net
operating loss carryforwards.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND
1999
GENERAL. MidCity Financial's net income was $15.3 million for the year
ended December 31, 2000, a decrease of $3.1 million, or 16.63%, compared to net
income of $18.4 million for the year ended December 31, 1999. Key ratios also
declined, with return on average assets decreasing from 1.06% for 1999 to .85%
for 2000 and return on average equity declining from 10.90% for 1999 to 8.55%
for 2000.
NET INTEREST INCOME. Net interest income decreased $185,000, or .30%, to
$62.1 million for the year ended December 31, 2000, from $62.3 million for 1999.
The slight decline in net interest income resulted from a $9.2 million, or
8.06%, increase in interest income that was offset by a $9.4 million, or 18.00%,
increase in interest expense. Interest income rose as average earning assets
increased by $45.9 million, or 2.80%, and their fully taxable equivalent yield
increased by thirty-five basis points to 7.49%. Interest expense grew as average
total interest bearing liabilities increased by $48.5 million, or 3.78%, and
their cost increased by fifty-seven basis points to 4.65%. The growth in average
earning assets occurred primarily in average loans, which increased by $76.6
million, or 8.78% to $949.6 million, reflecting the July 1, 1999 acquisition of
Damen Financial Corporation. The increase in average interest bearing
liabilities resulted from a $65.0 million, or 10.45%, increase in average time
deposits, reflecting the Damen acquisition and depositors' repositioning of
their funds into higher yielding time deposit products. MidCity Financial's net
interest margin expressed on a fully tax-equivalent basis for the year ended
December 31, 2000 of 3.82% represents thirteen basis point decline from 3.95%
for 1999.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased $3.7
million to $5.1 million for the year ended December 31, 2000 from $1.4 million
for the year ended December 31, 1999 due to an increase in non-performing loans
and charge-offs on a number of large commercial real estate loans. The allowance
for loan losses represented 1.35% of total loans at December 31, 2000 compared
to .98% of total loans at December 31, 1999. Management believes the allowance
for loan losses is adequate to absorb probable loan losses within the loan
portfolio.
NON-INTEREST INCOME. Non-interest income decreased $861,000, or 8.13%, to
$9.7 million for the year ended December 31, 2000, from $10.6 for 1999. The
decline is attributable to a $834,000 decrease in service charges on deposit
accounts related to lower volumes of non-sufficient fund fees and analysis fees.
NON-INTEREST EXPENSE. Non-interest expense increased $3.6 million, or
7.98%, to $48.1 million for the year ended December 31, 2000 from $44.6 million
for 1999. The increase is attributable to expenses accrued during 2000 for costs
related to strategic initiatives the company was exploring and salary, premises
and related expenses resulting from the Damen Financial Corporation acquisition.
INCOME TAXES. MidCity Financial recorded income tax expense of $3.3 million
for the year ended December 31, 2000, a decrease of $5.2 million from the
expense for 1999. The decrease reflects a $8.3 million decline in income
106
before taxes to $18.6 million for the year ended December 31, 2000 from $26.9
million for 1999 and a state income tax net operating loss valuation
allowance reversal recorded during 2000.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
1998
GENERAL. MidCity Financial's net income was $18.4 million for the year
ended December 31, 1999, an increase of $1.9 million, or 11.83%, from net income
of $16.5 million for the year ended December 31, 1998. Key ratios improved, with
return on average assets increasing to 1.06% for 1999 from 1.04% for 1998 and
return on average equity increasing to 10.90% for 1999 from 10.28% for 1998.
NET INTEREST INCOME. Net interest income increased $4.6 million, or 8.03%,
to $62.3 million for the year ended December 31, 1999, from $57.7 million for
the year ended December 31, 1998. The growth in net interest income resulted
from a $7.5 million, or 7.01%, increase in interest income that was partially
offset by a $2.9 million, or 5.81%, increase in interest expense. Interest
income rose as average earning assets increased by $143.3 million, or 9.59%,
offsetting a decline in their fully taxable equivalent yield of 17 basis points
to 7.14%. Interest expense grew as average total interest bearing liabilities
increased by $130.2 million, or 11.31%, while their cost decreased by thirty-two
basis points to 4.08%. The growth in average earning assets occurred primarily
in average loans, which increased by $156.9 million, or 21.77%, to $873.0
million. The increase in average interest bearing liabilities resulted from a
$90.5 million, or 7.95%, increase in average interest bearing deposits and a
$24.2 million increase in average Federal Home Loan Bank advances. The growth of
both interest earning assets and interest bearing liabilities is attributable to
MidCity Financial's acquisition of Damen Financial Corporation on July 1, 1999.
MidCity Financial's net interest margin expressed on a fully tax-equivalent
basis for the year ended December 31, 1999 of 3.95% represents five basis point
decline from 4.00% for 1998.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased $635,000
to $1.41 million for the year ended December 31, 1999 from $770,000 for the year
ended December 31, 1998. The increase was due primarily to an increase in
non-performing loans. The allowance for loan losses represented .98% of total
loans at December 31, 1999 compared to 1.23% of total loans at December 31,
1998. Management believes the allowance for loan losses was adequate to cover
probable losses within the loan portfolio at December 31, 1999 and 1998.
NON-INTEREST INCOME. Non-interest income grew $634,000, or 6.37%, to $10.6
million for the year ended December 31, 1999, from $10.0 million for 1998. The
increase is primarily attributable to increases in ATM network revenues, due to
implementation of new non-customer ATM fees, and income from fiduciary
activities of $481,000 and $193,000, respectively.
NON-INTEREST EXPENSE. Non-interest expense increased $1.5 million, or
3.38%, to $44.6 million for the year ended December 31, 1999 from $43.1 million
for 1998. The increase is attributable to increased fixed asset depreciation in
1999 related to buildings and equipment acquired from Damen Financial
Corporation and additional depreciation related to upgrades to MidCity
Financial's computer network. In 1998, professional fees included consulting
fees paid for a revenue enhancement and cost reduction engagement.
INCOME TAXES. MidCity Financial recorded income tax expense of $8.5 million
for the year ended December 31, 1999, up $1.2 million from 1998. The increase
reflects a $3.2 million increase in income before taxes to $26.9 million for the
year ended December 31, 1999 from $23.7 million for 1998. The effective tax rate
in 1999 was 31.5% compared to 30.5% in 1998.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2001 TO DECEMBER 31, 2000
Total assets increased by $4.9 million, or 0.27%, from $1.829 billion at
December 31, 2000 to $1.834 billion at March 31, 2001. The increase in total
assets at March 31, 2001 was comprised of a $36.5 million increase in federal
funds sold, offset by declines in total loans, cash and due from banks and other
assets of $15.4 million, $14.1 million and $5.1 million, respectively. Within
the investment securities category, available for sale securities increased by
$662.5 million and held to maturity securities declined by $660.3 million as the
held to maturity portfolio was reclassified as available for sale during the
first quarter of 2001 in conjunction with the adoption of Statement of
107
Financial Accounting Standards No. 133. Total liabilities showed little
change during the three months ended March 31, 2001, declining $3.9 million,
or .24%, from $1.643 billion at December 31, 2000 to $1.639 billion at March
31, 2001. The deposit base showed little change, declining $848,000, or .05%,
to $1.571 billion at March 31, 2001. Federal Home Loan Bank advances declined
by $2.0 million as these were acquired in the Damen transaction and are not
being renewed upon maturity. Stockholders' equity increased by $8.8 million,
or 4.76%, reflecting an increase of $6.1 million in unrealized holding gains
on securities primarily due to the reclassification of the investment
portfolio.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2000 TO DECEMBER 31, 1999
Total assets increased by $31.2 million, or 1.74%, from $1.797 billion at
December 31, 1999 to $1.829 billion at December 31, 2000 as cash and due from
banks and Federal funds sold increased by $10.7 million and $22.1 million,
respectively. Total liabilities increased $20.9 million, or 1.29%, from $1.622
billion at December 31, 1999 to $1.643 billion at December 31, 2000. Deposits
increased by $25.2 million, or 1.63%, and short term borrowed funds increased by
$8.0 million, while Federal Home Loan Bank advances declined by $13.0 million,
or 37.14% as maturing advances were not renewed. Stockholders' equity increased
by $10.3 million, or 5.88%, from $175.3 million at December 31, 1999 to $185.6
million at December 31, 2000.
ASSET QUALITY
GENERAL. MidCity Financial manages asset quality through various control,
monitoring and review procedures. Asset quality is important in two areas: the
credit quality of securities in MidCity Financial's investment portfolio and the
credit quality of loans in MidCity Financial's loan portfolio. With regard to
the investment portfolio, it is MidCity Financial's policy to only invest in
securities of the U.S. Treasury and agencies of, and corporations sponsored by,
the U.S. Government, corporate and municipal securities rated in one of the top
three grading categories by Standard & Poor's or Moody's, local municipal
non-rated securities for which MidCity Financial and its subsidiary banks have
sufficient credit information to render an informed credit decision, or
certificates of deposit, if federally insured. Consequently, MidCity Financial
maintains a high quality investment portfolio that has no nonaccruing or past
due securities. The quality of loans in the loan portfolio is evidenced by the
level of non-performing loans and assets as well as potential problem loans,
which are discussed below.
NON-PERFORMING LOANS AND NON-PERFORMING ASSETS. Non-performing loans
include (i) loans accounted for on a non-accrual basis, (ii) accruing loans
contractually past due 90 days or more as to interest and principal; and (iii)
loans the terms of which have been renegotiated to provide reduction or deferral
of interest or principal because of a deterioration in the financial position of
the borrower. Management reviews the loan portfolio for problem loans on an
ongoing basis. During the ordinary course of business, management becomes aware
of borrowers that may not be able to meet the contractual requirements of loan
agreements. Such loans are placed under close supervision with consideration
given to placing the loan on a non-accrual status, increasing the allowance for
loan losses, and, if appropriate, partial or full charge-off. Those loans with
respect to which management does not expect to collect interest in the normal
course of business are placed on a non-accrual status. After a loan is placed on
non-accrual status, any current year interest previously accrued by not yet
collected is reversed against current income. If interest payments are received
on non-accrual loans, these payments will be applied to principal and not taken
into income. Loans will not be placed back on accrual status unless all back
interest and principal payments are made. If interest on non-accrual loans had
been accrued, such income would have amounted to $225,000, $667,000 and $412,000
for the three months ended March 31, 2001 and the years ended December 31, 2000
and 1999, respectively.
Non-performing assets consist of other real estate owned (referred to below
as "OREO"), which represents properties acquired through foreclosure or other
proceedings and is recorded at the lower of cost or fair value less the
estimated cost of disposal. OREO is evaluated regularly to ensure that the
recorded amount is supported by its current fair value. Valuation allowances to
reduce the carrying amount to fair value less estimated costs of disposal are
recorded as necessary. Revenues and expenses from the operations of OREO and
changes in the valuation are included in other income and other expenses on the
statements of income.
108
The following table sets forth the amounts of non-performing loans and
non-performing assets at the dates indicated.
AT AT DECEMBER 31,
MARCH 31, ------------------------------------------------------
2001 2000 1999 1998 1997 1996
--------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
Non-performing loans:
Non-accrual loans ...................... 4,948 6,513 5,842 1,506 1,094 2,272
Loans 90 days or more past due, still
accruing interest .................... 3,912 4,242 458 971 39 858
Restructured loans ..................... -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total .................................. 8,860 10,755 6,300 2,477 1,133 3,130
Other real estate owned ................ 505 505 756 372 416 486
------ ------ ------ ------ ------ ------
Total non-performing assets ............ 9,365 11,260 7,056 2,429 1,549 3,616
====== ====== ====== ====== ====== ======
Non-performing loans to total loans .... 0.94% 1.12% 0.66% 0.26% 0.16% 0.49%
Allowance for loan losses to
non-performing loans ................. 146.00% 120.86% 149.37% 465.18% 824.45% 273.10%
Non-performing assets to total assets .. 0.51% 0.62% 0.39% 0.15% 0.10% 0.25%
The increase in non-accrual loans of $4.3 million from December 31, 1998 to
December 31, 1999 is directly attributable to two loans totaling $3.8 million.
Of this $3.8 million amount, $2.0 million represented a loan secured by a first
lien on real estate and $1.8 million represented a loan secured by a mix of
collateral. As of March 31, 2001, non-accrual loans consisted of 42 loans
totaling $4.9 million. Of these loans, $1.6 million are secured by a first lien
on real estate and $3.3 million is secured by a mix of collateral. Management is
aggressively pursuing collection efforts with respect to these non-performing
loans.
The increase in loans 90 days or more past due, still accruing interest, of
$3.8 million from December 31, 1999 to December 31, 2000 is due to one $3.5
million commercial real estate loan. The loan is secured by a first lien on real
estate with an estimated fair market value of $5.2 million, and cash collateral
of $1.6 million. As of March 31, 2001, the loan was still accruing interest.
As of March 31, 2001, four real estate properties remain in OREO totaling
$505,000. Of these properties, $329,000 represents a commercial real estate
property held by Union Bank and Trust Company. This property is currently under
contract for sale for an amount that would result in a gain. The remaining
properties are listed with real estate agents and are being marketed to the
public.
POTENTIAL PROBLEM LOANS. MidCity Financial's subsidiary banks utilize an
internal asset classification system as a means of reporting problem and
potential problem assets. At each scheduled bank board of directors meeting, an
analysis of allowance for loan losses is presented, showing all loans listed as
"special mention," "substandard," and "doubtful." An asset is classified
substandard if it is inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include those characterized by the distinct possibility that the bank will
sustain some loss if the deficiencies are not corrected. Assets classified as
doubtful have all the weaknesses inherent in those classified substandard with
the added characteristic that the weaknesses present make collection or
liquidation in full, on the basis of currently existing facts, conditions and
values, highly questionable and improbable. Assets considered uncollectible and
viewed as non-bankable assets are immediately charged-off to the allowance for
loan losses. Assets which do not currently expose the bank to sufficient risk to
warrant classification in one of the aforementioned categories, but possess
weaknesses which may or may not be out of the control of the customer, are
deemed to be special mention.
When a subsidiary bank classifies one or more assets, or portions thereof,
as substandard or doubtful, the bank may establish a specific valuation
allowance for loan losses in an amount deemed prudent by management. In
contrast, general valuation allowances for loan losses are established for each
loan category using the bank's five year historical charge-off history, net of
recoveries.
109
The determination by each subsidiary bank as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
bank's primary regulators, which can order the establishment of additional
general or specific loss allowances. The Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation, in conjunction with the
other federal banking agencies, have adopted an interagency policy statement on
the allowance for loans and lease losses. The policy statement provides guidance
for financial institutions on both the responsibilities of management for the
assessment and establishment of adequate allowances and guidance for banking
agency examiners to use in determining the adequacy of general valuation
guidelines. Generally, the policy statement recommends that (i) institutions
have effective systems and controls to identify, monitor and address asset
quality problems; (ii) management analyze all significant factors that affect
the collectibility of the portfolio in a reasonable manner; and (iii) management
establish acceptable allowance evaluation processes that meet the objectives set
forth in the policy statement. Management believes it has established an
adequate allowance for possible loan losses. There can be no assurance, however,
that the regulators, in reviewing MidCity Financial's loan portfolio, will not
request its subsidiary banks to materially increase their allowance for loan
losses at the time. Although MidCity Financial's management believes that
adequate specific and general loan loss allowances have been established, actual
losses are dependent upon future events and, as such, further additions to the
level of specific and general loan loss allowances may become necessary.
The aggregate principal amounts of potential problem loans rated
substandard or doubtful, excluding non-performing loans, as of March 31, 2001
and December 31, 2000, were approximately $9.8 million and $8.5 million,
respectively. All loans deemed uncollectible have been charged-off. These loans
generally include loans that were classified for regulatory purposes.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is an amount that
MidCity Financial's management believes will be adequate to absorb probable
losses on existing loans, based on an evaluation of the collectibility of loans
and prior loss experience. This evaluation also takes into consideration such
factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions that may affect the borrower's ability to pay. While management uses
the best information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses of each
of MidCity Financial's subsidiary banks, and may require the banks to make
additions to their allowance, based on the regulators judgment about information
available to them at the time of their examinations.
110
The following table presents an analysis of the allowance for loan losses
for the periods presented.
THREE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -------------------------------------------------------
2001 2000 1999 1998 1997 1996
--------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
Allowance at beginning of period ....... 12,999 9,410 9,564 9,341 8,548 8,973
Additions resulting from
acquisitions ......................... -- -- 465 -- 395 --
Charge-offs:
Commercial and industrial loans ... 60 704 944 132 75 1,099
Real estate loan .................. -- 610 1,095 32 27 89
Consumer loans .................... 58 387 234 573 450 413
Other loans ....................... -- 20 115 -- -- --
------ ------ ----- ----- ----- -----
Total charge-offs ...................... 118 1,721 2,388 737 552 1,601
------ ------ ----- ----- ----- -----
Recoveries:
Commercial and industrial loans ... 12 98 184 53 100 140
Real estate loans ................. 4 16 18 15 107 12
Consumer loans .................... 29 114 162 122 98 106
Other loans ....................... -- 9 -- -- -- --
------ ------ ----- ----- ----- -----
Total recoveries .................. 45 237 364 190 305 258
------ ------ ----- ----- ----- -----
Net charge-offs ........................ 73 1,484 2,024 547 247 1,343
Provision for loan losses .............. 10 5,073 1,405 770 645 918
------ ------ ----- ----- ----- -----
Allowance at end of period ............. 12,936 12,999 9,410 9,564 9,341 8,548
====== ====== ===== ===== ===== =====
Allowance to total loans ............... 1.37% 1.35% 0.98% 1.23% 1.36% 1.33%
Net charge-offs to average loans ....... 0.01% 0.16% 0.23% 0.08% 0.04% 0.22%
The following table sets forth the allocation of the allowance for loan
losses for the periods presented and the percentage of loans in each category to
total loans. An allocation for a loan classification is only for internal
analysis of the adequacy of the allowance and is not an indication of expected
or anticipated losses. The allowance is available for all loan losses.
YEAR ENDED DECEMBER 31,
AT MARCH 31, -----------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------- ------- ------ ------- ------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
Commercial
and industrial
loans.......... $3,970 29.43% $4,170 29.80% $4,416 28.12% $2,837 32.91% $1,687 31.62% $1,504 31.62%
Real estate
loans.......... 6,315 67.62 6,262 67.10 4,557 67.97 5,910 60.68 5,533 60.07 5,134 58.72
Consumer loans 310 2.73 353 2.90 436 3.70 525 6.15 499 7.95 674 9.29
Other.......... 1 0.22 2 0.20 1 0.21 1 0.26 1 0.36 -- 0.37
Unallocated.... 2,340 -- 2,212 -- -- -- 291 -- 1,621 -- 1,236 --
------- ------ ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total......... $12,936 100.00% $12,999 100.00% $9,410 100.00% $9,564 100.00% $9,341 100.00% $8,548 100.00%
======= ====== ======= ====== ====== ====== ====== ====== ====== ====== ====== ======
MidCity Financial's loan quality is continually monitored by management and
is reviewed by the boards of directors and the loan discount committees of the
subsidiary banks' on a monthly basis. In addition, independent external review
of the loan portfolio is conducted by regulatory authorities. The amount of
additions to the allowance for loan losses which are charged to earnings through
the provision for loan loans is determined based on a variety of factors,
including actual charge-offs and anticipated charge-offs, delinquent loans,
historical loss experience and economic conditions in the subsidiary banks'
market areas. Although management believes the allowance for loan
111
losses is sufficient to cover probable losses, there can be no assurance that
the allowance will prove sufficient to cover actual loan losses in the future.
ASSET LIABILITY MANAGEMENT
MidCity Financial's net interest income is subject to interest rate risk to
the extent that it can vary based on changes in the general level of interest
rates. It is MidCity Financial's policy to maintain an acceptable level of
interest rate risk over a range of possible changes in interest rates while
remaining responsive to market demand for loan and deposit products. The
strategy employed by MidCity Financial to manage its interest rate risk is to
measure its risk using an asset/liability simulation model and adjust the
maturity of securities in its investment portfolio to manage that risk. Also, to
limit risk, MidCity Financial generally does not make fixed rate loans or accept
fixed rate deposits with terms in excess of five years.
Based upon simulation modeling, as of December 31, 2000 and March 31, 2001,
respectively, MidCity Financial's net interest income would be expected to
change over a one year time period due to changes in interest rates as follows:
CHANGE IN CHANGE IN
NET INTEREST INCOME NET INTEREST INCOME
OVER ONE-YEAR HORIZON OVER ONE-YEAR HORIZON
AS OF DECEMBER 31, 2000 AS OF MARCH 31, 2001
CHANGES IN ------------------------------- -------------------------------
LEVEL OF DOLLAR PERCENTAGE DOLLAR PERCENTAGE
INTEREST RATES CHANGE CHANGE CHANGE CHANGE
-------------- ------ ---------- ------ ----------
(Dollars in Thousands)
+2.00% $(3,564) (5.75)% $(3,128) (4.95)%
+1.00 (1,716) (2.77) (1,359) (2.15)
(1.00) 838 1.35 665 1.05
(2.00)% $ 955 1.54% $ 624 0.99%
Simulations used by MidCity Financial assume the following:
1. Changes in interest rates are immediate.
2. With the exception of NOW, money market and savings accounts, all
interest rates change by same amount at the same time.
3. NOW, money market and savings accounts rates change by 0.20%, 0.50%
and 0.33%, respectively, for every 1.00% change in interest rates and
by 0.40%, 1.00% and 0.67% for every 2.00% change in interest rates.
MidCity Financial's management believes, and experience has shown,
that these deposit accounts take longer to change rates when economic
conditions change and do not change as much as general interest rates,
such as federal funds. It is MidCity Financial's policy that interest
rate exposure due to a 2.00% interest rate rise or fall be limited to
10.00% of MidCity Financial's net interest income as forecasted by the
simulation model. As demonstrated above, MidCity Financial's interest
rate risk exposure was within this policy at December 31, 2000 and
March 31, 2001.
Interest rate risk can also be measured by analyzing the extent to which
the repricing of assets and liabilities are mismatched to create interest
sensitivity "gap." An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or reprice within that time
period. The interest rate sensitivity gap is defined as the difference between
the amount of interest earning assets maturing or repricing within a specific
time period and the amount of interest bearing liabilities maturing or repricing
within the same time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
112
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income. Conversely, during a period of falling interest
rates, a negative gap position would tend to result in an increase in net
interest income.
The following table sets forth the amounts of interest earning assets and
interest bearing liabilities outstanding as of March 31, 2001 which are
anticipated by MidCity Financial, based upon certain assumptions, to reprice or
mature in the future time periods shown. Except as stated below, the amount of
assets and liabilities shown to reprice or mature within a particular time
period were determined based on the earlier of the term to repricing or the term
to repayment of the asset or liability. The table is intended to provide an
approximation of the repricing of assets and liabilities at March 31, 2001 on
the basis of contractual maturities and scheduled rate adjustments within a
three-month period and subsequent selected time intervals. The loan amounts in
the table reflect principal balances expected to be reinvested and/or repriced
as a result of contractual amortization and rate adjustment on adjustable rate
loans. Except for instruments which prepayments can be reasonably estimated, no
prepayments are assumed. While NOW, money market and savings deposit accounts
have adjustable rates, it is assumed that the rates on these accounts will not
adjust immediately to changes in other interest rates. Therefore, the table is
calculated assuming that the percentage of accounts that will reprice in the
first three months, the next nine months, one to five years and over five years
are approximately 13%, 40%, 36% and 11% respectively, for NOW and money market
accounts and approximately 17%, 50%, 16% and 17% respectively, for savings
deposits.
TIME TO MATURITY OR REPRICING
---------------------------------------------------------------------
0-90 91-365 1-5 OVER 5
AS OF MARCH 31, 2001 DAYS DAYS YEARS YEARS TOTAL
-------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
INTEREST EARNING ASSETS:
Net Loans ................................... $296,654 $ 191,560 $ 373,548 $ 82,985 $ 944,747
Investment securities ....................... 85,851 185,862 416,847 23,731 712,291
Federal funds sold .......................... 66,275 -- -- -- 66,275
Cash and due from banks ..................... 12,525 97 190 -- 12,812
-------- ---------- ---------- ---------- ----------
Total interest earnings assets ......... $461,305 $ 377,519 $ 790,585 $ 106,716 $1,736,125
======== ========== ========== ========== ==========
INTEREST BEARING LIABILITIES:
NOW and money market deposit
accounts .................................. $ 50,951 $ 152,791 $ 135,415 $ 36,691 $ 378,848
Savings deposits ............................ 32,507 97,519 30,931 33,421 194,378
Time deposits ............................... 292,362 364,283 91,127 7 747,779
Federal funds purchased and repos ........... 33,275 -- -- -- 33,275
Federal Home Loan Bank advances ............. 6,000 6,000 8,000 -- 20,000
-------- ---------- ---------- ---------- ----------
Total interest bearing liabilities ..... $415,095 $ 620,593 $ 265,473 $ 73,119 $1,374,280
======== ========== ========== ========== ==========
Rate sensitive assets (RSA) ................. $461,305 838,824 1,629,409 1,736,259 1,736,125
Rate sensitive liabilities (RSL) ............ 415,095 1,035,688 1,301,161 1,374,280 1,374,280
Cumulative GAP .............................. 46,210 (196,864) 328,248 361,845 361,845
(GAP = RSA-RSL)
RSA/Total assets ............................ 25.15 45.74 88.84 94.66 94.66
RSL/Total assets ............................ 22.63 56.47 70.95 74.93 74.93
GAP/Total assets ............................ 2.52 (10.73) 17.90 19.73 19.73
GAP/RSA ..................................... 10.02 (23.47) 20.15 20.84 20.84
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while rates on other types of assets may lag behind changes in
market
113
rates. Additionally, in the event of a change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed in calculating the table. Therefore, MidCity Financial does not rely
solely on a gap analysis to manage its interest rate risk, and also uses what
it believes to be the more reliable simulation model relating to changes in
net interest income presented earlier.
LIQUIDITY
LIQUIDITY OF THE SUBSIDIARY BANKS. The primary sources of funds for MidCity
Financial's subsidiary banks are retail and commercial deposits, federal funds
purchases, term and overnight repurchase agreements, Federal Home Loan Bank
advances, and funds generated from operations. Funds from operations include
principal and interest payments received and loans and securities and proceeds
from the sale of securities and loans. While maturities and scheduled
amortization of loans and securities provide an indication of the timing of the
receipt of funds, changes in interest rates, economic conditions and competition
strongly influence mortgage prepayment rates and deposit flows, reducing the
predictability of the timing of sources of funds.
MidCity Financial's subsidiary banks have no required regulatory liquidity
ratios to maintain; however, the banks adhere to MidCity Financial
Asset/Liability Management and Loan policies, approved by MidCity Financial's
board of directors, which set certain guidelines for liquidity purposes. These
policies require MidCity Financial's subsidiary banks to maintain the following
ratios:
1. Liquidity ratio (defined as cash, short-term investments, and
marketable securities due in one year or less divided by deposits plus
short-term liabilities) greater than 30%.
2. Loans to total assets less than 80%.
3. Loans to deposits and repurchase agreements less than 75%.
At March 31, 2001, the subsidiary banks maintained the liquidity ratios
required by the policies. If a bank's loan to deposit ratio were to become
higher than policy guidelines, the bank might attempt to meet this demand by
selling loans or investment securities.
In the event that additional short-term liquidity is needed, MidCity
Financial's subsidiary banks have established agreements with several large
regional banks to provide short-term borrowings in the form of federal funds
purchases. These agreements allow MidCity Financial's subsidiary banks to borrow
more than $98 million from these regional banks on a collective basis.
Additionally, several of MidCity Financial's subsidiary banks are members of the
Federal Home Loan Banks and have the ability to borrow funds in the form of
Federal Home Loan Bank advances. As of March 31, 2001, federal funds purchased
and Federal Home Loan Bank advances totaled $1 million and $20 million,
respectively.
HOLDING COMPANY LIQUIDITY. MidCity Financial's main sources of liquidity at
the holding company level are dividends from its subsidiary banks and a line of
credit maintained with a large regional correspondent bank in the amount of $10
million.
MidCity Financial's subsidiary banks are subject to various regulatory
capital requirements administered by federal and state banking agencies, which
affect their ability to pay dividends to MidCity Financial. Failure to meet
minimum capital requirements can initiate certain mandatory and discretionary
actions by regulators that, if undertaken, could have a direct material effect
on MidCity Financial's financial statements. Additionally, the policy of each of
MidCity Financial's subsidiary banks requires that dividends cannot be declared
in an amount that would cause the bank's capital to fall below the minimum
amount required for the bank to be considered "well capitalized" for regulatory
purposes. At March 31, 2001, MidCity Financial's subsidiary banks could pay an
aggregate of $62 million in dividends and continue to be "well capitalized."
114
CAPITAL RESOURCES
MidCity Financial's subsidiary banks are subject to the risk based
capital guidelines administered by the federal banking agencies. The risk
based capital guidelines are designed to make regulatory capital requirements
more sensitive to differences in risk profiles among banks to account for
off-balance sheet exposure and to minimize disincentives for holding liquid
assets. Under the guidelines, assets and off-balance sheet items are assigned
to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk weighted
assets and off-balance sheet items. Under the prompt corrective action
regulations, to be adequately capitalized, a bank must maintain minimum
ratios of total capital to risk-weighted assets of 8%, Tier 1 capital to
risk-weighted to risk-weighted assets of 4%, and Tier 1 capital to total
assets of 3%. Failure to meet these capital requirements can initiate certain
mandatory, and possibly additional discretionary actions by regulators, that,
if undertaken, could have a material adverse effect on MidCity Financial. As
of March 31, 2001, the most recent notification from the federal banking
regulators categorized each of MidCity Financial's subsidiary banks as well
capitalized. A well capitalized institution must maintain a minimum ratio of
total capital to risk-weighted assets of at least 10%, a minimum ratio of
Tier 1 capital to risk-weighted assets of at least 6%, a minimum ratio of
Tier 1 capital to total assets of at least 5% and must not be subject to any
written order, agreement or directive requiring it to meet or maintain a
specific capital level. There are no conditions or events since that
notification the Management believes have changed the Subsidiary Banks'
capital classification. MidCity Financial, on a consolidated basis, must
maintain a minimum ratio of Tier 1 capital to total assets of 4%, and a
minimum ratio of total capital to risk-weighted assets of 8%.
115
MidCity Financial and the Subsidiary Banks were in full compliance with all
capital adequacy requirements to which they are subject as of December 31, 2000
and March 31, 2001, respectively. The required and actual amounts and ratios for
MidCity Financial and its subsidiary Banks as of March 31, 2001 (unaudited) are
presented below. For additional information regarding regulatory capital
requirements, see "Supervision and Regulation--Capital Adequacy" and "--Prompt
Corrective Action."
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION REGULATIONS
------------------- ------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
Total capital ( to risk-weighted assets):
MidCity Financial Consolidated $183,930 16.77 $87,733 8.00 $109,666 10.00
Mid-City National Bank of Chicago 77,682 13.38 46,443 8.00 58,054 10.00
First National Bank of Morton Grove 23,882 12.20 15,654 8.00 19,568 10.00
First National Bank of Elmhurst 14,088 13.13 8,585 8.00 10,732 10.00
Union Bank & Trust 23,742 15.58 12,188 8.00 15,235 10.00
Abrams Centre National Bank 9,603 19.06 4,030 8.00 5,037 10.00
Tier 1 capital (to risk-weighted assets):
MidCity Financial Consolidated 170,993 15.59 43,866 4.00 65,799 6.00
Mid-City National Bank of Chicago 71,589 12.33 23,222 4.00 34,832 6.00
First National Bank of Morton Grove 21,964 11.22 7,827 4.00 11,741 6.00
First National Bank of Elmhurst 12,877 12.00 4,293 4.00 6,439 6.00
Union Bank & Trust 21,826 14.33 6,094 4.00 9,141 6.00
Abrams Centre National Bank 8,729 17.33 2,015 4.00 3,022 6.00
Tier 1 capital (to total average assets):
MidCity Financial Consolidated 170,993 9.48 32,900 3.00 54,833 5.00
Mid-City National Bank of Chicago 71,589 7.59 28,300 3.00 47,167 5.00
First National Bank of Morton Grove 21,964 7.18 9,181 3.00 15,302 5.00
First National Bank of Elmhurst 12,877 7.72 5,002 3.00 8,337 5.00
Union Bank & Trust 21,826 7.57 8,655 3.00 14,425 5.00
Abrams Centre National Bank 8,729 9.62 2,722 3.00 4,537 5.00
CASH FLOWS
MidCity Financial's cash flows are comprised of the following categories:
cash flows from operating activities, cash flows from investing activities and
cash flows from financing activities. Net cash provided by operating activities,
consisting primarily of earnings, was $21.5 million for the year ended December
31, 2000, $19.2 million for the year ended December 31, 1999 and $23.9 for the
year ended December 31, 1998 and $5.2 million for the three months ended March
31, 2001 and $2.5 million for the three months ended March 31, 2000. Net cash
used in investing activities, consisting primarily of loan and investment
funding, was $3.2 million, $2.0 million and $85.1 million for the years ended
December 31, 2000, 1999 and 1998, respectively, and net cash provided by
investment activities was $21.8 million and $29.6 million for the three months
ended March 31, 2001 and March 31, 2000, respectively. The 1998 figure includes
a higher level of investment and loan funding, while 1999 includes amounts
related to the Damen acquisition. Net cash provided by (used in) financing
activities, consisting principally of deposit growth and other borrowings, was
$14.5 million, $(25.9) million and $65.8 million for the years ended December
31, 2000, 1999 and 1998, respectively, and ($4.7) million and ($27.7) million
from the three months ended March 31, 2001 and 2000, respectively. The 1998
figure includes a $67 million increase in deposits, primarily related to the
Damen acquisition, while 1999 reflects a $10.1 million decline in deposits and
repayment of $19.5 million of Federal Home Loan Bank advances.
116
RECENT ACCOUNTING DEVELOPMENTS
In September 1999, the Financial Accounting Standards Board issued an
exposure draft on business combinations and intangible assets. In December 2000,
the Financial Accounting Standards Board reached a tentative decision to modify
the approach taken in the exposure draft regarding goodwill. Under the revised
approach, goodwill would not be amortized against earnings. Instead, goodwill
would be reviewed for impairment and written down and expensed only in the
period in which the recorded value exceeded its fair value. The tentative
decision would require goodwill to be reviewed upon occurrence of events
indicating that goodwill of the reporting unit might be impaired. Amortization
of currently recorded goodwill would cease based upon transition guidance in the
standard. A final decision by the Financial Accounting Standards Board on the
treatment of this issue has not yet been made.
It is expected that if the final pronouncement is issued consistent with
the tentative conclusions, the financial condition and results of operations of
MidCity Financial would be significantly affected due to the elimination of
goodwill amortization expense.
SUPERVISION AND REGULATION
GENERAL
MB Financial and MidCity Financial and their bank subsidiaries are, and the
new company and its bank subsidiaries after the merger will be, subject to an
extensive system of banking laws and regulations that are intended primarily for
the protection of customers and depositors and not for the protection of
security holders. These laws and regulations govern such areas as permissible
activities, reserves, loans and investments, and rates of interest that can be
charged on loans. Described below are the material elements of selected laws and
regulations. The descriptions are not intended to be complete and are qualified
in their entirety by reference to the full text of the statutes and regulations
described.
BANK HOLDING COMPANY REGULATION. Each of MB Financial and MidCity Financial
is, and the new company after the merger will be, a bank holding company
registered with the Board of Governors of the Federal Reserve System. Bank
holding companies are subject to comprehensive regulation by the Federal Reserve
Board under the Bank Holding Company Act of 1956. Bank holding companies are
required to file reports and other information with the Federal Reserve Board
and are, along with their non-banking affiliates, subject to examination by the
Federal Reserve Board.
Under Federal Reserve Board policy, a bank holding company must serve as a
source of strength for its subsidiary banks. Under this policy the Federal
Reserve Board may require, and has required in the past, a bank holding company
to contribute additional capital to an undercapitalized subsidiary bank. Under
the Bank Holding Company Act, a bank holding company must obtain Federal Reserve
Board approval before:
117
- acquiring ownership or control of any voting shares of another bank or
bank holding company if, after the acquisition, it would own or
control more than 5% of the shares (unless it already owns or controls
a majority of the shares);
- acquiring all or substantially all of the assets of another bank or
bank holding company; or
- merging or consolidating with another bank holding company.
The Bank Holding Company Act prohibits a bank holding company, with certain
exceptions, from acquiring ownership or control of more than 5% of the voting
shares of any company which is not a bank or bank holding company, or from
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions are certain non-bank activities which, by statute or by
Federal Reserve Board regulation or order, have been identified as activities
closely related to the business of banking or managing or controlling banks.
118
DEPOSITORY INSTITUTION REGULATION. MB Financial's bank subsidiary,
Manufacturers Bank, is an Illinois-chartered commercial bank subject to
regulation by the Illinois Commissioner and the Federal Deposit Insurance
Corporation. Four of MidCity Financial's five subsidiary banks, The Mid-City
National Bank of Chicago, First National Bank of Elmhurst, First National Bank
of Morton Grove and Abrams Centre National Bank, are national banks, subject to
regulation by the Office of the Comptroller of the Currency and the Federal
Deposit Insurance Corporation. MidCity Financial's other subsidiary bank, Union
Bank and Trust Company, is an Oklahoma-chartered bank subject to regulation by
the Oklahoma State Banking Department and the Federal Deposit Insurance
Corporation. As discussed under "The Merger--The Bank Merger," Manufacturers
Bank, The Mid-City National Bank of Chicago, First National Bank of Elmhurst and
First National Bank of Morton Grove will be merged together, with The Mid-City
National Bank of Chicago as the surviving institution. Thus, after the bank
merger, the new company's bank subsidiaries will be comprised of two national
banks, The Mid-City National Bank of Chicago and Abrams Centre National Bank,
and one state-chartered institution, Union Bank and Trust Company.
CAPITAL ADEQUACY
The Federal Reserve Board, the Office of the Comptroller of the Currency
and the Federal Deposit Insurance Corporation have issued substantially similar
risk-based and leverage capital guidelines applicable to bank holding companies
and banks. In addition, these regulatory agencies may from time to time require
that a bank holding company or bank maintain capital above the minimum levels,
whether because of its financial condition or actual or anticipated growth.
The Federal Reserve Board's risk-based guidelines establish a two-tier
capital framework. Tier 1 capital consists of common stockholders' equity,
retained earnings, a limited amount of qualifying perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, less
goodwill and certain intangibles. Tier 2 capital consists of certain hybrid
capital instruments and perpetual debt, mandatory convertible debt securities
and a limited amount of subordinated debt, qualifying preferred stock and loan
loss allowance. The sum of Tier 1 and Tier 2 capital represents qualifying total
capital, at least 50% of which must consist of Tier 1 capital.
Risk-based capital ratios are calculated by dividing Tier 1 and total
capital by risk-weighted assets. Assets and off-balance sheet exposures are
assigned to one of four categories of risk-weights, based primarily on relative
credit risk. The minimum Tier 1 capital ratio is 4% and the minimum total
capital ratio is 8%. MB Financial's Tier 1 and total risk-based capital ratios
under these guidelines at March 31, 2001 were 9.19% and 10.42%, respectively.
MidCity Financial's Tier 1 and total risk-based capital ratios under these
guidelines at March 31, 2001 were 15.59% and 16.77%, respectively.
The Federal Reserve Board's leverage capital guidelines establish a minimum
leverage ratio determined by dividing Tier 1 capital by adjusted average total
assets. The minimum leverage ratio is 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies generally are required to maintain a leverage ratio
of at least 4%. At March 31, 2001, MB Financial and MidCity Financial had
leverage ratios of 8.23% and 9.48%, respectively.
Each of the subsidiary banks of MB Financial and MidCity Financial is
subject to similar capital requirements adopted by the Office of the Comptroller
of the Currency (applicable to MidCity Financial's national bank subsidiaries),
and the Federal Deposit Insurance Corporation (applicable to Manufacturers Bank
and Union Bank and Trust Company). Each of these banks was in compliance with
its minimum capital requirements as of March 31, 2001.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Corporation Improvement Act of 1991 (referred
to below as "FDICIA"), among other things, identifies five capital categories
for insured depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within these
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified.
119
Failure to meet the capital guidelines could also subject a banking
institution to capital raising requirements. An "undercapitalized" bank must
develop a capital restoration plan and its parent holding company must
guarantee that bank's compliance with the plan. The liability of the parent
holding company under any such guarantee is limited to the lesser of five
percent of the bank's assets at the time it became "undercapitalized" or the
amount needed to comply with the plan. Furthermore, in the event of the
bankruptcy of the parent holding company, such guarantee would take priority
over the parent's general unsecured creditors. In addition, FDICIA requires
the various regulatory agencies to prescribe certain non-capital standards
for safety and soundness relating generally to operations and management,
asset quality and executive compensation and permits regulatory action
against a financial institution that does not meet these standards.
The various federal regulatory agencies have adopted substantially similar
regulations that define the five capital categories identified by FDICIA, using
the total risk-based capital, Tier 1 risk-based capital and leverage capital
ratios as the relevant capital measures. These regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 risk-based capital ratio of at least 6%, a total risk-based
capital ratio of at least 10% and a leverage ratio of at least 5% and not be
subject to a capital directive order. An institution is "adequately capitalized"
if it has a Tier 1 risk-based capital ratio of at least 4%, a total risk-based
capital ratio of at least 8% and a leverage ratio of at least 4% (3% in certain
circumstances). An institution is "undercapitalized" if it has a Tier 1
risk-based capital ratio of less than 4%, a total risk-based capital ratio of
less than 8% or a leverage ratio of less than 4%. An institution is
"significantly undercapitalized" if it has a Tier 1 risk-based capital ratio of
less than 3%, a total risk-based capital ratio of less than 6% or a leverage
ratio of less than 3%. An institution is "critically undercapitalized" if its
tangible equity is equal to or less than 2% of average quarterly tangible
assets. An institution may be reclassified in a lower capitalization category if
it receives a less than satisfactory examination rating by its examiners with
respect to its assets, management, earnings or liquidity that has not been
corrected, or it is determined that the institution is in an unsafe or unsound
condition or engaged in an unsafe or unsound practice.
As of March 31, 2001, Manufacturers Bank and each of the subsidiary banks
of MidCity Financial met the requirements to be classified as
"well-capitalized."
DIVIDENDS
The Federal Reserve Board's policy is that a bank holding company should
pay cash dividends only to the extent that its net income for the past year is
sufficient to cover both the cash dividends and a rate of earnings retention
that is consistent with the holding company's capital needs, asset quality and
overall financial condition, and that it is inappropriate for a bank holding
company experiencing serious financial problems to borrow funds to pay
dividends. Furthermore, the Federal Reserve Board may prohibit a bank holding
company from paying any dividends if a bank subsidiary of the holding company is
classified under the prompt corrective action regulations as "undercapitalized."
The new company's primary source for cash dividends after the merger
will be the dividends it receives from its subsidiary banks. Each of the
banks is subject to various regulatory policies and requirements relating to
the payment of dividends, including requirements to maintain capital above
regulatory minimums. Most of the dividends the new company receives from its
subsidiary banks will be paid by its national bank subsidiaries. A national
bank must obtain the approval of the Office of the Comptroller of the
Currency prior to paying a dividend if the total of all dividends declared by
the national bank in any calendar year will exceed the sum of the bank's net
profits for that year and its retained net profits for the preceding two
calendar years, less any required transfers to surplus. In addition, the
appropriate federal regulatory authority is authorized to determine under
certain circumstances relating to the financial condition of a bank or bank
holding company that the payment of dividends would be an unsafe or unsound
practice and to prohibit the payment of dividends by that bank or bank
holding company.
FDIC INSURANCE ASSESSMENTS
Each of the subsidiary banks of MB Financial and MidCity Financial is
insured by the Federal Deposit Insurance Corporation; accordingly all of the
deposits of these banks are subject to Federal Deposit Insurance Corporation
deposit insurance assessments. The Federal Deposit Insurance Corporation has
authority to raise or lower
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assessment rates on insured deposits in order to achieve certain designated
reserve ratios in the Bank Insurance Fund and the Savings Association
Insurance Fund and to impose special additional assessments. The Federal
Deposit Insurance Corporation applies a risk-based assessment system that
places each financial institution into one of nine risk categories, based on
capital levels and supervisory criteria and an evaluation of the bank's risk
to the Bank Insurance Fund or Savings Association Insurance Fund, as
applicable. The current Federal Deposit Insurance Corporation premium
schedule for the Savings Association Insurance Fund and the Bank Insurance
Fund ranges from 0% to 0.27%.
LIABILITY OF COMMONLY CONTROLLED INSTITUTIONS
FDIC-insured depository institutions can be held liable for any loss
incurred, or reasonably expected to be incurred, by the Federal Deposit
Insurance Corporation due to the default of an FDIC-insured depository
institution controlled by the same bank holding company, and for any assistance
provided by the Federal Deposit Insurance Corporation to an FDIC-insured
depository institution that is in danger of default and that is controlled by
the same bank holding company. "Default" means generally the appointment of a
conservator or receiver. "In danger of default" means generally the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance. Thus, after the merger, any of the new company's
subsidiary banks could incur liability to the Federal Deposit Insurance
Corporation for any loss incurred or reasonably expected to be incurred by the
Federal Deposit Insurance Corporation for any other bank subsidiary which is in
default or in danger of default.
TRANSACTIONS WITH AFFILIATES
After the merger, the new company and its bank subsidiaries will be, as MB
Financial and MidCity Financial and their respective bank subsidiaries are now,
affiliates within the meaning of the Federal Reserve Act. The Federal Reserve
Act imposes limitations on a bank with respect to extensions of credit to,
investments in, and certain other transactions with, its parent bank holding
company and the holding company's other subsidiaries. Furthermore, loans and
extensions of credit to affiliates also are subject to various collateral
requirements.
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act, every FDIC- insured institution is
obligated, consistent with safe and sound banking practices, to help meet the
credit needs of its entire community, including low and moderate income
neighborhoods. The CRA requires the appropriate federal regulator, in connection
with the examination of an insured institution, to assess the institution's
record of meeting the credit needs of its community and to consider this record
in its evaluation of certain applications, such as a merger or the establishment
of a branch. An unsatisfactory rating may be used as the basis for the denial of
an application and will prevent a bank holding company of the institution from
making an election to become a financial holding company (see "--Recent
Legislation").
As of its last examination, each of the subsidiary banks of MB Financial
and MidCity Financial received a Community Reinvestment Act rating of
"satisfactory" or better.
INTERSTATE BANKING AND BRANCHING
The Federal Reserve Board may approve an application of an adequately
capitalized and adequately managed bank holding company to acquire control of,
or acquire all or substantially all of the assets of, a bank located in a state
other than the bank holding company's home state, without regard to whether the
transaction is prohibited by the laws of any state. The Federal Reserve Board
may not approve the acquisition of a bank that has not been in existence for the
minimum time period (not exceeding five years) specified by the law of the
target bank's home state. The Federal Reserve Board also may not approve an
application if the bank holding company (and its bank affiliates) controls or
would control more than ten percent of the insured deposits in the United States
or 30% or more of the deposits in the target bank's home state or in any state
in which the target bank maintains a branch. Individual states may waive the 30%
statewide concentration limit. Each state may limit the percentage of total
insured deposits in the state which may be held or controlled by a bank or bank
holding company to the extent the limitation does not discriminate against
out-of-state banks or bank holding companies.
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The federal banking agencies are authorized to approve interstate merger
transactions without regard to whether these transactions are prohibited by the
law of any state, unless the home state of one of the banks opted out of
interstate mergers prior to June 1, 1997. Interstate acquisitions of branches
are permitted only if the law of the state in which the branch is located
permits these acquisitions. Interstate mergers and branch acquisitions are
subject to the nationwide and statewide insured deposit concentration limits
described above.
RECENT LEGISLATION
Effective November 12, 1999, the federal Gramm-Leach-Bliley Act ("GLB Act")
became law. The GLB Act is intended to, among other things, facilitate
affiliations among banks, securities firms, insurance firms and other financial
companies. To further this goal, the GLB Act amended portions of the Bank
Holding Company Act to authorize bank holding companies, such as MB Financial,
MidCity Financial or the new company (after the merger), through non-bank
subsidiaries to engage in securities, insurance and other activities that are
financial in nature or incidental to a financial activity. In order to undertake
these activities, a bank holding company must become a "financial holding
company" by submitting to the Federal Reserve Board a declaration that the
company elects to be a financial holding company and a certification that all of
the depository institutions controlled by the company are well capitalized and
well managed. The GLB Act also provides that a bank holding company's election
to become a financial holding company will not be effective if the Federal
Reserve Board finds that, as of the date the company submits its election to the
Federal Reserve Board, not all of the insured depository institutions controlled
by the company have achieved at least a "satisfactory" rating at the date of
their most recent Community Reinvestment Act examination. The activities of bank
holding companies that are not financial holding companies continue to be
limited to activities currently authorized under the Bank Holding Company Act,
such as activities that the Federal Reserve Board has previously determined to
be closely related to banking and permissible for bank holding companies.
While aware of the flexibility offered by financial holding company status,
each of MB Financial and MidCity Financial has, for the time being, decided not
to make an election to convert to a financial holding company and does not
anticipate doing so prior to the merger. There are no current plans for the new
company to elect financial holding company status; however, MB Financial and
MidCity Financial will before the merger, and the new company will after the
merger, continue to follow the reception given to financial holding companies in
the marketplace.
PRIVACY PROVISIONS OF THE GLB ACT. Federal banking regulators, as required
under the GLB Act, have adopted rules limiting the ability of banks and other
financial institutions to disclose nonpublic information about consumers to
non-affiliated third parties. The rules became effective November 13, 2000, but
compliance before July 1, 2001 is optional. The rules require disclosure of
privacy policies to consumers and, in some circumstances, allow consumers to
prevent disclosure of certain personal information to non-affiliated third
parties. The privacy provisions of the GLB Act will affect how consumer
information is transmitted through diversified financial services companies and
conveyed to outside vendors. While no assurance can be given, it is not expected
that the privacy provisions will have a material adverse effect on the business,
financial condition or results of operations of either MB Financial or MidCity
Financial before the merger, or the new company after the merger.
FUTURE LEGISLATION AND CHANGES IN REGULATIONS
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. New legislation and/or changes in regulations
could affect MB Financial, MidCity Financial and the new company in substantial
and unpredictable ways, and increase or decrease the cost of doing business,
limit or expand permissible activities or affect the competitive balance among
banks and other financial institutions. The likelihood and timing of any
proposed legislation or changes in regulations and the impact they might have on
MB Financial, MidCity Financial and the new company cannot be determined at this
time.
DESCRIPTION OF CAPITAL STOCK OF THE NEW COMPANY
This section of the joint proxy statement-prospectus describes the material
terms of the capital stock of the new company under the charter and bylaws of
the new company that will be in effect immediately after the merger is
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completed. The terms of the new company's charter and bylaws are more detailed
than the information provided below. A copy of the form of the new company's
charter, which will be represented by the articles of amendment and restatement
of the new company's articles of incorporation, is attached as Appendix F to
this joint proxy statement-prospectus. A copy of the form of the new company's
amended and restated bylaws is attached as Appendix G to this joint proxy
statement-prospectus.
GENERAL
The authorized capital stock of the new company consists of:
- 40,000,000 shares of common stock, par value $.01 per share; and
- 1,000,000 shares of preferred stock, par value $.01 per share.
The new company's charter will provide by its terms that it may be amended
by action of the new company's board of directors without a stockholder vote to
change the number of shares of authorized capital stock. See "Comparison of
Stockholder Rights--Amendment of Corporate Governance Documents." Based on the
number of shares of MB Financial and MidCity Financial common stock outstanding
as of _______, 2001, it is expected that approximately 17.66 million shares of
new company common stock will be issued and outstanding immediately after the
merger is completed. No shares of new company preferred stock will be
outstanding immediately after the merger. The common stock of the new company
will be traded on The Nasdaq Stock Market National Market system under the
symbol "MBFI," which is currently the symbol for MB Financial common stock. See
"Summary--Stock Price and Dividend Information."
COMMON STOCK
Each share of new company common stock will have the same relative rights
and be identical in all respects with each other share of new company common
stock. New company common stock will represent non-withdrawable capital, will
not be of an insurable type and will not be insured by the Federal Deposit
Insurance Corporation or any other government agency.
Subject to any prior rights of the holders of any preferred stock of the
new company then outstanding, holders of new company common stock will be
entitled to receive such dividends as are declared by the board of directors of
the new company out of funds legally available for dividends. As described under
"Management After the Merger," the bylaws of the new company will provide that
until the third annual meeting of stockholders of the new company, or possibly
sooner under certain circumstances, a decision to maintain an annual dividend
payout ratio of less than 25% must be approved by two-thirds of the entire board
of directors of the new company.
Except with respect to greater than 14.9% stockholders, full voting
rights will be vested in the holders of new company common stock and each
share will be entitled to one vote. See "Comparison of Stockholders
Rights--Restrictions on Voting Rights." Subject to any prior rights of the
holders of any new company preferred stock then outstanding, in the event of
liquidation, dissolution or winding up of the new company, holders of shares
of new company common stock will be entitled to receive, pro rata, any assets
distributable to stockholders in respect of shares held by them. Holders of
shares of new company common stock will not have any preemptive rights to
subscribe for any additional securities which may be issued by the new
company, nor will they have cumulative voting rights.
PREFERRED STOCK
The new company preferred stock may be issued in one or more series at such
time or times and for such consideration as the board of directors of the new
company may determine, generally without stockholder approval. The board of
directors of the new company is expressly authorized at any time, and from time
to time, to issue new company preferred stock with such voting and other powers,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions, as are stated and expressed in the
board resolution providing for the issuance. The board of directors of the new
company is authorized to designate the series and the number of
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shares comprising such series, the dividend rate on the shares of such
series, the redemption rights, if any, any purchase, retirement or sinking
fund provisions, any conversion rights and any special voting rights. The
ability of the board of directors of the new company to approve the issuance
of preferred stock without stockholder approval could make an acquisition by
an unwanted suitor of a controlling interest in the new company more
difficult, time-consuming or costly, or otherwise discourage an attempt to
acquire control of the new company.
Shares of preferred stock redeemed or acquired by the new company may
return to the status of authorized but unissued shares, without designation as
to series, and may be reissued by the new company upon approval of its board of
directors.
OTHER ANTI-TAKEOVER PROVISIONS
In addition to the ability to issue serial preferred stock without
stockholder approval, the charter and bylaws of the new company will contain a
number of other provisions which may have the effect of delaying, deferring or
preventing a change in control of the new company. See "Comparison of
Stockholder Rights."
COMPARISON OF STOCKHOLDER RIGHTS
Each of MB Financial and MidCity Financial is incorporated under the laws
of the State of Delaware. The new company is incorporated under the laws of the
State of Maryland. The primary purpose of incorporating the new company in
Maryland, rather than Delaware, is that Maryland does not impose an annual
franchise tax. By incorporating in Maryland instead of Delaware, it is expected
that the new company will save approximately $150,000 per year, which is the
amount in franchise taxes the new company would have to pay each year if it were
incorporated in Delaware. The rights of holders of MB Financial common stock and
MidCity Financial common stock are governed by Delaware law and the respective
certificates of incorporation and bylaws of MB Financial and MidCity Financial.
The rights of holders of new company common stock after the merger will be
governed by Maryland law and the charter and bylaws of the new company. A copy
of the form of the new company's charter, which will be represented by the
articles of amendment and restatement of its articles of incorporation, is
attached to this joint proxy statement-prospectus as Appendix F. A copy of the
form of the new company's amended and restated bylaws is attached to this joint
proxy statement-prospectus as Appendix G.
This section of the joint proxy statement-prospectus describes the material
differences between the rights of MB Financial stockholders and MidCity
Financial stockholders. This section also includes a brief description of the
material rights that new company stockholders are expected to have following
completion of the merger, although in some cases the board of directors of the
new company retains the discretion to alter those rights without stockholder
consent. This section does not include a complete description of all differences
among the rights of these stockholders, nor does it include a complete
description of the specific rights of these stockholders. In addition, the
identification of some of the differences in the rights of these stockholders as
material is not intended to indicate that other differences that are equally
important do not exist. The discussion in this section is qualified in its
entirety by reference to Delaware and Maryland law, and to the respective
certificates of incorporation and bylaws of MB Financial and MidCity Financial
and the charter and bylaws of the new company.
AUTHORIZED CAPITAL STOCK
MB FINANCIAL. The authorized capital stock of MB Financial consists of:
- 20,000,000 shares of common stock, par value $.01 per share; and
- 1,000,000 shares of preferred stock, par value $.01 per share.
MIDCITY FINANCIAL. The authorized capital stock of MidCity Financial
consists of:
- 100,000 shares of common stock, par value $20.00 per share; and
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- no shares of preferred stock.
NEW COMPANY. The authorized capital stock of the new company consists of:
- 40,000,000 shares of common stock, par value $.01 per share; and
- 1,000,000 shares of preferred stock, par value $.01 per share.
Each of MB Financial and MidCity Financial is authorized under its
certificate of incorporation, and the new company will be authorized under its
charter, to issue additional shares of capital stock, up to the amount
authorized, generally without stockholder approval. In addition, the new
company's charter will provide by its terms that it may be amended by the new
company's board of directors, without a stockholder vote, to change the number
of shares of capital stock authorized. Such an amendment to the certificate of
incorporation of either MB Financial or MidCity Financial requires stockholder
approval in addition to action by the board of directors. See "--Amendment of
Corporate Governance Documents."
DIVIDENDS
MB FINANCIAL. Pursuant to Delaware law, MB Financial may pay dividends on
its common stock out of its surplus or, if there is no surplus, out of its net
profits for the fiscal year in which the dividend is declared and/or for the
preceding fiscal year. Delaware law also provides that dividends may not be paid
out of net profits if, after the payment of the dividends, the capital of MB
Financial would be less than the capital represented by the outstanding stock of
all classes having a preference upon the distribution of assets.
MIDCITY FINANCIAL. MidCity Financial is subject to the same limitations of
Delaware law on its ability to pay dividends as MB Financial.
NEW COMPANY. Under Maryland law, the new company is permitted to make
dividends or other distributions unless after the distribution: (1) the new
company would not be able to pay its debts as they become due in the usual
course of business; or (2) the new company's total assets would be less than the
sum of its total liabilities, plus, unless the new company's charter permits
otherwise, the amount that would be needed, if the new company were dissolved at
the time of the distribution, to satisfy preferential rights of stockholders
whose preferential rights are superior to those receiving the distribution. In
addition, the bylaws of the new company will provide that from the time of
completion of the merger through the third annual meeting of stockholders of the
new company (or possibly a shorter period after the merger, under certain
circumstances), a decision to maintain an annual dividend payout ratio of less
than 25% must be approved by two-thirds of the entire board of directors of the
new company. See "Management After the Merger."
ADVANCE NOTICE REQUIREMENTS FOR PRESENTATION OF BUSINESS AND NOMINATIONS OF
DIRECTORS AT ANNUAL MEETINGS OF STOCKHOLDERS
MB FINANCIAL. The bylaws of MB Financial provide that MB Financial must
receive written notice of any stockholder director nomination or proposal for
business at an annual meeting of stockholders no later than 30 days before the
date of the meeting. If, however, less than 40 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
of the nomination or proposal must be received by MB Financial no
later than the 10th day following the earlier of the date the notice of the
annual meeting date is mailed or public disclosure of the meeting date is made.
MIDCITY FINANCIAL. There are no advance notice requirements for stockholder
director nominations or proposals for new business under either the certificate
of incorporation or the bylaws of MidCity Financial.
NEW COMPANY. The bylaws of the new company will provide that the new
company must receive written notice of any stockholder proposal for business at
an annual meeting of stockholders not less than 90 days or more than 120 days
before the anniversary of the preceding year's annual meeting. With respect to
proposals for the first annual meeting of stockholders, or if the date of the
current year annual meeting is advanced by more than 20 days or delayed
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by more than 60 days from the anniversary date of the preceding year's annual
meeting, notice of the proposal must be received by the new company no
earlier than the close of business on the 120th day prior to the date of the
annual meeting and no later than the close of business on the later of the
90th day prior to the annual meeting or the 10th day following the day on
which notice of the meeting is mailed or public disclosure of the meeting
date is first made, whichever occurs first.
The bylaws of the new company also will provide that the new company must
receive written notice of any stockholder director nomination for a meeting of
stockholders not less than 90 days or more than 120 days before the date of the
meeting. If, however, less than 100 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice of the
nomination must be received by the secretary no later than the tenth day
following the day on which notice of the meeting is mailed or public disclosure
of the meeting date is first made, whichever occurs first.
CUMULATIVE VOTING FOR ELECTION OF DIRECTORS
Under Delaware law and Maryland law, a corporation may provide for
cumulative voting in the election of directors in its certificate of
incorporation (in the case of a Delaware corporation) or charter (in the case of
a Maryland corporation). Pursuant to their respective certificates of
incorporation, neither MB Financial nor MidCity Financial permits cumulative
voting in the election of directors. Pursuant to its charter, the new company
likewise will not permit cumulative voting in the election of directors. The
absence of cumulative voting rights means that the holders of a majority of the
shares voted at a meeting of stockholders may, if they so choose, elect all the
directors to be elected at that meeting, and thus preclude minority stockholder
representation on the board of directors.
RESTRICTIONS ON VOTING RIGHTS
MB FINANCIAL. The MB Financial certificate of incorporation generally
prohibits any stockholder that beneficially owns more than 10% of the
outstanding shares of MB Financial common stock from voting shares in excess of
this limit.
MIDCITY FINANCIAL. MidCity Financial's certificate of incorporation does
not contain a voting limitation.
NEW COMPANY. The charter of the new company will contain a voting
limitation identical to the one in the MB Financial certificate of
incorporation, except that the new company percentage limitation is 14.9%.
MARYLAND CONTROL SHARE ACQUISITION STATUTE. The Maryland General
Corporation Law contains a control share acquisition statute which, in
general terms, provides that where a stockholder acquires issued and
outstanding shares of a corporation's voting stock (referred to as control
shares) within one of several specified ranges (one-tenth or more but less
than one-third, one-third or more but less than a majority, or a majority or
more), approval by stockholders of the control share acquisition must be
obtained before the acquiring stockholder may vote the control shares. The
required stockholder vote is two-thirds of all votes entitled to be cast,
excluding "interested shares," defined as shares held by the acquiring
person, officers of the corporation and employees who are also directors of
the corporation. A corporation may, however, opt-out of the control share
statute through a charter or bylaw provision, which the new company will do
pursuant to its bylaws. Accordingly, the Maryland control share acquisition
statute will not apply to acquisitions of shares of new company common stock.
Though not expected, the new company could decide to become subject to the
Maryland control share acquisition statute by amending its bylaws to
eliminate the opt-out provision. See "--Amendment of Corporate Governance
Documents."
NUMBER AND CLASSIFICATION OF DIRECTORS
MB FINANCIAL. MB Financial's certificate of incorporation provides that the
number of directors is set from time to time by vote of a majority of all
members of the board of directors. The MB Financial board of directors is
currently comprised of 12 members. The board is divided into three classes, with
each class serving a staggered three-year term.
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MIDCITY FINANCIAL. MidCity Financial's bylaws provide that the number of
directors is determined by the board of directors. The MidCity Financial board
of directors is currently comprised of ten members. The board is not classified;
accordingly, each director is elected annually.
NEW COMPANY. Like the board of directors of MB Financial, the new company's
board of directors will be divided into three classes, with the members of each
class of directors serving staggered three-year terms. The new company's bylaws
will provide that, after the merger and until the first to occur of (1) the
third annual meeting of stockholders of the new company or (2) the consummation
of a business combination approved by two-thirds of the entire board of
directors resulting in the stockholders of the new company owing less than 51%
of the resulting entity in the business combination, the new company will have
17 directors, with eight directors selected by MB Financial and nine directors
chosen by MidCity Financial. Pursuant to the merger agreement and the new
company bylaws, the classes of directors with terms expiring at the first and
second annual meetings of stockholders of the new company will each be comprised
of three persons designated by the MB Financial board of directors and three
persons designated by the MidCity Financial board of directors. The board class
expiring at the third annual meeting of stockholders will be comprised of three
MidCity Financial-designated directors and two MB Financial-designated
directors.
REMOVAL OF DIRECTORS
MB FINANCIAL. The MB Financial certificate of incorporation provides that,
subject to the rights of the holders of any class of preferred stock
outstanding, directors may be removed from office only for cause and only by the
vote of the holders of at least 80% of the voting power of the outstanding
shares of capital stock entitled to vote generally in the election of directors.
MIDCITY FINANCIAL. The bylaws of MidCity Financial provide that directors
may be removed, with or without cause, by the holders of a majority of the
shares entitled to vote generally in the election of directors.
NEW COMPANY. The director removal provision of the new company's charter
will be identical to the one contained in the MB Financial certificate of
incorporation.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
MB FINANCIAL. The MB Financial certificate of incorporation provides that,
subject to the rights of the holders of any series of preferred stock
outstanding, vacancies in the board of directors may be filled only by a
majority vote of the directors then in office.
MIDCITY FINANCIAL. Similar to the MB Financial certificate of
incorporation, the MidCity Financial bylaws provide that director vacancies may
be filled by a majority of the directors then in office.
NEW COMPANY. Under the bylaws of the new company, after the merger and
until the first to occur of (1) the third annual meeting of stockholders of the
new company or (2) the consummation of a business combination approved by
two-thirds of the entire board of directors resulting in the stockholders of the
new company owing less than 51% of the resulting entity in the business
combination, the following will apply with respect to board vacancies:
- any vacancy created by the departure of a MB Financial-designated
director will be filled by an individual nominated by a majority vote
of the remaining MB Financial-designated directors and
appointed by a majority of the remaining members of the board, subject
to their fiduciary duties, and any vacancy created by the departure of
a MidCity Financial-designated director will be filled by an
individual nominated by a majority vote of the remaining MidCity
Financial-designated directors and appointed by a majority of the
remaining members of the board, subject to their fiduciary duties; and
- any vacancy created by an increase in the number of directors will be
filled by a vote of two-thirds of the entire board of directors.
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After the expiration of these provisions, vacancies will be filled,
pursuant to the new company's charter, in the same manner provided in the MB
Financial certificate of incorporation, except that stockholders of the new
company, in addition to the board of directors, may fill any vacancy created by
the removal of a director.
AMENDMENT OF CORPORATE GOVERNANCE DOCUMENTS
MB FINANCIAL. Generally, the MB Financial certificate of incorporation may
be amended in the manner prescribed by Delaware law, which requires the approval
of the board of directors of MB Financial and at least a majority of the
outstanding shares of MB Financial common stock. The amendment of certain other
provisions of the MB Financial certificate of incorporation, however, requires
the vote of at least 80% of the outstanding shares of capital stock entitled to
vote generally in the election of directors. These include provisions relating
to: voting limitations on 10% or greater stockholders; the prohibition on
stockholder action by written consent; the call of special stockholders'
meetings; the number, classification, election and removal of directors; certain
business combinations with greater than 10% stockholders; the prevention of
greenmail; indemnification of directors and officers; and amendments to the
certificate of incorporation and bylaws.
MB Financial's bylaws may be amended either by its board of directors, by
the vote of a majority of the entire board of directors, or by its stockholders,
by the vote of the holders of 80% of the voting power of the capital stock
entitled to vote generally in the election of directors.
MIDCITY FINANCIAL. Like the MB Financial certificate of incorporation, the
MidCity Financial certificate of incorporation generally may be amended in the
manner prescribed by Delaware law, which requires the approval of the board of
directors of MidCity Financial and at least a majority of the outstanding shares
of MidCity Financial common stock. Amendment of the provision requiring a
super-majority vote for mergers or similar transactions, however, requires
approval of 66 2/3% of the outstanding shares of MidCity Financial common stock.
See "-- Super-Majority Stockholder Vote for Mergers, Acquisitions and Certain
Other Transactions."
MidCity Financial's bylaws may be amended by the board of directors, by a
majority vote of the directors present at a meeting at which a quorum is
present, or by the stockholders, by the holders of a majority of the outstanding
shares of capital stock entitled to vote, present in person or by proxy.
NEW COMPANY. The new company's charter will contain a provision regarding
amendments of the charter that will be similar to the one contained in the MB
Financial certificate of incorporation. That is, generally the charter may be
amended upon approval by the board of directors and the holders of a majority of
the outstanding shares of new company common stock, with a super-majority
stockholder vote required for amending specified provisions. These provisions
are essentially the same as those specified in the MB Financial certificate of
incorporation, except that amendment of the new company charter provision
limiting the liability of directors and officers will require a super-majority
stockholder vote; the comparable provision of the MB Financial certificate of
incorporation, which limits the liability of directors (but not officers),
requires only a majority vote for an amendment. The new company's charter will
provide by its terms that it may be amended by the new company's board of
directors, without a stockholder vote, to change the number of shares of capital
stock authorized for issuance. Such an amendment to the certificate of
incorporation of either MB Financial or MidCity Financial requires stockholder
approval in addition to action by the board of directors.
The new company's bylaws will provide that after the merger and until
the first to occur of (1) the third annual meeting of stockholders of the new
company or (2) the consummation of a business combination approved by
two-thirds of the entire board of directors resulting in the stockholders of
the new company owing less than 51% of the resulting entity in the business
combination, the section of the new company bylaws regarding management after
the merger may only be amended by (a) the vote of a majority of the MB
Financial-designated directors and a majority of the MidCity
Financial-designated directors and (b) the vote of two-thirds of the entire
board of directors. For a description of this section of the new company
bylaws, see "Management After the Merger."
The new company's bylaws will provide that all other sections of the new
company's bylaws, as well as the section on management after the merger (once
that section is no longer in effect), may by amended by the board of
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directors, by a vote of a majority of the entire board of directors. The new
company's bylaws (including the section on management after the merger while
it is in effect) also will provide that the bylaws may be amended by the
stockholders, by the vote of the holders of 80% of the outstanding shares of
capital stock entitled to vote generally in the election of directors.
BUSINESS COMBINATIONS WITH CERTAIN PERSONS
MB FINANCIAL. The MB Financial certificate of incorporation provides that
certain business combinations (e.g., mergers, share exchanges, significant asset
sales and significant stock issuances) involving "interested stockholders" of MB
Financial require, in addition to any vote required by law, the approval of at
least 80% of the voting power of the outstanding shares of stock entitled to
vote generally in the election of directors, unless either (i) a majority of the
disinterested directors have approved the business combination or (ii) certain
fair price and procedure requirements are satisfied. An "interested stockholder"
generally means a person who is a 10% or greater stockholder of MB Financial or
who is an affiliate of MB Financial and at any time within the past two years
was a 10% stockholder of MB Financial.
MIDCITY FINANCIAL. Neither the MidCity Financial certificate of
incorporation nor the MidCity Financial bylaws contains a super-majority
stockholder vote requirement for business combinations with stockholders owning
more than a specified percentage of MidCity Financial common stock; however, as
described under "-- Super-Majority Stockholder Vote for Mergers, Acquisitions
and Certain Other Transactions," the MidCity Financial certificate of
incorporation does contain a super-majority vote requirement for mergers and
similar transactions.
NEW COMPANY. The charter of the new company will contain a provision on
business combinations with interested stockholders that is the same as the one
contained in the MB Financial certificate of incorporation, except that the
percentage for a person to be an "interested stockholder" will be 14.9% under
the new company's charter.
DELAWARE STATUTORY PROVISION. Section 203 of the Delaware General
Corporation Law provides that if a person acquires 15% or more of the stock of a
Delaware corporation, thereby becoming an "interested stockholder," (for
purposes of Section 203) that person may not engage in certain business
combinations with the corporation for a period of three years unless one of the
following three exceptions applies:
- the board of directors approved the acquisition of stock or the
business combination transaction prior to the time that the person
became an interested stockholder;
- the person became an interested stockholder and 85% owner of the
voting stock of the corporation in the transaction in which it became
an interested stockholder, excluding voting stock owned by directors
who are also officers and certain employee stock plans; or
- the business combination transaction is approved by the board of
directors and by the affirmative vote of two-thirds of the outstanding
voting stock which is not owned by the interested stockholder at an
annual or special meeting.
A Delaware corporation may elect not to be governed by Section 203. None of
MB Financial, MidCity Financial or the new company has made such an election.
Section 203 does not apply to the merger of MB Financial and MidCity Financial.
MARYLAND STATUTORY PROVISION. Like the Delaware General Corporation Law,
the Maryland General Corporation Law contains a business combination statute.
The Maryland business combination statute prohibits a business combination
between a corporation and an interested stockholder (one who beneficially
owns 10% or more of the voting power) for a period of five years after the
interested stockholder first becomes an interested stockholder, unless the
transaction has been approved by the board of directors before the interested
stockholder became an interested stockholder or the corporation has exempted
itself from the statute pursuant to a charter provision. After the five-year
period has elapsed, a corporation subject to the statute may not consummate a
business combination with an interested stockholder unless (1) the
transaction has been recommended by the board of directors and (2) the
transaction has been approved by (a) 80% of the outstanding shares entitled
to be cast and (b) two-thirds of the votes entitled to be cast other
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than shares owned by the interested stockholder. This approval requirement
need not be met if certain fair price and terms criteria have been satisfied.
The new company has opted-out of the Maryland business combination statute
through a provision in its charter.
PREVENTION OF GREENMAIL
MB FINANCIAL. The MB Financial certificate of incorporation generally
prohibits MB Financial from acquiring any of its own equity securities from a
beneficial owner of 5% or more of MB Financial's voting stock unless: (I) the
acquisition is approved by the holders of at least 80% of MB Financial's voting
stock not owned by the seller; (ii) the acquisition is made as part of a tender
or exchange offer by MB Financial or a subsidiary of MB Financial to purchase
securities of the same class on the same terms to all holders of such
securities; (iii) the acquisition is pursuant to an open market purchase program
approved by a majority of the board of directors, including a majority of the
disinterested directors; or (iv) the acquisition is at or below the market price
of the MB Financial common stock and is approved by a majority of the board of
directors, including a majority of the disinterested directors.
MIDCITY FINANCIAL. The MidCity Financial certificate of incorporation does
not contain a similar provision.
NEW COMPANY. The new company's charter will contain a provision identical
to the one contained in the MB Financial certificate of incorporation.
SUPER-MAJORITY STOCKHOLDER VOTE FOR MERGERS, ACQUISITIONS AND CERTAIN OTHER
TRANSACTIONS
MB FINANCIAL. The MB Financial certificate of incorporation and bylaws do
not contain any provision requiring a super-majority vote for mergers and
similar transactions, except with respect to business combinations with 10% or
greater stockholders under certain circumstances. See "--Business Combinations
with Certain Persons."
MIDCITY FINANCIAL. The MidCity Financial certificate of incorporation
requires the vote of the holders of 66 2/3% of the outstanding shares of MidCity
Financial common stock to approve any merger of consolidation of MidCity
Financial or the sale, assignment or transfer of all or substantially all of its
assets or capital stock.
NEW COMPANY. Like the MB Financial certificate of incorporation and bylaws,
the charter and bylaws of the new company will not contain any provision
requiring a super-majority vote for mergers and similar transactions, except
with respect to business combinations with 14.9% or greater stockholders under
certain circumstances. See "--Business Combinations with Certain Persons." In
addition, except for matters which under the new company's charter will require
a super-majority stockholder vote, the new company's charter will specifically
provide that notwithstanding any provision of law requiring action by
stockholders by a vote of greater than a majority of the outstanding shares to
vote, the action will be valid if approved by the holders of at least a majority
of the outstanding shares entitled to vote.
NON-SHAREHOLDER CONSTITUENCY PROVISION
MB FINANCIAL. The MB Financial certificate of incorporation provides that
when evaluating any offer of another person to (1) make a tender or exchange
offer for any equity security of MB Financial, (2) merge or consolidate MB
Financial with another corporation or entity or (3) acquire all or substantially
all of the properties and assets of MB Financial, the MB Financial board of
directors may in exercising its judgment as to what is in the best interest of
MB Financial and its stockholders give due consideration to all relevant
factors, including, among other things:
- the social and economic effects of acceptance of the offer on the
present and future customers and employees of MB Financial and its
subsidiaries and on the communities in which MB Financial and its
subsidiaries operate or are located; and
130
- the ability of MB Financial to fulfill its corporate objectives as a
financial institution holding company and on the ability of its
subsidiary financial institution to fulfill the objectives of a
federally insured financial institution.
MIDCITY FINANCIAL. The MidCity Financial certificate of incorporation does
not contain a similar provision.
NEW COMPANY. The charter of the new company will contain a provision
identical to the one contained in the MB Financial certificate of incorporation.
CRITERIA FOR EVALUATING CERTAIN OFFERS
MB FINANCIAL. The MB Financial certificate of incorporation grants to the
board of directors of MB Financial the flexibility to consider various factors
when evaluating tender offers, mergers and dispositions of substantially all of
the assets of the corporation. These factors include the economic effects of a
transaction on customers, employees and local communities.
MIDCITY FINANCIAL. The MidCity Financial certificate of incorporation does
not contain such a provision.
NEW COMPANY. The new company's charter will contain a provision identical
to the MB Financial provision.
ACTION BY STOCKHOLDERS WITHOUT A MEETING
MB FINANCIAL. The MB Financial certificate of incorporation provides that
any action required or permitted to be taken by the stockholders must be
effected at a duly called annual or special meeting of stockholders and not by
written consent.
MIDCITY FINANCIAL. The MidCity Financial bylaws provide that MidCity
Financial's stockholders may act by written consent without a meeting if the
consent is signed by the holders of the number of shares that would have been
required to effect the action at an actual meeting of the stockholders.
NEW COMPANY. The new company's bylaws will provide that any action required
or permitted to be taken at a meeting of stockholders may instead be taken
without a meeting if a unanimous written consent which sets forth the action is
signed by each stockholder entitled to vote on the matter.
SPECIAL MEETINGS OF STOCKHOLDERS
MB FINANCIAL. The MB Financial certificate of incorporation provides that
special meetings of stockholders may be called only by the board of directors by
vote of a majority of the entire board.
MIDCITY FINANCIAL. The MidCity Financial bylaws provide that special
meetings of stockholders may be called by: (1) the Chairman of the Board; (2)
the Vice Chairman; (3) the President; (4) a simple majority of the board of
directors; or (5) by the record holders of at least a majority of the
outstanding shares of MidCity Financial common stock entitled to vote at the
meeting.
NEW COMPANY. The new company bylaws will provide that special meetings of
stockholders may be called by the President of the new company or by the new
company's board of directors by vote of a majority of the entire board. In
addition, the new company bylaws will provide that a special meeting of
stockholders shall be called by the Secretary of the new company on the written
request of stockholders entitled to cast at least a majority of all votes
entitled to be cast at the meeting.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY
Each of the MB Financial and Mid-City Financial certificates of
incorporation contain a provision limiting the personal liability of directors
to the extent permitted by the Delaware General Corporation Law, which provides
that
131
no director will be personally liable to the company or its stockholders for
monetary damages for any breach of fiduciary duty except as follows:
(1) A director may be liable under Section 174 of the Delaware General
Corporation Law, which creates liability for unlawful payment of
dividends and unlawful stock purchases or redemptions; and
(2) A director also may be liable for:
- breaching his or her duty of loyalty to the company or its
stockholders;
- for acts and omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; or
- deriving an improper personal benefit from a transaction with the
company.
Consistent with Maryland law, the new company's charter will provide that
an officer or director of the new company may not be liable to the new company
or its stockholders for money damages, except to the extent:
- it is proved that the person actually received an improper benefit,
for the amount of the benefit; or
- a final judgment or adjudication against the person is based on a
finding that the person's action, or failure to act, was the result of
active and deliberate dishonesty and was material to the cause of
action against the person; or
- otherwise provided by the Maryland General Corporation Law.
INDEMNIFICATION
Under Delaware law, a corporation may indemnify its directors, officers,
employees and certain other individuals against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement in connection with
specified actions, suits or proceedings arising because of the person's
relationship to the corporation. Generally, the indemnification will cover
expenses regardless of whether the action stems from a civil, criminal,
administrative or investigative proceeding if the individual acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation and, in the case of a criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. A similar
standard applies in an action or suit by or in the right of the corporation
(i.e., a stockholder derivative claim) except that indemnification only extends
to expenses, including attorneys' fees, incurred in the defense or settlement of
such a proceeding. In cases involving the right of the corporation, Delaware law
requires court approval before there can be any indemnification when the person
seeking the indemnification has been found liable to the corporation. To the
extent that a person otherwise eligible to be indemnified is successful on the
merits or otherwise in defense in any action, suit or proceeding described
above, indemnification for expenses, including attorneys' fees, actually and
reasonably incurred is mandatory under Delaware law.
Each of the MB Financial and Mid-City Financial certificates of
incorporation generally provide for the indemnification of directors and
officers to the extent permitted by Delaware law.
The Maryland General Corporation Law permits a corporation to indemnify its
directors, officers, employees and agents against judgments, penalties, fines,
settlements and reasonable expenses actually incurred unless it is proven that
(1) the conduct of the person was material to the matter giving rise to the
proceeding and the person acted in bad faith or with active and deliberate
dishonesty, (2) the person actually received an improper personal benefit or (3)
in the case of a criminal proceeding, the person had reason to believe that his
conduct was unlawful. Maryland law provides that where a person is a defendant
in a derivative proceeding, the person may not be indemnified if the person
is found liable to the corporation. Maryland law also provides that a person may
not be indemnified in respect of any
132
proceeding alleging improper personal benefit in which the person was found
liable on the grounds that personal benefit was improperly received. The
person found liable in the derivative proceeding or in the proceeding
alleging improper personal benefit may petition a court to nevertheless order
indemnification if the court determines that the person is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances. Similar to Delaware law, Maryland law provides that unless
otherwise provided in the corporation's charter, a director or officer (but
not an employee or agent) who is successful on the merits or otherwise in
defense of any proceeding must be indemnified against reasonable expenses.
The charter of the new company will provide that the new company will
indemnify its directors and officers to the fullest extent required or permitted
by the Maryland General Corporation Law.
APPRAISAL RIGHTS
DELAWARE LAW. Under the Delaware General Corporation Law, stockholders of a
corporation who are voting on a merger or consolidation generally are entitled
to dissent from the transaction and obtain payment of the fair value of their
shares (so-called "appraisal rights"). Appraisal rights do not apply if,
however, (1) the shares are listed on a national securities exchange or The
Nasdaq Stock Market National Market system or are held by 2,000 or more holders
of record and (2) except for cash in lieu of fractional share interests, the
shares are being exchanged for the shares of the surviving corporation of the
merger or the shares of any other corporation, which shares of such other
corporation will, as of the effective date of the merger or consolidation, be
listed on a national securities exchange or The Nasdaq Stock Market National
Market system or held of record by more than 2,000 holders.
Because MB Financial common stock is listed on The Nasdaq Stock Market
National Market system, and since the common stock of the new company will be
listed on The Nasdaq Stock Market National Market system upon completion of the
merger, MB Financial stockholders are not entitled to appraisal rights in
connection with the merger. Stockholders of MB Financial would, however, be
entitled to appraisal rights in a transaction calling for them to exchange their
MB Financial shares for consideration of a type other than that described in
item (2) above, such as a merger where the consideration for MB Financial
stockholders is to be paid all or partly in cash (in additional to cash in lieu
of fractional share interests). Since MidCity Financial common stock is not
listed on a national securities exchange or The Nasdaq Stock Market National
Market system or held by 2,000 or more holders of record, MidCity Financial
stockholders are entitled to appraisal rights in connection with the merger. See
"The Merger--Appraisal Rights." MidCity Financial stockholders would generally
be entitled to appraisal rights in any other merger or consolidation transaction
except a merger where MidCity Financial is the surviving entity and MidCity
Financial stockholders are not required to vote on the transaction.
MARYLAND LAW. The Maryland General Corporation Law provides that, except in
connection with a transaction governed by the Maryland business combination
statute or exempted from that statute pursuant to the statute's fair price
provisions, a stockholder is not entitled to demand the fair value of his or her
shares of stock in any transaction if the stock is listed on a national
securities exchange or The Nasdaq Stock Market National Market system or
SmallCap system. Because, as described under "--Business Combinations with
Certain Persons," the new company will opt-out of the Maryland business
combination statute through a charter provision, and since the common stock of
the new company will be listed on The Nasdaq Stock Market upon completion of the
merger, the holders of new company common stock after the merger will not be
entitled to appraisal rights under any circumstances, regardless of the form of
consideration to be paid for their shares.
STOCKHOLDER INSPECTION RIGHTS
DELAWARE LAW. The Delaware General Corporation Law provides that any
stockholder of record, regardless of the number of shares held and how long he
has held his shares, generally has the right to inspect the corporation's stock
ledger, list of stockholders and other books and records, provided he has a
proper purpose for doing so and satisfies certain procedural requirements.
MARYLAND LAW. Under the Maryland General Corporation Law, only a holder or
group of holders of 5% or more of the corporation's stock for at least six
months has the right to inspect the corporation's stock ledger, list of
133
stockholders and books of account. Stockholders who have held their shares for
less than six months and holders of fewer than 5% of the shares are entitled to
inspect the corporation's bylaws, stockholder minutes, annual statement of
affairs and any voting trust agreements.
LEGAL AND TAX MATTERS
The validity of the new company common stock to be issued in connection
with the merger will be passed upon by Silver, Freedman & Taff, L.L.P.,
Washington, D.C. It is a condition to the completion of the merger that MB
Financial receive an opinion from Silver, Freedman & Taff, L.L.P. and that
MidCity Financial receive an opinion from Winston & Strawn, Chicago, Illinois,
with respect to the federal income tax consequences of the merger.
EXPERTS
The consolidated financial statements of MB Financial as of December 31,
2000 and 1999 and for each of the years in the three-year period ended December
31, 2000, included in MB Financial's Annual Report on Form 10-K for the year
ended December 31, 2000 and incorporated into this joint proxy
statement-prospectus by reference, have been audited by McGladrey & Pullen, LLP,
independent certified public accountants, as stated in their report incorporated
by reference in this joint proxy statement-prospectus, and upon the authority of
the firm as experts in accounting and auditing.
The consolidated financial statements of MidCity Financial as of December
31, 2000 and 1999, and for each of the years in the three year period ended
December 31, 2000, included in this joint proxy statement-prospectus, have been
so included in reliance upon the report of KPMG LLP, independent certified
public accountants, included in this joint proxy statement-prospectus, and upon
the authority of said firm as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
NEW COMPANY
It is expected that the first annual meeting of stockholders of the new
company will be held in April 2002. In order to be eligible for inclusion in the
new company's proxy materials for that annual meeting, any stockholder proposal
must be received at the new company's executive office at 801 West Madison
Street, Chicago, Illinois 60607 by November 20, 2001. To be considered for
presentation at that annual meeting, although not included in the new company's
proxy materials for that meeting, a stockholder proposal must be received at the
new company's executive office not earlier than the close of business on the
120th day prior to the date of the meeting and not later than the later of the
90th day prior to the meeting or the tenth day after the day on which notice of
the date of the meeting is mailed or public disclosure of the date of the
meeting is first made, whichever occurs first.
MB FINANCIAL
MB Financial will hold an annual meeting of stockholders in 2002 only if
the merger has not already been completed. If the 2002 annual meeting is held,
then in order to be eligible for inclusion in MB Financial's proxy materials for
that annual meeting, any stockholder proposal must be received at MB Financial's
executive office at 1200 North Ashland Avenue, Chicago, Illinois 60622 by
November 20, 2001. To be considered for presentation at that annual meeting,
although not included in the new company's proxy statement for that meeting, a
stockholder proposal must be received at MB Financial's executive office by no
later than 30 days before the meeting. If, however, less than 40 days' notice or
prior public disclosure of the date of the annual meeting is given or made to
stockholders, the stockholder proposal must be received at MB Financial's
executive office no later than the close of business on the tenth day following
the day on which notice of the date of the meeting is mailed or public
disclosure of the date of the meeting is made, whichever occurs first.
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MIDCITY FINANCIAL
MidCity Financial will hold an annual meeting of stockholders in 2002 only
if the merger has not already been completed.
WHERE YOU CAN FIND MORE INFORMATION
MB Financial files annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy these filings at the
public reference room of the SEC located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. MB Financial's SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "www.sec.gov." You may also obtain copies of
this information by mail from the Public Reference Section of the SEC, at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The new company filed with the SEC a registration statement on Form S-4
under the Securities Act of 1933 with respect to the shares of new company
common stock to be issued in the merger. This joint proxy statement-prospectus
is a part of that registration statement and constitutes a prospectus of the new
company in addition to being a proxy statement of MB Financial and MidCity
Financial for their special meetings. As permitted by SEC rules, this joint
proxy statement-prospectus does not contain all the information contained in the
registration statement or the exhibits to the registration statement. The
additional information may be inspected and copied as set forth above.
The SEC permits the incorporation by reference of information regarding MB
Financial into this joint proxy statement-prospectus, which means that important
business and financial information about MB Financial can be disclosed to you by
referring you to another document filed separately by MB Financial with the SEC.
The information incorporated by reference is considered to be part of this joint
proxy statement-prospectus, and later information that MB Financial files with
the SEC will update and supersede that information. This joint proxy
statement-prospectus incorporates by reference the documents set forth below
that MB Financial has previously filed with the SEC and all documents filed by
MB Financial with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 after the date of this joint proxy
statement-prospectus and before the dates of the special meetings.
MB Financial Filings (SEC file number 0-24566)
----------------------------------------------
- Annual Report on Form 10-K for the year ended December 31, 2000.
- Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2001.
- Current Reports on Form 8-K filed on February 9, 2001, April 20, 2001,
April 27, 2001 and May 15, 2001.
- MB Financial's proxy statement for its annual meeting of stockholders
held on April 24, 2001.
This incorporation by reference will not be deemed to specifically
incorporate by reference the information relating to the audit committee report
(as permitted under Item 306 of Regulation S-K) or the board compensation
committee report on executive compensation and performance graph (as permitted
under Item 402(a)(8) of Regulation S-K) contained in MB Financial's 2001 annual
meeting proxy statement. Nor will this incorporation by reference be deemed to
specifically incorporate by reference the information provided under Item 9 of
the Current Reports on Form 8-K of MB Financial filed on April 20, 2001 and May
15, 2001.
MB Financial supplied all information contained or incorporated by
reference in this joint proxy statement-prospectus relating to MB Financial and
MidCity Financial supplied all information contained in this joint proxy
statement-prospectus relating to MidCity Financial.
You can obtain any of the documents incorporated by reference from the
SEC. The documents incorporated by reference also are available from MB
Financial without charge by contacting: Doria Koros, Secretary, MB Financial,
Inc., 1200 North Ashland Avenue, Chicago, Illinois 60622; telephone (773)
645-7868. Exhibits will not be sent, however, unless those exhibits have
specifically been incorporated by reference in this joint proxy
statement-prospectus.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM MB FINANCIAL, PLEASE DO SO BY
________, 2001 TO RECEIVE THEM BEFORE THE SPECIAL MEETINGS.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT-PROSPECTUS. NO ONE HAS BEEN AUTHORIZED
TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
JOINT PROXY STATEMENT-PROSPECTUS. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THIS JOINT PROXY STATEMENT-PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS, AND NEITHER THE
MAILING OF THIS JOINT PROXY STATEMENT-PROSPECTUS TO STOCKHOLDERS NOR THE
ISSUANCE OF NEW COMPANY COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION
TO THE CONTRARY.
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INDEX TO FINANCIAL STATEMENTS OF MIDCITY FINANCIAL CORPORATION
Page
Independent Auditors' Report..................................................................................F-2
Consolidated Balance Sheets at March 31, 2001 (unaudited) and
December 31, 2000 and 1999....................................................................................F-3
Consolidated Statements of Income for each of the years in the three-year period
ended December 31, 2000 and for the three months ended
March 31, 2001 and 2000 (unaudited)...........................................................................F-4
Consolidated Statements of Changes in Stockholders' Equity for each of the years
in the three-year period ended December 31, 2000 and for the three
months ended March 31, 2001 (unaudited).......................................................................F-5
Consolidated Statements of Cash Flows for each of the years in the three year
period ended December 31, 2000 and for the three months ended
March 31, 2001 and 2000 (unaudited)...................................................................F-6 and F-7
Notes to Consolidated Financial Statements.......................................................F-8 through F-26
F-1
Independent Auditors' Report
The Board of Directors
MidCity Financial Corporation:
We have audited the accompanying consolidated balance sheets of MidCity
Financial Corporation and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
2000. These consolidated financial statements are the responsibility of MidCity
Financial Corporation's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MidCity Financial
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Chicago, Illinois
January 26, 2001, except for
note 21, which is as of
April 20, 2001
F-2
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
March 31,
2001 December 31,
------------------------------------------
(Unaudited) 2000 1999
-----------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 53,401 $ 67,535 $ 56,813
Federal funds sold 66,275 29,775 7,700
Investment securities:
Available-for-sale, at fair value 712,291 49,782 36,962
Held-to-maturity, at amortized cost, fair value of $661,979 and
$661,055 at December 31, 2000 and 1999, respectively - 660,311 674,695
Loans 944,747 960,187 959,879
Allowance for loan losses (12,936) (12,999) (9,410)
------------------------------------------
Loans, Net 931,811 947,188 950,469
------------------------------------------
Premises, equipment and leasehold improvements, net 34,497 34,027 34,842
Intangible assets, net 16,284 16,659 18,153
Accrued interest receivable 14,994 14,225 12,081
Other assets 4,456 9,601 6,166
------------------------------------------
TOTAL ASSETS $1,834,009 $1,829,103 $1,797,881
==========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing $ 249,974 $ 277,339 $ 275,640
Interest-bearing 1,321,005 1,292,792 1,269,276
------------------------------------------
Total Deposits 1,570,979 1,570,131 1,544,916
Short-term borrowed funds 33,275 35,187 27,154
Federal Home Loan Bank advances 20,000 22,000 35,000
Other liabilities 15,352 16,220 15,550
------------------------------------------
Total Liabilities 1,639,606 1,643,538 1,622,620
------------------------------------------
Stockholders' Equity
Capital stock, par value $20 per share; 100,000 shares authorized;
50,000 shares issued 1,000 1,000 1,000
Paid-in capital 24,052 24,052 24,052
Retained earnings 170,819 168,080 158,475
Accumulated other comprehensive income, net of tax 7,126 1,027 328
Less 3,993 shares of treasury stock at cost (8,594) (8,594) (8,594)
------------------------------------------
Total Stockholders' Equity 194,403 185,565 175,261
------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,834,009 $1,829,103 $1,797,881
==========================================
See accompanying Notes to Consolidated Financial Statements.
F-3
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended
March 31,
2001 2000 Years Ended December 31,
(Unaudited) (Unaudited) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
Interest Income:
Interest and fees on loans $19,557 $19,429 $ 79,213 $ 69,971 $ 60,245
Interest on federal funds sold 700 169 1,588 694 1,310
Interest on deposits with financial institutions 147 44 151 64 21
Interest and dividends on investment securities:
United States Treasury securities 346 1,023 2,642 6,835 10,886
United States government agency and corporate securities 4,559 2,700 14,615 10,153 12,401
Obligations of states and political subdivisions 979 1,025 4,119 4,051 3,975
Mortgage backed securities 4,032 5,118 18,946 19,744 15,042
Other securities 642 716 2,624 3,148 3,272
------------------------------------------------------------
Total Interest and Dividends on Investment Securities 10,558 10,582 42,946 43,931 45,576
------------------------------------------------------------
Total Interest Income 30,962 30,224 123,898 114,660 107,152
Interest Expense:
Interest on savings and time deposits 15,055 13,490 58,373 49,564 48,866
Interest on short-term borrowed funds 411 414 1,670 1,350 622
Interest on Federal Home Loan Bank advances 320 499 1,743 1,449 -
------------------------------------------------------------
Total Interest Expense 15,786 14,403 61,786 52,363 49,488
------------------------------------------------------------
Net interest income 15,176 15,821 62,112 62,297 57,664
Provision for loan losses 10 1,268 5,073 1,405 770
------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 15,166 14,553 57,039 60,892 56,894
------------------------------------------------------------
Noninterest Income:
Income from fiduciary activities 416 504 1,779 1,830 1,637
Service charges on deposit accounts 1,263 1,196 4,685 5,519 5,158
Gain (loss) on sale of investment securities 888 - - (4) 147
Other operating income 796 781 3,262 3,242 3,011
------------------------------------------------------------
Total Noninterest Income 3,363 2,481 9,726 10,587 9,953
------------------------------------------------------------
Noninterest Expense:
Salaries and employee benefits 5,894 5,799 22,675 21,752 21,463
Occupancy expense, net 1,560 1,467 5,689 5,294 4,859
Equipment expense 1,150 1,273 4,862 4,620 3,563
Amortization of intangible assets 375 370 1,494 1,208 1,063
Professional and consulting fees 277 333 839 1,082 1,659
Other operating expense 2,622 3,030 12,595 10,640 10,532
------------------------------------------------------------
Total Noninterest Expense 11,878 12,272 48,154 44,596 43,139
------------------------------------------------------------
Income before income taxes 6,651 4,762 18,611 26,883 23,708
Income taxes 2,302 858 3,255 8,463 7,237
------------------------------------------------------------
NET INCOME $ 4,349 $ 3,904 $ 15,356 $ 18,420 $ 16,471
============================================================
Basic and diluted earnings per share $ 94.53 $ 84.86 $ 333.78 $ 398.24 $ 347.83
============================================================
Weighted average shares outstanding 46,007 46,007 46,007 46,254 47,354
============================================================
See accompanying Notes to Consolidated Financial Statements.
F-4
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands except share and per share data)
Accumulated
Other Total
Comprehensive Stock-
Comprehensive Paid-in Retained Income, Net Treasury holder'
Income Capital Stock Capital Earnings of Tax Stock Equity
-----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1998 $1,000 $24,025 $129,877 $726 $(1,299) $154,329
Net income $16,471 16,471 16,471
Unrealized holding gains on investment
securities, net of tax 297
Reclassification adjustments for gains
included in net income, net of tax (96)
--------
Other comprehensive income, net of tax 201 201 201
--------
Comprehensive income $16,672
========
Sale of 4 shares of treasury stock 16 16
Purchase of 578 shares of treasury stock (2,940) (2,940)
Cash dividends declared ($60.00 per
share) (2,836) (2,836)
---------------------------------------------------------------------------
Balance at December 31, 1998 1,000 24,041 143,512 927 (4,239) 165,241
Net income $18,420 18,420 18,420
Unrealized holding losses on investment
securities, net of tax (602)
Reclassification adjustments for losses
included in net income, net of tax 3
--------
Other comprehensive loss, net of tax (599) (599) (599)
--------
Comprehensive income $17,821
========
Sale of 2 shares of treasury stock 11 1 12
Purchase of 817 shares of treasury stock (4,356) (4,356)
Cash dividends declared ($75.00 per
share) (3,457) (3,457)
---------------------------------------------------------------------------
Balance at December 31, 1999 1,000 24,052 158,475 328 (8,594) 175,261
Net income $15,356 15,356 15,356
Unrealized holding gains on investment
securities, net of tax 699
--------
Other comprehensive income, net of tax 699 699 699
--------
Comprehensive income $16,055
========
Cash dividends declared ($125.00 per
share) (5,751) (5,751)
---------------------------------------------------------------------------
Balance at December 31, 2000 1,000 24,052 168,080 1,027 (8,594) 185,565
Net income (unaudited) $4,349 4,349 4,349
Unrealized holding gains on investment
securities, net of tax (unaudited) 6,676
Reclassification adjustments for gains
included in net income, net of tax
(unaudited) (577)
--------
Other comprehensive income, net of
tax (unaudited) 6,099 6,099 6,099
--------
Comprehensive income (unaudited) $10,448
========
Cash dividends declared ($35.00 per
share)(unaudited) (1,610) (1,610)
---------------------------------------------------------------------------
Balance at March 31, 2001 (unaudited) $1,000 $24,052 $170,819 $7,126 $(8,594) $194,403
===========================================================================
See accompanying Notes to Consolidated Financial Statements.
F-5
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Three Months Ended
March 31,
------------------------- Years Ended December 31,
2001 2000 ------------------------------------
(Unaudited) (Unaudited) 2000 1999 1998
-----------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $4,349 $3,904 $15,356 $18,420 $16,471
Adjustments to reconcile net income to net cash provided by
operating
Activities:
Depreciation and amortization 1,033 1,081 4,054 3,863 3,104
Amortization of intangible assets 375 370 1,494 1,208 1,063
Provision for loan losses 10 1,268 5,073 1,405 770
Net loss (gain) on disposal of premises and equipment - - (14) 4 (68)
Amortization of premiums and discounts on investments, net 98 366 852 2,461 2,091
(Gain) loss on the sale of investment securities (888) - - 4 (147)
available-for-sale
Deferred tax expense (benefit) 162 (1,019) (4,189) (990) (2,557)
Decrease (increase) in other assets 929 (730) (2,212) (972) 1,025
(Decrease) increase in other liabilities (868) (2,752) 1,117 (6,181) 2,126
-----------------------------------------------------------------
Net Cash Provided by Operating Activities 5,200 2,488 21,531 19,222 23,878
-----------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from maturities and principal repayments of
investment securities held-to-maturity - 42,378 161,811 328,612 320,192
Proceeds from maturities of investment securities
available-for-sale 71,240 1,482 7,182 4,997 8,744
Proceeds from sale of investment securities
available-for-sale 888 580 - 26,528 4,212
Purchase of investment securities held-to-maturity - (20,396) (148,280) (238,019) (309,420)
Purchase of investment securities available-for-sale (64,152) (300) (18,927) (5,980) (14,527)
Net decrease (increase) in loans 15,367 6,633 (1,792) (63,514) (93,516)
Capital expenditures on premises and equipment (1,524) (740) (3,284) (4,673) (8,221)
Proceeds from sales of premises and equipment 21 - 59 53 7,381
Cash paid, net of cash and cash equivalents acquired in
acquisition - - - (49,959) -
-----------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities 21,840 29,637 (3,231) (1,955) (85,155)
-----------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase (decrease) in deposits 848 (14,292) 25,215 (10,078) 67,305
Net (decrease) increase in short-term borrowed funds (1,912) (7,509) 8,033 11,296 4,280
Repayments of Federal Home Loan Bank Advances (2,000) (5,000) (13,000) (19,500) -
Sale of Treasury stock - - - 12 16
Purchase of treasury stock - - - (4,356) (2,940)
Dividends paid (1,610) (920) (5,751) (3,239) (2,844)
-----------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (4,674) (27,721) 14,497 (25,865) 65,817
-----------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 22,366 4,404 32,797 (8,598) 4,540
Cash and Cash Equivalents at Beginning of Period 97,310 64,513 64,513 73,111 68,571
-----------------------------------------------------------------
Cash and Cash Equivalents at End of Period $119,676 $68,917 $97,310 $64,513 $73,111
=================================================================
See accompanying Notes to Consolidated Financial Statements.
F-6
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Amounts in thousands)
Three Months Ended
March 31,
------------------------ Years Ended December 31,
2001 2000 ------------------------------
(Unaudited) (Unaudited) 2000 1999 1998
-------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest on deposits and other borrowed funds $15,883 $14,586 $61,637 $52,076 $49,546
Income taxes - - 7,150 10,670 9,403
Supplemental Schedule of Noncash Investing Activities
Transfer of investment securities from
held-to-maturity to available-for-sale $660,311 - - - -
Acquisition of Damen Financial Corporation:
Assets acquired:
Investment securities $83,386
Loans, net 117,770
Premises and equipment 4,859
Other assets 2,298
Excess of cost over fair value of net assets acquired 10,592
--------
218,905
--------
Liabilities assumed
Deposits 106,895
FHLB advances 54,500
Other liabilities 7,551
--------
168,946
--------
Net assets acquired $49,959
See accompanying notes to consolidated financial statements.
F-7
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of MidCity Financial Corporation and its
subsidiaries (MidCity Financial) conform to accounting principles generally
accepted in the United States of America. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities. Actual results could differ from those estimates. The following
is a description of the most significant accounting policies:
BUSINESS: MidCity Financial provides a full range of banking services to
individual and corporate customers through its banking subsidiaries principally
in metropolitan Chicago, Illinois, Oklahoma City, Oklahoma and Dallas, Texas. It
is subject to the regulations of certain federal and state agencies and
undergoes periodic examinations by those regulatory authorities.
CONSOLIDATION: The consolidated financial statements include the accounts of
MidCity Financial Corporation and its wholly owned subsidiaries: The Mid-City
National Bank of Chicago, First National Bank of Morton Grove, First National
Bank of Elmhurst, Union Bank and Trust Company, Abrams Centre National Bank and
MidCity Information Services, Inc. Significant intercompany accounts and
transactions are eliminated in consolidation.
STATEMENT OF CASH FLOWS: For purposes of reporting cash flows, cash and cash
equivalents include cash, amounts due from banks, and federal funds sold.
INVESTMENT SECURITIES: MidCity Financial has classified its investment
securities as either available-for-sale or held-to-maturity. Held-to-maturity
securities are those securities, which MidCity Financial has the ability and
positive intent to hold until maturity. All other securities not included in
held-to-maturity are classified as available-for-sale. Sales of investment
securities held-to-maturity within three months of maturity are treated as
maturities.
Available-for-sale securities are recorded at fair value. Unrealized holding
gains and losses, net of the related tax effect, on available-for-sale
securities are reported as a separate component of stockholders' equity until
realized. Held-to-maturity securities are recorded at amortized cost, adjusted
for the amortization or accretion of premiums or discounts. Premiums and
discounts are amortized or accreted over the life of the security as an
adjustment of yield using the interest method. Realized gains and losses are
included in earnings and are derived using the specific identification method. A
decline in the market value of any security below cost that is deemed other than
temporary results in a charge to earnings thereby establishing a new cost basis
for the security.
LOANS: Unearned income on discounted loans is recognized as income using the
sum-of-the-months' digits method. On nondiscounted loans, interest is accrued as
earned. Loans are placed on a nonaccrual status when, in the opinion of
management, uncertainty exists as to the ultimate collection of such interest.
MidCity Financial defers loan origination fees and certain direct costs and
amortizes the net amount over the life of the loan or lease as an adjustment of
yield using the interest method.
MidCity Financial's nonperforming loan policies, which address nonaccrual loans
and any other loans where it is probable that MidCity Financial will be unable
to collect all amounts due according to the contractual terms of the loan, meet
the definition set forth for impaired loans in Financial Accounting Standard's
Board Statement No. 114 (SFAS No. 114). Commercial and commercial real estate
loans meeting the above criteria are reported as impaired loans for disclosure
purposes. Small, homogeneous loans are excluded from the provisions of SFAS No.
114.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained through a
provision for loan losses charged to expense. The allowance represents an amount
that, in management's judgment, is adequate to absorb probable loan losses. The
allowance for loan losses is based on management's evaluation of the loan
portfolio giving consideration to general economic conditions, the nature and
volume of the loan portfolio, the value of underlying collateral, and MidCity
Financial's historical loan loss experience. Loans are charged off to the
allowance for loan losses when deemed uncollectible. Recoveries on loans
previously charged off are credited to the allowance for loan losses.
F-8
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the subsidiary banks' allowances for
loan losses. Such agencies may require the subsidiary banks to recognize
additions to the allowances based on their judgments of information available to
them at the time of their examination.
PREMISES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS: Premises, equipment, and
leasehold improvements are stated at cost less accumulated depreciation and
amortization. Depreciation is provided on the straight-line and
declining-balance methods based on the estimated useful lives of the depreciable
assets which for buildings is forty years, and for furniture and fixtures, five
to seven years. Leasehold improvements are amortized over the term of the
related lease or the estimated useful lives of the improvements, whichever is
shorter.
INCOME TAXES: MidCity Financial's Federal income tax returns are prepared on a
consolidated basis. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases (temporary differences). Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. A
valuation allowance on deferred tax assets exists when, in management's opinion,
the realization of the assets does not meet the "more likely than not"
criterion.
INTANGIBLE ASSETS: Intangible assets consist of core deposit premiums and
goodwill arising from business combinations. Core deposit premiums represent the
value assigned to the core deposit base acquired and is amortized over eight
years. Goodwill is amortized over fifteen years.
MidCity Financial reviews long-lived assets and certain identifiable intangible
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. The impairment is measured based on
the undiscounted future cash flows from the use of the asset and its eventual
disposition. If expected future cash flows are less than the carrying amount of
the asset, an impairment loss is recognized based on current fair values.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and net
unrealized gains (losses) on securities available-for-sale and is presented in
the statements of income.
SEGMENT REPORTING: MidCity Financial uses a regional approach for determining
segment reporting. Based on the regional approach, MidCity Financial operates in
two major metropolitan areas, Chicago, Illinois and Oklahoma City, Oklahoma.
EARNINGS PER SHARE: Earnings per share is determined by dividing net income for
the period by the weighted average number of shares outstanding. MidCity
Financial only has one class of common stock issued and outstanding. No stock
options have been issued or are outstanding nor does it have any other forms of
dilutive equity shares.
Earning per common share have been computed for the years ended December 31,
2000, 1999 and 1998 based on the following (in thousands except share data):
2000 1999 1998
------- ------- -------
Net income $15,356 $18,420 $16,471
Weighted average shares outstanding 46,007 46,254 47,354
Basic and diluted earnings per share $333.78 $398.24 $347.83
RECLASSIFICATION: Certain amounts in the consolidated financial statements have
been reclassified to conform to the 2000 presentation.
F-9
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ACCOUNTING STANDARDS: MidCity Financial adopted SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" on January 1, 2001. The adoption
had an immaterial impact on the financial condition or results from operations
of MidCity Financial. The statement requires that changes in the derivative's
fair value be recognized currently in earnings unless specific accounting
criteria are met and the hedge is considered to be highly effective. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. In conjunction with the adoption
of SFAS No. 133, MidCity Financial transferred securities previously designated
as held-to-maturity with an amortized cost of $660,311,000 and a fair value of
$661,979,000 to available-for-sale.
INTERIM FINANCIAL STATEMENTS: The consolidated financial statements as of
March 31, 2001 and for the three months ended March 31, 2001 and 2000 are
unaudited, but in the opinion of management, reflect all adjustments,
consisting only of a normal and recurring nature, necessary for a fair
presentation. These interim financial statements are condensed, and do not
include all disclosures required by accounting principles generally accepted
in the United States of America.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
Aggregate reserves (in the form of vault cash and deposits with Federal Reserve
banks) of $4,112,000 and $3,862,000 were maintained to satisfy federal
regulatory requirements at December 31, 2000 and 1999, respectively.
F-10
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVESTMENT SECURITIES
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses, and fair value for investment securities by major security type at
December 31, 2000 and 1999 were as follows:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
December 31, 2000 (in thousands) Cost Gains Losses Value
-------------------------------- --------- ---------- ---------- -----
Available-for-sale:
U.S. Treasury securities $ 10,039 $ 38 $ (14) $ 10,063
U.S. Government agency securities 19,667 228 (40) 19,855
Mortgage-backed securities 7,398 1 (104) 7,295
Corporate securities 1,028 1 (1) 1,028
Equity securities 10,071 1,561 (91) 11,541
-------- -------- -------- --------
Total $ 48,203 $ 1,829 $ (250) $ 49,782
-------- -------- -------- --------
Held-to-maturity:
U.S. Treasury securities $ 13,993 $ 30 $ -- $ 14,023
U.S. Government agency securities 269,091 2,848 (633) 271,306
Obligations of states and political subdivisions 91,626 507 (153) 91,980
Mortgage-backed securities 254,848 636 (1,652) 253,832
Corporate securities 30,743 90 (5) 30,828
Debt securities issued by foreign governments 10 -- -- 10
-------- -------- -------- --------
Total $660,311 $ 4,111 $ (2,443) $661,979
-------- -------- -------- --------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
December 31, 1999 (in thousands) Cost Gains Losses Value
-------------------------------- --------- ---------- ---------- -----
Available-for-sale:
U.S. Treasury securities $ 8,859 $ 2 $ (99) $ 8,762
U.S. Government agency securities 7,197 -- (223) 6,974
Mortgage-backed securities 11,251 1 (366) 10,886
Equity securities 9,151 1,340 (151) 10,340
-------- -------- -------- --------
Total $ 36,458 $ 1,343 $ (839) $ 36,962
-------- -------- -------- --------
Held-to-maturity:
U.S. Treasury securities $ 67,085 $ 99 $ (148) $ 67,036
U.S. Government agency securities 157,624 42 (3,750) 153,916
Obligations of states and political subdivisions 95,647 108 (1,195) 94,560
Mortgage-backed securities 317,988 83 (8,777) 309,294
Corporate securities 36,331 16 (118) 36,229
Debt securities issued by foreign governments 20 -- -- 20
-------- -------- -------- --------
Total $674,695 $ 348 $(13,988) $661,055
-------- -------- -------- --------
F-11
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturities of investment securities were as follows at December 31, 2000
(maturities of mortgage-backed securities have been presented based upon
estimated cash flows, assuming no change in the current interest rate
environment):
Amortized Fair
(in thousands) Cost Value
--------- -----
Available-for-sale:
Due in one year or less $ 17,919 $ 17,867
Due after one year through five years 18,839 19,034
Due after five years through ten years 1,141 1,114
Due after ten years 233 226
Equity securities 10,071 11,541
-------- --------
Total $ 48,203 $ 49,782
-------- --------
Held-to-maturity:
Due in one year or less $246,533 $245,996
Due after one year through five years 385,174 387,317
Due after five years through ten years 22,376 22,415
Due after ten years 6,228 6,251
-------- --------
Total $660,311 $661,979
-------- --------
Gross gains of $35,000 in 1999 and $147,000 in 1998 and gross losses of $39,000
in 1999 were realized on sale proceeds of $26,528,000 in 1999 and $4,212,000 in
1998. No securities were sold in 2000.
Investment securities carried at $165,071,000 and $133,862,000 at December 31,
2000 and 1999, respectively, were pledged to secure public deposits, securities
sold under agreements to repurchase, and for other purposes required by law.
NOTE 4 - LOANS
The major categories within the loan portfolio were as follows:
December 31 (in thousands) 2000 1999
--------- -------
Commercial and industrial loans $ 286,489 270,233
Real estate loans 644,943 653,163
Consumer loans 27,835 35,573
Other loans 1,962 2,056
--------- -------
961,229 961,025
Less: unearned income, unamortized loan fees and costs (1,042) (1,146)
--------- -------
Total $ 960,187 959,879
--------- -------
Activity in the allowance for loan losses during 2000, 1999 and 1998 were as
follows:
(in thousands) 2000 1999 1998
-------- ----- -----
Balance, beginning of year $ 9,410 9,564 9,341
Allowance on acquired loans -- 465 --
Provision for loan losses 5,073 1,405 770
Loans charged off (1,721) (2,388) (737)
Recoveries 237 364 190
-------- ----- -----
Balance, end of year $ 12,999 9,410 9,564
-------- ----- -----
F-12
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nonaccrual loans and loans past due ninety days or more were $10,755,000,
$6,300,000 and $2,477,000 as of December 31, 2000, 1999 and 1998,
respectively. Of the loans past due ninety days or more, $4,242,000 and
$458,000 were still accruing interest as of December 31, 2000 and 1999,
respectively. The reduction in interest income associated with nonaccrual
loans, based on their original contractual terms, was approximately $667,000,
$412,000 and $185,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
(in thousands) 2000 1999 1998
-------- ------ ------
Total impaired loans (at December 31) $ 14,882 8,818 5,853
Impaired loans for which there is related allowance (at December 31) $ 11,806 8,369 3,573
Related allowance (2,684) (1,835) (1,173)
-------- ------ ------
Balance, net of allowance $ 9,122 6,534 2,400
======== ====== ======
Impaired loans for which there is no related allowance (at December 31) $ 3,076 449 2,280
-------- ------ ------
Average amount of impaired loans outstanding during year 12,738 6,301 4,507
Interest income on impaired loans recorded on a cash basis 72 71 22
NOTE 5 - PREMISES, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
The following is a summary of premises, equipment, and leasehold improvements at
December 31, 2000 and 1999:
(in thousands) 2000 1999
------- ------
Land and land improvements $ 6,696 6,696
Buildings 20,023 19,989
Furniture and fixtures 28,689 26,276
Building and leasehold improvements 12,640 11,848
------- ------
Total cost 68,048 64,809
Less: accumulated depreciation and amortization 34,021 29,967
------- ------
Total $34,027 34,842
------- ------
Depreciation expense totaled $4,054,000, $3,863,000 and $3,104,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.
NOTE 6 - INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of:
December 31 (in thousands) 2000 1999
---------- ----------
NOW $ 103,573 $ 105,113
Money market 261,865 271,157
Savings 191,522 247,847
Time $100,000 and over 240,865 198,397
Time under $100,000 494,967 446,762
---------- ----------
Total $1,292,792 $1,269,276
---------- ----------
Interest expense on interest-bearing deposits consisted of:
(in thousands) 2000 1999 1998
------- ------- -------
NOW $ 1,913 $ 1,970 $ 2,034
Money market 12,242 9,871 8,226
Savings 5,185 6,509 5,279
Time $100,000 and over 12,690 9,334 8,528
Time under $100,000 26,343 21,880 24,799
------- ------- -------
Total $58,373 $49,564 $48,866
======= ======= =======
F-13
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank Advances are summarized as follows as of December 31,
2000 and 1999:
December 31 (in thousands) 2000 1999
---------------------- ----------------------
Weighted Weighted
Average Average
Interest Interest
Due in: Rate Amount Rate Amount
------- -------- ------ -------- ------
2000 -- $ -- 6.16% $12,000
2001 6.56% 10,000 6.56% 10,000
2002 6.30% 6,000 6.17% 7,000
2003 5.85% 2,000 5.85% 2,000
2008 (callable on a quarterly basis) 5.11% 3,000 5.11% 3,000
Variable rate, due in 2008 6.27% 1,000 5.13% 1,000
---- ------- ---- -------
Total 6.29% $22,000 6.00% $35,000
==== ======= ==== =======
Advances in the amount of $3,000,000 are callable on a quarterly basis and are
due in 2008.
A collateral pledge agreement exists whereby at all times, MidCity Financial
must keep on hand, free of all other pledges, liens, and encumbrances, first
mortgages with unpaid principal balances aggregating no less than 167% of the
outstanding secured advances from the Federal Home Loan Bank. All stock in the
Federal Home Loan Bank is pledged as additional collateral for these advances.
NOTE 8 - INCOME TAXES
The components of Federal income tax expense (benefit) are shown in the
following summary:
Years ended December 31 (in thousands) 2000 1999 1998
------- ------- -------
Current $ 7,444 $ 9,453 $ 9,794
Deferred (4,189) (990) (2,557)
------- ------- -------
Total $ 3,255 $ 8,463 $ 7,237
------- ------- -------
F-14
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities were as follows:
December 31 (in thousands) 2000 1999
------- -------
Assets:
Provision for loan losses $ 4,056 $ 2,290
Depreciation 71 49
Deferred compensation 1,234 1,230
Deferred gain on sale of building 188 214
Federal net operating loss carryforward 1,061 1,210
State net operating loss carryforwards, net 2,503 3,700
------- -------
Total deferred tax assets 9,113 8,693
Valuation allowance on state net operating loss carryforwards -- (3,628)
------- -------
Total deferred tax assets, net of valuation allowance 9,113 5,065
------- -------
Liabilities:
Purchase accounting adjustments (1,572) (1,566)
Accretion on investments (415) (321)
Other, net (13) (254)
------- -------
Total deferred tax liabilities (2,000) (2,141)
------- -------
Net deferred tax asset 7,113 2,924
======= =======
Net unrealized holding gains on securities available-for-sale (553) (176)
======= =======
Net deferred tax asset $ 6,560 $ 2,748
======= =======
MidCity Financial's state net operating loss carryforwards totaling
approximately $53,597,000 at December 31, 2000 expire beginning in 2002 through
2012. MidCity Financial's Federal net operating loss carryforwards totaling
approximately $3,031,000 at December 31, 2000 expire in 2014. MidCity Financial
has recognized in 2000 that it is more likely that not that the future tax
benefits related to state net operating loss carryforwards will be realized.
Accordingly, the valuation allowance on these deferred tax assets previously
established has been eliminated.
The effective income tax rate was 17.5% in 2000, 31.5% in 1999 and 30.5% in 1998
as compared to the expected Federal income tax rate of 35%. The reasons for
these differences were as follows:
Years ended December 31 (in thousands) 2000 1999 1998
------- ------- -------
Federal income tax at expected statutory rate $ 6,514 $ 9,409 $ 8,298
Increase (decrease) in taxes resulting from:
Tax-exempt income, net (1,307) (1,379) (1,255)
Reversal of valuation allowance on state net operating loss
carryforwards, net of state tax expense (2,477) -- --
Other, net 525 433 194
------- ------- -------
Total $ 3,255 $ 8,463 $ 7,237
------- ------- -------
NOTE 9 - LEASE COMMITMENTS
Rental expense for all operating leases amounted to approximately $2,232,000,
$2,215,000 and $1,927,000 in 2000, 1999 and 1998, respectively. In 1998,
Mid-City National Bank sold its North Riverside building for $7,350,000 and
leased back a portion of the building under an operating lease. The gain of
$1,423,000 realized on that transaction was deferred and is amortized over the
remaining term of the lease of ten years.
F-15
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum rental commitments as of December 31, 2000, for all
noncancellable leases were as follows:
(In thousands)
--------------
2001 $ 1,872
2002 1,897
2003 1,920
2004 1,603
2005 1,453
Thereafter 5,594
-------
Total $14,339
-------
NOTE 10 - BENEFIT PLANS
Substantially all employees of MidCity Financial meeting certain service
requirements are eligible to participate in a contributory profit sharing plan
administered by MidCity Financial. Voluntary contributions by employees are
permitted, subject to certain limitations. Company contributions were based
solely on the performance of MidCity Financial. Contributions were $1,236,000
for 2000, $1,270,000 for 1999 and $1,125,000 for 1998.
Several key MidCity Financial employees are eligible for contributions under a
deferred compensation plan. Company contributions were $106,000, $109,000 and
$97,000 in 2000, 1999 and 1998, respectively. Total liabilities outstanding
under this plan were $3,163,000 and $2,898,000 as of December 31, 2000 and 1999,
respectively.
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
MidCity Financial is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. Those financial instruments include commitments to extend credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the consolidated
statements of condition. The contract amounts of those instruments reflect the
extent of involvement MidCity Financial has in particular classes of financial
instruments.
MidCity Financial's exposure to credit loss in the event of nonperformance by
one of the other parties to the financial instruments, for commitments to extend
credit and standby letters of credit, is represented by the contractual amount
of those instruments. MidCity Financial uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. Financial instruments whose contract amounts represent credit risk
at December 31, 2000, were as follows:
(in thousands)
Commitments to extend credit $194,785
Standby letters of credit 7,537
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. MidCity Financial evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by MidCity Financial, upon extension of credit is based on
management's credit evaluation of the counterparty. Certain commitments are
unsecured. Collateral held for the secured commitments varies but may include
real estate, inventory, automobiles, equipment, securities, and certificates of
deposit.
F-16
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Standby letters of credit are conditional commitments issued by MidCity
Financial to guarantee the performance of a customer to a third party. Those
guarantees are primarily used to support private borrowing arrangements. All of
the standby letters of credit at December 31, 2000 are short-term guarantees;
they expire on or before December 31, 2001. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. When deemed necessary, MidCity Financial may hold a
variety of collateral to support these commitments, including real estate,
accounts receivable, inventory, and certificates of deposit.
NOTE 12 - RELATED PARTY LOANS AND COMMITMENTS
Aggregate loans outstanding to MidCity Financial and bank subsidiary executive
officers, directors, principal stockholders, and other related parties were
approximately $19,001,000 and $8,221,000 at December 31, 2000 and 1999,
respectively. These loans and commitments were made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other customers of the subsidiary banks, and did not involve more than the
normal risk of collectibility or present other unfavorable features. An analysis
of the activity related to these loans for the year ended December 31, 2000 is
as follows:
Balance, beginning of year (in thousands) $ 8,221
Additions 15,583
Principal payments and other reductions (4,803)
--------
Balance, end of year $ 19,001
========
NOTE 13 - CONCENTRATION OF CREDIT RISK
MidCity Financial grants commercial, real estate, and consumer loans to
customers principally located in the metropolitan areas of Chicago, Illinois,
Oklahoma City, Oklahoma and Dallas, Texas. Although MidCity Financial has a
diversified loan portfolio, a substantial portion of the debtors' ability to
honor their loan contracts is dependent upon the overall economy of these
metropolitan areas.
NOTE 14 - CONTINGENT LIABILITIES
In the ordinary course of business, MidCity Financial and its subsidiaries
became involved in various matters of litigation. In the opinion of management,
after considering the advice of counsel, the ultimate resolution of these
proceedings will not have a material effect on the consolidated financial
condition, or operating results of MidCity Financial.
F-17
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods, and assumptions are set forth below for MidCity
Financial's financial instruments.
2000 1999
----------------------- -----------------------
Carrying Fair Carrying Fair
December 31 (in thousands) Value Value Value Value
-------------------------- -------- ----- -------- -----
Financial Assets:
Cash and due from banks $ 67,535 67,535 $ 56,813 56,813
Federal funds sold 29,775 29,775 7,700 7,700
Investment securities available-for-sale 49,782 49,782 36,962 36,962
Investment securities held-to-maturity 660,311 661,979 674,695 661,055
Loans, net 947,188 967,383 950,469 954,375
Accrued interest receivable 14,225 14,225 12,081 12,081
Financial Liabilities:
Noninterest-bearing deposits $ 277,339 277,339 $ 275,640 275,640
Interest-bearing deposits 1,292,792 1,294,847 1,269,276 1,269,276
Short-term borrowed funds 35,187 35,162 27,154 27,154
Federal Home Loan Bank Advances 22,000 21,990 35,000 34,884
Accrued interest payable 5,430 5,430 4,434 4,434
Off-balance Sheet Financial Instruments:
Commitments to extend credit -- 640 -- 650
Standby letters of credit -- 151 -- 174
CASH AND DUE FROM BANKS: The carrying amount of cash and due from banks
approximates its fair value.
INVESTMENT SECURITIES: The carrying amounts for short term investments, which
include federal funds sold and interest-bearing deposits with financial
institutions, approximate fair value because they mature in one year or less and
do not present unanticipated credit concerns. The fair value of longer-term U.S.
Treasury and U.S. Government agency securities, equity securities, and
mortgage-backed securities, except certain obligations of states and political
subdivisions, is estimated based on bid prices published in financial newspapers
or bid quotations received from securities dealers. The fair value of certain
obligations of states and political subdivisions is not readily available
through market sources other than dealer quotations, so fair value estimates are
based on quoted market prices of similar instruments, adjusted for differences
between the quoted instruments and the instruments being valued.
LOANS: Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial and industrial,
real estate, and consumer loans. Each loan category is further segmented into
fixed and adjustable rate interest terms.
The fair value of performing loans is calculated by discounting scheduled cash
flows through the estimated maturity, using rates of notes of similar terms and
type. The estimate of the maturity is based on industry forecast experience with
repayments for each loan classification, modified by an estimate of the effect
of current economic and lending conditions. The fair value of variable rate
loans repricing within three months was assumed to be at carrying value.
Fair value for nonperforming loans is based on recent external appraisals of the
related collateral. If appraisals are not available, estimated cash flows are
discounted using a rate commensurate with the risk associated with the estimated
cash flows. Assumptions regarding credit risk, cash flows, and discount rates
are determined using available market information and specific borrower
information.
F-18
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIABILITIES: The fair value of deposits with no stated maturity, such as demand
deposits, NOW, money market, savings, and money market accounts, is equal to the
amount payable on demand as of December 31, 2000 and 1999. The fair value of
time deposits is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered on similar
remaining maturities. If the fair value is less than the amount payable on
demand, the fair value disclosure is the amount payable on demand.
The carrying amounts for short-term borrowings, which include federal funds
purchased and securities sold under agreement to repurchase, approximate fair
value for instruments with maturities of 90 days or less. The fair value of
short-term borrowings with maturities of greater than 90 days is based on the
discounted value of contractual cash flows.
The fair value of Federal Home Loan Bank Advances is based on the discounted
value of contractual cash flows. The discount rate is estimated using the
published rates currently offered on similar remaining maturities.
The fair value estimates above do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT: The value of
commitments to extend credit is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For fixed
rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates.
The fair value of letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties.
LIMITATIONS: Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale, at one time, MidCity Financial's entire holdings of
particular financial instruments. Because no market exists for a significant
portion of MidCity Financial's financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. For example, MidCity Financial has a trust department
that contributes net fee income annually. The trust department is not considered
a financial instrument, and its value has not been incorporated into the fair
value estimates. Other significant assets and liabilities that are not
considered financial assets or liabilities for disclosure purposes include the
deferred tax assets, premises and equipment and intangible assets. In addition,
the tax ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have not been
considered in the estimates.
NOTE 16 - ACQUISITION
On July 1, 1999, MidCity Financial assumed the liabilities and purchased the
assets of Damen Financial Corporation (Damen). A purchase price of
$50,454,000 was paid for 100% of Damen's outstanding common stock. The
acquisition was accounted for as a purchase, and assets and liabilities were
recorded at fair value. The excess cost over fair value of the net assets
acquired of $10,592,000 was recorded as goodwill and is being amortized over
fifteen years on a straight-line basis. The results of Damen's operations for
the period July 1, 1999 through December 31, 1999 are included in the 1999
consolidated statement of income.
F-19
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma results of operations, which follow, assume that the
Damen acquisition had occurred on January 1, 1998. In addition to combining the
historical results of operations of the companies, the pro forma calculations
include purchase accounting adjustments related to the acquisition. The pro
forma calculations do not include any anticipated cost savings as a result of
the merger.
Unaudited pro forma consolidated results of operations for the years ended
December 31, 1999 and 1998 are as follows (in thousands except per share data):
1999 1998
------- -------
Net interest income $66,815 $64,234
Net income 19,624 18,399
Basic and diluted earnings per share $424.27 $388.54
The pro forma results of operations are not necessarily indicative of the actual
results of operations that would have occurred had the Damen acquisition
actually taken place at the beginning of the respective periods, or of results
which may occur in the future.
NOTE 17 - REGULATORY MATTERS
Federal and state banking regulations and capital guidelines limit the amount of
dividends that may be paid by banks. These regulations will permit the banking
subsidiaries of MidCity Financial to distribute dividends during 2001
approximately $12,599,000 plus income generated in 2001, without prior approval,
subject to capital guidelines.
MidCity Financial and its subsidiary banks are subject to various regulatory
capital requirements administered by Federal regulatory agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on MidCity Financial's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, MidCity Financial must meet specific capital guidelines that involve
quantitative measures of MidCity Financial's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
MidCity Financial's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weighting, and
other factors.
Quantitative measures established by regulation to ensure adequacy require
MidCity Financial to maintain minimum amounts and ratios as set forth below.
Management believes, as of December 31, 2000, that MidCity Financial meets all
capital adequacy requirements to which it is subject.
F-20
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2000, and 1999 the most recent notifications from the
subsidiary banks' regulatory agencies categorized the banks as well capitalized
under the regulatory framework for prompt corrective action. There are no
conditions or events that have occurred since the most recent notifications that
management believes have changed the institutions' categories.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- -------------------- --------------------
As of December 31, 2000 (in thousands) Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
Total Capital to Risk Weighted Assets
Consolidated $180,878 16.9% $ 85,804 8.0% $107,255 10.0%
The Mid-City National Bank of Chicago 76,778 12.9% 47,504 8.0% 59,381 10.0%
First National Bank of Morton Grove 23,866 13.1% 14,634 8.0% 18,293 10.0%
First National Bank of Elmhurst 14,162 12.8% 8,884 8.0% 11,105 10.0%
Union Bank and Trust 27,526 17.9% 12,311 8.0% 15,389 10.0%
Abrams Centre National Bank 9,111 18.1% 4,028 8.0% 5,036 10.0%
Tier I Capital to Risk Weighted Assets
Consolidated $167,879 15.7% $ 42,902 4.0% 64,353 6.0%
The Mid-City National Bank of Chicago 70,664 11.9% 23,752 4.0% 35,628 6.0%
First National Bank of Morton Grove 21,948 12.0% 7,317 4.0% 10,976 6.0%
First National Bank of Elmhurst 12,951 11.7% 4,442 4.0% 6,663 6.0%
Union Bank and Trust 25,951 16.7% 6,156 4.0% 9,233 6.0%
Abrams Centre National Bank 8,478 16.8% 2,014 4.0% 3,021 6.0%
Tier I Capital to Average Assets
Consolidated $167,879 9.3% $ 54,244 3.0% 90,406 5.0%
The Mid-City National Bank of Chicago 70,664 7.4% 28,496 3.0% 47,493 5.0%
First National Bank of Morton Grove 21,948 7.2% 9,111 3.0% 15,185 5.0%
First National Bank of Elmhurst 12,951 7.6% 5,115 3.0% 8,525 5.0%
Union Bank and Trust 25,591 8.9% 8,679 3.0% 14,466 5.0%
Abrams Centre National Bank 8,478 9.2% 2,777 3.0% 4,628 5.0%
F-21
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- -------------------- --------------------
As of December 31, 1999 (in thousands) Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
Total Capital to Risk Weighted Assets
Consolidated $166,269 15.9% $ 83,817 8.0% $104,771 10.0%
The Mid-City National Bank of Chicago 72,583 12.7% 45,593 8.0% 56,991 10.0%
First National Bank of Morton Grove 22,418 13.5% 13,290 8.0% 16,613 10.0%
First National Bank of Elmhurst 13,682 12.5% 8,756 8.0% 10,945 10.0%
Union Bank and Trust 28,599 17.3% 13,260 8.0% 16,575 10.0%
Abrams Centre National Bank 7,996 15.0% 4,276 8.0% 5,345 10.0%
Tier I Capital to Risk Weighted Assets
Consolidated $156,859 15.0% $ 41,908 4.0% 62,863 6.0%
The Mid-City National Bank of Chicago 68,755 12.1% 22,796 4.0% 34,195 6.0%
First National Bank of Morton Grove 21,272 12.8% 6,645 4.0% 9,968 6.0%
First National Bank of Elmhurst 12,767 11.7% 4,378 4.0% 6,567 6.0%
Union Bank and Trust 26,517 16.0% 6,630 4.0% 9,945 6.0%
Abrams Centre National Bank 7,346 13.7% 2,138 4.0% 3,207 6.0%
Tier I Capital to Average Assets
Consolidated $156,859 8.7% $ 54,339 3.0% 90,564 5.0%
The Mid-City National Bank of Chicago 68,755 7.2% 28,809 3.0% 48,015 5.0%
First National Bank of Morton Grove 21,272 7.5% 8,568 3.0% 14,280 5.0%
First National Bank of Elmhurst 12,767 7.7% 4,978 3.0% 8,297 5.0%
Union Bank and Trust 26,517 8.5% 9,351 3.0% 15,586 5.0%
Abrams Centre National Bank 7,346 8.8% 2,515 3.0% 4,191 5.0%
F-22
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION
The condensed financial statements of MidCity Financial Corporation (parent
company only) are presented below:
Balance Sheets
December 31, (Amounts in thousands) 2000 1999
--------------------------------------------------------------------------------------
Assets
Cash $ 28,710 $ 19,435
Investment securities 1,985 1,897
Investments in subsidiaries 160,105 157,890
Other assets 1,454 1,757
-------- --------
Total Assets $192,254 $180,979
======== ========
Liabilities and Stockholders' Equity
Other liabilities $ 6,689 $ 5,718
Stockholders' equity 185,565 175,261
-------- --------
Total Liabilities and stockholders' Equity $192,254 $180,979
======== ========
Statements of Income
Years ended December 31, (amounts in thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------
Dividends from subsidiaries $17,300 $11,150 $14,050
Service fees from subsidiaries 4,692 3,813 927
Interest and other noninterest income 875 831 1,031
------- ------- -------
Total income 22,867 15,794 16,008
------- ------- -------
Salaries and employee benefits 7,804 7,029 5,263
Other noninterest expense 3,393 2,614 3,001
======= ======= =======
Total expense 11,197 9,643 8,264
------- ------- -------
Income before income tax benefits and equity in undistributed
net income of subsidiaries 11,670 6,151 7,744
Income tax benefits 1,906 1,689 2,135
Equity in undistributed net income of subsidiaries 1,780 10,580 6,592
------- ------- -------
Net income $15,356 $18,420 $16,471
======= ======= =======
F-23
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statements of Cash Flows
Years ended December 31, (Amounts in thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 15,356 $ 18,420 $ 16,471
Adjustments to reconcile net income to net cash provided by operating
Activities:
Depreciation and amortization 222 180 354
Equity in undistributed net income of subsidiaries (1,780) (10,580) (6,592)
(Increase) decrease in other assets 568 (676) 38
Increase (decrease) in other liabilities 249 (828) 1,661
-------- -------- --------
Net Cash Provided by Operating Activities 14,615 6,516 11,932
-------- -------- --------
Cash Flows from Investing Activities:
Proceeds from the maturity of investments securities -- -- 5,000
Proceeds from repayment of advances to subsidiaries 350 -- 170
Advances to subsidiaries (350) (10,200) --
Capital expenditures on premises and equipment (279) (459) (42)
-------- -------- --------
Net Cash Provided by (Used in) Investing Activities (279) (10,659) 5,128
-------- -------- --------
Cash Flows from Financing Activities:
Sale of Treasury stock -- 6 16
Purchase of treasury stock -- (4,350) (2,940)
Dividends paid (5,061) (2,537) (2,844)
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities (5,061) (6,881) (5,768)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 9,275 (11,024) 11,292
Cash and Cash Equivalents at Beginning of Year 19,435 30,459 19,167
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 28,710 $ 19,435 $ 30,459
======== ======== ========
F-24
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - SEGMENT INFORMATION
MidCity and its subsidiaries operate primarily in the commercial banking
industry, however, management manages these operations geographically. MidCity
Financial's primary markets are Chicago, Illinois and Oklahoma City, Oklahoma
and their surrounding metropolitan areas.
ADJUSTMENTS
ILLINOIS OKLAHOMA AND
AMOUNTS IN THOUSANDS BANKS BANK OTHER ELIMINATIONS CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------------------------
2000
Net interest income $ 45,809 $ 10,681 $ 22,905 $ (17,283) $ 62,112
Provision for loan losses 4,606 -- 467 -- 5,073
Noninterest income 7,287 1,860 10,798 (10,219) 9,726
Noninterest expense 31,034 7,213 18,328 (8,421) 48,154
---------- ---------- ---------- ---------- ----------
Income before income taxes 17,456 5,328 14,908 (19,081) 18,611
Income taxes 2,667 1,854 (1,266) -- 3,255
---------- ---------- ---------- ---------- ----------
Net income $ 14,789 $ 3,474 $ 16,174 $ (19,081) $ 15,356
========== ========== ========== ========== ==========
1999
Net interest income $ 45,422 $ 11,361 $ 16,635 $ (11,121) $ 62,297
Provision for loan losses 887 -- 518 -- 1,405
Noninterest income 7,810 2,122 18,260 (17,605) 10,587
Noninterest expense 27,840 6,967 16,785 (6,996) 44,596
---------- ---------- ---------- ---------- ----------
Income before income taxes 24,505 6,516 17,592 (21,730) 26,883
Income taxes 7,433 2,282 (1,252) -- 8,463
---------- ---------- ---------- ---------- ----------
Net income $ 17,072 $ 4,234 $ 18,844 $ (21,730) $ 18,420
========== ========== ========== ========== ==========
1998
Net interest income $ 41,380 $ 11,248 $ 19,065 $ (14,029) $ 57,664
Provision for loan losses 650 -- 120 -- 770
Noninterest income 6,920 2,255 11,179 (10,401) 9,953
Noninterest expense 25,624 7,070 14,233 (3,788) 43,139
---------- ---------- ---------- ---------- ----------
Income before income taxes 22,026 6,433 15,891 (20,642) 23,708
Income taxes 6,560 2,218 (1,541) -- 7,237
---------- ---------- ---------- ---------- ----------
Net income $ 15,466 $ 4,215 $ 17,432 $ (20,642) $ 16,471
========== ========== ========== ========== ==========
2000 (Average balance outstanding, amounts in thousands)
Loans, net $ 757,254 $ 127,519 $ 53,356 $ (17) $ 938,112
Assets 1,404,872 294,808 274,426 (176,590) 1,797,516
Deposits 1,228,004 265,240 73,338 (22,259) 1,544,323
1999
Loans, net $ 677,696 $ 132,501 $ 52,780 $ (49) $ 862,928
Assets 1,327,328 318,366 264,372 (171,312) 1,738,754
Deposits 1,166,105 286,964 74,432 (23,872) 1,503,629
1998
Loans, net $ 536,405 $ 131,017 $ 40,100 $ (65) $ 707,457
Assets 1,184,504 318,710 242,789 (158,775) 1,587,228
Deposits 1,072,025 288,344 63,312 (24,019) 1,399,662
F-25
MIDCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - COMPREHENSIVE INCOME
The following table presents the components of other comprehensive income and
the related tax effect allocated to each component:
Before tax
For the year ended December 31, (in thousands) amount Tax effect Net of tax
------------------------------------------------------------------------------------------------------------
1998
Unrealized holding gains on investment securities $ 458 $ 161 $ 297
Reclassification adjustments for gains included in net income (147) (51) (96)
------- ------- -------
Other comprehensive income $ 311 $ 110 $ 201
======= ======= =======
1999
Unrealized holding losses on investment securities $ (926) $ (324) $ (602)
Reclassification adjustments for gains included in net income 4 1 3
------- ------- -------
Other comprehensive income $ (922) (323) $ (599)
======= ======= =======
2000
Unrealized holding gains on investment securities,
net of tax $ 1,075 $ 376 $ 699
------- ------- -------
Other comprehensive income $ 1,075 $ 376 $ 699
======= ======= =======
NOTE 21 - SUBSEQUENT EVENT
On April 20, 2001, MidCity Financial and MB Financial, Inc. ("MB Financial")
announced that they had agreed to combine in a merger, pursuant to an Agreement
and Plan of Merger dated as of April 19, 2001 (the "Merger Agreement"). Pursuant
to the Merger Agreement, MidCity Financial and MB Financial will be merged into
the newly formed company, which will assume the name "MB Financial, Inc."
Holders of MB Financial common stock before the transaction will receive one
share of common stock of the new company for each share held prior to the
transaction. Each share of MidCity Financial common stock will be exchanged for
230.32955 shares of common stock of the new company. The transaction is expected
to be accounted for as a pooling-of-interests. Consummation of the transaction
is subject to a number of conditions, including adoption of the Merger Agreement
by the stockholders of MidCity Financial and MB Financial, receipt of the
requisite approvals from bank regulatory authorities, receipt of opinions as to
the tax treatment of the transaction and certain other conditions.
F-26
APPENDIX A
================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
Dated as of April 19, 2001
by and between
MIDCITY FINANCIAL CORPORATION,
and
MB FINANCIAL, INC.
================================================================================
TABLE OF CONTENTS
Page
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ARTICLE I THE MERGERS AND SUBSIDIARY MERGERS ........................................... 2
SECTION 1.1 ORGANIZATION OF NEWCO ..................................................... 2
SECTION 1.2 THE MERGERS ............................................................... 2
SECTION 1.3 EFFECTIVE TIME ............................................................ 2
SECTION 1.4 EFFECTS OF THE MERGERS .................................................... 3
SECTION 1.5 CONVERSION OF MB COMMON STOCK ............................................. 3
SECTION 1.6 CONVERSION OF MIDCITY COMMON STOCK ........................................ 4
SECTION 1.7 NEWCO CAPITAL STOCK ....................................................... 5
SECTION 1.8 CERTIFICATE OF INCORPORATION .............................................. 5
SECTION 1.9 BY-LAWS ................................................................... 5
SECTION 1.10 TAX AND ACCOUNTING CONSEQUENCES ........................................... 5
SECTION 1.11 MANAGEMENT ................................................................ 5
SECTION 1.12 BOARD OF DIRECTORS ........................................................ 6
SECTION 1.13 HEADQUARTERS OF SURVIVING CORPORATION ..................................... 7
SECTION 1.14 SUBSIDIARY MERGERS ........................................................ 7
ARTICLE II EXCHANGE OF SHARES ........................................................... 7
SECTION 2.1 SURVIVING CORPORATION TO MAKE SHARES AVAILABLE ............................ 7
SECTION 2.2 EXCHANGE OF SHARES ........................................................ 7
SECTION 2.3 MB STOCK OPTIONS; RESERVATION OF NEWCO COMMON STOCK AND SECURITIES
FILINGS ................................................................... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF MIDCITY .................................... 10
SECTION 3.1 CORPORATE ORGANIZATION .................................................... 10
SECTION 3.2 CAPITALIZATION ............................................................ 11
SECTION 3.3 AUTHORITY; NO VIOLATION ................................................... 11
SECTION 3.4 CONSENTS AND APPROVALS .................................................... 12
SECTION 3.5 REPORTS ................................................................... 13
SECTION 3.6 FINANCIAL STATEMENTS ...................................................... 13
SECTION 3.7 BROKER'S FEES ............................................................. 13
SECTION 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS ...................................... 14
SECTION 3.9 LEGAL PROCEEDINGS ......................................................... 14
SECTION 3.10 LEGAL PROCEEDINGS ......................................................... 14
SECTION 3.11 EMPLOYEES ................................................................. 16
SECTION 3.12 COMPLIANCE WITH APPLICABLE LAW ............................................ 17
SECTION 3.13 CERTAIN CONTRACTS ......................................................... 17
SECTION 3.14 REGULATORY MATTERS ........................................................ 18
SECTION 3.15 INTEREST RATE RISK MANAGEMENT INSTRUMENTS ................................. 19
SECTION 3.16 UNDISCLOSED LIABILITIES ................................................... 19
SECTION 3.17 INSURANCE ................................................................. 19
i
SECTION 3.18 ENVIRONMENTAL MATTERS ..................................................... 19
SECTION 3.19 STATE TAKEOVER LAWS ....................................................... 21
SECTION 3.20 MATERIAL INTERESTS OF CERTAIN PERSONS ..................................... 21
SECTION 3.21 INVESTMENT PORTFOLIO ...................................................... 21
SECTION 3.22 REAL ESTATE LOANS AND INVESTMENTS ......................................... 21
SECTION 3.23 FAIRNESS OPINION .......................................................... 21
SECTION 3.24 REORGANIZATION; POOLING OF INTERESTS ...................................... 21
SECTION 3.25 FINANCIAL HOLDING COMPANY STATUS .......................................... 21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MB ......................................... 21
SECTION 4.1 CORPORATE ORGANIZATION .................................................... 21
SECTION 4.2 CAPITALIZATION ............................................................ 22
SECTION 4.3 AUTHORITY; NO VIOLATION ................................................... 23
SECTION 4.4 CONSENTS AND APPROVALS .................................................... 24
SECTION 4.5 REPORTS ................................................................... 24
SECTION 4.6 FINANCIAL STATEMENTS ...................................................... 24
SECTION 4.7 BROKER'S FEES ............................................................. 24
SECTION 4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS ...................................... 24
SECTION 4.9 LEGAL PROCEEDINGS ......................................................... 25
SECTION 4.10 TAXES AND TAX RETURNS ..................................................... 25
SECTION 4.11 EMPLOYEES ................................................................. 26
SECTION 4.12 SEC REPORTS ............................................................... 27
SECTION 4.13 COMPLIANCE WITH APPLICABLE LAW ............................................ 28
SECTION 4.14 CERTAIN CONTRACTS ......................................................... 28
SECTION 4.15 REGULATORY MATTERS ........................................................ 29
SECTION 4.16 INTEREST RATE RISK MANAGEMENT INSTRUMENTS ................................. 30
SECTION 4.17 UNDISCLOSED LIABILITIES ................................................... 30
SECTION 4.18 INSURANCE ................................................................. 30
SECTION 4.19 ENVIRONMENTAL MATTERS ..................................................... 30
SECTION 4.20 STATE TAKEOVER LAWS ....................................................... 31
SECTION 4.21 MATERIAL INTERESTS OF CERTAIN PERSONS ..................................... 31
SECTION 4.22 REAL ESTATE LOANS AND INVESTMENTS ......................................... 31
SECTION 4.23 FAIRNESS OPINION .......................................................... 31
SECTION 4.24 REORGANIZATION; POOLING OF INTERESTS ...................................... 31
SECTION 4.25 FINANCIAL HOLDING COMPANY STATUS .......................................... 31
SECTION 4.26 MB CONTROL PERSON ......................................................... 31
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS ......................................... 32
SECTION 5.1 CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME ......................... 32
SECTION 5.2 FORBEARANCES .............................................................. 32
ARTICLE VI ADDITIONAL AGREEMENTS ........................................................ 35
SECTION 6.1 REGULATORY MATTERS ........................................................ 35
SECTION 6.2 ACCESS TO INFORMATION ..................................................... 37
SECTION 6.3 STOCKHOLDERS' APPROVALS ................................................... 38
ii
SECTION 6.4 LEGAL CONDITIONS TO MERGERS ............................................... 38
SECTION 6.5 AFFILIATES; PUBLICATION OF COMBINED FINANCIAL RESULTS ..................... 38
SECTION 6.6 STOCK QUOTATION ........................................................... 39
SECTION 6.7 EMPLOYEE BENEFIT PLANS .................................................... 39
SECTION 6.8 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE ....................... 40
SECTION 6.9 ADDITIONAL AGREEMENTS ..................................................... 41
SECTION 6.10 ADVICE OF CHANGES ......................................................... 41
SECTION 6.11 REDEMPTION OF COMMON STOCK BY MB .......................................... 41
SECTION 6.12 NEWCO AS AN ADDITIONAL PARTY .............................................. 41
ARTICLE VII CONDITIONS PRECEDENT ......................................................... 41
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGERS ............... 41
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF MIDCITY ...................................... 43
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF MB ........................................... 43
ARTICLE VIII TERMINATION AND AMENDMENT .................................................... 44
SECTION 8.1 TERMINATION ............................................................... 44
SECTION 8.2 EFFECT OF TERMINATION ..................................................... 47
SECTION 8.3 LIQUIDATED DAMAGES ........................................................ 47
SECTION 8.4 AMENDMENT ................................................................. 48
SECTION 8.5 EXTENSION; WAIVER ......................................................... 48
ARTICLE IX GENERAL PROVISIONS ........................................................... 49
SECTION 9.1 CLOSING ................................................................... 49
SECTION 9.2 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS ................. 49
SECTION 9.3 EXPENSES .................................................................. 49
SECTION 9.4 NOTICES ................................................................... 49
SECTION 9.5 INTERPRETATION ............................................................ 50
SECTION 9.6 COUNTERPARTS .............................................................. 50
SECTION 9.7 ENTIRE AGREEMENT .......................................................... 50
SECTION 9.8 GOVERNING LAW ............................................................. 50
SECTION 9.9 PUBLICITY ................................................................. 51
SECTION 9.10 ASSIGNMENT; THIRD PARTY BENEFICIARIES ..................................... 51
iii
EXHIBITS & SCHEDULES
Exhibit A-1 .................... Directors of MB
Exhibit A-2 .................... Form of Voting Agreement - MB Directors
Exhibit B-1 .................... Directors of MidCity
Exhibit B-2 .................... Form of Voting Agreement - MidCity Directors
Exhibit C ...................... Form of Charter of NewCo
Exhibit D ...................... Form of Amended and Restated By-laws of NewCo
Exhibit E ...................... Form of MB Affiliate Letter
Exhibit F ...................... Form of MidCity Affiliate Letter
iv
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of April 19,
2001 (this "Agreement"), by and between MidCity Financial Corporation, a
Delaware corporation ("MidCity"), and MB Financial, Inc., a Delaware corporation
("MB").
W I T N E S S E T H :
WHEREAS, MidCity and MB desire to combine their respective holding
companies through a tax-free, stock-for-stock merger transaction so that the
respective stockholders of MidCity and MB will have continued equity ownership
of the combined holding company;
WHEREAS, neither the Board of Directors of MidCity nor the Board of
Directors of MB seeks to sell its respective holding company at this time but
both Boards desire to merge their respective holding companies in a transaction
structured as a merger of equals;
WHEREAS, to accomplish this result, (i) MB and MidCity will form a new
Maryland corporation named MB-MidCity Inc. ("NewCo"), (ii) MB will, subject to
the terms and conditions set forth herein, merge with and into NewCo (the "MB
Merger") and (iii) MidCity will, subject to the terms and conditions set forth
herein, merge with and into NewCo (the "MidCity Merger" and together with the MB
Merger, the "Mergers"), in each case so that NewCo is the surviving corporation
(hereinafter sometimes referred to in such capacity as the "Surviving
Corporation") in the Mergers;
WHEREAS, at the time of, or as soon as reasonably practicable following,
consummation of the Mergers, it is intended that the financial institution
subsidiaries of the parties that are domiciled in Illinois shall be merged into
one entity;
WHEREAS, concurrently with the execution and delivery of that certain
Agreement and Plan of Merger dated as of April 19, 2001 (the "Original Merger
Agreement"), between MidCity and MB, and as a condition and inducement to the
willingness of the parties to enter into the Original Merger Agreement, MidCity
and each of the directors of MB identified on EXHIBIT A-1, and MB and each of
the directors of MidCity identified on EXHIBIT B-1, entered into voting
agreements in the forms attached hereto as EXHIBITS A-2 and B-2, respectively,
with respect to the shares set forth opposite such director's name on EXHIBIT
A-1 or EXHIBIT B-1, as the case may be;
WHEREAS, it is the intention of the parties that the Mergers be accounted
for as a "pooling of interests" under generally accepted accounting principles
and constitute reorganizations under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
WHEREAS, MidCity and MB wish to modify certain terms of the Original Merger
Agreement relating to the formation of NewCo and to make certain other
clarifying changes;
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the
parties hereby amend and restate the Original Merger Agreement in its entirety
as of the date hereof as follows:
ARTICLE I
THE MERGERS AND SUBSIDIARY MERGERS
Section 1.1 ORGANIZATION OF NEWCO. MB and MidCity shall form NewCo under
the laws of the State of Maryland. MB and MidCity shall each own one-half of the
outstanding shares of the capital stock of NewCo. As of the Effective Time (as
hereinafter defined), the Charter and the By-laws of NewCo shall be
substantially in the forms of EXHIBITS C and D, respectively.
Section 1.2 THE MERGERS. (a) Subject to the terms and conditions of this
Agreement, in accordance with the General Corporation Law of the State of
Delaware (the "DGCL") and the General Corporation Law of the State of Maryland
(the "MGCL"), at the MB Effective Time (as hereinafter defined), MB shall merge
with and into NewCo. NewCo shall be the Surviving Corporation in the MB Merger,
and shall continue its corporate existence under the laws of the State of
Maryland. Upon consummation of the MB Merger, the separate corporate existence
of MB shall terminate.
(b) Subject to the terms and conditions of this Agreement, in
accordance with the DGCL and the MGCL, at the MidCity Effective Time (as
hereinafter defined), MidCity shall merge with and into NewCo. NewCo shall
be the Surviving Corporation in the MidCity Merger, and shall continue its
corporate existence under the laws of the State of Maryland. Upon
consummation of the MidCity Merger, the separate corporate existence of
MidCity shall terminate.
(c) MB and MidCity may at any time change the method of effecting the
combination of MidCity and MB with NewCo or with each other including
without limitation the provisions of this ARTICLE I, if and to the extent
they deem such change to be desirable, including, without limitation, to
provide for a merger of either party with and into a wholly-owned
subsidiary of the other; PROVIDED, HOWEVER, that no such change shall (i)
alter or change the form or the amount of consideration to be provided to
holders of MB Common Stock (as defined below) as provided for in this
Agreement (the "MB Merger Consideration"), (ii) adversely affect the tax
treatment to MB stockholders as a result of receiving the MB Merger
Consideration, (iii) alter or change the form or the amount of
consideration to be provided to holders of MidCity Common Stock (as defined
below) as provided for in this Agreement (the "MidCity Merger
Consideration"), (iv) adversely affect the tax treatment to MidCity
stockholders as a result of receiving the MidCity Merger Consideration or
(v) materially impede or delay consummation of the Mergers and the other
transactions contemplated by this Agreement.
Section 1.3 EFFECTIVE TIME. The MB Merger shall become effective (the "MB
Effective Time") at the time the articles of merger with respect to the MB
Merger (the "MB Articles of Merger") are filed with (or in the case of a
pre-filing, are accepted for filing by) the Department of Assessments and
Taxation of the State of Maryland (the "Maryland Department") and the
certificate of merger with respect to the MB Merger (the "MB Certificate of
Merger") is filed with the Secretary of State of the State of Delaware (the
"Delaware Secretary"). The MB
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Articles of Merger shall amend the Articles of Incorporation of NewCo to change
its name to "MB Financial, Inc." The MidCity Merger shall become effective (the
"MidCity Effective Time" and together with the MB Effective Time, the "Effective
Time") at the time the articles of merger with respect to the MidCity Merger
(the "MidCity Articles of Merger") are filed with (or in the case of a
pre-filing, are accepted for filing by) the Maryland Department and the
certificate of merger with respect to the MidCity Merger (the "MidCity
Certificate of Merger") is filed with the Delaware Secretary, which time shall
be contemporaneous with the MB Effective Time. The parties shall cause (i) the
MB Articles of Merger and the MidCity Articles of Merger to be filed on the
Closing Date (as hereinafter defined) with the Maryland Department or pre-filed
prior thereto for acceptance for filing by the Maryland Department on the
Closing Date and (ii) the MB Certificate of Merger and the MidCity Certificate
of Merger to be filed on the Closing Date with the Delaware Secretary or
pre-filed prior thereto for acceptance for filing by the Delaware Secretary on
the Closing Date.
Section 1.4 EFFECTS OF THE MERGERS. At and after the Effective Time, the
Mergers shall have the effects set forth in Sections 3-114 of the MGCL and
Sections 250 and 261 of the DGCL.
Section 1.5 CONVERSION OF MB COMMON STOCK. By virtue of the MB Merger and
without any action on the part of NewCo, MB, MidCity or any holder of MB Common
Stock:
(a) Subject to SECTIONS 1.5(d), at the MB Effective Time, each share
of the common stock, par value $.01 per share, of MB (the "MB Common
Stock") issued and outstanding immediately prior to the MB Effective Time
except for, (i) shares of MB Common Stock owned, directly or indirectly, by
MB or MidCity or any of their respective wholly-owned Subsidiaries (other
than shares of MB Common Stock held, directly or indirectly, in trust
accounts, managed accounts and the like, or otherwise held in a fiduciary
capacity, that are beneficially owned by third parties (any such shares,
whether held directly or indirectly by MB or MidCity, as the case may be,
being referred to herein as "Trust Account MB Shares") and (ii) shares of
MB Common Stock held on account of a debt previously contracted ("DPC MB
Shares")) shall be converted into the right to receive one (1) share (the
"MB Exchange Ratio") of the common stock, par value $.01 per share, of
NewCo ("NewCo Common Stock").
(b) At the MB Effective Time, all of the shares of MB Common Stock
shall no longer be outstanding and shall automatically be canceled and
shall cease to exist as of the MB Effective Time, and each certificate
(each an "MB Certificate") previously representing any such shares of MB
Common Stock (other than shares cancelled pursuant to SECTION 1.5(c)) shall
thereafter represent only the right to receive a certificate representing
the number of shares of NewCo Common Stock which the shares of MB Common
Stock represented by such MB Certificate have been converted based upon the
MB Exchange Ratio pursuant to this SECTION 1.5.
(c) At the MB Effective Time, all shares of MB Common Stock that are
owned, directly or indirectly, by MB or MidCity or any of their respective
wholly-owned Subsidiaries (other than Trust Account MB Shares and DPC MB
Shares) shall be cancelled and shall cease to exist and no stock of NewCo
or other consideration shall be delivered in exchange therefor.
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(d) In the event MB or MidCity changes (or establishes a record date
for changing) the number of shares of MB Common Stock or MidCity Common
Stock, whichever is applicable, issued and outstanding prior to the MB
Effective Time as a result of a stock split, stock dividend,
recapitalization or similar transaction with respect to the outstanding MB
Common Stock or MidCity Common Stock and the record date therefor shall be
after the date hereof and prior to the MB Effective Time, the MB Exchange
Ratio shall be proportionately adjusted.
Section 1.6 CONVERSION OF MIDCITY COMMON STOCK. By virtue of the MidCity
Merger and without any action on the part of NewCo, MidCity, MB or any holder of
MidCity Common Stock:
(a) Subject to SECTIONS 1.6(d) and (e), at the MidCity Effective
Time, each share of the common stock, par value $20.00 per share, of
MidCity (the "MidCity Common Stock") issued and outstanding immediately
prior to the MidCity Effective Time except for (i) MidCity Dissenting
Shares, (ii) shares of MidCity Common Stock owned, directly or indirectly,
by MidCity or MB or any of their respective wholly-owned Subsidiaries
(other than shares of MidCity Common Stock held, directly or indirectly, in
trust accounts, managed accounts and the like, or otherwise held in a
fiduciary capacity, that are beneficially owned by third parties (any such
shares, whether held directly or indirectly by MidCity or MB, as the case
may be, being referred to herein as "Trust Account MidCity Shares") and
(iii) shares of MidCity Common Stock held on account of a debt previously
contracted ("DPC MidCity Shares")) shall be converted into the right to
receive 230.32955 shares (the "MidCity Exchange Ratio") of NewCo Common
Stock.
(b) At the MidCity Effective Time, all of the shares of MidCity
Common Stock shall no longer be outstanding and shall automatically be
canceled and shall cease to exist as of the MidCity Effective Time, and
each certificate (each a "MidCity Certificate") previously representing any
such shares of MidCity Common Stock (other than MidCity Dissenting Shares
and shares cancelled pursuant to SECTION 1.6(c)) shall thereafter represent
only the right to receive (i) a certificate representing the number of
whole shares of NewCo Common Stock and (ii) cash in lieu of any fractional
share interest which the shares of MidCity Common Stock represented by such
MidCity Certificate have been converted based upon the MidCity Exchange
Ratio pursuant to this SECTION 1.6. The MB Certificates and the MidCity
Certificate are collectively referred to herein as the "Certificates."
(c) At the MidCity Effective Time, all shares of MidCity Common Stock
that are owned, directly or indirectly, by MidCity or MB or any of their
respective wholly-owned Subsidiaries (other than Trust Account MidCity
Shares and DPC MidCity Shares) shall be cancelled and shall cease to exist
and no stock of NewCo or other consideration shall be delivered in exchange
therefor.
(d) In the event MidCity or MB changes (or establishes a record date
for changing) the number of shares of MidCity Common Stock or MB Common
Stock, whichever is applicable, issued and outstanding prior to the MidCity
Effective Time as a result of a stock split, stock dividend,
recapitalization or similar transaction with respect to the outstanding
MidCity Common Stock or MB Common Stock and the record date
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therefor shall be after the date hereof and prior to the MidCity Effective
Time, the MidCity Exchange Ratio shall be proportionately adjusted.
(e) No fractional shares of NewCo Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, will be issued in
the MidCity Merger; instead, NewCo shall pay to each holder of MidCity
Common Stock who would otherwise be entitled to a fractional share of NewCo
Common Stock (after taking into account all MidCity Certificates delivered
by such holder) an amount in cash (without interest) determined by
multiplying such fraction by the average closing sale price of MB Common
Stock on the National Market System of the Nasdaq Stock Market, Inc. (the
"Nasdaq") (as reported in THE WALL STREET JOURNAL or, if not reported
therein, in another authoritative source), for the five trading days
immediately preceding the MidCity Effective Time.
(f) Any shares of MidCity Common Stock ("MidCity Dissenting Shares")
whose holder becomes entitled to the fair value of such shares under the
DGCL shall not be entitled to receive the MidCity Merger Consideration and
shall be entitled to payment for such shares only to the extent permitted
by and in accordance with the DGCL; PROVIDED, HOWEVER, that if any holder
of MidCity Dissenting Shares shall forfeit such right to payment, such
shares shall thereupon be deemed to have been converted into and to have
become exchangeable for, as of the MidCity Effective Time, the right to
receive the MidCity Merger Consideration from the Surviving Corporation
without interest. MidCity Dissenting Shares shall not, after the MidCity
Effective Time, be entitled to vote for any purpose or receive any
dividends or other distributions and shall be entitled only to such rights
as are afforded in respect of MidCity Dissenting Shares pursuant to the
DGCL.
Section 1.7 NEWCO CAPITAL STOCK. The shares of capital stock of NewCo owned
by MB and MidCity immediately prior to the Effective Time will be automatically
canceled at the Effective Time.
Section 1.8 ARTICLES OF INCORPORATION. At the Effective Time, the Charter
of NewCo, as amended by the MB Articles of Merger, shall be the Charter of the
Surviving Corporation until thereafter amended in accordance with the terms
thereof and applicable law.
Section 1.9 BY-LAWS. At the Effective Time, the By-laws of NewCo shall be
the By-laws of the Surviving Corporation until thereafter further amended in
accordance with the terms thereof and applicable law.
Section 1.10 TAX AND ACCOUNTING CONSEQUENCES. It is intended that each of
the Mergers shall constitute a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), that this
Agreement shall constitute a "plan of reorganization" as to each of the Mergers
for the purposes of Sections 354 and 361 of the Code and that the Mergers shall
be accounted for as a "pooling of interests" under generally accepted accounting
principles ("GAAP").
Section 1.11 MANAGEMENT. At the Effective Time, E. M. Bakwin shall be
Chairman of the Board of Directors of the Surviving Corporation and Mitchell
Feiger shall be President and Chief Executive Officer of the Surviving
Corporation.
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Section 1.12 BOARD OF DIRECTORS. (a) As provided in the By-laws of NewCo,
until the earliest of (x) the third annual meeting of stockholders of the
Surviving Corporation, (y) a business combination approved by two-thirds of the
members of the Board of Directors of the Surviving Corporation results in the
stockholders of the Surviving Corporation owning less than 51% of the resulting
entity in such business combination, or (z) action is taken by each of (1) a
majority of the MidCity Directors (as hereinafter defined), (2) a majority of
the MB Directors (as hereinafter defined) and (3) two-thirds of the members of
the Board of Directors of the Surviving Corporation, the following shall apply:
(i) the initial Board of Directors of the Surviving Corporation
shall be made up of eight directors named by a pre-MB Merger
resolution of the MB Board and nine directors named by a pre-MidCity
Merger resolution of the MidCity Board;
(ii) the classes to which the directors of the Surviving
Corporation shall be assigned shall be designated in the respective
resolutions of the parties' Boards according to the following table:
--------------------------------------------------------------------------
DIRECTORS DESIGNATED BY
ASHLAND MADISON
--------------------------------------------------------------------------
Class expiring in 2002 3 3
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Class expiring in 2003 3 3
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Class expiring in 2004 2 3
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(iii) all vacancies on the Board of Directors of the Surviving
Corporation created by (x) the cessation of service of a MidCity
Director shall be filled by a nominee selected by the continuing
MidCity Directors, which nominee shall be appointed as a director by
the remaining members of the Board of Directors, subject to their
fiduciary duties, and (y) the cessation of service of a MB Director
shall be filled by a nominee selected by the continuing MB Directors,
which nominee shall be appointed as a director by the remaining
members of the Board of Directors, subject to their fiduciary duties;
(iv) the Board of Directors of the Surviving Corporation shall,
subject to their fiduciary duties, nominate and recommend all
incumbents for reelection as directors. If an incumbent declines to
stand for reelection, a candidate will be chosen according to the
procedures of subparagraph (iii) above as if such position was a
vacancy and, to the extent permitted by their fiduciary duties, all
directors will vote to nominate and recommend such candidate to the
stockholders. If the directors do not nominate and recommend such
candidate, then the remaining directors of the Surviving Corporation
designated by that party (including any of their successors in office)
shall choose another candidate according to the procedures of
subparagraph (iii) above until the directors nominate and recommend
such candidate to the stockholders; and
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(v) each of the committees of the Board of Directors of the
Surviving Corporation shall be comprised of an equal number of MidCity
Directors and MB Directors (the initial committees of the Board of
Directors of the Surviving Corporation are set forth on SCHEDULE
1.12(a)), unless waived in writing by a majority of a party's
directors (i.e., MidCity Directors or MB Directors, whichever is
applicable) who would have reduced representation on such committee.
(b) The term "MidCity Director" means (i) any person serving as a
Director of MidCity on the date of this Agreement who becomes a Director of
the Surviving Corporation at the Effective Time and (ii) any person who
becomes a Director of the Surviving Corporation after the Effective Time
and who is designated as such by the continuing MidCity Directors prior to
his or her election; and the term "MB Director" means (x) any person
serving as a Director of MB on the date of this Agreement who continues as
a Director of the Surviving Corporation at the Effective Time and (y) any
person who becomes a Director of the Surviving Corporation after the
Effective Time and who is designated as such by the continuing MB Directors
prior to his or her election.
Section 1.13 HEADQUARTERS OF SURVIVING CORPORATION. From and after the
Effective Time, the location of the headquarters and principal executive offices
of the Surviving Corporation shall be that of the headquarters and principal
executive offices of MidCity as of the date of this Agreement.
Section 1.14 SUBSIDIARY MERGERS. MB and MidCity shall take all necessary
action to cause their financial institution Subsidiaries domiciled in Illinois
to be merged together (the "Subsidiary Mergers") at, or as soon as practicable
after, the Effective Time. The surviving or resulting institution of the
Subsidiary Mergers shall be The MidCity National Bank, a national banking
association, which may adopt a new name as determined by MB and MidCity prior to
the Effective Time or by the Board of Directors of the Surviving Corporation
after the Effective Time.
ARTICLE II
EXCHANGE OF SHARES
Section 2.1 SURVIVING CORPORATION TO MAKE SHARES AVAILABLE. At or within
five days after the Effective Time, the Surviving Corporation shall deposit, or
shall cause to be deposited, with The MidCity National Bank or another bank or
trust company reasonably acceptable to each of MidCity and MB (the "Exchange
Agent"), for the benefit of the holders of Certificates, for exchange in
accordance with this ARTICLE II, certificates representing the shares of NewCo
Common Stock, and cash in lieu of any fractional shares (such cash and
certificates for shares of NewCo Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund"), to be issued pursuant to SECTIONS 1.5 and 1.6 and paid
pursuant to SECTIONS 2.2(a) in exchange for outstanding shares of MB Common
Stock and MidCity Common Stock, as the case may be.
Section 2.2 EXCHANGE OF SHARES. (a) As soon as practicable after the
Effective Time, and in no event later than fifteen business days thereafter, the
Exchange Agent shall mail to each
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holder of record of one or more Certificates a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of Certificates in
exchange for certificates representing the shares of NewCo Common Stock into
which the shares of MB Common Stock or MidCity Common Stock, as the case may be,
represented by such Certificates, shall have been converted pursuant to this
Agreement, and in the case of a holder of MidCity Certificate(s), a check
representing the amount of any cash in lieu of a fractional share interest to
which such holder may be entitled to receive. Upon proper surrender of a
Certificate or Certificates for exchange and cancellation to the Exchange Agent,
together with such properly completed letter of transmittal, duly executed, the
holder of such Certificate or Certificates shall be entitled to receive in
exchange therefor a certificate representing that number of shares of NewCo
Common Stock to which such holder of MB Common Stock or MidCity Common Stock,
whichever the case may be, shall have become entitled pursuant to the provisions
of ARTICLE I and the Certificate or Certificates so surrendered shall forthwith
be canceled.
(b) No dividends or other distributions declared with respect to
NewCo Common Stock shall be paid to the holder of any unsurrendered
Certificate until the holder thereof shall surrender such Certificate in
accordance with this ARTICLE II. After the surrender of a Certificate in
accordance with this ARTICLE II, the record holder thereof shall be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to
shares of NewCo Common Stock represented by such Certificate.
(c) If any certificate representing shares of NewCo Common Stock is
to be issued in a name other than that in which the Certificate or
Certificates surrendered in exchange therefor are registered, it shall be a
condition of the issuance thereof that the Certificate or Certificates so
surrendered shall be properly endorsed (or accompanied by an appropriate
instrument of transfer) and otherwise in proper form for transfer, and that
the person requesting such exchange shall pay to the Exchange Agent or the
Surviving Corporation in advance any transfer or other taxes required by
reason of the issuance of a certificate representing shares of NewCo Common
Stock in any name other than that of the registered holder of the
Certificate or Certificates surrendered, or required for any other reason,
or shall establish to the satisfaction of the Exchange Agent or the
Surviving Corporation that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the
stock transfer books of MB or MidCity of shares of MB Common Stock or
MidCity Common Stock, respectively, that were issued and outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates representing such shares are presented for transfer to the
Surviving Corporation, they shall be canceled and exchanged for
certificates representing shares of NewCo Common Stock (and in the case of
a holder of MidCity Certificate(s), for cash in lieu of any fractional
share interest, if applicable) as provided in ARTICLE I.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of MB and MidCity for 12 months after the Effective Time shall
be paid to
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the Surviving Corporation. Any former stockholders of MB or MidCity who
have not theretofore complied with this ARTICLE II shall thereafter look
only to the Surviving Corporation for payment of the MB Merger
Consideration or MidCity Merger Consideration, whichever is applicable, in
each case, without any interest thereon. Notwithstanding the foregoing,
none of the Exchange Agent, the Surviving Corporation or any other person
shall be liable to any former holder of shares of MB Common Stock or
MidCity Common Stock for any amount delivered in good faith to a public
official pursuant to applicable abandoned property, escheat or similar
laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and the posting
by such person of a bond in such amount as the Surviving Corporation or the
Exchange Agent may determine is reasonably necessary as indemnity against
any claim that may be made against the Surviving Corporation or the
Exchange Agent with respect to such Certificate, the Exchange Agent or the
Surviving Corporation will issue in exchange for such lost, stolen or
destroyed Certificate the shares of NewCo Common Stock and any cash in lieu
of a fractional share interest deliverable in respect thereof pursuant to
this Agreement.
Section 2.3 MB STOCK OPTIONS; RESERVATION OF NEWCO COMMON STOCK AND
SECURITIES FILINGS. (a) At the Effective Time, each option outstanding on the
date of this Agreement and each option awarded after the date hereof in
accordance with Section 5.2(b)(iii) of this Agreement to purchase shares of MB
Common Stock (each, an "MB Stock Option") under the Coal City Corporation 1995
Stock Option Plan, MB (Avondale Financial Corporation) 1995 Stock Option and
Incentive Plan and MB 1997 Omnibus Incentive Plan (the "MB Stock Plans") and
remaining outstanding immediately prior to the Effective Time shall, at the
Effective Time, be assumed by the Surviving Corporation and each such MB Stock
Option shall continue to be outstanding, but shall represent an option to
purchase shares of NewCo Common Stock in an amount and at an exercise price
determined as provided below (and otherwise subject to the terms of the
applicable MB Stock Plan and MB Stock Option):
(i) the number of shares of NewCo Common Stock to be subject to
the continuing MB Stock Option shall be equal to the product of the
number of shares of MB Common Stock subject to the MB Stock Option
immediately prior to the Effective Time and the MB Exchange Ratio,
provided that any fractional share of NewCo Common Stock resulting
from such multiplication shall be rounded down to the nearest whole
share; and
(ii) the exercise price per share of NewCo Common Stock under the
continuing MB Stock Option shall be equal to the exercise price per
share of MB Common Stock under the MB Stock Option immediately prior
to the Effective Time divided by the MB Exchange Ratio, provided that
such exercise price shall be rounded down to the nearest cent.
It is intended that the foregoing assumption shall be undertaken
consistent with and in a manner that will not constitute a "modification"
under Section 424 of the Code as to any MB Stock Option which is an
"incentive stock option".
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(b) At all times after the Effective Time, the Surviving Corporation
shall reserve for issuance such number of shares of NewCo Common Stock as
is necessary to permit the exercise of continuing MB Stock Options in the
manner contemplated by this Agreement and the instruments pursuant to which
such options were granted. The Surviving Corporation shall make all filings
required under federal and state securities laws promptly after the
Effective Time so as to permit the exercise of such continuing MB Stock
Options and the sale of the shares received by optionees upon such exercise
at and after the Effective Time and the Surviving Corporation shall
continue to make such filings thereafter as may be necessary to permit the
continued exercise of continuing MB Stock Options and sale of such shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MIDCITY
Except as disclosed in the MidCity disclosure schedule delivered to MB
concurrently herewith (the "MidCity Disclosure Schedule"), MidCity hereby
represents and warrants to MB as follows:
Section 3.1 CORPORATE ORGANIZATION. (a) MidCity is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. MidCity has the corporate power and authority to own and lease all of
its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not, either individually or in the aggregate, have a Material Adverse
Effect on MidCity. As used in this Agreement, the term "Material Adverse Effect"
means, with respect to MB, MidCity or the Surviving Corporation, as the case may
be, a material adverse effect on (i) the business, operations, results of
operations or financial condition of such party and its Subsidiaries taken as a
whole or (ii) the ability of such party to timely consummate the transactions
contemplated hereby; PROVIDED, HOWEVER, that Material Adverse Effect shall not
be deemed to include the impact of (x) to the extent that they do not, in any
case, disproportionately affect MB, MidCity or the Surviving Corporation, as the
case may be, changes in thrift, banking and similar laws of general
applicability or interpretations thereof by courts or Governmental Entities or
other changes affecting depository institutions generally, including changes in
general economic conditions and changes in prevailing interest and deposit rates
or (y) actions or omissions of MidCity or MB taken with the prior written
consent of the other party in connection with the transactions contemplated by
this Agreement. As used in this Agreement, the word "Subsidiary" when used with
respect to any party means any bank, savings bank, corporation, partnership,
limited liability company, or other organization, whether incorporated or
unincorporated, which is consolidated with such party for financial reporting
purposes. MidCity is duly registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). Copies of the
Certificate of Incorporation, as amended, (the "MidCity Charter") and By-laws of
MidCity, as in effect as of the date of this Agreement, have previously been
made available by MidCity to MB.
(b) Each of MidCity's Subsidiaries (i) is duly organized and validly
existing under the laws of its jurisdiction of organization, (ii) is duly
licensed or qualified to do
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business and in good standing in all jurisdictions (whether federal, state,
local or foreign) 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 licensed or qualified would not either individually or in the
aggregate have a Material Adverse Effect on MidCity and (iii) has all
requisite corporate power and authority to own and lease its properties and
assets and to carry on its business as now conducted. Copies of the
charters and by-laws of MidCity's financial institution Subsidiaries, as in
effect on the date of this Agreement, have previously been made available
by MidCity to MB.
Section 3.2 CAPITALIZATION. (a) The authorized capital stock of MidCity
consists of 100,000 shares of MidCity Common Stock, of which, as of the date
hereof, 46,007 shares were issued and outstanding. All of the issued and
outstanding shares of MidCity Common Stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. MidCity does not have and
is not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of MidCity Common Stock or any other equity securities of MidCity
or any securities representing the right to purchase or otherwise receive any
shares of MidCity Common Stock. As of the date hereof, no shares of MidCity
Common Stock were reserved for issuance. Since December 31, 2000, MidCity has
not issued any shares of MidCity Common Stock or any securities convertible into
or exercisable for any shares of MidCity Common Stock. In no event will the
aggregate number of shares of MidCity Common Stock outstanding at the MidCity
Effective Time exceed 46,007.
(b) MidCity owns, directly or indirectly, all of the issued and
outstanding shares of capital stock or other equity ownership interests of
each of its Subsidiaries, free and clear of any liens, pledges, charges,
encumbrances and security interests whatsoever ("Liens"), and all of such
shares or equity ownership interests are duly authorized and validly issued
and are fully paid, nonassessable (subject to 12 U.S.C. Section 55) and
free of preemptive rights, with no personal liability attaching to the
ownership thereof. None of MidCity's Subsidiaries has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any
shares of capital stock or any other equity security of such Subsidiary or
any securities representing the right to purchase or otherwise receive any
shares of capital stock or any other equity security of such Subsidiary.
Section 3.2(b) of the MidCity Disclosure Schedule sets forth a list of the
material investments of MidCity in Non-Subsidiary Affiliates. As used in
this Agreement, the term "Non-Subsidiary Affiliate" when used with respect
to any party means any corporation, partnership, limited liability company,
joint venture or other entity other than such party's Subsidiaries.
Section 3.3 AUTHORITY; NO VIOLATION. (a) MidCity has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of MidCity and no other corporate
action on the part of MidCity is necessary with respect thereto, other than the
adoption of this Agreement by the affirmative vote of the holders of two-thirds
of the outstanding shares of MidCity Common Stock with respect to the
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consummation of the MidCity Merger only. The Board of Directors of MidCity has
directed that this Agreement be submitted to MidCity's stockholders for adoption
at a meeting of such stockholders. This Agreement has been duly and validly
executed and delivered by MidCity and (assuming due authorization, execution and
delivery by MB) constitutes a valid and binding obligation of MidCity,
enforceable against MidCity in accordance with its terms (except as may be
limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally and the availability of equitable
remedies).
(b) Neither the execution and delivery by MidCity of this Agreement
nor the consummation by MidCity or any of its financial institution
Subsidiaries of the transactions contemplated hereby, nor compliance by
MidCity with any of the terms or provisions hereof, will (i) violate any
provision of the MidCity Charter or By-laws or the governing documents of
any of its financial institution Subsidiaries; (ii) assuming that the
consents and approvals referred to in SECTION 3.4 are duly obtained,
violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to MidCity, any of its Subsidiaries
or any MidCity Control Person (as hereinafter defined) or any of their
respective properties or assets; or (iii) violate, conflict with, result in
a breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by,
or result in the creation of any Lien upon any of the respective properties
or assets of MidCity or any of its Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
MidCity or any of its Subsidiaries is a party, or by which they or any of
their respective properties or assets may be bound or affected except for
such violations, conflicts, breaches or defaults which, either individually
or in the aggregate, will not have a Material Adverse Effect on MidCity.
Section 3.4 CONSENTS AND APPROVALS. Except for (i) the filing of
applications and notices, as applicable, with the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under the BHC Act and the
Federal Reserve Act, as amended, and approval of such applications and notices,
(ii) the filing of any required applications or notices with any state or
foreign agencies and approval of such applications and notices, (iii) the filing
with the Securities and Exchange Commission (the "SEC") of a joint proxy
statement in definitive form relating to the meetings of MB's and MidCity's
stockholders to be held in connection with this Agreement and the transactions
contemplated hereby (the "Joint Proxy Statement"), and of the registration
statement of NewCo on Form S-4 (the "S-4") in which the Joint Proxy Statement
will be included as a prospectus, (iv) the filing of the MB Articles of Merger
and the MidCity Articles of Merger with the Maryland Department pursuant to the
MGCL and the MB Certificate of Merger and the MidCity Certificate of Merger with
the Delaware Secretary pursuant to the DGCL, (v) the filing of articles of
merger or combination with respect to the Subsidiary Mergers, (vi) any consents,
authorizations, approvals, filings or exemptions in connection with compliance
with the applicable provisions of federal and state securities laws relating to
the regulation of broker-dealers, investment advisers or transfer agents, and
federal commodities laws relating to the regulation of futures commission
merchants and the rules and regulations thereunder and of any applicable
industry self-regulatory organization ("SRO"), and the rules of the Nasdaq, or
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which are required under consumer finance, mortgage banking and other similar
laws and (vii) such filings and approvals as are required to be made or obtained
under the securities or "Blue Sky" laws of various states in connection with the
issuance of the shares of MB Common Stock pursuant to this Agreement, no
consents or approvals of or filings or registrations with any court,
administrative agency or commission or other governmental authority or
instrumentality (each a "Governmental Entity") are necessary in connection with
the consummation by MidCity of the MidCity Merger or the consummation of any of
the other transactions contemplated hereby by MidCity, any of its Subsidiaries
or any stockholder of MidCity who owns, controls or possesses voting power over
ten percent or more of the outstanding MidCity Common Stock (a "MidCity Control
Person").
Section 3.5 REPORTS. MidCity, each of its Subsidiaries and each MidCity
Control Person have timely filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto, that they
were required to file since January 1, 1998 with (i) the Federal Reserve Board,
(ii) the Federal Deposit Insurance Corporation, (iii) any state regulatory
authority, (iv) the Office of the Comptroller of the Currency, (v) the SEC, (vi)
any SRO, (vii) the Office of Thrift Supervision (collectively "Regulatory
Agencies") and (viii) any other Governmental Entity and have paid all fees and
assessments due and payable in connection therewith, except where the failure to
file such report, registration or statement or to pay such fees and assessments,
either individually or in the aggregate, will not have a Material Adverse Effect
on MidCity.
Section 3.6 FINANCIAL STATEMENTS. MidCity has previously made available to
MB true and correct copies of the consolidated balance sheets of MidCity and its
Subsidiaries as of December 31, for the fiscal years 1998, 1999 and 2000 and the
related consolidated statements of income and changes in stockholders' equity
and cash flows for the fiscal years 1998 through 2000, inclusive (the "MidCity
Financial Statements"), in each case accompanied by the audit report of KPMG,
LLP, independent public accountants with respect to MidCity. The December 31,
2000 consolidated balance sheet of MidCity (including the related notes, where
applicable) fairly presents in all material respects the consolidated financial
position of MidCity and its Subsidiaries as of the date thereof, and the other
financial statements referred to in this SECTION 3.6 (including the related
notes, where applicable) fairly present in all material respects the results of
the consolidated operations, changes in stockholders' equity, cash flows and
consolidated financial position of MidCity and its Subsidiaries for the
respective fiscal periods or as of the respective dates therein set forth; each
of such statements (including the related notes, where applicable) complies with
applicable accounting requirements; and each of such statements (including the
related notes, where applicable) has been prepared in accordance with GAAP
consistently applied during the periods involved, except, in each case, as
indicated in such statements or in the notes thereto. The financial books and
records of MidCity and its Subsidiaries have been, and are being, maintained in
all material respects in accordance with GAAP and any other applicable legal and
accounting requirements and reflect only actual transactions.
Section 3.7 BROKER'S FEES. Except for Hovde Financial, Inc. and Alex
Sheshunoff & Co. (whose fees and expenses are set forth in the engagement
letters included in Section 3.7 of the MidCity Disclosure Schedule), neither
MidCity nor any of its Subsidiaries nor any of their respective officers or
directors has employed any broker or finder or incurred any liability for
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any broker's or financial advisory fees, commissions or finder's fees or
fairness opinion fees in connection with the MidCity Merger or related
transactions contemplated by this Agreement.
Section 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) From December 31,
2000 to the date hereof, no event or events have occurred that have had or are
reasonably likely to have, either individually or in the aggregate, a Material
Adverse Effect on MidCity.
(b) Except for this Agreement and the transactions contemplated
herein, since December 31, 2000, MidCity and its Subsidiaries have carried
on their respective businesses in all material respects in the ordinary
course.
(c) Since December 31, 2000, neither MidCity nor any of its
Subsidiaries has (i) except for such actions as are in the ordinary course
of business or except as required by applicable law, (A) increased the
wages, salaries, compensation, pension, or other fringe benefits or
perquisites payable to any executive officer, employee, or director from
the amount thereof in effect as of December 31, 2000, or (B) granted any
severance or termination pay, entered into any contract to make or grant
any severance or termination pay, or paid any bonuses, which in the
aggregate exceed 5% of MidCity's consolidated 2000 salary and employee
benefit expenses (other than customary year-end bonuses for fiscal 2000) or
(ii) suffered any strike, work stoppage, slowdown, or other labor
disturbance which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect on MidCity.
Section 3.9 LEGAL PROCEEDINGS. (a) Neither MidCity nor any of its
Subsidiaries is a party to any, and there are no pending or, to the best of
MidCity's knowledge, threatened, legal, administrative, arbitral or other
proceedings, claims, actions or investigations of any nature against MidCity or
any of its Subsidiaries as to which, in any such case, there is (i) a request
for monetary relief in excess of $25,000, (ii) an assertion or allegation of
employment discrimination or sexual harassment, (iii) a request for specific
performance or other equitable relief, or (iv) a challenge to the validity or
propriety of the MidCity Merger or any of the transactions contemplated by this
Agreement.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction (other than those that apply to similarly situated bank holding
companies or banks) imposed upon MidCity, any of its Subsidiaries or the
assets of MidCity or any of its Subsidiaries that could either materially
adversely affect the ability of MidCity or any of its Subsidiaries to
operate its business in the regular and ordinary course consistent with
past practices or materially adversely affect the consolidated operating
results or financial condition of MidCity.
Section 3.10 Taxes and Tax Returns. (a) Each of MidCity and its
Subsidiaries has duly filed all federal, state, foreign and local information
returns and tax returns required to be filed by it on or prior to the date
hereof (all such returns being accurate and complete in all material respects)
and has duly paid or made adequate provisions for the payment of all Taxes and
other governmental charges which have been incurred or are due or claimed to be
due from it by federal, state, foreign or local taxing authorities (including,
without limitation, if and to the extent applicable, those due in respect of its
properties, income, business, capital stock, deposits, franchises, licenses,
sales and payrolls) other than (i) Taxes or other charges which are not yet
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delinquent or are being contested in good faith and have not been finally
determined, or (ii) information returns, tax returns, Taxes or other
governmental charges as to which the failure to file, pay or make provision are,
in the aggregate, not material to MidCity on a consolidated basis. The federal
income tax returns of MidCity and its Subsidiaries have either been examined by
the Internal Revenue Service (the "IRS") or the statute of limitation for
examination by the IRS has expired for all years to and including the taxable
year ended December 31, 1996 and any liability with respect thereto has been
satisfied or any liability with respect to deficiencies asserted as a result of
such examination is covered by adequate reserves. To the best of MidCity's
knowledge, there are no material disputes pending, or claims asserted for, Taxes
or assessments upon MidCity or any of its Subsidiaries for which MidCity does
not have adequate reserves. Each of MidCity and its Subsidiaries has (A)
withheld proper and accurate amounts from payments to employees, creditors,
independent contractors, foreign persons and other third parties for all prior
periods in compliance in all material respects with the tax withholding
provisions of applicable federal, state and local laws, (B) filed all federal,
state, and local returns (which are accurate and complete in all material
respects) for all periods for which returns were due with respect to income tax
withholding, Social Security and unemployment taxes and (C) paid or made
adequate provision for all Taxes shown on such federal, state or local returns
to be due and payable. There are no Tax liens upon any property or assets of
MidCity or its Subsidiaries except liens for current taxes not yet due. Neither
MidCity nor any of its Subsidiaries has been required to include in income any
adjustment pursuant to Section 481 of the Code by reason of a voluntary change
in accounting method initiated by MidCity or any of its Subsidiaries, and the
IRS has not initiated or proposed any such adjustment or change in accounting
method.
(b) As used in this Agreement, the term "Tax" or "Taxes" means all
federal, state, local, and foreign income, excise, gross receipts, gross
income, ad valorem, profits, gains, property, capital, sales, transfer,
use, payroll, employment, severance, withholding, duties, intangibles,
franchise, backup withholding, and other taxes, charges, levies or like
assessments together with all penalties and additions to tax and interest
thereon.
(c) Neither MidCity nor any of its Subsidiaries is a party to any
agreement or maintains any compensation plan, program or arrangement under
which any payment is reasonably likely to become non-deductible, in whole
or in part, for tax reporting purposes as a result of the limitations under
Section 162(m) of the Code and the regulations issued thereunder.
(d) Neither MidCity nor any of its Subsidiaries is a party to or is
bound by any Tax sharing, allocation or indemnification agreement or
arrangement (other than such an agreement or arrangement solely among
MidCity and its Subsidiaries). Neither MidCity nor any of its Subsidiaries
has any liability for the Taxes of any person (other than MidCity and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law). Within the past five years,
neither MidCity nor any of its Subsidiaries has been a party to a
reorganization within the meaning of Section 368 of the Code or been a
"distributing corporation" or a "controlled corporation" in a distribution
intended to qualify under Section 355(a) of the Code.
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Section 3.11 EMPLOYEES. (a) Section 3.11(a) of the MidCity Disclosure
Schedule sets forth a list of each employee or director benefit plan,
arrangement or agreement (a "MidCity Benefit Plan") that, as of the date of this
Agreement, is maintained or contributed to by MidCity or any MidCity ERISA
Affiliate, or under which MidCity or any MidCity ERISA Affiliate could
reasonably be expected to have any liability as of the date of this Agreement.
For purposes of this Agreement a "MidCity ERISA Affiliate" is any corporation,
partnership or other trade or business that, together with MidCity, would be
deemed to be a "single employer" within the meaning of Section 4001 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) MidCity has heretofore made available to MB copies of each
MidCity Benefit Plan and certain related documents, including (i) the
actuarial report for the MidCity Benefit Plan (if applicable) for each of
the last two years and (ii) the most recent determination letter from the
IRS (if applicable) for the MidCity Benefit Plan.
(c)(i) Each of the MidCity Benefit Plans has been operated and
administered in all material respects in compliance with applicable laws,
including, but not limited to, ERISA and the Code, (ii) each of the MidCity
Benefit Plans intended to be "qualified" within the meaning of Section
401(a) of the Code is so qualified, and there are no existing circumstances
or any events that have occurred that will adversely affect the qualified
status of that MidCity Benefit Plan, (iii) the present value of accrued
benefits under each MidCity Benefit Plan that is subject to Title IV of
ERISA did not, as of the plan's most recent valuation date and based upon
the actuarial assumptions used for funding purposes in the most recent
actuarial report prepared by the plan's actuary, exceed the then current
value of the assets of the plan allocable to accrued benefits, (iv) no
MidCity Benefit Plan provides benefits, including, without limitation,
death or medical benefits (whether or not insured), with respect to current
or former employees or directors of MidCity or its Subsidiaries beyond
their retirement or other termination of service, other than (A) coverage
mandated by applicable law, (B) death benefits or retirement benefits under
an "employee pension plan" (as defined in Section 3(2) of ERISA), (C)
deferred compensation benefits accrued as liabilities on the books of
MidCity or its Subsidiaries or (D) benefits the full cost of which is borne
by the current or former employee or director (or his beneficiary), (v) no
material liability under Title IV of ERISA has been incurred by MidCity,
its Subsidiaries or any MidCity ERISA Affiliate that has not been satisfied
in full, and no condition exists that presents a material risk to MidCity,
its Subsidiaries or any MidCity ERISA Affiliate of incurring a material
liability thereunder, (vi) no MidCity Benefit Plan is a "multiemployer
pension plan" (as defined in Section 3(37) of ERISA), (vii) all
contributions or other amounts payable by MidCity or its Subsidiaries as of
the Effective Time with respect to each MidCity Benefit Plan in respect of
current or prior plan years have been paid or accrued in accordance with
GAAP and Section 412 of the Code, (viii) none of MidCity, its Subsidiaries,
the MidCity ERISA Affiliates or any other person, including any fiduciary,
has engaged in a transaction in connection with which MidCity, its
Subsidiaries, any MidCity ERISA Affiliate or any MidCity Benefit Plan will
be subject to either a material civil penalty assessed pursuant to Section
409 or 502(i) of ERISA or a material tax imposed pursuant to Section 4975
or 4976 of the Code, and (ix) to the best knowledge of MidCity there are no
pending, threatened or anticipated material claims (other than routine
claims for
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benefits) by, on behalf of or against, any of the MidCity Benefit Plans or
any trusts related thereto.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the MidCity Merger or any other transaction contemplated by
this Agreement will (i) directly or indirectly (including without
limitation, as a result of any termination of employment or service at any
time prior to or following the Effective Time), entitle any current or
former employee, director or independent contractor of MidCity or any of
its Subsidiaries to any actual or deemed payment (or benefit) which would
constitute a "parachute payment" (as such term is defined in Section 280G
of the Code), without regard to whether such payment is reasonable
compensation for personal services performed or to be performed in the
future, (ii) increase any benefits otherwise payable under any MidCity
Benefit Plan or (iii) result in any acceleration of the time of payment or
vesting of any benefits under any MidCity Benefit Plan.
Section 3.12 COMPLIANCE WITH APPLICABLE LAW. (a) MidCity and each of its
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to each, and have complied in all material respects with and are not in
default in any material respect under, any applicable law, statute, order, rule,
regulation, policy and/or guideline of any Governmental Entity relating to
MidCity or any of its Subsidiaries, except where the failure to hold such
license, franchise, permit or authorization or such noncompliance or default
will not, either individually or in the aggregate, materially adversely affect
the ability of MidCity or any of its Subsidiaries to operate its business in the
regular and ordinary course consistent with past practices or materially
adversely affect the consolidated operating results or financial condition of
MidCity.
(b) MidCity and each of its Subsidiaries have in all material
respects properly administered all accounts for which it acts as a
fiduciary, including accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian, conservator or investment
advisor, in accordance with the terms of the governing documents,
applicable state and federal law and regulation and common law. None of
MidCity, any of its Subsidiaries, or any director, officer or employee of
MidCity or of any of its Subsidiaries, has committed any breach of trust
with respect to any such fiduciary account that will or is likely to result
in a material liability to MidCity or any of its Subsidiaries, and the
accountings for each such fiduciary account are true and correct in all
material respects and accurately reflect the assets of such fiduciary
account.
Section 3.13 CERTAIN CONTRACTS. (a) Neither MidCity nor any of its
Subsidiaries is a party to or bound by any contract, arrangement, commitment or
understanding (whether written or oral) (i) with respect to the employment of
any directors, officers or employees, (ii) which, upon the consummation or
stockholder approval of the transactions contemplated by this Agreement will
(either alone or upon the occurrence of any additional acts or events) result in
any payment (whether of severance pay or otherwise) becoming due from MB,
MidCity, the Surviving Corporation, or any of their respective Subsidiaries to
any current or former director, officer, employee or independent contractor of
MidCity or any of its Subsidiaries, (iii) which is a "material contract" (as
such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) to be
performed after the date of this Agreement, (iv) which restricts the conduct of
business by
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MidCity or any of its Subsidiaries or upon consummation of the MidCity Merger
will restrict the ability of the Surviving Corporation or any of its
Subsidiaries to engage in any business, (v) with or to a labor union or guild
(including any collective bargaining agreement), (vi) with respect to which
(including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan) any of the benefits will be increased, or the
vesting of the benefits will be accelerated, by the occurrence of any
stockholder approval or the consummation of any of the transactions contemplated
by this Agreement, or the value of any of the benefits will be calculated on the
basis of any of the transactions contemplated by this Agreement or (vii) which
cannot be terminated upon 30 days notice without penalty or premium and which
involves either an annual payment obligation in excess of $25,000 or aggregate
payments in excess of $100,000 by MidCity or one of its Subsidiaries (but
specifically excluding deposit liabilities). Section 3.13(a) of the MidCity
Disclosure Schedule lists each contract, arrangement, commitment or
understanding of the type described in this SECTION 3.13(a), and each of them is
referred to herein as a "MidCity Contract."
(b)(i) Each MidCity Contract is valid and binding on MidCity or one of
its Subsidiaries, as applicable, and in full force and effect, (ii) MidCity
or its applicable Subsidiary has performed all material obligations
required to be performed by it under each MidCity Contract, and (iii) no
event or condition exists which constitutes or, after notice or lapse of
time or both, will constitute, a material default on the part of MidCity or
any of its Subsidiaries under any MidCity Contract.
(c) Neither MidCity nor any of its Subsidiaries knows of, or has
received notice of, any material violation of or default under any MidCity
Contract by any of the other parties thereto.
Section 3.14 REGULATORY MATTERS. (a) Neither MidCity nor any of its
Subsidiaries or any MidCity Control Person is subject to any cease-and-desist or
other order issued by, or is a party to any written agreement, consent agreement
or memorandum of understanding with, or is a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or has been
since January 1, 1998, a recipient of any supervisory letter from, or since
January 1, 1998, has adopted any board resolutions at the request of any
Regulatory Agency or other Governmental Entity that currently restricts in any
material respect the conduct of its business or that in any material manner
relates to its capital adequacy, its credit policies, its management or its
business (each, whether or not set forth in the MidCity Disclosure Schedule, a
"MidCity Regulatory Agreement"), nor has MidCity, any of its Subsidiaries or any
MidCity Control Person been advised since January 1, 1998, by any Regulatory
Agency or other Governmental Entity that it is considering issuing or requesting
any such MidCity Regulatory Agreement.
(b) Except for normal examinations conducted by a Regulatory Agency
in the ordinary course of the business of MidCity and its Subsidiaries, no
Regulatory Agency has initiated any proceeding or, to the knowledge of
MidCity, investigation into the business or operations of MidCity, any of
its Subsidiaries, or any MidCity Control Person since January 1, 1998. All
material violations, criticisms, and exceptions by any Regulatory Agency
with respect to any report or statement relating to any examinations of
MidCity or any of its Subsidiaries have been resolved to the reasonable
satisfaction of such Regulatory Agency.
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(c) Each MidCity financial institution Subsidiary has a Community
Reinvestment Act rating of "satisfactory" or better.
Section 3.15 INTEREST RATE RISK MANAGEMENT INSTRUMENTS. All interest rate
swaps, caps, floors and option agreements and other interest rate risk
management arrangements, whether entered into for the account of MidCity or for
the account of a customer of MidCity or one of its Subsidiaries, were entered
into in the ordinary course of business and, to MidCity's knowledge, in
accordance with prudent banking practice and applicable rules, regulations and
policies of any applicable Regulatory Agency and with counterparties believed to
be financially responsible at the time and are legal, valid and binding
obligations of MidCity or one of its Subsidiaries enforceable in accordance with
their terms (except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally and
the availability of equitable remedies), and are in full force and effect.
MidCity and each of its Subsidiaries have duly performed in all material
respects all of their material obligations thereunder to the extent that such
obligations to perform have accrued; and, to MidCity's knowledge, there are no
material breaches, violations or defaults or allegations or assertions of such
by any party thereunder.
Section 3.16 UNDISCLOSED LIABILITIES. Except for (i) liabilities that are
fully reflected or reserved against on the consolidated balance sheet of MidCity
as at December 31, 2000 or the notes thereto included in the MidCity Financial
Statements, (ii) liabilities incurred since December 31, 2000 in the ordinary
course of business consistent with past practice and (iii) costs and expenses
relating to this Agreement and the transactions contemplated hereby, neither
MidCity nor any of its Subsidiaries has any liabilities of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to become
due) that are required under GAAP or generally accepted auditing practices to be
reflected in an audited financial statement or the notes thereto.
Section 3.17 INSURANCE. MidCity and its Subsidiaries are insured for
reasonable amounts with financially sound and reputable insurance companies
against such risks as companies or institutions engaged in similar businesses
would, in accordance with good business practice, customarily be insured and
have maintained all insurance required by their agreements and applicable laws
and regulations. Neither MidCity nor any of its Subsidiaries has, during the
past five years, had an insurance policy canceled or not renewed or been denied
any insurance coverage for which it has applied. Section 3.17 of the MidCity
Disclosure Schedule lists all self-insurance plans or programs maintained by
MidCity and its Subsidiaries. Copies of such plans and programs have been
provided to MB.
Section 3.18 ENVIRONMENTAL MATTERS. (a) Neither the conduct nor operation
of business by MidCity or any of its Subsidiaries nor any condition of any
property currently or previously owned, operated or controlled by any of them
(including, without limitation, in a fiduciary or agency capacity), or to the
knowledge of MidCity, on which any of them holds a Lien, has or is reasonably
likely to result in any material liability to MidCity or any of its Subsidiaries
under or by reason of any Environmental Laws (as hereinafter defined) or by the
presence of any Materials of Environmental Concern (as hereinafter defined). To
the knowledge of MidCity, no condition has existed or event has occurred with
respect to any of them or any such property that, with notice or the passage of
time, or both, has or is reasonably likely to result in any material
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liability to MidCity or any of its Subsidiaries under or by reason of any
Environmental Laws or by the presence of Materials of Environmental Concern.
Except for notices for which there is no reasonable basis for the imposition of
a material liability or remediation obligation on the part of MidCity or any of
its Subsidiaries under any Environmental Laws or relating to Materials of
Environmental Concern, neither MidCity nor any of its Subsidiaries has received
any notice from any person that MidCity or its Subsidiaries or the operation or
condition of any property ever owned, operated, controlled, or held as
collateral or in a fiduciary capacity by any of them are or were in violation of
or otherwise are alleged to have liability under any Environmental Laws or
relating to Materials of Environmental Concern, including, but not limited to,
responsibility (or potential responsibility) for the cleanup or other
remediation of Materials of Environmental Concern at, on, beneath, or
originating from any such property.
(b) There are no underground storage tanks located on, in or under
any real property currently owned, operated or controlled by MidCity or any
of its Subsidiaries. Neither MidCity nor any of its Subsidiaries owns or
operates any underground storage tank at any real property leased by it.
(c) "Environmental Laws" means any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with
any Governmental Entity relating to (i) the protection, preservation or
restoration of human health and the environment (including air, water
vapor, surface water, groundwater, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or
disposal of Materials of Environmental Concern. The term Environmental Law
includes (x) the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. Section 9601, et seq ("CERCLA"); the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901,
et seq; the Clean Air Act, as amended, 42 U.S.C. Section 7401, et seq; the
Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251, et
seq; the Toxic Substances Control Act, as amended, 15 U.S.C. Section 9601,
et seq; the Emergency Planning and Community Right to Know Act, 42 U.S.C.
Section 1101, et seq; the Safe Drinking Water Act, 42 U.S.C. Section 300f,
et seq; and all comparable state and local laws, and (y) any common law
(including common law that may impose strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Materials of Environmental
Concern.
(d) "Materials of Environmental Concern" means (i) pollutants,
contaminants and materials regulated or defined or designated as hazardous,
extremely hazardous, dangerous or toxic under the following federal
statutes and their state counterparts as well as these statutes'
implementing regulations: CERCLA, the Federal Insecticide, Fungicide &
Rodenticide Act, 7 U.S.C. Section 136 et seq; the Atomic Energy Act, 42
U.S.C. Section 2011 et seq; the Hazardous Material Transportation Act, 42
U.S.C. Section 1801 et seq; (ii) petroleum and petroleum products including
crude oil and any fractions thereof; (iii) asbestos and natural gas,
synthetic gas and any mixtures thereof; or (iv) a substance with respect to
which a Governmental Entity otherwise requires environmental
investigations, monitoring, reporting or remediation.
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Section 3.19 STATE TAKEOVER LAWS. The Board of Directors of MidCity has
approved the transactions contemplated by this Agreement for purposes of Section
203(a)(1) of the DGCL such that the provisions of Section 203 of the DGCL will
not apply to this Agreement or any of the transactions contemplated hereby.
Section 3.20 MATERIAL INTERESTS OF CERTAIN PERSONS. No officer, director or
employee of MidCity or any of its Subsidiaries or any "associate" (as such term
is defined in Rule 14a-1 under the Securities Exchange Act of 1934, as amended,
(the "Exchange Act")) of any officer, director or employee of MidCity or any of
its Subsidiaries has any material interest in any material agreement or property
(real or personal, tangible or intangible) used in, or pertaining to, the
business of MidCity or any of its Subsidiaries.
Section 3.21 INVESTMENT PORTFOLIO. As of the date hereof, and at all times
hereafter pending the Effective Time, the entire investment portfolio of MidCity
and its Subsidiaries will be classified as available for sale.
Section 3.22 REAL ESTATE LOANS AND INVESTMENTS. Except for properties
acquired in settlement of loans, there are no facts, circumstances or
contingencies known to MidCity which exist and would require a material
reduction under GAAP in the present carrying value of any of the real estate
investments, joint ventures, construction loans, other investments or other
loans of MidCity or any of its Subsidiaries (either individually or in the
aggregate with other loans and investments).
Section 3.23 FAIRNESS OPINION. On the date of this Agreement, Hovde
Financial, Inc. and Alex Sheshunoff & Co. have each provided to the Board of
Directors of MidCity a separate oral fairness opinion (which shall be confirmed
in writing) to the effect that the MidCity Exchange Ratio, after taking into
account the MB Exchange Ratio, is fair to the stockholders of MidCity from a
financial point of view.
Section 3.24 REORGANIZATION; POOLING OF INTERESTS. As of the date of this
Agreement, MidCity has no reason to believe that the Mergers will not qualify as
reorganizations within the meaning of Section 368(a) of the Code and as a
"pooling of interests" for accounting purposes.
Section 3.25 FINANCIAL HOLDING COMPANY STATUS. As of the date of this
Agreement, MidCity meets all applicable criteria to become and remain a
"financial holding company", as such term is defined in Section 2(p) of the BHC
Act, set forth in such act as well as in any regulations, rules or
interpretations issued by the Federal Reserve Board.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MB
Except as disclosed in the MB disclosure schedule delivered to MidCity
concurrently herewith (the "MB Disclosure Schedule"), MB hereby represents and
warrants to MidCity as follows:
Section 4.1 CORPORATE ORGANIZATION. (a) MB is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
MB has the corporate power and authority to own and lease all of its properties
and assets and to carry on its business
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as it is now being conducted, and is duly licensed or qualified to do business
in each jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not, either individually or in the aggregate, have a
Material Adverse Effect on MB. MB is duly registered as a bank holding company
under the BHC Act. Copies of the Certificate of Incorporation, as amended, (the
"MB Charter") and By-laws of MB, as in effect as of the date of this Agreement,
have previously been made available by MB to MidCity.
(b) Each of MB's Subsidiaries (i) is duly organized and validly
existing under the laws of its jurisdiction of organization, (ii) is duly
licensed or qualified to do business and in good standing in all
jurisdictions (whether federal, state, local or foreign) 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 licensed or qualified
would not either individually or in the aggregate have a Material Adverse
Effect on MB and (iii) has all requisite corporate power and authority to
own and lease its properties and assets and to carry on its business as now
conducted. Copies of the charters and by-laws of MB's financial institution
Subsidiaries, as in effect on the date of this Agreement, have previously
been made available by MB to MidCity.
Section 4.2 CAPITALIZATION. (a) The authorized capital stock of MB consists
of 20,000,000 shares of MB Common Stock and 1,000,000 shares of preferred stock,
par value $.01 per share (the "MB Preferred Stock", together with the MB Common
Stock being the "MB Capital Stock"). As of the date hereof, 7,064,515 shares of
MB Common Stock were issued and outstanding, and no shares of MB Preferred Stock
were issued and outstanding. As of the date hereof, no shares of MB Common Stock
were reserved for issuance, except for the shares reserved for issuance as
identified on Section 4.2(a) of the MB Disclosure Schedule. All of the issued
and outstanding shares of MB Common Stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. As of the date of this
Agreement, except for shares of MB Common Stock to be issued pursuant to the MB
Stock Plans, MB does not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of MB Capital Stock or any other equity
securities of MB or any securities representing the right to purchase or
otherwise receive any shares of MB Capital Stock (collectively, "MB Rights").
Since December 31, 2000, MB has not issued any shares of MB Capital Stock or any
securities convertible into or exercisable for any shares of MB Capital Stock,
other than as permitted by SECTION 5.2(b) and pursuant to the exercise of MB
Stock Options granted prior to such date. Section 4.2(a) of the MB Disclosure
Schedule contains a list as of the date hereof of the option holders, the date
each MB Stock Option was granted, the number of shares subject to each such
option, the expiration date of each such option and the price at which each such
option may be exercised. In no event will the aggregate number of shares of MB
Common Stock outstanding immediately prior to the Effective Time (including all
shares of MB Common Stock subject to then-outstanding MB Rights) exceed
7,064,515 plus, subject to SECTION 6.11, (x) the aggregate of the number of
shares issued to directors pursuant to SECTION 5.2(b)(iv) and (y) the aggregate
number of shares issued pursuant to the exercise of MB Stock Options granted
prior to the date hereof and MB Stock Options granted after the date hereof as
permitted by SECTION 5.2(b)(iii).
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(b) MB owns, directly or indirectly, all of the issued and
outstanding shares of capital stock or other equity ownership interests of
each of its Subsidiaries, free and clear of any Liens, and all of such
shares or equity ownership interests are duly authorized and validly issued
and are fully paid, nonassessable (subject to 12 U.S.C. Section 55) and
free of preemptive rights, with no personal liability attaching to the
ownership thereof. None of MB's Subsidiaries has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any
shares of capital stock or any other equity security of such Subsidiary or
any securities representing the right to purchase or otherwise receive any
shares of capital stock or any other equity security of such Subsidiary.
Section 4.2(b) of the MB Disclosure Schedule sets forth a list of the
material investments of MB in Non-Subsidiary Affiliates.
Section 4.3 AUTHORITY; NO VIOLATION. (a) MB has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of MB and no other corporate action
on the part of MB is necessary with respect thereto, other than the adoption of
this Agreement by the affirmative vote of the holders of a majority of the
outstanding shares of MB Common Stock with respect to the consummation of the MB
Merger only. The Board of Directors of MB has directed that this Agreement be
submitted to MB's stockholders for adoption at a meeting of such stockholders.
This Agreement has been duly and validly executed and delivered by MB and
(assuming due authorization, execution and delivery by MidCity) constitutes a
valid and binding obligation of MB, enforceable against MB in accordance with
its terms (except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally and
the availability of equitable remedies).
(b) Neither the execution and delivery by MB of this Agreement nor
the consummation by MB or any of its financial institution Subsidiaries of
the transactions contemplated hereby, nor compliance by MB with any of the
terms or provisions hereof, will (i) violate any provision of the MB
Charter or By-laws or the governing documents of any of its financial
institution Subsidiaries; (ii) assuming that the consents and approvals
referred to in SECTION 4.4 are duly obtained, violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to MB or any of its Subsidiaries or any of their respective
properties or assets; or (iii) violate, conflict with, result in a breach
of any provision of or the loss of any benefit under, constitute a default
(or an event which, with notice or lapse of time, or both, would constitute
a default) under, result in the termination of or a right of termination or
cancellation under, accelerate the performance required by, or result in
the creation of any Lien upon any of the respective properties or assets of
MB or any of its Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which MB or any of
its Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected except for such violations,
conflicts, breaches or defaults which, either individually or in the
aggregate, will not have a Material Adverse Effect on MB.
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Section 4.4 CONSENTS AND APPROVALS. Except for filings and registrations,
and obtaining the consents, authorizations, approvals and exemptions,
contemplated by SECTION 3.4, no consents or approvals of or filings or
registrations with any Governmental Entity are necessary in connection with the
consummation by MB of the MB Merger or the consummation of any of the other
transactions contemplated hereby by MB or any of its Subsidiaries.
Section 4.5 REPORTS. MB and each of its Subsidiaries have timely filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since January 1,
1998 with the Regulatory Agencies and any other Governmental Entities, and have
paid all fees and assessments due and payable in connection therewith, except
where the failure to file such report, registration or statement or to pay such
fees and assessments, either individually or in the aggregate, will not have a
Material Adverse Effect on MB.
Section 4.6 FINANCIAL STATEMENTS. MB has previously made available to
MidCity true and correct copies of the consolidated balance sheets of MB and its
Subsidiaries as of December 31, for the fiscal years 1998, 1999, and 2000 and
the related consolidated statements of income and changes in stockholders'
equity and cash flows for the fiscal years 1998 through 2000, inclusive, as
reported in MB's Annual Report on Form 10-K for the fiscal year ended December
31, 2000 (the "MB 10-K"), filed with the SEC under the Exchange Act in each case
accompanied by the audit report of McGladrey & Pullen, LLP, independent public
accountants with respect to MB. The December 31, 2000 consolidated balance sheet
of MB (including the related notes, where applicable) fairly presents in all
material respects the consolidated financial position of MB and its Subsidiaries
as of the date thereof, and the other financial statements referred to in this
SECTION 4.6 (including the related notes, where applicable) fairly present in
all material respects the results of the consolidated operations, changes in
stockholders' equity, cash flows and consolidated financial position of MB and
its Subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth; each of such statements (including the related notes, where
applicable) complies with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto; and each of
such statements (including the related notes, where applicable) has been
prepared in accordance with GAAP consistently applied during the periods
involved, except in each case as indicated in such statements or in the notes
thereto. The financial books and records of MB and its Subsidiaries have been,
and are being, maintained in all material respects in accordance with GAAP and
any other applicable legal and accounting requirements and reflect only actual
transactions.
Section 4.7 BROKER'S FEES. Except for Sandler O'Neill & Partners, L.P.
(whose fees and expenses are set forth in the engagement letter included in
SECTION 4.7 of the MB Disclosure Schedule), neither MB nor any of its
Subsidiaries nor any of their respective officers or directors has employed any
broker or finder or incurred any liability for any broker's or financial
advisory fees, commissions or finder's fees or fairness opinion fees in
connection with the MB Merger or related transactions contemplated by this
Agreement.
Section 4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) EXCEPT AS PUBLICLY
DISCLOSED IN MB REPORTS FILED PRIOR TO THE DATE HEREOF, FROM December 31, 2000
to the date hereof, no event or events have occurred that have had or are
reasonably likely to have, either individually or in the aggregate, a Material
Adverse Effect on MB.
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(b) Except AS PUBLICLY DISCLOSED IN MB REPORTS FILED PRIOR TO THE
DATE HEREOF AND for this Agreement and the transactions contemplated
herein, since December 31, 2000, MB and its Subsidiaries have carried on
their respective businesses in all material respects in the ordinary
course.
(c) Since December 31, 2000, neither MB nor any of its Subsidiaries
has (i) except for such actions as are in the ordinary course of business
or except as required by applicable law, (A) increased the wages, salaries,
compensation, pension, or other fringe benefits or perquisites payable to
any executive officer, employee, or director from the amount thereof in
effect as of December 31, 2000, or (B) granted any severance or termination
pay, entered into any contract to make or grant any severance or
termination pay, or paid any bonuses, which in the aggregate exceed 5% of
MB's consolidated 2000 salary and employee benefit expenses (other than
customary year-end bonuses for fiscal 2000) or (ii) suffered any strike,
work stoppage, slowdown, or other labor disturbance which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect on MB.
Section 4.9 LEGAL PROCEEDINGS. (a) Neither MB nor any of its Subsidiaries
is a party to any, and there are no pending or, to the best of MB's knowledge,
threatened, legal, administrative, arbitral or other proceedings, claims,
actions or investigations of any nature against MB or any of its Subsidiaries as
to which, in any such case, there is (i) a request for monetary relief in excess
of $25,000, (ii) an assertion or allegation of employment discrimination or
sexual harassment, (iii) a request for specific performance or other equitable
relief, or (iv) a challenge to the validity or propriety of the MB Merger or any
of the transactions contemplated by this Agreement.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction (other than those that apply to similarly situated bank holding
companies or banks) imposed upon MB, any of its Subsidiaries or the assets
of MB or any of its Subsidiaries that could either materially adversely
affect the ability of MB or any of its Subsidiaries to operate its business
in the regular and ordinary course consistent with past practices or
adversely affect the consolidated operating results or financial condition
of MB.
Section 4.10 TAXES AND TAX RETURNS. (a) Each of MB and its Subsidiaries has
duly filed all federal, state, foreign and local information returns and tax
returns required to be filed by it on or prior to the date hereof (all such
returns being accurate and complete in all material respects) and has duly paid
or made adequate provisions for the payment of all Taxes and other governmental
charges which have been incurred or are due or claimed to be due from it by
federal, state, foreign or local taxing authorities (including, without
limitation, if and to the extent applicable, those due in respect of its
properties, income, business, capital stock, deposits, franchises, licenses,
sales and payrolls) other than (i) Taxes or other charges which are not yet
delinquent or are being contested in good faith and have not been finally
determined, or (ii) information returns, tax returns, Taxes or other
governmental charges as to which the failure to file, pay or make provision are,
in the aggregate, not material to MB on a consolidated basis. The federal income
tax returns of MidCity and its Subsidiaries have either been examined by the IRS
or the statute of limitation for examination by the IRS has expired for all
years to and including the taxable year ended December 31, 1996 and any
liability with respect thereto has
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been satisfied or any liability with respect to deficiencies asserted as a
result of such examination is covered by adequate reserves. To the best of MB's
knowledge, there are no material disputes pending, or claims asserted for, Taxes
or assessments upon MB or any of its Subsidiaries for which MB does not have
adequate reserves. Each of MB and its Subsidiaries has (A) withheld proper and
accurate amounts from payments to employees, creditors, independent contractors,
foreign persons and other third parties for all prior periods in compliance in
all material respects with the tax withholding provisions of applicable federal,
state and local laws, (B) filed all federal, state, and local returns (which are
accurate and complete in all material respects) for all periods for which
returns were due with respect to income tax withholding, Social Security and
unemployment taxes and (C) paid or made adequate provision for all Taxes shown
on such federal, state or local returns to be due and payable. There are no Tax
liens upon any property or assets of MB or its Subsidiaries except liens for
current taxes not yet due. Neither MB nor any of its Subsidiaries has been
required to include in income any adjustment pursuant to Section 481 of the Code
by reason of a voluntary change in accounting method initiated by MB or any of
its Subsidiaries, and the IRS has not initiated or proposed any such adjustment
or change in accounting method.
(b) Neither MB nor any of its Subsidiaries is a party to any
agreement or maintains any compensation plan, program or arrangement under
which any payment is reasonably likely to become non-deductible, in whole
or in part, for tax reporting purposes as a result of the limitations under
Section 162(m) of the Code and the regulations issued thereunder.
(c) Neither MB nor any of its Subsidiaries is a party to or is bound
by any Tax sharing, allocation or indemnification agreement or arrangement
(other than such an agreement or arrangement solely among MB and its
Subsidiaries). Neither MB nor any of its Subsidiaries has any liability for
the Taxes of any person (other than MB and its Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local or
foreign law). Within the past five years, neither MB nor any of its
Subsidiaries has been a party to a reorganization within the meaning of
Section 368 of the Code or been a "distributing corporation" or a
"controlled corporation" in a distribution intended to qualify under
Section 355(a) of the Code.
Section 4.11 EMPLOYEES. (a) Section 4.11(a) of the MB Disclosure Schedule
sets forth a list of each employee or director benefit plan, arrangement or
agreement (an "MB Benefit Plan") that, as of the date of this Agreement, is
maintained or contributed to by MB or any MB ERISA Affiliate, or under which MB
or any MB ERISA Affiliate could reasonably be expected to have any liability as
of the date of this Agreement. For purposes of this Agreement an "MB ERISA
Affiliate" is any corporation, partnership or other trade or business that,
together with MB, would be deemed to be a "single employer" within the meaning
of Section 4001 of ERISA.
(b) MB has heretofore made available to MidCity copies of each MB
Benefit Plan and certain related documents, including (i) the actuarial
report for the MB Benefit Plan (if applicable) for each of the last two
years and (ii) the most recent determination letter from the IRS (if
applicable) for the MB Benefit Plan.
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(c)(i) Each of the MB Benefit Plans has been operated and administered
in all material respects in compliance with applicable laws, including, but
not limited to, ERISA and the Code, (ii) each of the MB Benefit Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code
is so qualified, and there are no existing circumstances or any events that
have occurred that will adversely affect the qualified status of that MB
Benefit Plan, (iii) the present value of accrued benefits under each MB
Benefit Plan that is subject to Title IV of ERISA did not, as of the plan's
most recent valuation date and based upon the actuarial assumptions used
for funding purposes in the most recent actuarial report prepared by the
plan's actuary, exceed the then current value of the assets of the plan
allocable to accrued benefits, (iv) no MB Benefit Plan provides benefits,
including, without limitation, death or medical benefits (whether or not
insured), with respect to current or former employees or directors of MB or
its Subsidiaries beyond their retirement or other termination of service,
other than (A) coverage mandated by applicable law, (B) death benefits or
retirement benefits under an "employee pension plan" (as defined in Section
3(2) of ERISA), (C) deferred compensation benefits accrued as liabilities
on the books of MB or its Subsidiaries or (D) benefits the full cost of
which is borne by the current or former employee or director (or his
beneficiary), (v) no material liability under Title IV of ERISA has been
incurred by MB, its Subsidiaries or any MB ERISA Affiliate that has not
been satisfied in full, and no condition exists that presents a material
risk to MB, its Subsidiaries or any MB ERISA Affiliate of incurring a
material liability thereunder, (vi) no MB Benefit Plan is a "multiemployer
pension plan" (as defined in Section 3(37) of ERISA), (vii) all
contributions or other amounts payable by MB or its Subsidiaries as of the
Effective Time with respect to each MB Benefit Plan in respect of current
or prior plan years have been paid or accrued in accordance with GAAP and
Section 412 of the Code, (viii) none of MB, its Subsidiaries, the MB ERISA
Affiliates or any other person, including any fiduciary, has engaged in a
transaction in connection with which MB, its Subsidiaries, any MB ERISA
Affiliate or any MB Benefit Plan will be subject to either a material civil
penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material
tax imposed pursuant to Section 4975 or 4976 of the Code, and (ix) to the
best knowledge of MB there are no pending, threatened or anticipated
material claims (other than routine claims for benefits) by, on behalf of
or against, any of the MB Benefit Plans or any trusts related thereto.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the MB Merger or any other transaction contemplated by this
Agreement will (i) directly or indirectly (including without limitation, as
a result of any termination of employment or service at any time prior to
or following the Effective Time), entitle any current or former employee,
director or independent contractor of MB or any of its Subsidiaries to any
actual or deemed payment (or benefit) which would constitute a "parachute
payment" (as such term is defined in Section 280G of the Code), without
regard to whether such payment is reasonable compensation for personal
services performed or to be performed in the future, (ii) increase any
benefits otherwise payable under any MB Benefit Plan or (iii) result in any
acceleration of the time of payment or vesting of any benefits under any MB
Benefit Plan.
Section 4.12 SEC REPORTS. MB has previously made available to MidCity an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and
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definitive proxy statement filed since January 1, 1998 by MB (the "MB Reports")
with the SEC pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act and prior to the date hereof and (b) communication
mailed by MB to its stockholders since January 1, 1998 and prior to the date
hereof, and no such MB Report or communication, as of the date thereof,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that information as of a later date (but before the date
hereof) shall be deemed to modify information as of an earlier date. Since
January 1, 1998, as of their respective dates, all MB Reports filed under the
Securities Act and the Exchange Act complied in all material respects with the
published rules and regulations of the SEC with respect thereto.
Section 4.13 COMPLIANCE WITH APPLICABLE LAW. (a) MB and each of its
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to each, and have complied in all material respects with and are not in
default in any material respect under, any applicable law, statute, order, rule,
regulation, policy and/or guideline of any Governmental Entity relating to MB or
any of its Subsidiaries, except where the failure to hold such license,
franchise, permit or authorization or such noncompliance or default will not,
either individually or in the aggregate, materially adversely affect the ability
of MB or any of its Subsidiaries to operate its business in the regular and
ordinary course consistent with past practices or materially adversely affect
the consolidated operating results or financial condition of MB.
(b) MB and each of its Subsidiaries have in all material respects
properly administered all accounts for which it acts as a fiduciary,
including accounts for which it serves as a trustee, agent, custodian,
personal representative, guardian, conservator or investment advisor, in
accordance with the terms of the governing documents, applicable state and
federal law and regulation and common law. None of MB, any of its
Subsidiaries, or any director, officer or employee of MB or of any of its
Subsidiaries, has committed any breach of trust with respect to any such
fiduciary account that will or is likely to result in a material liability
to MB or any of its Subsidiaries, and the accountings for each such
fiduciary account are true and correct in all material respects and
accurately reflect the assets of such fiduciary account.
Section 4.14 CERTAIN CONTRACTS. (a) Neither MB nor any of its Subsidiaries
is a party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral) (i) with respect to the employment of any directors,
officers or employees, (ii) which, upon the consummation or stockholder approval
of the transactions contemplated by this Agreement will (either alone or upon
the occurrence of any additional acts or events) result in any payment (whether
of severance pay or otherwise) becoming due from MidCity, MB, the Surviving
Corporation, or any of their respective Subsidiaries to any current or former
director, officer, employee or independent contractor of MB or any of its
Subsidiaries, (iii) which is a "material contract" (as such term is defined in
Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date of
this Agreement, (iv) which restricts the conduct of business by MB or any of its
Subsidiaries or upon consummation of the MB Merger will restrict the ability of
the Surviving Corporation or any of its Subsidiaries to engage in any business,
(v) with or to a labor union or guild (including any collective bargaining
agreement), (vi) with respect to which
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(including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan) any of the benefits will be increased, or the
vesting of the benefits will be accelerated, by the occurrence of any
stockholder approval or the consummation of any of the transactions contemplated
by this Agreement, or the value of any of the benefits will be calculated on the
basis of any of the transactions contemplated by this Agreement or (vii) which
cannot be terminated upon 30 days notice without penalty or premium and which
involves either an annual payment obligation in excess of $25,000 or aggregate
payments in excess of $100,000 by MB or one of its Subsidiaries (but
specifically excluding deposit liabilities). Section 4.14(a) of the MB
Disclosure Schedule lists each contract, arrangement, commitment or
understanding of the type described in this SECTION 4.14(a), and each of them is
referred to herein as an "MB Contract."
(b)(i) Each MB Contract is valid and binding on MB or one of its
Subsidiaries, as applicable, and in full force and effect, (ii) MB or its
applicable Subsidiary has performed all material obligations required to be
performed by it under each MB Contract, and (iii) no event or condition
exists which constitutes or, after notice or lapse of time or both, will
constitute, a material default on the part of MB or any of its Subsidiaries
under any MB Contract.
(c) Neither MB nor any of its Subsidiaries knows of, or has received
notice of, any material violation of or default under any MB Contract by
any of the other parties thereto.
Section 4.15 REGULATORY MATTERS. (a) Neither MB nor any of its Subsidiaries
is subject to any cease-and-desist or other order issued by, or is a party to
any written agreement, consent agreement or memorandum of understanding with, or
is a party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or has been since January 1, 1998, a recipient of any
supervisory letter from, or since January 1, 1998, has adopted any board
resolutions at the request of any Regulatory Agency or other Governmental Entity
that currently restricts in any material respect the conduct of its business or
that in any material manner relates to its capital adequacy, its credit
policies, its management or its business (each, whether or not set forth in the
MB Disclosure Schedule, a "MB Regulatory Agreement"), nor has MB or any of its
Subsidiaries been advised since January 1, 1998, by any Regulatory Agency or
other Governmental Entity that it is considering issuing or requesting any such
MB Regulatory Agreement.
(b) Except for normal examinations conducted by a Regulatory Agency
in the ordinary course of the business of MB and its Subsidiaries, no
Regulatory Agency has initiated any proceeding or, to the knowledge of MB,
investigation into the business or operations of MB or any of its
Subsidiaries since January 1, 1998. All material violations, criticisms,
and exceptions by any Regulatory Agency with respect to any report or
statement relating to any examinations of MB or any of its Subsidiaries
have been resolved to the reasonable satisfaction of such Regulatory
Agency.
(c) Each MB financial institution Subsidiary has a Community
Reinvestment Act rating of "satisfactory" or better.
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Section 4.16 INTEREST RATE RISK MANAGEMENT INSTRUMENTS. All interest rate
swaps, caps, floors and option agreements and other interest rate risk
management arrangements, whether entered into for the account of MB or for the
account of a customer of MB or one of its Subsidiaries, were entered into in the
ordinary course of business and, to MB's knowledge, in accordance with prudent
banking practice and applicable rules, regulations and policies of any
applicable Regulatory Agency and with counterparties believed to be financially
responsible at the time and are legal, valid and binding obligations of MB or
one of its Subsidiaries enforceable in accordance with their terms (except as
may be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the rights of creditors generally and the availability of
equitable remedies), and are in full force and effect. MB and each of its
Subsidiaries have duly performed in all material respects all of their material
obligations thereunder to the extent that such obligations to perform have
accrued; and, to MB's knowledge, there are no material breaches, violations or
defaults or allegations or assertions of such by any party thereunder.
Section 4.17 UNDISCLOSED LIABILITIES. Except for (i) liabilities that are
fully reflected or reserved against on the consolidated balance sheet of MB as
at December 31, 2000 or the notes thereto included in the MB 10-K, (ii)
liabilities incurred since December 31, 2000 in the ordinary course of business
consistent with past practice, (iii) liabilities and obligations incurred and to
be incurred under or by reason of the Agreement and Plan of Merger dated
February 8, 2001, by and among MB Financial, Inc., Manufacturers National
Corporation, Manufacturers Bank, FSL Holdings, Inc. and First Savings and Loan
Association of South Holland and the transactions contemplated therein (the "MB
Acquisition") and (iv) costs and expenses relating to this Agreement and the
transactions contemplated hereby, neither MB nor any of its Subsidiaries has any
liabilities of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether due or to become due) that are required under GAAP or
generally accepted auditing practices to be reflected in an audited financial
statement or the notes thereto.
Section 4.18 INSURANCE. MB and its Subsidiaries are insured for reasonable
amounts with financially sound and reputable insurance companies against such
risks as companies or institutions engaged in similar businesses would, in
accordance with good business practice, customarily be insured and have
maintained all insurance required by their agreements and applicable laws and
regulations. Neither MB nor any of its Subsidiaries has, during the past five
years, had an insurance policy canceled or not renewed or been denied any
insurance coverage for which it has applied. Section 4.18 of the MB Disclosure
Schedule lists all self-insurance plans or programs maintained by MB and its
Subsidiaries. Copies of such plans and programs have been provided to MidCity.
Section 4.19 ENVIRONMENTAL MATTERS. (a) Neither the conduct nor operation
of business by MB or any of its Subsidiaries nor any condition of any property
currently or previously owned, operated or controlled by any of them (including,
without limitation, in a fiduciary or agency capacity), or to the knowledge of
MB, on which any of them holds a Lien, has or is reasonably likely to result in
any material liability to MB or any of its Subsidiaries under or by reason of
any Environmental Law or by the presence of any Materials of Environmental
Concern. To the knowledge of MB, no condition has existed or event has occurred
with respect to any of them or any such property that, with notice or the
passage of time, or both, has or is reasonably likely to result in any material
liability to MB or any of its Subsidiaries under or by reason of any
Environmental Laws or the presence of Materials of Environmental Concern.
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Except for notices for which there is no reasonable basis for the imposition of
a material liability or remediation obligation on the part of MB or any of its
Subsidiaries under any Environmental Laws or relating to Materials of
Environmental Concern, neither MB nor any of its Subsidiaries has received any
notice from any person that MB or its Subsidiaries or the operation or condition
of any property ever owned, operated, controlled, or held as collateral or in a
fiduciary capacity by any of them are or were in violation of or otherwise are
alleged to have liability under any Environmental Laws or relating to Materials
of Environmental Concern, including, but not limited to, responsibility (or
potential responsibility) for the cleanup or other remediation of Materials of
Environmental Concern at, on, beneath, or originating from any such property.
(b) There are no underground storage tanks located on, in or under
any real property currently owned, operated or controlled by MB or any of
its Subsidiaries. Neither MB nor any of its Subsidiaries owns or operates
any underground storage tank at any real property leased by it.
Section 4.20 STATE TAKEOVER LAWS. The Board of Directors of MB has approved
the transactions contemplated by this Agreement for purposes of Section
203(a)(1) of the DGCL such that the provisions of Section 203 of the DGCL will
not apply to this Agreement or any of the transactions contemplated hereby.
Section 4.21 MATERIAL INTERESTS OF CERTAIN PERSONS. No officer, director or
employee of MB or any of its Subsidiaries or any "associate" (as such term is
defined in Rule 14a-1 under the Exchange Act) of any officer, director or
employee of MB or any of its Subsidiaries has any material interest in any
material agreement or property (real or personal, tangible or intangible) used
in, or pertaining to, the business of MB or any of its Subsidiaries.
Section 4.22 REAL ESTATE LOANS AND INVESTMENTS. Except for properties
acquired in settlement of loans, there are no facts, circumstances or
contingencies known to MB which exist and would require a material reduction
under GAAP in the present carrying value of any of the real estate investments,
joint ventures, construction loans, other investments or other loans of MB or
any of its Subsidiaries (either individually or in the aggregate with other
loans and investments).
Section 4.23 FAIRNESS OPINION. On the date of this Agreement, Sandler
O'Neill & Partners, L.P. has provided to the Board of Directors of MB an oral
fairness opinion (which shall be confirmed in writing) to the effect that the MB
Exchange Ratio, after taking into account the MidCity Exchange Ratio, is fair to
the stockholders of MB from a financial point of view.
Section 4.24 REORGANIZATION; POOLING OF INTERESTS. As of the date of this
Agreement, MB has no reason to believe that the Mergers will not qualify as
reorganizations within the meaning of Section 368(a) of the Code and as a
"pooling of interests" for accounting purposes.
Section 4.25 FINANCIAL HOLDING COMPANY STATUS. As of the date of this
Agreement, MB meets all applicable criteria to become and remain a "financial
holding company", as such term is defined in Section 2(p) of the BHC Act, set
forth in such act as well as in any regulations, rules or interpretations issued
by the Federal Reserve Board.
Section 4.26 MB CONTROL PERSON. No stockholder of MB owns, controls or
possesses voting power over ten percent or more of the outstanding MB Capital
Stock.
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ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1 CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME. During the
period from the date of this Agreement to the Effective Time, except as
expressly contemplated or permitted by this Agreement (including the funding,
implementation and integration of the MB Acquisition), each of MidCity and MB
shall, and shall cause each of their respective Subsidiaries to, (a) conduct its
business only in the ordinary course, (b) use commercially reasonable efforts to
maintain and preserve intact its business organization, employees and
advantageous business relationships and retain the services of its key officers
and key employees and (c) take no action which would adversely affect or delay
the ability of either MidCity or MB (or any of their respective financial
institution Subsidiaries) to obtain any necessary approvals of any Regulatory
Agency or other Governmental Entity required for the transactions contemplated
hereby or to perform its covenants and agreements under this Agreement or to
consummate the transactions contemplated hereby.
Section 5.2 FORBEARANCES. During the period from the date of this Agreement
to the Effective Time, except as expressly contemplated or permitted by this
Agreement, neither MidCity nor MB shall, and neither MidCity nor MB shall permit
any of their respective Subsidiaries to, without the prior written consent of
the other party to this Agreement (which consent shall not be unreasonably
withheld with respect to subsections (e), (f)(v), (k) and (l)):
(a) other than in the ordinary course of business or in connection
with the funding of the MB Acquisition, incur any indebtedness for borrowed
money (other than short-term indebtedness incurred to refinance short-term
indebtedness and indebtedness of MB or any of its Subsidiaries to MB or any
of its wholly-owned Subsidiaries, on the one hand, or of MidCity or any of
its Subsidiaries to MidCity or any of its wholly-owned Subsidiaries, on the
other hand), assume, guarantee, endorse or otherwise as an accommodation
become responsible for the obligations of any other individual, corporation
or other entity, or make any loan or advance (it being understood and
agreed that incurrence of indebtedness in the ordinary course of business
shall include, without limitation, creating deposit liabilities (including
certificates of deposit), purchasing Federal funds, receiving advances from
the Federal Home Loan Bank and entering into repurchase agreements);
(b)(i) adjust, split, combine or reclassify any capital stock;
(ii) make, declare or pay any dividend, or make any other
distribution on, or directly or indirectly redeem, purchase or
otherwise acquire (except as provided in SECTION 6.11), any shares of
its capital stock or any securities or obligations convertible
(whether currently convertible or convertible only after the passage
of time or the occurrence of certain events) into or exchangeable for
any shares of its capital stock (except (A) in the case of MidCity,
for regular quarterly cash dividends on MidCity Common Stock at a rate
not in excess of $35.00 per share of MidCity Common Stock with record
and payment dates consistent with past practices, and (B) dividends
paid by any of the wholly-owned Subsidiaries of each of MidCity and MB
to MidCity or MB or any of their other
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wholly-owned Subsidiaries, respectively, and dividends paid in the
ordinary course of business consistent with past practice by any
non-wholly owned Subsidiary of MB or MidCity);
(iii) grant any stock appreciation rights or grant any
individual, corporation or other entity any right to acquire any
shares of its capital stock, other than grants of (x) options pursuant
to the MB Stock Plans in the ordinary course of business in July, 2001
consistent with past practice (which options may be fully vested on
the date of grant) and (y) fully vested options to directors pursuant
to their election to receive options in lieu of directors' fees as
described in Section 4.2(a) of the MB Disclosure Schedule; or
(iv) issue any additional shares of capital stock except (x)
pursuant to the exercise of MB Stock Options outstanding as of the
date hereof or issued in compliance with SECTION 5.2(b)(iii) and (y)
grants of MB Common Stock to directors pursuant to their election to
receive MB Common Stock in lieu of directors' fees as described in
Section 4.2(a) of the MB Disclosure Schedule;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of
its material properties or assets to any individual, corporation or other
entity other than a wholly-owned Subsidiary, or cancel, release or assign
any indebtedness owed to it by any person or any claims held by it against
any person, except (i) in the ordinary course of business, (ii) the
encumbrance of assets in connection with the funding of the MB Acquisition
or (iii) the sale of assets acquired in the MB Acquisition;
(d) except for transactions in the ordinary course of business, the
MB Acquisition or pursuant to contracts or agreements in force on the date
hereof that are listed on SCHEDULE 5.2 of the MidCity Disclosure Schedule
or the MB Disclosure Schedule, as the case may be, make any material
investment either by purchase of stock or securities, contributions to
capital, property transfers, or purchase of any property or assets of any
other individual, corporation or other entity other than a Subsidiary
thereof;
(e) enter into, modify or amend any material agreement (excluding
lending and deposit taking activities) or terminate, or waive any material
provision of, any MB Contract or MidCity Contract, as the case may be, or
make any change in any instrument, plan or agreement governing the terms of
any of its securities (including any options under any MB Stock Plan), or
material lease or contract, other than normal renewals of contracts and
leases without material adverse changes of terms;
(f) (i) increase in any manner the compensation or fringe benefits of
any of its employees, except in the ordinary course of business consistent
with past practices, (ii) pay any pension or retirement allowance not
required by any existing plan or agreement to any such employees, (iii)
except as set forth in Section 4.17 of the MB Disclosure Schedule, become a
party to, amend or commit itself to any MidCity Benefit Plan or MB Benefit
Plan, as the case may be, or employment, severance or change in control
agreement with or for the benefit of any former or current employee or
director, other than the extension of MidCity's Retention Plan, (iv) take
any action to accelerate the vesting of, or the lapsing of restrictions
with respect to, any stock options or other stock-
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based compensation or (v) in the case of MidCity, take any action to
declare the MidCity Merger or the Mergers a change in control under any
change in control severance agreement, any severance plan or any other
MidCity Benefit Plan other than in connection with the extension of
MidCity's Retention Plan;
(g) other than in connection with or relating to this Agreement,
solicit or enter into any negotiations, discussions or agreement in respect
of, or authorize any individual, corporation or other entity to solicit or
encourage from any third party or enter into any negotiations, discussions
or agreement in respect of, or provide or cause to be provided any
confidential information in connection with any inquiries or proposals
relating to, the disposition of all or substantially all of its business or
assets, or the acquisition of its voting securities or the merger of it or
any of its Subsidiaries with any corporation or other entity (any of the
foregoing, an "Acquisition Proposal") ; PROVIDED, HOWEVER, either MB or
MidCity may after its receipt of an Acquisition Proposal and during the
period prior to such party's stockholders meeting to vote on this
Agreement, provide information at the request of, participate in
discussions with or enter into negotiations with a third party with respect
to such Acquisition Proposal if the Board of Directors of such party
determines in good faith that such action would be consistent with its
fiduciary duties to the stockholders of such party under applicable law, in
which case such party shall keep the other party hereto fully informed
relating to all aspects of such Acquisition Proposal;
(h) settle any material claim, action or proceeding involving money
damages, except in the ordinary course of business;
(i) knowingly take any action that would prevent or impede the
Mergers from qualifying for "pooling of interests" accounting treatment or
as reorganizations within the meaning of Section 368 of the Code;
(j) amend its certificate of incorporation or its by-laws;
(k) except in connection with the MB Acquisition as set forth in
SECTION 4.17 of the MB Disclosure Schedule, restructure or materially
change its investment securities portfolio or its gap position, through
purchases, sales or otherwise, or the manner in which the portfolio is
classified or reported;
(l) (i) voluntarily make any material changes in or to its deposit
mix; increase or decrease the rate of interest paid on its deposit
liabilities (including certificates of deposit), except in a manner
pursuant to policies consistent with past practice, (ii) incur any
liability or obligation relating to retail banking and branch
merchandising, marketing and advertising activities and initiatives in
excess of amounts contained in its 2001 budget previously provided to the
other party, (iii) open any new branch or deposit taking facility except in
connection with the MB Acquisition as set forth in SECTION 4.17 of the MB
Disclosure Schedule or (iv) other than the closing and consolidation of
branches in connection with the MB Acquisition as set forth in SECTION 4.17
of the MB Disclosure Schedule, close or relocate any existing branch or
other facility;
(m) make any material changes in its policy concerning loan
underwriting or which persons may approve loans;
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(n) except for the purchase of readily marketable securities in the
ordinary course of business and, upon prior consultation with the other
party hereto, the establishment of or investment in one or more new
Subsidiaries for tax planning purposes, create or invest in any new
Subsidiary or Non-Subsidiary Affiliate;
(o) except as required by applicable law or regulation, (i) implement
or adopt any material change in its interest rate and other risk management
policies, procedures or practices, (ii) fail to follow its existing
policies or practices with respect to managing its exposure to interest
rate and other risk or (iii) fail to use commercially reasonable means to
avoid any material increase in its aggregate exposure to interest rate
risk;
(p) foreclose upon or otherwise take title to or possession or
control of any real property without first obtaining a Phase I
environmental report thereon and, if recommended in the Phase I, a Phase II
environmental report; PROVIDED, HOWEVER, that neither party nor any of its
Subsidiaries shall be required to obtain such a report with respect to
one-to-four-family, non-agricultural residential property of five acres or
less to be foreclosed upon unless it has reason to believe that such
property might be in material violation of or require remediation under
Environmental Laws;
(q) take any action that is intended or expected to result in any of
its representations, warranties, covenants or agreements set forth in this
Agreement being or becoming untrue in any material respect at any time
prior to the Effective Time, or in any of the conditions to the Mergers set
forth in ARTICLE VII not being satisfied or in a violation of any provision
of this Agreement, except, in every case, as may be required by applicable
law;
(r) implement or adopt any change in its accounting principles,
practices or methods, other than as may be required by GAAP or regulatory
guidelines; or
(s) agree to take, make any commitment to take, or adopt any
resolutions of its board of directors in support of, any of the actions
prohibited by this SECTION 5.2.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 REGULATORY MATTERS. (a) MidCity and MB shall promptly prepare
and file with the SEC the Joint Proxy Statement and MB shall on behalf of NewCo
promptly prepare and file with the SEC the S-4, in which the Joint Proxy
Statement will be included as a prospectus. Each of MidCity and MB shall use
their commercially reasonable efforts to have the S-4 declared effective under
the Securities Act as promptly as practicable after such filing, and MidCity and
MB shall thereafter mail or deliver the Joint Proxy Statement to their
respective stockholders. MB and MidCity shall use commercially reasonable
efforts to obtain all necessary state securities law or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by this Agreement,
and each of them shall furnish all information concerning itself and its
stockholders as may be reasonably requested in connection with any such action.
(b) The parties hereto shall cooperate with each other and use their
commercially reasonable efforts to promptly prepare and file all necessary
documentation
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to effect all applications, notices, petitions and filings, to obtain as
promptly as practicable all permits, consents, approvals and authorizations
of all third parties and Governmental Entities which are necessary or
advisable to consummate the transactions contemplated by this Agreement
(including, without limitation, the Mergers), and to comply with the terms
and conditions of all such permits, consents, approvals and authorizations
of all such Governmental Entities. MidCity and MB shall have the right to
review in advance, and, to the extent practicable, each will consult the
other on, in each case subject to applicable laws relating to the exchange
of information, all the information relating to MB or MidCity, as the case
may be, and any of their respective Subsidiaries, which appear in any
filing made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by
this Agreement. In exercising the foregoing right, each of the parties
hereto shall act reasonably and as promptly as practicable. The parties
hereto agree that they will consult with each other with respect to the
obtaining of all permits, consents, approvals and authorizations of all
third parties and Governmental Entities necessary or advisable to
consummate the transactions contemplated by this Agreement and each party
will keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein.
(c) MidCity and MB shall, upon request, furnish each other with all
information concerning themselves, their Subsidiaries, directors, officers
and stockholders and such other matters as may be reasonably necessary or
advisable in connection with the Joint Proxy Statement, the S-4 or any
other statement, filing, notice or application made by or on behalf of
NewCo, MidCity, MB or any of their respective Subsidiaries to any
Governmental Entity in connection with the Mergers and the other
transactions contemplated by this Agreement. Each of MidCity and MB agrees,
as to itself and its Subsidiaries, that none of the information supplied or
to be supplied by it for inclusion or incorporation by reference in (i) the
S-4 will, at the time the S-4 and each amendment or supplement thereto, if
any, becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading and (ii) the Joint Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to the stockholders of the
parties and at the time of each stockholders' meeting, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading or any statement which, in the light of the circumstances under
which such statement is made, will be false or misleading with respect to
any material fact, or which will omit to state any material fact necessary
in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier statement in the Joint
Proxy Statement or any amendment or supplement thereto. Each of MidCity and
MB further agrees, if it shall become aware prior to the Effective Time of
any information furnished by it that would cause any of the statements in
the Joint Proxy Statement to be false or misleading with respect to any
material fact or the omission of any material fact necessary to make the
statements therein not false or misleading, to promptly inform the other
party thereof and to take the necessary steps to correct the Joint Proxy
Statement.
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(d) MB agrees to cause NewCo to advise MidCity, promptly after NewCo
receives notice thereof, of the time when the S-4 has become effective or
any supplement or amendment has been filed, of the issuance of any stop
order or the suspension of the qualification of NewCo Common Stock for
offering or sale in any jurisdiction, of the initiation or threat of any
proceeding for any such purpose or of any request by the SEC for the
amendment or supplement of the S-4 or for additional information.
(e) MidCity and MB shall promptly advise each other upon receiving
any communication from any Governmental Entity whose consent or approval is
required for consummation of the transactions contemplated by this
Agreement that causes such party to believe that there is a reasonable
likelihood that any Requisite Regulatory Approval (as defined below) will
not be obtained or that the receipt of any such approval will be materially
delayed.
Section 6.2 ACCESS TO INFORMATION. (a) Upon reasonable notice and subject
to applicable laws relating to the exchange of information, each of MidCity and
MB, for the purposes of verifying the representations and warranties of the
other and preparing for the Mergers and the other matters contemplated by this
Agreement, shall, and shall cause each of their respective Subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives of the other party, access, during normal business hours during
the period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of MidCity and MB shall,
and shall cause their respective Subsidiaries to, make available to the other
party (i) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of federal securities laws or federal or state banking laws (other than reports
or documents which MidCity or MB, as the case may be, is not permitted to
disclose under applicable law) and (ii) all other information concerning its
business, properties and personnel as such party may reasonably request. Neither
MidCity nor MB nor any of their respective Subsidiaries shall be required to
provide access to or to disclose information where such access or disclosure
would violate or prejudice the rights of MidCity's or MB's, as the case may be,
customers, jeopardize the attorney-client privilege of the institution in
possession or control of such information or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(b) Each of MB and MidCity agrees that it will not, and will cause
its representatives not to, use any information obtained pursuant to this
SECTION 6.2 (as well as any other information obtained prior to the date
hereof in connection with entering into this Agreement) for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement. Subject to the requirements of law, each party will keep
confidential, and will cause its representatives to keep confidential, all
information and documents obtained pursuant to this SECTION 6.2 (as well as
any other information obtained prior to the date hereof in connection with
the entering into of this Agreement) unless such information (i) was
already known to such party, (ii) becomes available to such party from
other sources not known by such party to be bound by a confidentiality
obligation, (iii) is disclosed with the prior written approval of the
providing party or (iv)
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is or becomes readily ascertainable from publicly available sources. If
this Agreement is terminated or the transactions contemplated by this
Agreement shall otherwise fail to be consummated, each party shall promptly
cause all copies of documents or extracts thereof containing information
and data as to the other party to be returned to the other party.
(c) No investigation by either of the parties or their respective
representatives shall affect the representations and warranties of the
other set forth herein.
Section 6.3 STOCKHOLDERS' APPROVALS. Each of MidCity and MB shall call a
meeting of its stockholders to be held as soon as reasonably practicable for the
purpose of voting upon the adoption of this Agreement. The Board of Directors of
MidCity shall favorably recommend adoption of this Agreement by the MidCity
stockholders and the Board of Directors of MB shall favorably recommend adoption
of this Agreement by the MB stockholders, and each such Board shall take all
other reasonable and lawful action to obtain the requisite stockholder
approvals; PROVIDED HOWEVER, if the Board of Directors of MB or MidCity
concludes that the making of (or continuing to make) a favorable recommendation
would be inconsistent with its fiduciary duties to the stockholders of such
party under Delaware law (as determined in good faith), then the Board of
Directors of such party may withdraw, modify or change such recommendation.
Section 6.4 LEGAL CONDITIONS TO MERGERS. Subject to the fiduciary duty
provisions contained in SECTIONS 5.2(g) and 6.3, each of MidCity and MB shall,
and shall cause its Subsidiaries to, use their commercially reasonable efforts
(a) to take, or cause to be taken, all actions necessary, proper or advisable to
comply promptly with all legal requirements that may be imposed on such party or
its Subsidiaries with respect to the Mergers and, subject to the conditions set
forth in ARTICLE VII hereof, to consummate the transactions contemplated by this
Agreement, and (b) to obtain (and to cooperate with the other party to obtain)
any material consent, authorization, order or approval of, or any exemption by,
any Governmental Entity and any other third party that is required to be
obtained by MB or MidCity or any of their respective Subsidiaries in connection
with the Mergers and the other transactions contemplated by this Agreement.
Section 6.5 AFFILIATES; PUBLICATION OF COMBINED FINANCIAL RESULTS. (a) Each
of MidCity and MB shall use commercially reasonable efforts to cause each
director, executive officer and other person who is an "affiliate" (for purposes
of Rule 145 under the Securities Act and for purposes of qualifying the Mergers
for "pooling of interests" accounting treatment) of such party to deliver to the
other party hereto, as soon as practicable after the date of this Agreement, and
prior to the date of the stockholders' meetings called by MidCity and MB to
approve this Agreement, a written agreement, in the form of EXHIBIT E or F, as
applicable, hereto, providing that such person will not sell, pledge, transfer
or otherwise dispose of any shares of MidCity Common Stock, or MB Capital Stock
held by such "affiliate" and any shares of NewCo Common Stock to be received by
such "affiliate" in the Mergers.
(b) The Surviving Corporation shall use its commercially reasonable
efforts to publish as promptly as reasonably practical, but in no event
later than 90 days after the end of the first month after the MB Effective
Time in which there are at least 30 days of post-Mergers combined
operations (which month may be the month in which the
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Effective Time occurs), combined sales and net income data as contemplated
by and in accordance with the terms of SEC Accounting Series Release No.
135.
Section 6.6 STOCK QUOTATION. NewCo shall use its commercially reasonable
efforts to cause the shares of NewCo Common Stock to be issued in the Mergers to
be qualified for quotation on the Nasdaq, subject to official notice of
issuance, prior to the Effective Time.
Section 6.7 EMPLOYEE BENEFIT PLANS. (a) From and after the Effective Time,
unless otherwise mutually determined, the MB Benefit Plans and MidCity Benefit
Plans in effect as of the date of this Agreement shall remain in effect with
respect to employees of MB or MidCity (or their Subsidiaries), respectively,
covered by such plans at the Effective Time until such time as the Surviving
Corporation shall, subject to applicable law, the terms of this Agreement and
the terms of such plans, adopt new benefit plans with respect to employees of
the Surviving Corporation and its Subsidiaries (the "New Benefit Plans"), or
otherwise merge or combine existing MidCity Benefit Plans into MB Benefit Plans,
or vice versa. Prior to the Closing Date, MB and MidCity shall cooperate in
reviewing, evaluating and analyzing the MidCity Benefit Plans and MB Benefit
Plans with a view towards developing appropriate New Benefit Plans or combining
or merging existing benefit plans for the employees covered thereby.
(b) The foregoing notwithstanding, the Surviving Corporation shall
honor in accordance with their terms all benefits vested as of the
Effective Time under the MidCity Benefit Plans or the MB Benefit Plans or
under other contracts, arrangements, commitments, or understandings
described in the MidCity Disclosure Schedule and the MB Disclosure
Schedule.
(c) Nothing in this SECTION 6.7 shall be interpreted as preventing
the Surviving Corporation from amending, modifying or terminating any
MidCity Benefit Plans, MB Benefit Plans, or other contracts, arrangements,
commitments or understandings, in accordance with their terms and
applicable law.
(d) It is the intention of MB and MidCity, during the period shortly
following the execution of this Agreement, to coordinate efforts towards
establishing a retention and severance program, consistent with the
strategy for the Mergers, in an effort to retain and provide incentives to
key personnel for the benefit of the Surviving Corporation and its
wholly-owned Subsidiaries in a manner that provides for equitable treatment
of similarly situated employees of MB, MidCity and their respective
wholly-owned Subsidiaries.
(e) In the event that any employee of MidCity who is covered by a
MidCity Change in Control Severance Agreement or the MidCity Severance Plan
as of the date hereof (as disclosed in SECTION 3.13(a) of the MidCity
Disclosure Schedule) is involuntarily terminated without cause at the
Effective Time or within 24 months thereafter, then notwithstanding that
the Mergers may not constitute a change in control under such employee's
MidCity Change in Control Severance Agreement or the MidCity Severance
Plan, the covered MidCity employee shall nevertheless be entitled to the
applicable benefit under his or her MidCity Change in Control Severance
Agreement or the MidCity Severance Plan, whichever is applicable. The
provisions of this SECTION 6.7(e) shall survive the Effective Time and are
intended to be for the benefit of, and shall
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be enforceable by, each such employee of MidCity and his or her heirs and
representatives.
(f) Prior to the Closing Date, MB and/or its wholly-owned
Subsidiaries may enter into Change in Control Severance Agreements with
senior vice presidents (or persons with equivalent responsibilities) or a
Change in Control Severance Plan for their benefit providing up to one
year's salary for each covered employee if he or she is involuntarily
terminated without cause in connection with or within 24 months after a
change in control, including the change in control arising from the
Mergers.
Section 6.8 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) In the
event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any individual who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Time, a director or officer or
employee of NewCo, MB, MidCity or any of their respective Subsidiaries (the
"Indemnified Parties"), is, or is threatened to be, made a party based in whole
or in part on, or arising in whole or in part out of, or pertaining to (i) the
fact that he is or was a director, officer or employee of NewCo, MB, MidCity or
any of their respective Subsidiaries or any of their respective predecessors
prior to the Effective Time or (ii) this Agreement or any of the transactions
contemplated hereby, whether in any case asserted or arising before or after the
Effective Time, the parties hereto agree to cooperate and use their commercially
reasonable efforts to defend against and respond thereto. It is understood and
agreed that after the Effective Time, the Surviving Corporation shall indemnify
and hold harmless, as and to the fullest extent permitted by law, each such
Indemnified Party against any losses, claims, damages, liabilities, costs,
expenses (including reasonable attorney's fees and expenses in advance of the
final disposition of any claim, suit, proceeding or investigation to each
Indemnified Party to the fullest extent permitted by law upon receipt of any
undertaking required by applicable law), judgments, fines and amounts paid in
settlement in connection with any such threatened or actual claim, action, suit,
proceeding or investigation.
(b) The parties shall use commercially reasonable efforts to cause
NewCo to continue the existing officers and directors liability insurance
of MB as of the Effective Time with coverage for the past acts and
omissions of individuals serving as officers and directors of MB, MidCity
and their respective Subsidiaries immediately prior to the Effective Time,
and if such past acts and omissions coverage is available, the Surviving
Corporation shall continue such coverage for the 6 year period next
following the Effective Time. Prior to the Effective Time, MidCity and/or
MB, at the election of MB, shall procure 6 year tail coverage under its
existing policies of officers' and directors' liability insurance for the
past acts and omissions of individuals serving as officers and directors of
such party and its Subsidiaries prior to the Effective Time in lieu of any
obligation of the Surviving Corporation to provide any officers and
directors liability insurance coverage for past acts and omissions.
(c) In the event the Surviving Corporation or any of its successors
or assigns (i) consolidates with or merges into any other person and shall
not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or
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conveys all or substantially all of its properties and assets to any
person, then, and in each such case, to the extent necessary, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation assume the obligations set forth in this SECTION 6.8.
(d) The provisions of this SECTION 6.8 shall survive the Effective
Time and are intended to be for the benefit of, and shall be enforceable
by, each Indemnified Party and his or her heirs and representatives.
Section 6.9 ADDITIONAL AGREEMENTS. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement (including, without limitation, any merger between a Subsidiary
of MB, on the one hand, and a Subsidiary of MidCity, on the other) or to vest
the Surviving Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of MB or MidCity, the proper officers and
directors of each party to this Agreement and their respective Subsidiaries
shall take all such necessary action as may be reasonably requested by, and at
the sole expense of, the Surviving Corporation.
Section 6.10 ADVICE OF CHANGES. MidCity and MB shall each promptly advise
the other party of any change or event (i) having, or reasonably likely to
result in, a Material Adverse Effect on it or (ii) which it believes would or
would be reasonably likely to cause or constitute a material breach of any of
its representations, warranties, covenants or agreements contained herein.
Section 6.11 REDEMPTION OF COMMON STOCK BY MB. At any time that MB Rights
are exercised prior to the Effective Time, MB shall redeem or otherwise acquire
a number of shares of outstanding MB Common Stock equal to the number of shares
of MB Common Stock issued pursuant to the exercise of such MB Rights; provided
no such action shall be taken by MB at any time that such action would adversely
affect the ability of (i) the Mergers to qualify as a "pooling of interests"
under GAAP or (ii) either of the Mergers to qualify as a reorganization under
Section 368 of the Code. MB shall also have the right to accept outstanding
shares of MB Common Stock in payment of the exercise price of MB Rights.
Section 6.12 NEWCO AS AN ADDITIONAL PARTY. Upon the organization of NewCo,
MB and MidCity shall cause NewCo to take all necessary corporate action to
approve and adopt this Agreement and to become a party to this Agreement. NewCo
shall become a party to this Agreement by executing a counterpart hereof
agreeing to be bound by the terms and provisions of this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGERS.
The respective obligations of the parties to effect the Mergers shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
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(a) STOCKHOLDER APPROVAL. This Agreement shall have been adopted by
the respective requisite affirmative votes of the holders of MidCity Common
Stock and the MB Common Stock entitled to vote thereon.
(b) NASDAQ LISTING. The shares of NewCo Common Stock which shall be
issued to the stockholders of MB and MidCity upon consummation of the
Mergers shall have been qualified for quotation on the Nasdaq, subject to
official notice of issuance.
(c) OTHER APPROVALS. All regulatory approvals required to consummate
the transactions contemplated hereby shall have been obtained and shall
remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired (all such approvals and the expiration
of all such waiting periods being referred to herein as the "Requisite
Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the S-4 shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition (an "Injunction") preventing the
consummation of either of the Mergers or any of the other transactions
contemplated by this Agreement shall be in effect. No statute, rule,
regulation, order, injunction or decree shall have been enacted, entered,
promulgated or enforced by any Governmental Entity which prohibits,
materially restricts or makes illegal consummation of either of the
Mergers.
(f) FEDERAL TAX OPINION. MB shall have received on the date the final
Form S-4 is filed with the SEC and before it becomes effective, a written
opinion from its tax counsel, Silver, Freedman & Taff L.L.P., and MidCity
shall have received on the date the final Form S-4 is filed with the SEC
and before it becomes effective, a written opinion from its tax counsel,
Winston & Strawn, in form and substance satisfactory to them, and such
opinions shall not have been withdrawn prior to the MB Effective Time. The
issuance of such opinions shall be conditioned upon the receipt by tax
counsel of customary representation letters from MB and MidCity in form and
substance satisfactory to tax counsel. Each tax opinion shall conclude
that:
(i) each of the Mergers will constitute a reorganization under
Section 368(a) of the Code;
(ii) None of MidCity, MB or the Surviving Corporation will
recognize any gain or loss as a result of the Mergers; and
(iii) no gain or loss will be recognized by stockholders of
MidCity or MB who exchange their common stock solely for NewCo Common
Stock pursuant to the Mergers (except to the extent cash is paid in
lieu of a fractional share interest in NewCo Common Stock).
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(g) POOLING OF INTERESTS. MidCity and MB shall each have received a
letter from their respective independent accountants addressed to MB or
MidCity, as the case may be, to the effect that the Mergers will qualify
for "pooling of interests" accounting treatment.
(h) DISSENTERS. Holders of no more than 5% of the outstanding shares
of MidCity Common Stock shall have asserted the right to seek relief as a
dissenting stockholders under Section 262 and other applicable provisions
of the DGCL.
Section 7.2 CONDITIONS TO OBLIGATIONS OF MIDCITY. The obligation of MidCity
to effect the MidCity Merger is also subject to the satisfaction, or waiver by
MidCity, at or prior to the MidCity Effective Time, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of MB set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date; provided,
however, that for purposes of this paragraph, such representations and
warranties (other than the representation set forth in the last sentence of
SECTION 3.2(a)) shall be deemed to be true and correct as of the Closing
Date based upon events and circumstances occurring after the date of this
Agreement and prior to Closing unless the failure or failures of such
representations and warranties to be so true and correct, either
individually, collectively or when aggregated with other events and
circumstances, and without giving effect to any qualification as to
materiality set forth in such representations or warranties, will have a
Material Adverse Effect on MB or the Surviving Corporation.
(b) PERFORMANCE OF OBLIGATIONS OF MB. MB shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date.
(c) NO MATERIAL ADVERSE EFFECT. No fact, event or circumstance
(inclusive of material litigation which has a reasonable likelihood of
being adversely determined) has occurred individually, or taken together
with other facts, events and circumstances, that has resulted in, or is
reasonably likely to result in, a Material Adverse Effect on MB.
(d) OFFICER'S CERTIFICATE. MidCity shall have received a certificate
dated the Closing Date, signed on behalf of MB by its Chief Executive
Officer and Chief Financial Officer to the effect that the conditions set
forth in SECTIONS 7.2(a) - (c) have been satisfied.
Section 7.3 CONDITIONS TO OBLIGATIONS OF MB. The obligation of MB to effect
the MB Merger is also subject to the satisfaction or waiver by MB at or prior to
the MB Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of MidCity set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to
the extent such representations and warranties
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speak as of an earlier date) as of the Closing Date as though made on and
as of the Closing Date, provided, however, that for purposes of this
paragraph, such representations and warranties (other than the
representation set forth in the last sentence of SECTION 4.2(a)) shall be
deemed to be true and correct as of the Closing Date based upon events and
circumstances occurring after the date of this Agreement and prior to
Closing unless the failure or failures of such representations and
warranties to be so true and correct, either individually, collectively or
when aggregated with other events and circumstances, and without giving
effect to any qualification as to materiality set forth in such
representations or warranties, will have a Material Adverse Effect on
MidCity or the Surviving Corporation.
(b) PERFORMANCE OF OBLIGATIONS OF MIDCITY. MidCity shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date.
(c) NO MATERIAL ADVERSE EFFECT. No fact, event or circumstance
(inclusive of material litigation which has a reasonable likelihood of
being adversely determined) has occurred individually, or taken together
with other facts, events and circumstances, that has resulted in, or is
reasonably likely to result in, a Material Adverse Effect on MidCity.
(d) OFFICER'S CERTIFICATE. MB shall have received a certificate dated
the Closing Date, signed on behalf of MidCity by its Chief Executive
Officer and Chief Financial Officer to the effect that the conditions set
forth in SECTIONS 7.3(a) - (c) have been satisfied.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of the matters presented
in connection with the Mergers by the stockholders of MidCity or MB:
(a) by mutual consent of MidCity and MB in a written instrument, if
the Board of Directors of each so determines by a vote of a majority of the
members of its entire Board;
(b) by either the Board of Directors of MidCity or the Board of
Directors of MB if any Governmental Entity that must grant a Requisite
Regulatory Approval has denied approval of either of the Mergers and such
denial has become final and nonappealable or any Governmental Entity of
competent jurisdiction shall have issued a final nonappealable order
permanently enjoining or otherwise prohibiting the consummation of either
of the Mergers;
(c) by either the Board of Directors of MidCity or the Board of
Directors of MB if the Mergers shall not have been consummated on or before
the first anniversary of the date of this Agreement, unless the failure of
the Closing to occur by such date shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the covenants and
agreements of such party set forth herein;
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(d) by either the Board of Directors of MidCity or the Board of
Directors of MB (provided that the terminating party is not then in breach
of any representation, warranty, covenant or other agreement contained
herein) if there shall have been a breach of any of the covenants or
agreements or any of the representations or warranties set forth in this
Agreement on the part of MB, in the case of a termination by MidCity, or
MidCity, in the case of a termination by MB, which breach, either
individually or in the aggregate, would constitute, if occurring or
continuing on the Closing Date, the failure of a condition set forth in
SECTIONS 7.2(a) or (b) or SECTIONS 7.3(a) or (b), as the case may be, and
which is not cured within 45 days following written notice to the party
committing such breach or by its nature or timing cannot be cured prior to
the Closing Date;
(e) by either the Board of Directors of MidCity or the Board of
Directors of MB, at any time following the MidCity or MB stockholders
meeting to vote on this Agreement if said stockholders voted on this
Agreement but did not adopt this Agreement at said meeting provided
however, a termination pursuant to Section 8.1(f) or (g) shall be
controlling over any simultaneous or concurrent termination under this
Section 8.1(e);
(f) by the Board of Directors of MidCity, at any time prior to the
adoption of this Agreement by the stockholders of MB, if the Board of
Directors of MB shall have failed to recommend adoption of this Agreement
to the stockholders of MB, withdrawn such recommendation or modified or
changed such recommendation in a manner adverse in any respect to the
interest of MidCity or the stockholders of MidCity;
(g) by the Board of Directors of MB, at any time prior to the
adoption of this Agreement by the stockholders of MidCity, if the Board of
Directors of MidCity shall have failed to recommend adoption of this
Agreement to the stockholders of MidCity, withdrawn such recommendation or
modified or changed such recommendation in a manner adverse in any respect
to the interest of MB or the stockholders of MB;
(h) by the Board of Directors of MidCity prior to the adoption of
this Agreement by the MidCity stockholders for the sole purpose of
permitting MidCity to enter into an agreement with a third party in respect
of an Acquisition Proposal; PROVIDED HOWEVER, the right of termination
provided herein shall only apply if the Board of Directors of MidCity has
complied with its obligations under SECTIONS 5.2(g) and 6.3;
(i) by the Board of Directors of MB prior to the adoption of this
Agreement by the MB stockholders for the sole purpose of permitting MB to
enter into an agreement with a third party in respect of an Acquisition
Proposal; PROVIDED HOWEVER, the right of termination provided herein shall
only apply if the Board of Directors of MB has complied with its
obligations under SECTIONS 5.2(g) and 6.3; or
(j) by either the Board of Directors of MidCity or the Board of
Directors of MB, if (either before or after the adoption of this Agreement
by such party's stockholders) (i) such party's Board of Directors so
determines by a vote of at least a majority of the members of its entire
Board, at any time during the ten-day period commencing with the
Determination Date (as hereinafter defined), and (ii) both of the following
conditions are satisfied:
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A. The MB Common Stock Average Price (as hereinafter defined)
on the Determination Date shall be less than $13.29, and
B. The MB Ratio (as hereinafter defined) is less than the Index
Ratio (as hereinafter defined).
For purposes of this subsection (j), the following terms shall
have the meanings indicated:
"MB Common Stock Average Price" means the average of the daily
closing sales prices of MB Common Stock as reported on the Nasdaq (as
reported in THE WALL STREET JOURNAL or, if not reported therein, in
another authoritative source chosen by MB) for the 20 consecutive full
trading days in which such shares are reported on the Nasdaq ending at
the close of trading on the Determination Date.
"Determination Date" means the date of the last Requisite
Regulatory Approval for the Mergers is received.
"Index Price" on a given date means the weighted average
(weighted in accordance with the definition of "Index Group" below) of
the closing prices on such date of the companies composing the Index
Group ( as defined below). If any company belonging to the Index Group
or MB declares or effects a stock dividend, reclassification,
recapitalization, split-up, combination, exchange of share or similar
transaction between the Starting Date and the Determination Date, the
prices for the common stock of such company or MB will be
appropriately adjusted for use in the Index.
"Starting Date" means the first Nasdaq trading day preceding the
announcement of this Agreement.
"MB Ratio" means the number obtained by dividing the MB Common
Stock Average Price on the Determination Date by the closing sales
price of MB Common Stock as reported on the Nasdaq (as reported in THE
WALL STREET JOURNAL or, if not reported therein, in another
authoritative source chosen by MB) on the Starting Date.
"Index Ratio" means the number obtained by subtracting .15 from
the quotient of the Index Price at the close of business on the
Determination Date divided by the Index Price at close of business on
the Starting Date.
"Index Group" shall mean the 20 financial institution holding
companies listed below, the common stocks of all of which shall be
publicly traded and as to which there shall not have been, since the
Starting Date and before the Determination Date, any public
announcement of a proposal for such company to be acquired or for such
company to acquire another company or companies in transactions with a
value exceeding 25% of the acquiror's market capitalization. In the
event that the common stock of any such company ceases to be publicly
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traded or such an announcement is made, such company will be removed
from the Index Group and the weights (which were determined based on
market capitalization) shall be redistributed proportionately for
determining the Index Price. The 20 financial institution holding
companies are as follows:
---------------------------------------------------------------------------
TICKER FINANCIAL INSTITUTION % WEIGHTING
---------------------------------------------------------------------------
FMBI First Midwest Bancorp, Inc. 16.518
---------------------------------------------------------------------------
AMFI AMCORE Financial, Inc. 7.075
---------------------------------------------------------------------------
CORS Corus Bankshares, Inc. 10.176
---------------------------------------------------------------------------
WTFC Wintrust Financial Corporation 2.263
---------------------------------------------------------------------------
MBHI Midwest Banc Holdings, Inc. 2.606
---------------------------------------------------------------------------
BUSE First Busey Corporation 3.841
---------------------------------------------------------------------------
FOBB First Oak Brook Bancshares, Inc. 1.705
---------------------------------------------------------------------------
OSBC Old Second Bancorp, Inc. 2.040
---------------------------------------------------------------------------
PVTB Private Bancorp, Inc. 0.907
---------------------------------------------------------------------------
IBNK Integra Bank Corporation 5.142
---------------------------------------------------------------------------
IRWN Irwin Financial Corporation 5.930
---------------------------------------------------------------------------
THFF First Financial Corporation 3.370
---------------------------------------------------------------------------
CBCF Citizens Banking Corporation 16.847
---------------------------------------------------------------------------
CHFC Chemical Financial Corporation 7.443
---------------------------------------------------------------------------
IBCP Independent Bank Corporation 3.276
---------------------------------------------------------------------------
MVBI Mississippi Valley Bancshares, Inc. 4.600
---------------------------------------------------------------------------
ALLE Allegiant Bancorp, Inc. 1.283
---------------------------------------------------------------------------
GSBC Great Southern Bancorp, Inc. 2.311
---------------------------------------------------------------------------
SBCO Southside Bancshares Corp. 1.303
---------------------------------------------------------------------------
SFSW State Financial Services Corporation 1.364
---------------------------------------------------------------------------
TOTAL 100%
---------------------------------------------------------------------------
Section 8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either MidCity or MB as provided in SECTION 8.1, this Agreement
shall forthwith become void and have no effect, and none of MidCity, MB, any of
their respective Subsidiaries or any of the officers or directors of any of them
shall have any liability of any nature whatsoever hereunder, or in connection
with the transactions contemplated hereby, except that (i) SECTIONS 6.2(b), 8.2,
8.3, 9.2 and 9.3 shall survive any termination of this Agreement, and (ii)
notwithstanding anything to the contrary contained in this Agreement, neither
MidCity nor MB shall be relieved or released from any liabilities or damages
arising out of its willful breach of any provision of this Agreement. As soon as
practicable following any termination of this Agreement, MB and MidCity shall
cause NewCo to be liquidated and dissolved in accordance with Maryland law.
Section 8.3 LIQUIDATED DAMAGES. (a) If this Agreement is terminated by MB
pursuant to SECTION 8.1(g) or by MidCity pursuant to SECTIONS 8.1(h), then upon
such termination, MidCity
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shall pay MB liquidated damages, in immediately available funds, in the amount
of $5 million (the "MB Liquidated Damages"). In the event that MidCity receives
an Acquisition Proposal from a third party prior to the time that the MidCity
stockholders vote on this Agreement and thereafter the MidCity stockholders fail
to adopt this Agreement, then if MidCity enters into an agreement to engage in,
or consummates, an Acquisition Proposal (other than an acquisition by MidCity of
another entity for cash or MidCity Common Stock representing less than 20% of
the issued and outstanding MidCity Common Stock after giving effect to such
acquisition), in either case within one year after the termination of this
Agreement, then upon the occurrence of either such event (whichever shall first
occur), MidCity shall pay to MB the MB Liquidated Damages.
(b) If this Agreement is terminated by MidCity pursuant to SECTION
8.1(f) or by MB pursuant to SECTIONS 8.1(i), then upon such termination, MB
shall pay MidCity liquidated damages, in immediately available funds, in
the amount of $5 million (the "MidCity Liquidated Damages"). In the event
that MB receives an Acquisition Proposal from a third party prior to the
time that the MB stockholders vote on this Agreement and thereafter the MB
stockholders fail to adopt this Agreement, then if MB enters into an
agreement to engage in, or consummates, an Acquisition Proposal (other than
an acquisition by MB of another entity for cash or MB Common Stock
representing less than 20% of the issued and outstanding MB Common Stock
after giving effect to such acquisition), in either case within one year
after the termination of this Agreement, then upon the occurrence of either
such event (whichever shall first occur), MB shall pay to MidCity the
MidCity Liquidated Damages.
Section 8.4 AMENDMENT. Subject to compliance with applicable law and
SECTION 1.1(b), this Agreement may be amended by the parties hereto, by action
taken or authorized by their respective Boards of Directors, at any time before
or after approval of the matters presented in connection with the Mergers by the
stockholders of MidCity and MB; PROVIDED, HOWEVER, that after any approval of
the transactions contemplated by this Agreement by the respective stockholders
of MidCity or MB, there may not be, without further approval of such
stockholders, any amendment of this Agreement that changes the amount or the
form of the consideration to be delivered hereunder to the holders of MB Common
Stock or MidCity Common Stock. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
Section 8.5 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein; PROVIDED, HOWEVER,
that after any approval of the transactions contemplated by this Agreement by
the respective stockholders of MidCity or MB, there may not be, without further
approval of such stockholders, any extension or waiver of this Agreement or any
portion thereof which reduces the amount or changes the form of the
consideration to be delivered to the holders of MB Common Stock or MidCity
Common Stock hereunder,. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party, but such extension or waiver or failure to
insist on strict compliance with an obligation, covenant, agreement or
-48-
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Mergers (the "Closing") will take place at 10:00 a.m. on a
date and at a place to be specified by the parties, which shall be no later than
five business days after the satisfaction or waiver (subject to applicable law)
of the latest to occur of the conditions set forth in ARTICLE VII hereof, unless
extended by mutual agreement of the parties (the "Closing Date").
Section 9.2 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None
of the representations, warranties, covenants and agreements in this Agreement
or in any instrument delivered pursuant to this Agreement (other than the
Confidentiality Agreement, which shall terminate in accordance with terms) shall
survive the MidCity Effective Time, except for SECTION 6.8 and for those other
covenants and agreements contained herein and therein which by their terms apply
in whole or in part after the Effective Time.
Section 9.3 EXPENSES. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense; PROVIDED, HOWEVER, that the costs and expenses of
printing and mailing the Joint Proxy Statement, all filing and other fees to be
paid to Regulatory Agencies in connection with the Mergers and the Subsidiary
Mergers, if applicable, and all costs and expenses of NewCo shall be borne
equally by MidCity and MB, except the fees payable to Nasdaq in excess of
$17,500 to list the shares of NewCo Common Stock to be issued in the Mergers
shall be the sole obligation of MidCity.
Section 9.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(with confirmation), mailed by registered or certified mail (return receipt
requested) or delivered by an express courier (with confirmation) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to MB, to:
MB Financial, Inc.
1200 N. Ashland Avenue
Chicago, Illinois 60622
Attention: Mitchell Feiger
Fax: (773) 278-0092
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with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005
Attention: Barry P. Taff, Esq.
Fax: (202) 682-0354
and
(b) if to MidCity, to:
MidCity Financial Corporation
801 W. Madison Street
Chicago, IL 60607
Attention: E. M. Bakwin
Fax: (312) 421-6016
with a copy to:
Winston & Strawn
35 W. Wacker Drive
Chicago, IL 60601
Attention: James M. Neis, Esq.
Fax: (312) 558-5700
Section 9.5 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement, unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
Section 9.6 COUNTERPARTS. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
Section 9.7 ENTIRE AGREEMENT. This Agreement (including the documents and
the instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof.
Section 9.8 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Illinois, without regard to any
applicable conflicts of law principles, except to the extent mandatory
provisions of federal, Maryland or Delaware law apply.
-50-
Section 9.9 PUBLICITY. Except as otherwise required by applicable law or
the rules of the Nasdaq, neither MidCity nor MB shall, or shall permit any of
its Subsidiaries to, issue or cause the publication of any press release or
other public announcement with respect to, or otherwise make any public
statement concerning, the transactions contemplated by this Agreement without
the consent of MB, in the case of a proposed announcement or statement by
MidCity, or MidCity, in the case of a proposed announcement or statement by MB,
which consent shall not be unreasonably withheld.
Section 9.10 ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this Agreement
nor any of the rights, interests or obligations shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns. Except as otherwise
specifically provided in SECTIONS 6.7(e) and 6.8, this Agreement (including the
documents and instruments referred to herein) is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.
[signature page follows]
-51-
IN WITNESS WHEREOF, MidCity and MB have caused this Amended and Restated
Agreement and Plan of Merger to be executed by their respective officers
thereunto duly authorized on this 29th day of June, 2001.
MIDCITY FINANCIAL CORPORATION
By: /s/ Kenneth A. Skopec
----------------------------------
Name: Kenneth A. Skopec
Title: President
MB FINANCIAL, INC.
By: /s/ Mitchell Feiger
----------------------------------
Name: Mitchell Feiger
Title: President and Chief Executive
Officer
The undersigned corporation has become a party to the foregoing Amended and
Restated Agreement and Plan of Merger as of this 2nd day of July, 2001 and
agrees to be bound by the terms and provisions thereof.
MB-MIDCITY, INC.
By: /s/ Mitchell Feiger
----------------------------------
Name: Mitchell Feiger
Title: President and Chief Executive
Officer
APPENDIX B
April 19, 2001
Board of Directors
MB Financial, Inc.
1200 North Ashland Avenue
Chicago, IL 60622
Ladies and Gentlemen:
MB Financial, Inc. ("MB Financial") and MidCity Financial Corporation
("MidCity") have entered into an Agreement and Plan of Merger, dated as of April
19, 2001 (the "Agreement"), pursuant to which MB Financial and MidCity will each
merge with and into a new corporation ("NewCo") to be organized by MB Financial
and MidCity (the "Mergers"). Upon consummation of the MB Merger, each share of
MB Financial common stock, par value $.01 per share, issued and outstanding
immediately prior to the MB Merger (the "MB Financial Shares"), other than
certain shares specified in the Agreement, will be converted into one share (the
"MB Exchange Ratio") of NewCo common stock, par value $.01 per share. Upon
consummation of the MidCity Merger, each share of MidCity common stock, par
value $20.00 per share, issued and outstanding immediately prior to the MidCity
Merger, other than certain shares specified in the Agreement, will be converted
into 230.32955 shares of NewCo common stock. The terms and conditions of the
Mergers are more fully set forth in the Agreement and capitalized terms used but
not defined herein have the meanings ascribed to them in the Agreement. You have
requested our opinion as to the fairness, from a financial point of view, of the
MB Exchange Ratio to the holders of MB Financial Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (1) the Agreement and certain of the exhibits and schedules thereto; (2)
certain publicly available financial statements and other historical financial
information of MB Financial that we deemed relevant; (3) certain publicly
available financial statements and other historical financial information of
MidCity that we deemed relevant; (4) projected earnings per share estimates for
MB Financial for the years ending December 31, 2001 and 2002 provided by MB
Financial, consensus earnings per share estimates for MB Financial for the years
ending December 31, 2001 and 2002 published by IBES and the views of senior
management of MB Financial, based on limited discussions with members of senior
management, regarding MB Financial's past and present business, financial
condition, results of operations and future prospects; (5) projected earnings
per share estimates for MidCity for the years ending December 31, 2001 and 2002
provided by MidCity, and the views of senior management of MidCity, based on
limited discussions with members of senior management, regarding MidCity's past
and present business, financial condition, results of operations and future
prospects; (6) the pro forma financial impact of the Mergers, taking into
consideration the amounts and timing of the transaction costs and cost savings
which the
Board of Directors
MB Financial, Inc.
April 19, 2001
Page 2
managements of MB Financial and MidCity estimate will result from the
Mergers; (7) the relative contributions of MB Financial and MidCity to the
combined company; (8) the publicly reported historical price and trading
activity for MB Financial's common stock; (9) a comparison of certain financial
and stock market information for MB Financial and certain financial information
for MidCity with similar publicly available information for certain other
companies the securities of which are publicly traded; (10) the financial terms
of certain recent business combinations in the financial institutions industry,
including certain business combinations structured as mergers of equals, to the
extent publicly available; (11) the current market environment generally and the
banking environment in particular; and (12) such other information, financial
studies, analyses and investigations and financial, economic and market criteria
as we considered relevant.
In performing our review, we have relied upon the accuracy and completeness
of all of the financial and other information that was available to us from
public sources, that was provided to us by MB Financial or MidCity or their
respective representatives or that was otherwise reviewed by us and have assumed
such accuracy and completeness for purposes of rendering this opinion. We have
further relied on the assurances of management of MB Financial and MidCity that
they are not aware of any facts or circumstances that would make any of such
information inaccurate or misleading. We have not been asked to and have not
undertaken an independent verification of any of such information and we do not
assume any responsibility or liability for the accuracy or completeness thereof.
We did not make an independent evaluation or appraisal of the specific assets,
the collateral securing assets or the liabilities (contingent or otherwise) of
MB Financial or MidCity or any of their subsidiaries, or the collectibility of
any such assets, nor have we been furnished with any such evaluations or
appraisals. We did not make an independent evaluation of the adequacy of the
allowance for loan losses of MB Financial or MidCity nor have we reviewed any
individual credit files relating to MB Financial or MidCity. We have assumed,
with your consent, that the respective allowances for loan losses for both MB
Financial and MidCity are adequate to cover such losses and will be adequate on
a pro forma basis for the combined entity. We are not accountants and have
relied upon the reports of the independent accountants for each of MB Financial
and MidCity for the accuracy and completeness of the audited financial
statements made available to us. With your consent, the earnings projections for
MB Financial and MidCity used by Sandler O'Neill in its analyses were based on
earnings estimates provided to us by the respective managements of MB Financial
and MidCity. With respect to such estimates and with respect to all projections
of transaction costs and expected cost savings prepared by and reviewed with the
managements of MB Financial and MidCity and used by Sandler O'Neill in its
analyses, Sandler O'Neill assumed, with your consent, that they reflected the
best currently available estimates and judgments of the respective managements
of the respective future financial performances of MB Financial and MidCity and
that such performances will be achieved. We express no opinion as to such
earnings estimates or financial projections or the assumptions on which they are
based. We have also assumed that there has been no material change in MB
Financial's or MidCity's assets, financial condition, results of operations,
business or prospects since the date of the most recent financial statements
made available to us. We have assumed in all respects material to our analysis
that MB
Board of Directors
MB Financial, Inc.
April 19, 2001
Page 3
Financial and MidCity will remain as going concerns for all periods relevant to
our analyses, that all of the representations and warranties contained in the
Agreement and all related agreements are true and correct, that each party to
such agreements will perform all of the covenants required to be performed by
such party under such agreements, that the conditions precedent in the Agreement
are not waived and that the Mergers will be accounted for as poolings of
interests and will qualify as tax-free reorganizations for federal income tax
purposes.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect this
opinion. We have not undertaken to update, revise, reaffirm or withdraw this
opinion or otherwise comment upon events occurring after the date hereof. We are
expressing no opinion herein as to what the value of NewCo's common stock will
be when issued to the shareholders of MB Financial and MidCity pursuant to the
Agreement or the prices at which MB Financial's or MidCity's common stock will
trade at any time.
We have acted as MB Financial's financial advisor in connection with the
Mergers and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the Mergers. We will also receive a fee for
rendering this opinion. In the past, we have also provided certain other
investment banking services for MB Financial and have received compensation for
such services.
In the ordinary course of our business as a broker-dealer, we may purchase
securities from and sell securities to MB Financial and MidCity. We may also
actively trade the debt and/or equity securities of MB Financial and MidCity for
our own account and for the accounts of our customers and, accordingly, may at
any time hold a long or short position in such securities.
Our opinion is directed to the Board of Directors of MB Financial in
connection with its consideration of the Mergers and does not constitute a
recommendation to any shareholder of MB Financial as to how such shareholder
should vote at any meeting of shareholders called to consider and vote upon the
Mergers. Our opinion is not to be quoted or referred to, in whole or in part, in
a registration statement, prospectus, proxy statement or in any other document,
nor shall this opinion be used for any other purposes, without Sandler O'Neill's
prior written consent.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the MB Exchange Ratio is fair, from a financial point of view, to
the holders of MB Financial Shares.
Very truly yours,
Sandler O'Neill & Partners, L.P.
APPENDIX C
April 19, 2001
Board of Directors
MidCity Financial Corporation
801 West Madison Street
Chicago, IL 60607
Dear Members of the Board:
We understand that MidCity Financial Corporation ("MidCity "), a
Delaware corporation, and MB Financial, Inc. ("MB"), a Delaware corporation,
have entered into an Agreement and Plan of Merger (the "Agreement") dated as
of April 19, 2001, pursuant to which the Board of Directors of both MidCity
and MB have determined that it is in the best interests of their respective
shareholders to merge their respective holding companies in a transaction
structured as a merger-of-equals. To accomplish this result, MidCity and MB
will form a new corporation ("NewCo") into which both MidCity and MB will be
merged (the "Merger"). As set forth in Sections 1.5(a) and 1.6(a) of the
Agreement, at the Effective Time of the Merger (as defined in the Agreement),
each of the outstanding shares of MB common stock ("MB Common Stock"), par
value $.01 per share, will be converted into and have the right to receive
one (1) share of NewCo common stock (the "NewCo Common Stock"), par value
$0.01 per share, and each of the outstanding shares of MidCity common stock
("MidCity Common Stock"), par value $20.00 per share, will be converted into
and have the right to receive 230.32955 shares (the "Exchange Ratio") of
NewCo Common Stock. In connection therewith, you have requested our opinion
as to the fairness, from a financial point of view, of the Exchange Ratio to
the shareholders of MidCity.
Hovde Financial LLC ("Hovde"), as part of its investment banking business,
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bidding, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with MidCity, having acted as its financial advisor in connection with,
and having participated in the negotiations leading to, the Agreement. We are
also familiar with MB, as from time to time we have provided investment banking
and financial advisory services to MB for which we previously have received
fees. As you are aware, in the course of its daily trading activities,
investment funds controlled by an affiliate (as such term is defined in
Regulation 12G-2 promulgated under the Securities Exchange Act of 1934, as
amended) of Hovde and their affiliates may from time to time effect transactions
and hold securities of
Board of Directors
MidCity Financial Corporation
April 19, 2001
Page 2 of 4
MidCity and MB. As of the date of this opinion, Hovde-affiliated entities held 0
shares of MidCity Common Stock and 402,838 shares of MB Common Stock.
We were retained by MidCity to act as its financial advisor in connection
with the Merger. We will receive compensation from MidCity in connection with
our services, a significant portion of which is contingent upon the consummation
of the Merger. MidCity has agreed to indemnify us for certain liabilities
arising out of our engagement.
During the course of our engagement and for the purposes of the opinion set
forth herein, we have:
(i) reviewed the Agreement;
(ii) reviewed certain historical publicly available business and
financial information concerning MidCity and MB;
(iii) reviewed certain internal financial statements and other financial
and operating data concerning MidCity and MB;
(iv) analyzed certain financial projections prepared by the managements
of MidCity and MB;
(v) conducted meetings with members of the senior management of MidCity
and MB for the purpose of reviewing the future prospects of MidCity
and MB, including financial forecasts related to the respective
businesses, earnings, assets, liabilities and the amount and timing
of cost savings and revenue enhancements (the "Synergies") expected
to be achieved as a result of the Merger;
(vi) reviewed historical market prices and trading volumes for MidCity
Common Stock and MB Common Stock;
(vii) evaluated the pro forma ownership of MB Common Stock by MidCity's
shareholders relative to the pro forma contribution of MidCity's
assets, liabilities, equity and earnings to the pro forma company;
(viii) reviewed the terms of recent merger and acquisition transactions, to
the extent publicly available, involving banks and bank holding
companies that we considered relevant;
Board of Directors
MidCity Financial Corporation
April 19, 2001
Page 3 of 4
(ix) analyzed the pro forma impact of the Merger on the combined company's
earnings per share, consolidated capitalization and financial ratios;
(x) performed such other analyses and considered such other factors as we
have deemed appropriate.
We also took into account our assessment of general economic, market and
financial conditions and our experience in other transactions, as well as our
knowledge of the banking industry and our general experience in securities
valuations.
In rendering this opinion, we have assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations contained in the materials provided to us by
MidCity and MB and in the discussions with MidCity and MB managements. In that
regard, we have assumed that the financial forecasts, including, without
limitation, the Synergies and projections regarding under-performing and
non-performing assets and net charge-offs have been reasonably prepared on a
basis reflecting the best currently available information and judgments and
estimates of MidCity and MB and that such forecasts will be realized in the
amounts and at the times contemplated thereby. We are not experts in the
evaluation of loan and lease portfolios for purposes of assessing the adequacy
of the allowances for losses with respect thereto and have assumed that such
allowances for MidCity and MB are in the aggregate adequate to cover such
losses. We were not retained to and did not conduct a physical inspection of any
of the properties or facilities of MidCity or MB. In addition, we have not
reviewed individual credit files nor have we made an independent evaluation or
appraisal of the assets and liabilities of MidCity and MB and we were not
furnished with any such evaluations or appraisals.
We have assumed that the Merger will be consummated substantially in
accordance with the terms set forth in the Agreement. We have further assumed
that the Merger will be accounted for as a pooling-of-interests under generally
accepted accounting principles and that it will qualify as a tax-free
reorganization for United States federal income tax purposes. We have assumed
that the Merger is, and will be, in compliance with all laws and regulations
that are applicable to MidCity and MB. In rendering this opinion, we have been
advised by MidCity and MB and we have assumed that there are no factors that
would impede any necessary regulatory or governmental approval of the Merger and
we have further assumed that, in the course of obtaining the necessary
regulatory and governmental approvals, no restriction will be imposed on MB or
the surviving corporation that would have a material adverse effect on MB or the
contemplated benefits of the Merger. We have also assumed that there would not
occur any
Board of Directors
MidCity Financial Corporation
April 19, 2001
Page 4 of 4
change in applicable law or regulation that would cause a material adverse
change in the prospects or operations of MB or the surviving corporation after
the Merger.
Our opinion is based solely upon the information available to us and the
economic, market and other circumstances as they exist as of the date hereof.
Events occurring and information that becomes available after the date hereof
could materially affect the assumptions and analyses used in preparing this
opinion. We have not undertaken to reaffirm or revise this opinion or otherwise
comment upon any events occurring or information that becomes available after
the date hereof.
We are not expressing any opinion herein as to the prices at which shares
of NewCo Common Stock issued in the Merger may trade if and when they are issued
or at any future time, nor does our opinion constitute a recommendation to any
holder of MidCity Common Stock as to how such holder should vote with respect to
the Agreement at any meeting of holders of MidCity Common Stock.
This letter is solely for the information of the Board of Directors of
MidCity and is not to be used, circulated, quoted or otherwise referred to for
any other purpose, nor is it to be filed with, included in or referred to in
whole or in part in any registration statement, proxy statement or any other
document, except in each case in accordance with our prior written consent which
shall not be unreasonably withheld; provided, however, that we hereby consent to
the inclusion and reference to this letter in any registration statement, proxy
statement, information statement or tender offer document to be delivered to the
holders of MidCity Common Stock in connection with the Merger if and only if
this letter is quoted in full or attached as an exhibit to such document and
this letter has not been withdrawn prior to the date of such document.
Subject to the foregoing and based on our experience as investment bankers,
our activities and assumptions as described above, and other factors we have
deemed relevant, we are of the opinion as of the date hereof that the Exchange
Ratio pursuant to the Agreement is fair, from a financial point of view, to the
shareholders of MidCity.
Sincerely,
HOVDE FINANCIAL LLC
APPENDIX D
April 19, 2001
Board of Directors
MidCity Financial Corp
801 W. Madison Street
Chicago, IL 60607
Members of the Board:
Alex Sheshunoff & Co. Investment Banking, LP, ("Sheshunoff"), at your request,
reviewed the terms and conditions of a merger of MidCity Financial Corp
("MidCity") with MB Financial Corp ("MB") in a merger-of-equals (the "Merger").
The Merger was directly negotiated by MidCity and MB, prior to Sheshunoff's
engagement, without any participation by Sheshunoff in the negotiation of the
Merger terms and conditions or the exchange ratio in the Merger. The Board of
Directors requested Sheshunoff's opinion solely on the exchange ratio in the
Merger. Sheshunoff's opinion solely addresses the fairness of the exchange ratio
in the merger to MidCity's shareholders from a financial point of view.
Alex Sheshunoff & Co. Investment Banking ("Sheshunoff") is regularly engaged in
the valuation of securities in connection with mergers and acquisitions, private
placements, and valuations for estate, corporate, and other purposes. Except for
the fee that Sheshunoff will receive for providing this opinion and the
strategic option review, Sheshunoff believes it is independent of MidCity and
MB. Sheshunoff's fee is not dependent upon the value of the exchange ratio or
the completion of the Merger.
In connection with our opinion, we have, among other things:
1. Evaluated MidCity's consolidated results based upon a review of its
annual financial statements for the three-year period ending December
31, 2000;
2. Reviewed Call Report information as of December 31, 2000 for MidCity;
Board of Directors
MidCity Financial Corp.
April 19, 2001
Page 2
3. Conducted conversations with executive management regarding recent and
projected financial performance of MidCity;
4. Compared MidCity's recent operating results with those of certain
other banks in the U.S. which have recently been acquired for cash,
stock, or other forms of consideration or been invloved in
mergers-of-equals;
5. Compared MidCity's recent operating results with those of certain
other banks in the U.S. which have recently been involved in a
merger-of equals;
6. Compared the pricing multiples for MidCity in the Merger to those of
certain other banks in the U.S. which have recently been acquired for
cash, stock, or other forms of consideration;
7. Analyzed the net present value of the after-tax cash flows MidCity
could produce as an independent company under its currents business
strategy through the year 2005, based on assumptions provided by
management;
8. Held discussions with MidCity's and MB's management concerning each
company's recent financial performance and future prospects as an
independent and combined company;
9. Reviewed the due diligence report on MB's loan portfolio and loan loss
reserves prepared by MidCity. Shehsunoff relied upon this review in
forming its opinion and did not independently review or evaluate MB's
or MidCity's asset quality or loss reserve adequacy;
10. Reviewed projections of MidCity and MB as a pro-forma company as
prepared for the management of MidCity and MB by their respective
advisors. Sheshunoff did not independently evaluate the accuracy or
reasonableness of the projections or the asset growth rates, cost
savings and revenue enhancements assumed in the pro-form projections
for the combined companies following the Merger;
11. Reviewed a copy of the definitive agreement in the Merger;
12. Reviewed recent trading prices and volume for MB and the lack of any
TRADING market for MidCity;
Board of Directors
MidCity Financial Corp.
April 19, 2001
Page 3
13. Reviewed MB's financial performance for the past three years ended
December 31, 2000 as reported in its annual reports and form 10K;
14. Reviewed the pro-forma impact on MB of the pending cash acquisition of
FSL Holdings, Inc. which acquisition is expected to close prior to or
near the expected closing of the Merger.
We assumed and relied upon, without independent verification, the accuracy and
completeness of the information provided to us by MidCity and MB and their
respective advisors for the purposes of this opinion. In addition, where
appropriate, we relied upon publicly available information that we believe to be
reliable, accurate and complete; however, we cannot guarantee the reliability,
accuracy or completeness of any such publicly available information.
We did not make an independent evaluation of the assets or liabilities of
MidCity or MB, nor have we been furnished with any such appraisals. We are not
experts in the evaluation of loan portfolios for the purposes of assessing the
adequacy of the allowance for loan and lease losses and have assumed that such
allowances for each of the companies are, in the aggregate, adequate to cover
such losses.
The operating results for the combined company following the Merger and for
MidCity as an independent company that we relied upon were prepared by the
combined companies' management for the pro-forma combined company and by
MidCity's management for MidCity as an independent company. We assumed based on
management representations that these projections and assumptions reflect the
best current estimates of the combined companies' and MidCity's independent
performance. Actual results may vary from the projected performance and such
variances, positive or negative, could be material. No assurance can be given
that the combined company or MidCity as an independent company will achieve the
results we used in preparing our opinion. Market, economic and other events
occurring after the date hereof could materially affect such projections and the
assumptions used in preparing this opinion.
Our opinion is limited to the fairness of the exchange ratio, from a financial
point of view, to the MidCity's stockholders and does not address MidCity's
underlying business decision to pursue the Merger. In addition our opinion does
not address the relative merits of the Merger as compared to any alternative
business transaction that might be available to MidCity
Board of Directors
MidCity Financial Corp.
April 19, 2001
Page 4
This letter and the opinion expressed herein do not constitute a
recommendation to any stockholder as to any approval of the Merger or the
Agreement. It is understood that this letter is for the information of the
Board of Directors and may not be used for any other purpose without our
prior written consent. The Company may include this opinion and any related
material in a proxy statement or similar communication to shareholders
provided that this opinion and the related material are included in their
entirety.
Based on the foregoing and such other matters we have deemed relevant, it is our
opinion, as of the date hereof, that the exchange ratio in the Merger is fair,
from a financial point of view, to MidCity's shareholders.
Very truly yours,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
APPENDIX E
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one (1) or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to Section Section 251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts
in respect thereof) or depository receipts at the effective date
of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market
system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of
this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a, b and c of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten 10
days thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of
E-3
Chancery may be enforced, whether such surviving or resulting corporation is
a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
E-4
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 2-405.2 of the Maryland General Corporation Law permits a Maryland
corporation to include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders for monetary
damages except: (1) to the extent it is proven that the director or officer
actually received an improper benefit or profit, for the amount of the improper
benefit or profit; or (2) to the extent a final judgment or adjudication against
the director or officer is based on a determination that the director's or
officer's act or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action against the director or
officer. The Registrant's charter contains such a provision, thereby limiting
the liability of its directors and officers to the maximum extent permitted by
Maryland law.
Section 2-418 of the Maryland General Corporation Law permits a Maryland
corporation to indemnify a director or officer who is made a party to any
proceeding by reason of service in that capacity against judgments, penalties,
fines, settlements and reasonable expenses actually incurred unless it is proven
that: (1) the act or omission of the director or officer was material to the
matter giving rise to the proceeding and was committed in bad faith or with
active and deliberate dishonesty; (2) the director or officer actually received
an improper personal benefit; or (3) in the case of a criminal proceeding, the
director or officer had reason to believe that his conduct was unlawful. The
Maryland General Corporation Law provides that where a director or officer is a
defendant in a proceeding by or in the right of the corporation, the director or
officer may not be indemnified if he or she is found liable to the corporation.
The Maryland General Corporation Law also provides that a director or officer
may not be indemnified in respect of any proceeding alleging improper personal
benefit in which he or she was found liable on the grounds that personal benefit
was improperly received. A director or officer found liable in a proceeding by
or in the right of the corporation or in a proceeding alleging improper personal
benefit may petition a court to nevertheless order indemnification if the court
determines that the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances.
Section 2-418 of the Maryland General Corporation Law provides that unless
limited by the charter of a Maryland corporation, a director or officer who is
successful on the merits or otherwise in defense of any proceeding must be
indemnified against reasonable expenses. Section 2-418 also provides that a
Maryland corporation may advance reasonable expenses to a director or officer
upon the corporation's receipt of (a) a written affirmation by the director or
officer of his or her good faith belief that he or she has met the standard of
conduct necessary for indemnification by the corporation and (b) a written
undertaking by the director or officer or on his or her behalf to repay the
amount paid or reimbursed by the corporation if it is ultimately determined that
the standard of conduct was not met.
The Registrant's charter provides for indemnification of directors and
officers to the maximum extent permitted by the Maryland General Corporation
Law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. See Exhibit Index
(b) FINANCIAL STATEMENT SCHEDULES. Not applicable.
(c) REPORTS, OPINIONS OR APPRAISALS.
(i) Opinion of Sandler, O'Neill & Partners, L.P. (included as
Appendix B to the joint proxy statement-prospectus contained in
this Registration Statement).
(ii) Opinion of Hovde Financial LLC (included as Appendix C to the
joint proxy statement-prospectus contained in this Registration
Statement).
(iii) Opinion of Alex Sheshunoff & Co. LLP (included as Appendix D to
the joint proxy statement-prospectus contained in this
Registration Statement).
II-1
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
(2) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(3) The undersigned Registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph (2) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(5) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(6) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
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 Chicago, State of
Illinois, on July 3, 2001.
MB-MIDCITY, INC.
By: /s/ Mitchell Feiger
----------------------------------------
Mitchell Feiger
President and Chief Executive Officer
(DULY AUTHORIZED REPRESENTATIVE)
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Mitchell Feiger his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Mitchell Feiger /s/ E.M. Bakwin
------------------------------------------------------ ----------------------------------
Mitchell Feiger, Director, President and Chief E.M. Bakwin, Director
Executive Officer (PRINCIPAL EXECUTIVE OFFICER)
Date: July 3, 2001 Date: July 3, 2001
/s/ Burton J. Field /s/ Kenneth A. Skopec
------------------------------------------------------ ----------------------------------
Burton J. Field, Director Kenneth A. Skopec, Director
Date: July 3, 2001 Date: July 3, 2001
/s/ Jill E. York
------------------------------------------------------
Jill E. York, Vice President, Chief Financial Officer
and Treasurer (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
Date: July 3, 2001
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
April 19, 2001, by and among MidCity Financial Corporation, MB
Financial Inc. and MB-MidCity Inc., included as Appendix A to the
accompanying joint proxy statement-prospectus
3.1 Form of Article of Amendment and Restatement of Registrant's
Charter*
3.2 Form of Registrant's Amended and Restated Bylaws*
4.1 Form of Certificate of Registrant's Common Stock.*
5 Opinion of Silver, Freedman & Taff, L.L.P.
8.1 Tax Opinion of Silver, Freedman & Taff, L.L.P.*
8.2 Tax Opinion of Winston & Strawn.*
10.1 Employment Agreement between MB Financial, Inc. and Robert S.
Engelman, Jr. (incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form S-4 of MB Financial, Inc. (then
known as Avondale Financial Corp.) (No. 333-70017))
10.2 Form of Employment Agreement between MB Financial, Inc. and
Mitchell Feiger (incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form S-4 of MB Financial, Inc. (then
known as Avondale Financial Corp.) (No. 333-70017))
10.3 Form of Employment Agreement between MB Financial, Inc. and
Burton J. Field (incorporated by reference to Exhibit 10.5 to MB
Financial's Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-24566))
10.4 Form of Change of Control Severance Agreement between
Manufacturers Bank and Thomas Panos, Jill York and others
(incorporated by reference to pages A-24 to A-27 of MB
Financial's Definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders (File No. 0-24566))
10.5 Avondale Financial Corp. 1995 Stock Option and Incentive Plan
(incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-8 of MB Financial, Inc. (then known as
Avondale Financial Corp.) (No. 33-98860))
10.6 Coal City Corporation 1995 Stock Option Plan
10.7 1997 MB Financial Inc. Omnibus Incentive Plan
10.8 MB Financial Manufacturers Bank Deferred Compensation Plan
10.9 Avondale Federal Savings Bank Supplemental Executive Retirement
Plan Agreement (incorporated by reference to Exhibit 10.2 to MB
Financial's (then known as Avondale Financial Corp.) Annual
Report on Form 10-K for the year ended December 31, 1996 (File
No. 0-24566))
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.10 Form of Charge in Control Severance Agreement between MidCity
Financial Corporation and E.M. Bakwin, Kenneth A. Skopec, Ronald
D. Santo and William McCarty, III
10.11 MidCity Financial Corporation Retention Bonus Plan
23.1 Consent of Silver, Freedman & Taff, L.L.P. (Included in Exhibits
5 and 8.1)
23.2 Consent of Winston & Strawn (included in Exhibit 8.2)
23.3 Consent of McGladrey & Pullen, LLP
23.4 Consent of KPMG LLP
23.5 Consent of Sandler, O'Neill & Partners, L.P.
23.6 Consent of Hovde Financial LLC
23.7 Consent of Alex Sheshunoff & Co., LLP
99.1 Form of proxy card of MB Financial, Inc.
99.2 Form of proxy card of MidCity Financial Corporation
99.3 Reserved.
99.4 Consent of James N. Hallene
99.5 Consent of Thomas H. Harvey
99.6 Consent of Patrick Henry
99.7 Consent of Leslie S. Hindman
99.8 Consent of Ronald D. Santo
99.9 Consent of Eugene Sawyer
99.10 Reserved.
99.11 Consent of David Husman
99.12 Consent of Clarence Mann
99.13 Consent of Robert S. Engelman, Jr.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
99.14 Consent of Alfred Feiger
99.15 Consent of Lawrence E. Gilford
99.16 Consent of Richard I. Gilford
99.17 Consent of Richard J. Holmstrom
----------
* To be filed by amendment.