-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YJWNg7T+49rdjHOsh+kXuwOfJmUnzgo0chjs00g2/jcW/CukI/eReHgcPYiBoKdP TBRW7G2HRwNdNd4V21J6xA== 0000950114-94-000131.txt : 19941223 0000950114-94-000131.hdr.sgml : 19941223 ACCESSION NUMBER: 0000950114-94-000131 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19941221 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19941222 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCANTILE BANCORPORATION INC CENTRAL INDEX KEY: 0000064907 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 430951744 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11792 FILM NUMBER: 94565814 BUSINESS ADDRESS: STREET 1: ONE MECANTILE CENTER STREET 2: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 BUSINESS PHONE: 3144252525 MAIL ADDRESS: STREET 1: P.O. BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 FORMER COMPANY: FORMER CONFORMED NAME: MERCANTILE TRUST CO DATE OF NAME CHANGE: 19720229 8-K 1 MERCANTILE BANCORPORATION INC. FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------------------ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): December 21, 1994 ----------------- MERCANTILE BANCORPORATION INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Missouri 0-6045 43-0951744 --------------- ---------------- ---------------- (State or other (Commission File (I.R.S. Employer jurisdiction of Number) Identification organization) Number) P.O. Box 514, St. Louis, Missouri 63166-0524 - --------------------------------------- ---------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (314) 425-2525 -------------- 2 ITEM 5. OTHER EVENTS. - ---------------------- Description of Terms of Proposed Agreement with TCBankshares, Inc. On December 2, 1994, Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), and TCBankshares, Inc., an Arkansas corporation ("TCB"), executed an Agreement and Plan of Reorganization (the "Merger Agreement"), whereby TCB will be merged with and into a wholly owned subsidiary of MBI to be incorporated under the laws of the State of Arkansas. Under the terms of the Merger Agreement, the holders of TCB common stock, $50.00 par value ("TCB Common Stock"), will receive an aggregate of 4,750,000 shares of MBI common stock, $5.00 par value ("MBI Common Stock"), the holders of TCB Series A preferred stock, $10.00 par value, will receive an aggregate of 5,306 shares of MBI Series B-1 preferred stock, no par value, and the holders of TCB Series B preferred stock, $10.00 par value, will receive an aggregate of 9,500 shares of MBI Series B-2 preferred stock, no par value. Consummation of the Merger is subject to certain conditions, including: (i) receipt of requisite approval of the shareholders of TCB of the Merger Agreement as required under Arkansas law and the charter documents of TCB; (ii) receipt of the approval of the Federal Reserve Board and various other federal and state regulatory authorities; (iii) registration of the shares of MBI Common Stock to be issued pursuant to the Merger under the Securities Act of 1933, as amended, and all applicable state securities laws; (iv) receipt of an opinion of counsel that the Merger will qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as amended; and (v) satisfaction of certain other closing conditions. Each of the shareholders of the TCB Common Stock and the shareholders of the TCB Preferred Stock have executed an agreement with MBI whereby each such shareholder has agreed to vote all shares of TCB Common Stock and TCB Preferred Stock owned by him in favor of the approval of the Merger Agreement. TCB is a multi-bank holding company located in North Little Rock, Arkansas and owns all or substantially all of the outstanding capital stock of six banks situated throughout north, central and eastern Arkansas. At September 30, 1994, TCB reported approximately $1.4 billion in consolidated total assets. For additional information regarding the Merger Agreement, please refer to the exhibits to this Current Report on Form 8-K, which are incorporated by reference herein. Historical Financial Statements of TCB. TCB's historical financial statements as of and for the year ended December 31, 1993 with the notes thereto and the auditors' report - 2 - 3 covering such financial statements are included as part of this report. In addition, the unaudited interim financial statements of TCB as of September 30, 1994 and for the nine months ended September 30, 1994 and 1993 are included in this report. 4 Report of Independent Auditors The Board of Directors and Shareholders TCBankshares, Inc. We have audited the accompanying consolidated balance sheets of TCBankshares, Inc. and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of TCBankshares, Inc. and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. March 7, 1994 /s/ Ernst & Young LLP 5 TCBankshares, Inc. Consolidated Balance Sheets
December 31 1993 1992 --------------------------------------- Assets Cash and due from banks (Note 15) $ 36,014,642 $ 38,402,264 Federal funds sold 9,225,000 7,825,000 --------------------------------------- Total cash and cash equivalents 45,239,642 46,227,264 Interest bearing deposits with other banks 1,292,524 4,758,262 Investment securities (estimated market value: 1993--$590,576,558; 1992--$554,677,360) (Notes 3 and 16) 576,885,431 544,162,081 Loans (Notes 4, 9, 10, 11, and 16): Commercial, financial and agricultural 152,431,890 133,073,546 Real estate--construction 101,207,379 83,593,120 Real estate--mortgage 178,204,206 159,813,884 Installment 131,739,175 88,926,602 --------------------------------------- Total loans 563,582,650 465,407,152 Less: Unearned income (1,585,040) (2,219,361) Allowance for loan losses (Note 4) (7,922,797) (7,134,801) --------------------------------------- Net loans 554,074,813 456,052,990 Premises and equipment, net (Note 5) 26,472,758 20,825,702 Accrued interest receivable 9,189,356 9,630,415 Intangible assets, less accumulated amortization (1993--$3,373,498; 1992--$3,041,860) 4,428,366 4,760,004 Deferred income taxes (Note 8) 2,412,262 2,726,022 Other real estate owned 2,464,485 3,441,695 Other assets 2,827,074 3,167,244 --------------------------------------- Total assets $1,225,286,711 $1,095,751,679 =======================================
6
December 31 1993 1992 ------------------------------------ Liabilities and shareholders' equity Noninterest bearing deposits $ 118,641,794 $ 106,841,560 Interest bearing deposits 966,833,570 873,835,485 ------------------------------------ Total deposits (Notes 6 and 16) 1,085,475,364 980,677,045 Federal funds purchased and securities sold under agreements to repurchase 35,346,432 24,130,052 Notes payable (Note 7) 7,494,500 8,240,000 Accrued interest payable 4,703,895 4,250,820 Other liabilities (Notes 14 and 16) 3,712,970 3,796,694 Capital notes (Note 7) 157,500 175,000 ------------------------------------ Total liabilities 1,136,890,661 1,021,269,611 Commitments (Note 9) Shareholders' equity (Notes 2, 7 and 12): Preferred stock, Series A, non-cumulative, non-voting, $10 par value; liquidation value--$500 per share: Authorized shares--5,500; Issued and outstanding shares--5,306 53,060 53,060 Preferred stock, Series B, 8.5%, cumulative, non-voting, $10 par value; liquidation value--$1,000 per share: Authorized shares--9,500; Issued and outstanding shares--9,500 95,000 95,000 Common stock, $50 par value: Authorized shares--5,500 Issued and outstanding shares--2,131.74 106,587 106,587 Capital surplus: Common stock 9,181,762 9,181,762 Preferred stock 12,004,940 12,004,940 Retained earnings 66,954,701 53,040,719 ------------------------------------ Total shareholders' equity 88,396,050 74,482,068 ------------------------------------ Total liabilities and shareholders' equity $1,225,286,711 $1,095,751,679 ==================================== See accompanying notes.
7 TCBankshares, Inc. Consolidated Statements of Income
Year ended December 31 1993 1992 1991 --------------------------------------------------- Interest income: Loans, including fees $42,067,313 $40,305,830 $43,754,310 Investment securities: Taxable 31,074,144 30,959,869 23,609,326 Tax-exempt 5,741,381 5,234,755 5,123,004 Other 383,430 687,277 1,833,095 --------------------------------------------------- Total interest income 79,266,268 77,187,731 74,319,735 Interest expense (Note 13): Deposits 32,353,747 34,229,856 40,529,750 Other 1,558,317 1,531,542 1,870,429 --------------------------------------------------- Total interest expense 33,912,064 35,761,398 42,400,179 --------------------------------------------------- Net interest income 45,354,204 41,426,333 31,919,556 Provision for loan losses (Note 4) 1,224,309 2,085,784 2,150,834 --------------------------------------------------- Net interest income after provision for loan losses 44,129,895 39,340,549 29,768,722 Other income: Service charges on deposit accounts 5,470,535 4,803,668 4,469,073 Investment securities gains, net (Note 3) 1,379,402 2,633,851 567,551 Trust fees 792,896 686,351 603,637 Gain on sale of loans 880,546 318,858 118,057 Other 3,011,073 1,795,383 2,165,100 --------------------------------------------------- 11,534,452 10,238,111 7,923,418 Other expenses: Salaries and employee benefits(Note 14) 15,729,918 13,595,998 11,049,837 Net occupancy and equipment expense (Notes 5 and 9) 5,074,615 4,308,398 3,748,469 Amortization of intangible assets 331,638 390,013 329,138 Merchandising expense 2,923,013 2,472,070 2,020,049 Data processing expense 1,994,927 1,789,013 1,533,115 FDIC assessment 2,216,412 1,943,119 1,545,651 Other 6,767,122 6,740,951 5,513,416 --------------------------------------------------- 35,037,645 31,239,562 25,739,675 --------------------------------------------------- Income before income taxes 20,626,702 18,339,098 11,952,465 Income taxes (Note 8) 5,437,576 4,940,997 2,664,614 --------------------------------------------------- Net income $15,189,126 $13,398,101 $ 9,287,851 =================================================== See accompanying notes.
8 TCBankshares, Inc. Consolidated Statements of Shareholders' Equity
Capital Surplus ----------------------- Preferred Stock Common Common Preferred Retained ------------------------ Series A Series B Stock Stock Stock Earnings Total -------------------------------------------------------------------------------------- Balance at January 1, 1991 $53,060 $95,000 $106,587 $9,181,762 $12,004,940 $32,904,651 $54,346,000 Net income - - - - - 9,287,851 9,287,851 Cash dividends: Preferred stock, Series A - - - - - (212,240) (212,240) Preferred stock, Series B - - - - - (807,500) (807,500) Common stock - - - - - (255,000) (255,000) -------------------------------------------------------------------------------------- Balance at December 31, 1991 53,060 95,000 106,587 9,181,762 12,004,940 40,917,762 62,359,111 Net income - - - - - 13,398,101 13,398,101 Cash dividends: Preferred stock, Series A - - - - - (212,240) (212,240) Preferred stock, Series B - - - - - (807,500) (807,500) Common stock - - - - - (255,404) (255,404) -------------------------------------------------------------------------------------- Balance at December 31, 1992 53,060 95,000 106,587 9,181,762 12,004,940 53,040,719 74,482,068 Net income - - - - - 15,189,126 15,189,126 Cash dividends: Preferred stock, Series A - - - - - (212,240) (212,240) Preferred stock, Series B - - - - - (807,500) (807,500) Common stock - - - - - (255,404) (255,404) -------------------------------------------------------------------------------------- Balance at December 31, 1993 $53,060 $95,000 $106,587 $9,181,762 $12,004,940 $66,954,701 $88,396,050 ====================================================================================== See accompanying notes.
9 TCBankshares, Inc. Consolidated Statements of Cash Flows
Year ended December 31 1993 1992 1991 ------------------------------------------------------------ Operating activities Net income $ 15,189,126 $ 13,398,101 $ 9,287,851 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,224,309 2,085,784 2,150,834 Provision for depreciation and losses on other real estate 174,174 205,376 407,898 Depreciation and amortization 2,484,515 2,272,770 1,560,763 Amortization of intangible assets 331,638 390,013 329,138 Amortization of investment security premiums, net of accretion of discounts 1,330,419 944,884 368,731 Deferred income tax benefit (365,100) (387,650) (294,709) Gain on sale of loans (880,546) (318,858) (118,057) (Gain) loss on sales of other real estate 8,282 (129,001) (309,809) (Gain) loss on disposal of premises and equipment (27,737) 325,717 (97,420) First mortgage loans held for resale: Proceeds collected on loans sold 87,684,358 41,754,326 25,109,464 Loans made to customers (92,033,789) (45,039,094) (25,083,725) Realized investment security gains (1,379,402) (2,633,851) (567,551) (Increase) decrease in accrued interest receivable, deferred taxes, and other assets 1,371,973 (1,781,846) 324,968 Increase (decrease) in accrued interest payable and other liabilities 369,351 (5,198,918) 969,150 ------------------------------------------------------------ Net cash provided by operating activities 15,481,571 5,887,753 14,037,526 Investing activities Net increase in loans (93,831,937) (51,745,980) (6,139,674) Purchases of premises and equipment (8,242,515) (4,349,200) (4,067,987) Proceeds from sales of premises and equipment 226,797 901,057 133,916 Purchases of investment securities (240,031,967) (402,172,272) (281,295,752) Proceeds from maturities of investment securities and principal payments on mortgage-backed securities 202,578,198 145,804,117 105,223,082 Proceeds from sales of investment securities 4,779,402 105,529,913 107,786,441 Net (increase) decrease in interest bearing deposits with other banks 3,465,738 17,217,051 (6,652,689) Proceeds from sales of other real estate 610,536 2,281,929 2,021,367 ------------------------------------------------------------ Net cash used in investing activities (130,445,748) (186,533,385) (82,991,296) (continued) 10 TCBankshares, Inc. Consolidated Statements of Cash Flows (continued) Year ended December 31 1993 1992 1991 ------------------------------------------------------------ Financing activities Net increase in deposits $ 104,798,319 $ 201,563,407 $ 42,816,204 Net increase (decrease) in short-term borrowings 11,216,380 (1,639,196) 10,264,469 Cash dividends paid (1,275,144) (1,073,269) (1,274,740) Principal payments on notes payable (745,500) (2,980,000) (1,275,000) Proceeds from notes payable - 2,545,000 - Principal payment on capital note (17,500) (17,500) (17,500) ------------------------------------------------------------ Net cash provided by financing activities 113,976,555 198,398,442 50,513,433 ------------------------------------------------------------ Increase (decrease) in cash and cash equivalents (987,622) 17,752,810 (18,440,337) Cash and cash equivalents at beginning of year 46,227,264 28,474,454 46,914,791 ------------------------------------------------------------ Cash and cash equivalents at end of year $ 45,239,642 $ 46,227,264 $ 28,474,454 ============================================================ See accompanying notes.
11 TCBankshares, Inc. Notes to Consolidated Financial Statements December 31, 1993 1. Accounting Policies Consolidation The consolidated financial statements include the accounts of TCBankshares, Inc. and its six majority-owned banking subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. Investment Securities Investment securities are stated at cost adjusted for amortization of premiums and accretion of discounts. The adjusted cost of the specific security sold is used to compute gain or loss on the sale of investment securities. Management determines the appropriate classification of investment securities at the time of purchase. Management has the intent and the Company has the ability to hold investment securities to maturity or on a long-term basis. As such, these securities are carried at amortized historical costs. If securities are acquired with the intent of holding for an indefinite period or for sale prior to maturity, the securities would be carried at the lower of cost or market. (See "Future Application of Accounting Standards" later in Note 1.) Revenue Recognition Interest on loans is accrued and credited to operations generally based upon the principal amount outstanding. Interest on loans is not accrued when amounts are considered doubtful of collection. If the ultimate collectibility of principal is in doubt, any payment received on a loan, on which the accrual of interest has been suspended, is applied to reduce principal to the extent necessary to eliminate such doubt. When interest accruals are discontinued, interest credited to income on the loan in the current year is reversed, and interest accrued in the prior year is charged to the allowance for loan losses. Allowance for Loan Losses The allowance for loan losses is maintained at a level management believes is adequate to absorb potential losses in the loan portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of potential losses in the loan portfolio considering current economic conditions, past loan loss experience, volume, growth and composition of the loan portfolio, nonperforming loans, and other relevant factors. The allowance is increased by provisions for loan losses charged against income and reduced by charge-offs, net of recoveries. 12 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 1. Accounting Policies (continued) Premises and Equipment The Company's premises and equipment are stated at cost, less accumulated depreciation and amortization. The provision for depreciation and amortization is computed generally by the straight-line method based upon the estimated useful lives of the assets. The carrying amount of assets sold, retired or disposed of and the related accumulated depreciation and amortization are eliminated from the accounts and the resulting gain or loss is recorded in operating results. First Mortgage Real Estate Loans Held for Resale First mortgage real estate loans held for resale ($10,741,693 at December 31, 1993 and $5,511,716 at December 31, 1992) are classified with real estate mortgage loans in the accompanying consolidated balance sheet and are carried at the lower of cost or fair market value on a net aggregate basis. These loans are generally pre-sold or subject to firm purchase commitments. Other Real Estate Other real estate consists of properties acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. These properties are initially recorded at the lower of cost or estimated fair market value based on appraised value at the date acquired or transferred from loans less estimated selling expenses. Losses arising from the acquisition of such property are charged against the allowance for loan losses. Subsequent valuation adjustments, if any, and gains or losses resulting from sales are recorded in operating results. The Company's state banking subsidiary is required to amortize other real estate over sixty months, in accordance with state banking regulations. The regulators may grant deferrals of this required amortization, if requested by the Company. Net expenses relating to other real estate (included in other expenses) were $101,000, $211,000, and $249,000 during the years ended December 31, 1993, 1992, and 1991, respectively. These amounts include the state regulators mandated amortization expense. Loans aggregating approximately $(184,000), $643,000, and $5,131,000 were transferred to (from) other real estate during 1993, 1992, and 1991, respectively. 13 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 1. Accounting Policies (continued) Intangible Assets Intangible assets consist of the unamortized excess cost of purchased banking subsidiaries and premiums paid for the acquisition of deposits from failed financial institutions. Unamortized costs of purchased subsidiaries in excess of the fair value of underlying net tangible assets acquired are being amortized over 25 years using the straight-line method. Premiums associated with the future earnings potential of acquired deposits are being amortized, using the straight-line method, over the estimated five to ten year life of the deposits. The net costs associated with acquired deposits were $763,000 at December 31, 1993, $856,000 at December 31, 1992 and $81,500 at December 31, 1991. Income Taxes The Company and its subsidiaries file consolidated income tax returns. It is the Company's practice to have its subsidiaries pay to or receive from the Company and other affiliates amounts based on the taxable income (or loss) of the subsidiary. Certain items, primarily additions to the allowance for loan losses, are recognized as income or expense in different periods for financial and for income tax reporting purposes. Deferred taxes are provided for such timing differences. In February 1992, the Financial Accounting Standards Board issued Statement No. 109, "Accounting for Income Taxes." The Company adopted the provisions of the new standard in its consolidated financial statements as of January 1, 1993. As permitted by the Statement, prior year financial statements have not been restated to reflect the change in accounting method. The effect as of January 1, 1993 of adopting Statement 109 increased consolidated net income by approximately $126,000. This amount is included as a reduction of the provision for income taxes in the 1993 consolidated statement of income. Under Statement 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of Statement 109, income tax expense was determined using the deferred method. Deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the difference originated. 14 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 1. Accounting Policies (continued) Statement of Cash Flows Cash equivalents include amounts due from banks and federal funds sold. Generally, federal funds are purchased and sold for one day periods. Future Application of Accounting Standards In May 1993 the Financial Accounting Standards Board ("FASB") issued Statement on Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Statement 115 will be adopted by the Company on January 1, 1994 and requires that investments in debt and equity securities be classified as held to maturity, trading, or available for sale. Investments in debt securities classified as held to maturity are to be reported at amortized cost. Investments in debt and equity securities classified as trading are to be reported at fair value with related unrealized gains and losses included in net income. Investments in debt and equity securities classified as available for sale are to be reported at fair value with related unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity. Management plans to classify its municipal securities as investments held to maturity and the majority of the remainder of its investment securities as available for sale. At December 31, 1993, adoption of Statement 115 would have increased shareholders' equity by approximately $5,666,000 and have no impact on the Companys net income for 1993. Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits" requires employers to recognize the obligation to provide postemployment benefits if the obligation is attributable to employees services already rendered, employees' rights to those benefits accumulate or vest, payment of the benefits is probable, and the amount of benefits can be reasonably estimated. The Company will be required to adopt Statement 112 in 1994. The Company's initial assessment is that the adoption of this new standard will not have a material impact on its financial position or results of operations. Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" requires that impaired loans that are within the scope of the Statement be measured based on the present value of expected future cash flows discounted at the loan's effective rate, or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The Company will be required to adopt Statement 114 in 1995. Management does not believe the adoption of this new standard will have a material impact on the Company's financial position or results of operations. 15 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 1. Accounting Policies (continued) Reclassifications Certain amounts in the 1991 and 1992 consolidated financial statements have been reclassified to conform to the reporting format used for the 1993 consolidated financial statements. 2. Mergers and Acquisitions On January 30, 1992, the Board of Directors of the Company approved a plan of exchange with Twin City Bank whereby the Company issued common and preferred stock in exchange for 267,395 shares of common stock and all of the preferred stock of Twin City Bank based on an exchange ratio which valued the common stock of the Company at 1.1 times book value per share and which valued Twin City Bank's common stock at 1.09 times book value per share on the date of exchange. As a result, Twin City Bank became a 99%- owned subsidiary of TCBankshares, Inc. The plan of exchange provided that Twin City Bank's outstanding perpetual, nonvoting, 8.5% cumulative preferred stock be exchanged for shares of perpetual, nonvoting, 8.5% cumulative preferred stock of TCBankshares, Inc., with dividends and terms of preference similar to the Twin City Bank's preferred stock previously held. The plan of exchange was approved by the Federal Reserve Bank of St. Louis and other appropriate regulatory agencies and was accounted for as a pooling-of-interests. Twin City Bank's financial statements are included in the consolidated financial statements for all periods presented. In March 1992, the Company was the successful bidder on approximately $142 million of deposit accounts, previously held by Home Federal Savings and Loan, in a liquidation sale conducted by the Resolution Trust Corporation. The Company paid a deposit premium of approximately $925,000, which will be amortized over 5 to 10 years. In conjunction with the purchase of the deposit accounts, Twin City Bank paid a $2,500,000 special dividend of which $2,475,880 was paid to the Company to enable the Company to make an initial capital contribution to a newly chartered national bank, The Community Bank of Batesville, Arkansas (Batesville). Batesville was formed to purchase certain assets and assume certain liabilities from the Resolution Trust Corporation in connection with the Company's successful bid to acquire the Batesville Branch of the former Home Federal Savings and Loan. 16 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 3. Investment Securities The amortized cost and estimated market value of investment securities at December 31, 1993 are as follows:
1993 ----------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Values ----------------------------------------------------------- United States Treasury securities and obligations of United States Government agencies and corporations $153,713,471 $ 6,706,738 $ (72,395) $160,347,814 Obligations of states and political subdivisions 99,496,415 5,367,324 (260,385) 104,603,354 Mortgage-backed securities 323,006,834 4,209,144 (2,259,299) 324,956,679 ----------------------------------------------------------- Total debt securities 576,216,720 16,283,206 (2,592,079) 589,907,847 SLMA stock 365,000 - - 365,000 Federal Reserve Bank stock 303,711 - - 303,711 ----------------------------------------------------------- Total investment securities $576,885,431 $16,283,206 $(2,592,079) $590,576,558 ===========================================================
The amortized cost and estimated market value of investment securities at December 31, 1992 are as follows:
1992 ----------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Values ----------------------------------------------------------- United States Treasury securities and obligations of United States Government agencies and corporations $139,862,977 $ 3,529,224 $ (845,618) $142,546,583 Obligations of states and political subdivisions 80,546,757 3,675,941 (157,626) 84,065,072 Mortgage-backed securities 323,184,980 4,865,747 (552,389) 327,498,338 Other debt securities 267 - - 267 ----------------------------------------------------------- Total debt securities 543,594,981 12,070,912 (1,555,633) 554,110,260 SLMA stock 365,000 - - 365,000 Federal Reserve Bank stock 202,100 - - 202,100 ----------------------------------------------------------- Total investment securities $544,162,081 $12,070,912 $(1,555,633) $554,677,360 ===========================================================
17 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 3. Investment Securities (continued) The amortized cost and estimated market value of investment securities at December 31, 1993, by contractual maturity, are shown below. Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Estimated Amortized Market Cost Value ---------------------------------------- Due in one year or less $ 19,402,216 $ 19,677,137 Due in one year through five years 108,109,310 112,949,554 Due after five years through ten years 57,392,780 60,156,770 Due after ten years 68,305,580 72,167,707 ---------------------------------------- 253,209,886 264,951,168 Mortgage-backed securities 323,006,834 324,956,679 ---------------------------------------- Total debt securities 576,216,720 589,907,847 SLMA stock 365,000 365,000 Federal Reserve Bank stock 303,711 303,711 ---------------------------------------- Total investment securities $576,885,431 $590,576,558 ========================================
The Company maintains an allowance for permanent declines in value on obligations of state and political subdivisions and the SLMA preferred stock. The allowance was $90,000 and $2,240,000 at December 31, 1993 and 1992, respectively. During 1992 and 1991, provisions for permanent declines in value of $567,643 and $955,837, respectively, were recorded and included in net securities gains and losses. No such provisions were made in 1993. Proceeds from sales of investments in debt securities during 1993, 1992 and 1991 were $4,779,402, $105,529,913 and $107,786,441, respectively. Gross gains of $1,382,963, $3,178,678 and $1,640,375 and gross losses of $(3,561), $(544,827) and $(1,072,824) in 1993, 1992 and 1991, respectively, were realized on those sales. Investment securities with a book value of approximately $240,235,000 and $223,241,000 were pledged to secure public deposits and for other purposes as required by law, at December 31, 1993 and 1992, respectively. 18 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 4. Allowance for Loan Losses and Nonperforming Loans Summarized below are the transactions in the allowance for loan losses:
1993 1992 1991 ------------------------------------------------------------- Balance at January 1 $7,134,801 $ 6,236,160 $ 5,038,168 Provision for loan losses 1,224,309 2,085,784 2,150,834 Allowance for loan losses on loans purchased - - 228,289 Charge-offs (deduction) (812,381) (1,763,083) (1,568,680) Recoveries 376,068 575,940 387,549 ------------------------------------------------------------- Net charge-offs (436,313) (1,187,143) (1,181,131) ------------------------------------------------------------- Balance at December 31 $7,922,797 $ 7,134,801 $ 6,236,160 =============================================================
The following table presents information concerning the aggregate amount of nonperforming loans:
1993 1992 1991 -------------------------------------------------- Nonaccrual loans $2,210,327 $4,810,139 $7,117,974 Accruing loans past due ninety days or more as to interest or principal payments 2,444,667 626,881 1,160,913 Interest income that would have been recorded under original terms for nonaccrual loans 180,134 445,401 625,430 Interest income recorded during the period for nonaccrual loans 61,954 78,688 266,806
Interest is not accrued on loans when principal or interest is in default for 90 days or more unless the loans are well secured and in the process of collection. The Company's state banking subsidiary is required by state bank regulations to place on nonaccrual status loans 105 days or more past due. There were no significant commitments to lend additional funds to borrowers included in the nonperforming loan categories. 19 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 5. Premises and Equipment A summary of premises and equipment is as follows:
1993 1992 ---------------------------------------- Land and land improvements $ 2,867,676 $ 2,499,296 Buildings and building improvements 18,171,774 15,923,501 Leasehold improvements 4,830,727 2,534,156 Furniture, fixtures and equipment 11,844,234 9,162,434 Construction in progress 1,352,787 1,089,149 Less accumulated depreciation and amortization (12,594,440) (10,382,834) ---------------------------------------- $ 26,472,758 $ 20,825,702 ========================================
Depreciation and amortization of bank premises and equipment was $2,159,403, $1,832,593, and $1,411,276 in 1993, 1992, and 1991, respectively. 6. Deposits The following summarizes information on deposits as of December 31:
1993 1992 ------------------------------------------ Demand, noninterest bearing $ 118,641,794 $106,841,560 Demand, interest bearing: NOW accounts 171,886,904 162,279,947 Money market accounts 99,803,557 90,129,469 Savings 65,920,899 53,937,162 Certificates of deposit 629,222,210 567,488,907 ------------------------------------------ $1,085,475,364 $980,677,045 ========================================== Certificates of deposit of $100,000 or more $ 179,646,000 $157,156,141 ==========================================
20 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 7. Notes Payable and Capital Notes Notes payable consists of the following:
1993 1992 ------------------------------------- Note payable at prime (6% at December 31, 1993), payable $185,000 plus interest quarterly through November 1, 1994; collateralized by the common stock of subsidiary banks owned by the Company $5,205,000 $5,760,000 Amortizing revolving line of credit at LIBOR plus 2.25% (5.5625% at December 31, 1993), payable $63,625 plus interest quarterly through November 1, 1995; collateralized by the common stock of subsidiary banks owned by the Company 2,289,500 2,480,000 -------------------------------------- $7,494,500 $8,240,000 ======================================
Maturities of long-term debt are $5,459,500 in 1994 and $2,035,000 in 1995. The loan agreements for both notes include, among other things, provisions relative to additional borrowings, maintenance of capital, and restrictions on the payment of cash dividends, which are no more restrictive than those required by the bank regulators (see Note 12). The amortizing revolving line of credit increased to $8 million effective January 1, 1993 making $5,710,500 available to the Company at December 31, 1993. Capital Notes are unsecured obligations which bear interest at 9.5% and are payable serially through June 30, 1995. Principal payments are $17,500 in 1994 with the remaining balance of $140,000 payable in 1995. 8. Income Taxes Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method as required by FASB Statement No. 109 (See Note 1). Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting 21 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 8. Income Taxes (continued) purposes and the amounts used for income tax purposes. The significant components of the Companys deferred tax liabilities and assets as of December 31, 1993 are as follows: Deferred tax liabilities: Purchase accounting-basis differences $ 596,576 Prepaid assets 278,668 Prepaid pension 278,930 Other 10,577 -------------- Total deferred tax liabilities 1,164,751 Deferred tax assets: Loan loss reserve 2,574,318 Other real estate owned 479,655 Other 523,040 -------------- Total deferred tax assets 3,577,013 -------------- Net deferred tax assets $2,412,262 ==============
The income tax provision (benefit) consists of the following:
Liability Method Deferred Method 1993 1992 1991 -------------------------------------------------------------- Current: Federal $5,329,915 $4,854,262 $2,785,443 State 472,761 474,385 173,880 -------------------------------------------------------------- Total current provision 5,802,676 5,328,647 2,959,323 Deferred: Federal (329,227) (314,805) (227,940) State (35,873) (72,845) (66,769) -------------------------------------------------------------- Total deferred benefit (365,100) (387,650) (294,709) -------------------------------------------------------------- Provision for income taxes $5,437,576 $4,940,997 $2,664,614 ==============================================================
22 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 8. Income Taxes (continued) The sources of timing differences resulting in deferred income taxes and the approximate income tax effect of each under the deferred method of accounting for income taxes are as follows:
Deferred Method -------------------------------------- 1992 1991 -------------------------------------- Deferred compensation $ 425,192 $ 40,670 Depreciation (252,415) 8,564 Provision for possible loan losses (324,709) (361,640) Net employee benefit accruals 16,962 76,552 Discounts on investment securities (144,394) (89) Other (108,286) (58,766) -------------------------------------- $(387,650) $(294,709) ======================================
The reasons for the difference between the effective income tax rates and the statutory Federal income tax rate are as follows:
1993 1992 1991 --------------------------------------------------------- Federal income tax rate 35.0% 34.0% 34.0% Nontaxable interest income (9.5) (9.1) (13.6) Other, net .9 2.0 1.9 --------------------------------------------------------- Effective income tax rate 26.4% 26.9% 22.3% =========================================================
The provision for income taxes includes income taxes applicable to investment securities gains of $541,139 in 1993, $1,008,502 in 1992, and $210,696 in 1991. The Company made income tax payments of approximately $5,208,000, $4,474,000, and $1,921,000 during 1993, 1992, and 1991, respectively. 9. Commitments At December 31, 1993 future minimum payments under noncancelable operating leases for branch or office locations with initial or remaining terms of one year or more are $978,551, $954,941, $904,859, $707,990, and $398,276 for l994 through 1998, respectively, and $1,454,661 thereafter. Net rental expense for all operating leases amounted to $1,031,538 in 1993, $735,780 in 1992 and $652,577 in 1991. The lease 23 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 9. Commitments (continued) agreements contain options to renew at various dates for periods ranging from five to twenty-one years. Eight of the locations, with future minimum lease payments totaling approximately $2,537,000, are leased from officers and/or directors of the Company. At December 31, 1993, future minimum payments due under noncancelable data processing agreements are approximately $1,392,000, $1,479,000, $1,553,000, $1,630,000, and $1,712,000 for 1994 through 1998, respectively. Additional amounts may be due based on the number of transactions processed by the servicer and annual payments may increase by up to 5% based on the Consumer Price Index. In the normal course of business there are various commitments outstanding, such as guarantees and commitments to extend credit, including standby letters of credit to assure performance or to support debt obligations, and loans sold subject to repurchase agreements, which are not reflected in the accompanying consolidated financial statements. These arrangements have credit risk essentially the same as that involved in extending loans to customers. The Company's exposure to credit loss in the event of nonperformance by the other party to financial instruments for commitments to extend credit, standby letters of credit, and loans sold subject to repurchase agreements is represented by the contractual amount of those instruments. The Company 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 were as follows:
December 31 1993 1992 -------------------------------------- Commitments to extend credit $89,714,114 $66,278,842 Standby letters of credit 5,064,195 3,204,951 Loans sold subject to repurchase agreement 21,721,000 15,201,000
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 some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customers credit-worthiness on a case-by-case basis. The 24 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 9. Commitments (continued) amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management's credit evaluation of the counter-party. Collateral held varies but may include real estate, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and similar transactions. In 1993, the Company sold approximately $30,000,000 of loans to third parties subject to repurchase agreements. These agreements generally require the Company to repurchase loans that do not meet the standards of the related sale agreements or that become 90 days delinquent within a stated period of time (90 to 365 days) after being sold to the permanent investor. At December 31, 1993, the Company did not hold any loans which it had been required to repurchase. 10. Concentration of Credit Risk Most of the Company's lending activity is with customers located within the state of Arkansas. The loan portfolio is diversified with no industry comprising greater than 10% of total loans. The Company's subsidiary banks require collateral on most loans and generally maintain loan to value ratios of no greater than 80%. 11. Transactions with Related Parties The Company's bank subsidiaries have had, and expect to have in the future, banking transactions in the ordinary course of business with officers and directors of the Company and its subsidiaries. Such transactions have been on similar terms, including interest rates and collateral on loans, as those prevailing at the time for comparable transactions with others, and have involved no more than normal risk or other potential unfavorable aspects. Loans made to such borrowers (including companies in which they are principal owners) amounted to approximately $15,171,000 at December 31, 1993 and $18,455,000 at December 31, 1992. 12. Dividend Restrictions The Company has five national bank subsidiaries and one state bank subsidiary. National and state banking regulations place certain restrictions on the ability of banks to pay dividends without regulatory approvals. The approval of the Comptroller of the Currency is required for national banks to pay dividends in excess of earnings retained in the 25 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 12. Dividend Restrictions (continued) current year plus retained net profits for the preceding two years. State-chartered banks may pay dividends up to 50% of current year net income without obtaining regulatory approval. 13. Supplemental Cash Flow Information The Company paid $33,458,989, $36,825,378, and $43,561,498 in interest on deposits and other borrowings during 1993, 1992, and 1991, respectively. 14. Pension Plan The Company provides a defined benefit pension plan which covers substantially all employees of the Company meeting certain age and length of service requirements. The benefits are based on years of service and the employee's average compensation during the last five years of employment. The Company's funding policy is to contribute annually the maximum that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. The following table sets forth the plan's funded status:
December 31 1993 1992 1991 ------------------------------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $3,912,867 in 1993, $3,715,016 in 1992, and $3,325,998 in 1991 $(4,336,497) $(4,447,529) $(4,077,148) ================================================= Projected benefit obligation for service rendered to date $(5,974,079) $(5,728,043) $(4,447,384) Plan assets at fair value, primarily listed stocks and U.S. bonds 5,140,385 4,521,834 4,099,032 ------------------------------------------------- Projected benefit obligation in excess of plan assets (833,694) (1,206,209) (348,352) Unrecognized net loss 1,542,079 379,745 215,882 Unrecognized net asset at January 1 (51,841) (57,601) (63,361) Unrecognized prior service cost (364,493) 897,121 134,592 ------------------------------------------------- Prepaid (accrued) pension cost $ 292,051 $ 13,056 $ (61,239) =================================================
26 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 14. Pension Plan (continued) Net pension cost included the following components:
Year ended December 31 1993 1992 1991 ---------------------------------------------- Service cost--benefits earned during the year $ 326,636 $ 308,531 $ 278,025 Interest cost on projected benefit obligations 450,652 426,139 357,076 Actual return on plan assets (277,771) (165,314) (532,130) Net amortization and deferral (173,255) (173,494) 149,104 ---------------------------------------------- Net periodic pension cost $ 326,262 $ 395,862 $ 252,075 ==============================================
Assumptions used in determining net periodic pension cost for the defined benefit plan were:
Year ended December 31 1993 1992 1991 ---------------------------------------------- Weighted-average discount rate 7.50% 8.25% 8.25% Annual compensation increases 5.00 5.00 5.00 Expected long-term rate of return on plan assets 10.00 10.00 10.00
In 1993, the Company approved a defined contribution 401(k) plan which covers all eligible employees who attain the age of eighteen and are employed by the Company. The Company's policy is to match employee contributions up to three percent of each participant's annual compensation. Plan contribution expense for the year ended December 31, 1993 was approximately $138,000. 15. Restrictions on Cash and Due from Banks The Company is required to maintain reserve balances with the Federal Reserve Bank. The average amount of those reserve balances was approximately $10,764,000 in 1993 and $9,443,500 in 1992. 16. Fair Values of Financial Instruments FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using 27 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 16. Fair Values of Financial Instruments (continued) present value, discounted cash flows, or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value to the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and short-term instruments approximate the fair values of these assets. Investment securities (including mortgage-backed securities): Fair values of investment securities are primarily based on quoted market prices (see Note 3). Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values approximate carrying amounts. The fair values for construction and mortgage real estate, installment and commercial, financial and agricultural loans, with fixed rates, are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount and estimated fair value of loans net of the allowance for loan losses consisted of the following:
Carrying Estimated Fair Amount Value --------------------------------------- December 31, 1993 $554,074,813 $553,575,000 December 31, 1992 456,052,990 458,414,000
Deposit liabilities: The fair values for demand deposits (e.g., interest and noninterest checking, passbook savings, and certain types of money market accounts), are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed term money market 28 TCBankshares, Inc. Notes to Consolidated Financial Statements (continued) 16. Fair Values of Financial Instruments (continued) accounts approximate their fair values at the reporting date. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of aggregated expected monthly maturities of certificates of deposit. For deposits with no defined maturities, fair value is the amount payable on demand. The carrying amounts reported in the balance sheet for demand deposits, money market and passbook savings accounts approximate their fair values. The carrying amount and estimated fair value of certificates of deposit consisted of the following:
Carrying Estimated Fair Amount Value --------------------------------------- December 31, 1993 $629,222,210 $630,984,000 December 31, 1992 567,488,907 568,723,000
Short-term borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings approximate their fair values. Off-balance sheet financial instruments: The Company has two types of off-balance sheet financial instruments--commitments to extend credit and standby letters of credit. These types of credit are made at market rates; therefore, there would be no market risk associated with these credits which would create a significant fair value liability for the Company. 29 TCBankshares, Inc. Consolidated Balance Sheets
SEPTEMBER 30 1994 1993 --------------------------------------------- (Unaudited) ASSETS Cash and due from banks $ 47,173,534 $ 33,644,359 Federal funds sold - 1,975,000 --------------------------------------------- Total cash and cash equivalents 47,173,534 35,619,359 Interest bearing deposits with other banks 299,919 3,290,960 Investment securities held to maturity--at amortized cost (estimated market value): 1994--$265,405,540; 1993--$590,576,558) 269,965,563 559,066,471 Investment securities available for sale (net of unrealized market depreciation of $15,631,643) 334,523,427 - Loans, net of unearned income 659,049,901 536,149,080 Allowance for loan losses (8,203,448) (8,022,586) --------------------------------------------- Net loans 650,846,453 528,126,494 Premises and equipment, net 27,660,565 24,768,720 Deferred tax asset 7,922,635 2,255,863 Other assets 19,855,628 19,492,443 --------------------------------------------- Total assets $1,358,247,724 $1,172,620,310 =============================================
30
SEPTEMBER 30 1994 1993 --------------------------------------------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest bearing deposits $ 126,902,971 $ 126,337,538 Interest bearing deposits 1,022,461,844 910,655,557 --------------------------------------------- Total deposits 1,149,364,815 1,036,993,095 Federal funds purchased and securities sold under agreements to repurchase 53,005,126 32,107,265 Other borrowings 50,771,192 - Notes payable 6,748,625 7,743,125 Other liabilities 8,918,015 10,868,963 --------------------------------------------- Total liabilities 1,268,807,773 1,087,712,448 Shareholders' equity: Preferred stock, Series A, noncumulative, non-voting, $10 par value; liquidation value-- $500 per share: Authorized shares--5,500; Issued and outstanding shares--5,306 53,060 53,060 Preferred stock, Series B, 8.5%, cumulative, nonvoting, $10 par value; liquidation value-- $1,000 per share: Authorized shares--9,500; Issued and outstanding shares--9,500 95,000 95,000 Common stock, $50 par value: Authorized shares--5,500 Issued and outstanding shares--2,131.74 106,587 106,587 Capital surplus: Common stock 9,181,762 9,181,762 Preferred stock 12,004,940 12,004,940 Retained earnings 77,644,889 63,466,513 Reserve for unrealized depreciation on investment securities available for sale (9,646,287) - --------------------------------------------- Total shareholders' equity 89,439,951 84,907,862 --------------------------------------------- Total liabilities and shareholders' equity $1,358,247,724 $1,172,620,310 =============================================
31 TCBankshares, Inc. Consolidated Statements of Income
NINE MONTHS ENDED SEPTEMBER 30 1994 1993 --------------------------------------------- (Unaudited) Interest income: Loans, including fees $35,595,861 $30,332,755 Investment securities: Taxable 23,049,499 23,465,999 Tax-exempt 4,600,622 4,269,610 Other 256,240 333,123 --------------------------------------------- Total interest income 63,502,222 58,401,487 Interest expense: Deposits 26,044,230 23,946,245 Other 1,979,336 1,078,592 --------------------------------------------- Total interest expense 28,023,566 25,024,837 --------------------------------------------- Net interest income 35,478,656 33,376,650 Provision for loan losses 456,245 1,025,168 --------------------------------------------- Net interest income after provision for loan losses 35,022,411 32,351,482 Other income: Service charges on deposit accounts 4,475,633 3,989,990 Investment securities gains, net 1,347,886 1,379,944 Trust fees 683,749 565,114 Gain on sale of loans 310,519 453,294 Other 2,900,187 1,933,015 --------------------------------------------- 9,717,974 8,321,357 Other expenses: Salaries and employee benefits 13,302,825 11,359,662 Net occupancy and equipment expense 4,291,884 3,540,322 Merchandising expense 2,119,651 1,999,831 FDIC assessment 1,818,749 1,649,951 Other 6,961,986 6,540,433 --------------------------------------------- 28,495,095 25,090,199 --------------------------------------------- Income before income taxes 16,245,290 15,582,640 Income taxes 4,534,489 4,136,639 --------------------------------------------- Net income $11,710,801 $11,446,001 =============================================
32 TCBankshares, Inc. Consolidated Statements of Cash Flows
NINE MONTHS ENDED SEPTEMBER 30 1994 1993 --------------------------------------------- (Unaudited) OPERATING ACTIVITIES Net income $ 11,710,801 $ 11,446,001 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 456,245 1,025,168 Provision for depreciation and losses on other real estate 94,428 151,431 Depreciation and amortization 2,157,217 1,830,679 Amortization of intangible assets 209,175 202,925 Amortization of investment security premiums, net of accretion of discounts (377,382) 1,018,600 Gain on sale of loans (310,519) (453,294) (Gain) loss on sales of other real estate (455,273) 6,270 (Gain) loss on disposal of premises and equipment (37,400) (23,194) First mortgage loans held for resale: Proceeds collected on loans sold 48,885,348 55,724,695 Loans made to customers (41,144,803) (59,352,502) Realized investment security gains (1,347,886) (1,379,944) (Increase) decrease in other assets (2,865,725) 745,195 Increase in other liabilities 501,148 2,663,949 --------------------------------------------- Net cash provided by operating activities 17,475,374 13,605,979 INVESTING ACTIVITIES Net increase in loans (105,108,511) (68,815,375) Purchases of premises and equipment (3,524,331) (5,878,471) Proceeds from sales of premises and equipment 319,553 189,847 Purchases of investment securities available for sale (111,969,957) - Purchases of investment securities held to maturity (184,737,666) (157,019,206) Proceeds from maturing investment securities held to maturity 11,934,639 137,696,216 Proceeds from maturing investment securities available for sale 90,258,821 - Proceeds from sale of investment securities held to maturity - 4,779,944 Proceeds from sales of investment securities available for sale 153,004,229 - Net (increase) decrease in interest bearing deposits with other banks 992,605 1,467,302 Proceeds from sales of other real estate 2,893,785 607,178 --------------------------------------------- Net cash used in investing activities (145,936,833) (86,972,565) FINANCING ACTIVITIES Net increase in deposits 63,889,453 56,316,050 Net increase in short-term borrowings 17,658,694 7,977,213 Cash dividends paid (1,020,613) (1,020,207) Net increase in other borrowings 50,771,192 - Principal payments on notes payable (745,875) (496,875) Principal payment on capital note (157,500) (17,500) --------------------------------------------- Net cash provided by financing activities 130,395,351 62,758,681 --------------------------------------------- Increase (decrease) in cash and cash equivalents 1,933,892 (10,607,905) Cash and cash equivalents at beginning of period 45,239,642 46,227,264 --------------------------------------------- Cash and cash equivalents at end of period $ 47,173,534 $ 35,619,359 =============================================
33 TCBankshares, Inc. Consolidated Statements of Shareholders' Equity
CAPITAL SURPLUS ------------------------ PREFERRED STOCK COMMON COMMON PREFERRED RETAINED ---------------------- SERIES A SERIES B STOCK STOCK STOCK EARNINGS TOTAL ------------------------------------------------------------------------------------- (Unaudited) Balance at January 1, 1993 $53,060 $95,000 $106,587 $9,181,762 $12,004,940 $53,040,719 $74,482,068 Cash dividends: Preferred stock, Series A - - - - - (212,240) (212,240) Preferred stock, Series B - - - - - (807,500) (807,500) Common stock - - - - - (255,404) (255,404) -------------------------------------------------------------------------------------- Balance at December 31, 1993 53,060 95,000 106,587 9,181,762 12,004,940 66,954,701 88,396,050 Net income - - - - - 11,710,801 11,710,801 Depreciation on investments available-for-sale - - - - - (9,646,287) (9,646,287) Cash dividends: Preferred stock, Series A - - - - - (159,180) (159,180) Preferred stock, Series B - - - - - (605,625) (605,625) Common stock - - - - - (255,808) (255,808) -------------------------------------------------------------------------------------- Balance at September 30, 1994 $53,060 $95,000 $106,587 $9,181,762 $12,004,940 $67,998,602 $89,439,951 ======================================================================================
34 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements -- The following historical financial statements of TCB have been filed pursuant to "Item 5 -- Other Events" of the report: Independent Auditor's Report Consolidated Balance Sheets as of December 31, 1993 and 1992 Consolidated Statements of Income for the Years Ended December 31, 1993, 1992 and 1991 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1992 and 1991 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991 Notes to Consolidated Financial Statements--December 31, 1993 Consolidated Balance Sheets as of September 30, 1994 and 1993 (Unaudited) Consolidated Statements of Income for the Nine Months Ended September 30, 1994 and 1993 (Unaudited) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1994 and 1993 (Unaudited) Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 1994 and 1993 (Unaudited) (b) Not Applicable. (c) Exhibits -- The following exhibits are filed with this report: 2.1 Agreement and Plan of Reorganization, dated December 2, 1994, by and between MBI and TCB. 2.2 Support Agreement, dated December 2, 1994, by and between MBI and Frank Lyon, Jr. 2.3 Support Agreement, dated December 2, 1994, by and between MBI and T. Renaud. 20 Press Release, dated December 5, 1994, by MBI. 23.1 Consent of Ernst & Young LLP with regard to the use of its report on TCB's financial statements. - 4 - 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned heretofore duly authorized. MERCANTILE BANCORPORATION INC. Dated: December 21, 1994 By:/s/Michael T. Normile ----------------------------------- Michael T. Normile Senior Vice President and Treasurer - 5 - 36 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 2.1 Agreement and Plan of Reorganization, dated December 2, 1994, by and between MBI and TCB. 2.2 Support Agreement, dated December 2, 1994, by and between MBI and Frank Lyon, Jr. 2.3 Support Agreement, dated December 2, 1994, by and between MBI and T. Renaud. 20 Press Release, dated December 5, 1994, by MBI. 23.1 Consent of Ernst & Young LLP with regard to the use of its report on TCB's financial statements. - 6 - EX-2.1 2 AGREEMENT AND PLAN OF REORGANIZATION 1 ========================================================================= AGREEMENT AND PLAN OF REORGANIZATION between MERCANTILE BANCORPORATION INC., as Buyer, and TCBANKSHARES, INC. as Seller ------------------------------ Dated December 2, 1994 ========================================================================= 2 AGREEMENT AND PLAN OF REORGANIZATION ------------------------------------ This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered into on December 2, 1994 by and between MERCANTILE BANCORPORATION INC., a Missouri corporation ("Buyer"), and TCBankshares, Inc., an Arkansas corporation (together with its predecessors, "Seller"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Buyer is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the "Holding Company Act"); and WHEREAS, Seller is a registered bank holding company under the Holding Company Act; and WHEREAS, the Board of Directors of Seller and the Board of Directors of Buyer have approved the merger (the "Merger") of Seller with and into a wholly owned subsidiary of Buyer organized or to be organized under the laws of Arkansas ("Merger Sub") pursuant to the terms and subject to the con- ditions of this Agreement; and WHEREAS, as a condition to, and immediately after the execution of this Agreement, Buyer, Frank Lyon, Jr. and T.E. Renaud will enter into Support Agreements (the "Support Agreements") in the form attached hereto as Exhibit A; and 3 WHEREAS, the parties desire to provide for certain undertakings, conditions, representations, warranties and covenants in connection with the transactions contemplated by this Agreement. NOW THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties agree as follows: ARTICLE I --------- THE MERGER 1.01. The Merger. (a) Subject to the terms and ---------- conditions of this Agreement, Seller shall be merged with and into Merger Sub in accordance with the Arkansas Business Corporation Act of 1987 (the "Arkansas Act") and the separate corporate existence of Seller shall cease. Merger Sub shall be the surviving corporation of the Merger (sometimes referred to herein as the "Surviving Corporation") and shall continue to be governed by the laws of the State of Arkansas. 1.02. Closing. The closing (the "Closing") of the ------- Merger shall take place at 10:00 a.m., local time, on the date that the Effective Time (as defined in Section 1.03) occurs, or at such other time, and at such place, as Buyer and Seller shall agree (the "Closing Date"). -2- 4 1.03. Effective Time. The Merger shall become -------------- effective on the date and at the time (the "Effective Time") on which a duly certified, executed and acknowledged copy of a certificate of merger in respect of the Merger is filed with the Secretary of State of the State of Arkansas in such form as required by, and in accordance with, the relevant provisions of the Arkansas Act. Subject to the terms and conditions of this Agreement, the Effective Time shall occur on such date as Buyer shall notify Seller in writing (such notice to be at least five business days in advance of the Effective Time) but (i) not earlier than the satisfaction of all conditions set forth in Section 6.01(a) and 6.01(b) (the "Approval Date") and (ii) subject to clause (i), not later than the first business day of the first full calendar month commencing at least five business days after the Approval Date. As soon as practicable following the Effective Time, Buyer and Seller shall cause a certificate or plan of merger reflecting the terms of this Agreement to be delivered for filing and recordation with other appropriate state or local officials in the State of Arkansas in accordance with the Arkansas Act. 1.04. Additional Actions. If, at any time after the ------------------ Effective Time, Buyer or the Surviving Corporation shall consider or be advised that any further deeds, assignments or -3- 5 assurances or any other acts are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of Seller or Merger Sub or (b) otherwise carry out the purposes of this Agreement, Seller and Merger Sub and each of their respective officers and directors, shall be deemed to have granted to the Surviving Corporation an irrevocable power of attorney to execute and deliver all such deeds, assignments or assurances and to do all acts necessary or desirable to vest, perfect or confirm title and possession to such rights, properties or assets in the Surviving Corporation and otherwise to carry out the purposes of this Agreement, and the officers and directors of the Surviving Corporation are authorized in the name of Seller or otherwise to take any and all such action. 1.05. Articles of Incorporation and Bylaws. The ------------------------------------ Articles of Incorporation and Bylaws of Merger Sub in effect immediately prior to the Effective Time shall be the Articles of Incorporation and Bylaws of the Surviving Corporation following the Merger until otherwise amended or repealed. 1.06. Boards of Directors and Officers. At the -------------------------------- Effective Time, the directors and officers of Merger Sub immediately prior to the Effective Time shall be directors and officers, respectively, of the Surviving Corporation -4- 6 following the Merger; such directors and officers shall hold office in accordance with the Surviving Corporation's Bylaws and applicable law. 1.07. Conversion of Securities. At the Effective ------------------------ Time, by virtue of the Merger and without any action on the part of Buyer, Seller or the holder of any of the following securities: (i) Each share of the common stock, par value $.01 per share, of Merger Sub that is issued and outstanding immediately prior to the Effective Time shall remain out- standing and shall be unchanged after the Merger and shall thereafter constitute all of the issued and outstanding capital stock of the Surviving Corporation; and (ii) Each share of the common stock, par value $50.00 per share ("Seller Common Stock"), of Seller issued and outstanding immediately prior to the Effective Time shall cease to be outstanding and shall be converted into and become the right to receive 2,228.2299 (the "Exchange Ratio") of a share of common stock, par value $5.00 per share ("Buyer Common Stock"), of Buyer; provided, however, -------- ------- that any shares of Seller Common Stock held by Seller or any of its wholly owned Subsidiaries (as defined in Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange Commission (the "SEC")), or Buyer or any of its wholly owned Subsidiaries, in -5- 7 each case other than in a fiduciary capacity or as a result of debts previously contracted, shall be cancelled and shall not represent capital stock of the Surviving Corporation and shall not be exchanged for shares of Buyer Common Stock; and (iii) Each of the shares of Preferred Stock, Series A, par value $10.00 per share of Seller (the "Seller Series A Preferred Stock" and, collectively with the Seller Series B Preferred Stock (as defined in clause (iv) below), the "Seller Preferred Stock"), issued and outstanding imme- diately prior to the Effective Time shall cease to be out- standing and shall be converted into and become the right to receive one share of preferred stock, no par value, of Buyer designated as "Series B-1 Preferred Stock" (the "Buyer Series B-1 Preferred Stock"), with the same terms, designa- tions, preferences, limitations, privileges, and relative rights as the Seller Series A Preferred Stock; and (iv) Each of the shares of Preferred Stock, Series B, par value $10.00 per share of Seller (the "Seller Series B Preferred Stock" and, collectively with the Seller Common Stock and the Seller Series A Preferred Stock, the "Seller Capital Stock"), issued and outstanding immediately prior to the Effective Time shall cease to be outstanding and shall be converted into and become the right to receive one share of preferred stock, no par value, of Buyer designated as "Series -6- 8 B-2 Preferred Stock" (the "Buyer Series B-2 Preferred Stock" and, together with the Buyer Series B-1 Preferred Stock, the "Buyer New Preferred Stock"), with the same terms, designations, preferences, limitations, privileges, and relative rights as the Seller Series B Preferred Stock. 1.08. Exchange Procedures. (a) At the Effective -------------------- Time, holders of record of certificates formerly representing shares of Seller Common Stock and Seller Preferred Stock (the "Certificates") shall be instructed to tender such Certificates to Buyer pursuant to a letter of transmittal that Buyer shall deliver or cause to be delivered to such holders. Such letters of transmittal shall specify that risk of loss and title to Certificates shall pass only upon delivery of such Certificates to Buyer. (b) Subject to Section 1.09, after the Effective Time, each previous holder of a Certificate that surrenders such Certificate to the Buyer will, upon acceptance thereof by Buyer be entitled to a certificate or certificates rep- resenting the number of full shares of Buyer Common Stock or Buyer New Preferred Stock, as appropriate, into which the Certificate so surrendered shall have been converted pursuant to this Agreement and any distribution theretofore declared and not yet paid with respect to such shares of Buyer Common -7- 9 Stock or Buyer New Preferred Stock, as appropriate, without interest. (c) Buyer shall accept Certificates upon compli- ance with such reasonable terms and conditions as Buyer may impose to effect an orderly exchange thereof in accordance with customary exchange practices. Certificates shall be appropriately endorsed or accompanied by such instruments of transfer as Buyer may require. (d) Each outstanding Certificate shall until duly surrendered to Buyer be deemed to evidence ownership of the consideration into which the stock previously represented by such Certificate shall have been converted pursuant to this Agreement. (e) After the Effective Time, holders of Certif- icates shall cease to have rights with respect to the stock previously represented by such Certificates, and their sole rights shall be to exchange such Certificates for the con- sideration provided for in this Agreement. After the Ef- fective Time, there shall be no further transfer on the records of Seller of Certificates, and if such Certificates are presented to Seller for transfer, they shall be cancelled against delivery of the consideration provided therefor in this Agreement. Buyer shall not be obligated to deliver the consideration to which any former holder of Seller Common -8- 10 Stock or Seller Preferred Stock is entitled as a result of the Merger until such holder surrenders the Certificates as provided herein. No dividends declared will be remitted to any person entitled to receive Buyer Common Stock or Buyer New Preferred Stock under this Agreement until such person surrenders the Certificate representing the right to receive such Buyer Common Stock and Buyer New Preferred Stock, at which time such dividends shall be remitted to such person, without interest and less any taxes that may have been imposed thereon. Certificates surrendered for exchange shall not be exchanged until Buyer has received a written agreement from such person in the form attached as Exhibit B. No party to this Agreement nor any affiliate thereof shall be liable to any holder of stock represented by any Certificate for any consideration paid to a public official pursuant to applicable abandoned property, escheat or similar laws. Buyer shall be entitled to rely upon the stock transfer books of Seller to establish the identity of those persons entitled to receive consideration specified in this Agreement, which books shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Certificate, Buyer shall be entitled to deposit any consideration represented thereby in escrow with an independent third party and thereafter be relieved with respect to any claims thereto. -9- 11 1.09. No Fractional Shares. Notwithstanding any -------------------- other provision of this Agreement, neither certificates nor scrip for fractional shares of Buyer Common Stock shall be issued in the Merger. Each holder who otherwise would have been entitled to a fraction of a share of Buyer Common Stock shall receive in lieu thereof cash (without interest) in an amount determined by multiplying the fractional share in- terest to which such holder would otherwise be entitled by the Closing Price per share of Buyer Common Stock on the last business day preceding the Effective Time. With respect to a share of stock, "Closing Price" shall mean: the closing price as reported on the Consolidated Tape (as reported in The Wall Street Journal or in the absence ----------------------- thereof, by any other authoritative source). No such holder shall be entitled to dividends, voting rights or any other rights in respect of any fractional share. 1.10. Anti-Dilution Adjustments. If prior to the ------------------------- Effective Time Buyer shall declare a stock dividend or make distributions upon or subdivide, split up, reclassify or combine Buyer Common Stock or declare a dividend or make a distribution on Buyer Common Stock in any security convert- ible into Buyer Common Stock, appropriate adjustment or ad- justments will be made to the Exchange Ratio. -10- 12 1.11. Reservation of Right to Revise Transaction. ------------------------------------------ Buyer may at any time change the method of effecting the ac- quisition of Seller or Seller's Subsidiaries by Buyer (including without limitation the provisions of this Article I) if and to the extent it deems such change to be desirable, including without limitation to provide for a merger of Seller directly into Buyer, in which Buyer is the surviving corporation, provided, however, that no such change shall (A) -------- ------- alter or change the amount or kind of consideration to be is- sued to holders of Seller Common Stock and Seller Preferred Stock as provided for in this Agreement (the "Merger Consid- eration"), (B) adversely affect, in the reasonable opinion of Seller, the tax treatment to Seller shareholders as a result of receiving the Merger Consideration, (C) materially impede or delay receipt of any approval referred to in Section 6.01(b), (D) conflict with any other provision of this Agreement, or (E) impede or prevent satisfaction of any condition set forth in Article VI. ARTICLE II ---------- REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER Seller represents and warrants to and covenants with Buyer as follows: -11- 13 2.01. Organization and Authority. Seller is a -------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Arkansas is duly qualified to do business and is in good standing in all ju- risdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. Seller is registered as a bank holding company with the Board of Governors of the Federal Reserve System (the "Board") under the Holding Company Act. True and com- plete copies of the Amended and Restated Articles of Incor- poration and the Bylaws of Seller and of the Articles of Incorporation and Bylaws of The Twin City Bank (collectively, with the First National Bank of Cleburne County, First National Bank of Conway County, First National Bank of Crawford County, First Ozark National Bank and TCB The Community Bank of Arkansas, N.A., the "Banks"), each as in effect on the date of this Agreement, have been provided to Buyer. 2.02. Subsidiaries. Schedule 2.02 sets forth, ------------ among other things, a complete and correct list of all of Seller's Subsidiaries (each a "Seller Subsidiary" and col- lectively the "Seller Subsidiaries"), all outstanding Equity Securities of each of which, except as set forth on Schedule 2.02, are owned directly or indirectly by Seller. "Equity -12- 14 Securities" of an issuer means capital stock or other equity securities of such issuer, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, shares of any capital stock or other Equity Securities of such issuer, or contracts, commitments, understandings or arrangements by which such issuer is or may become bound to issue additional shares of its capital stock or other Equity Securities of such issuer, or options, warrants, scrip or rights to purchase, acquire, subscribe to, calls on or com- mitments for any shares of its capital stock or other Equity Securities. Except as set forth on Schedule 2.02, all of the outstanding shares of capital stock of the Seller Subsidiaries are validly issued, fully paid and nonassessable, and those shares owned by Seller are owned free and clear of any lien, claim, charge, option, encumbrance, agreement, mortgage, pledge, security interest or restriction (a "Lien") with respect thereto. Each of the Seller Subsidiaries is a corporation or association duly incorporated or organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation or organization, and has corporate power and authority to own or lease its properties and assets and to carry on its business as it is now being conducted. Each of the Seller Subsidiaries is duly qualified to do business in each ju- risdiction where its ownership or -13- 15 leasing of property or the conduct of its business requires it so to be qualified, except where the failure to so qualify would not have a material adverse effect on the financial condition, results of operations or business (collectively, the "Condition") of Seller and its Subsidiaries, taken as a whole. Except as set forth on Schedule 2.02, Seller does not own beneficially, directly or indirectly, any shares of any class of Equity Securities or similar interests of any corporation, bank, business trust, association or similar organization. All of the Banks are national banking associations chartered by the Office of the Comptroller of the Currency, except for The Twin City Bank which is a state banking association chartered under the laws of the State of Arkansas. The deposits of each of the Banks are insured by the Bank Insurance Fund ("BIF") or, to the extent transferred to a Bank by the Resolution Trust Corporation, by the Savings Association Insurance Fund, of the Federal Deposit Insurance Corporation (the "FDIC"). Each of the Banks (other than The Twin City Bank) is a member in good standing of the Federal Reserve System. Except as set forth on Schedule 2.02, neither Seller nor any Seller Subsidiary holds any interest in a partnership or joint venture of any kind. 2.03. Capitalization. The authorized capital stock -------------- of Seller consists of (i) 5,500 shares of Seller Common Stock, of which, as of November 30, 1994, 2,131.737 shares -14- 16 were issued and outstanding and (ii) 5,500 shares of Seller Series A Preferred Stock, of which as of November 30, 1994, 5,306 were issued and outstanding, and (iii) 9,500 shares of Seller Series B Preferred Stock, of which as of November 30, 1994, 9,500 were issued and outstanding. Since November 30, 1994, no Equity Securities of Seller have been issued. Ex- cept as set forth above, there are no other Equity Securities of Seller outstanding. All of the issued and outstanding shares of Seller Capital Stock are validly issued, fully paid, and nonassessable, and have not been issued in violation of any preemptive right of any share- holder of Seller. Seller maintains no dividend reinvestment or similar plan. 2.04. Authorization. (a) Seller has the corporate ------------- power and authority to enter into this Agreement and, subject to the approval of this Agreement by the shareholders of Seller, to carry out its obligations hereunder. The only shareholder vote required for Seller to approve this Agreement is the affirmative vote of the holders of at least a majority of the shares of Seller Common Stock and the Seller Preferred Stock entitled to vote at a meeting called for such purpose. The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby have been duly authorized by the Board of Directors of Seller. It being understood that the Merger is subject to approval by the shareholders of -15- 17 Seller, this Agreement is a valid and binding obligation of Seller enforceable against Seller in accordance with its terms. (b) Except as set forth on Schedule 2.04B, neither the execution nor delivery nor performance by Seller of this Agreement, nor the consummation by Seller of the transactions contemplated hereby, nor compliance by Seller with any of the provisions hereof, will (i) violate, conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any Lien upon any of the material properties or assets of Seller or any Seller Subsidiary under any of the terms, conditions or provisions of (x) its articles or certificate of incorpora- tion or bylaws or (y) any material note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Seller or any Seller Sub- sidiary is a party or by which it may be bound, or to which Seller or any Seller Subsidiary or any of the material properties or assets of Seller or any Seller Subsidiary may be subject, or (ii) subject to compliance with the statutes and regulations referred to in paragraph (c) of this Section 2.04, to the best knowledge of Seller, violate -16- 18 any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Seller or any Seller Subsidiary or any of their respective material properties or assets. (c) Other than in connection or in compliance with the provisions of the Arkansas Act, the Securities Act of 1933 and the rules and regulations thereunder (the "Securi- ties Act"), the Securities Exchange Act of 1934 and the rules and regulations thereunder (the "Exchange Act"), the securities or blue sky laws of the various states or filings, consents, reviews, authorizations, approvals or exemptions required under the Holding Company Act, and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), or any required approvals of or filings with the Arkansas State Bank Department or any other state bank regulator ("State Bank Regulators"), no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Seller of the transactions contemplated by this Agreement. 2.05. Seller Financial Statements. The consoli- --------------------------- dated balance sheets of Seller and its Subsidiaries as of December 31, 1993, 1992 and 1991, related consolidated statements of income, cash flows and changes in shareholders' equity for each of the three years in the three-year period -17- 19 ended December 31, 1993, together with the notes thereto, audited by Ernst & Young LLP, Seller's independent accountants ("Seller Auditors"), as previously provided to Buyer, and the unaudited consolidated condensed balance sheets of Seller and its Subsidiaries as of March 31, June 30, and September 30, 1994, and the related unaudited consolidated condensed statements of income for the periods then ended as previously provided to Buyer (collectively, the "Seller Financial Statements"), have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved ("GAAP") (except that the interim statements do not include statements of cash flows or notes), present fairly the consolidated financial position of Seller and its Subsidiaries at the dates and the consolidated results of operations, cash flows and changes in shareholders' equity of Seller and its Subsidiaries for the periods stated therein and are derived from the books and records of Seller and its Subsidiaries, which are complete and accurate in all material respects and have been maintained in all material respects in accordance with applicable laws and regulations. Except as set forth on Schedule 2.05, neither Seller nor any of its Subsidiaries has any liabilities of any nature (whether or not required to be disclosed or accrued under SFAS No. 5) other than (i) those which have arisen in the ordinary course since the date of the latest -18- 20 financial statements described above, (ii) those which are reflected in the financial statements described above and (iii) those that individually do not amount to more than $750,000. 2.06. Seller Reports. Since January 1, 1991, each -------------- of Seller and the Seller Subsidiaries has filed all material reports, registrations and statements, together with any required material amendments thereto, that it was required to file with (i) the Board, (ii) the FDIC, (iii) the State Bank Regulators, and (iv) any other federal, state, municipal, local or foreign government, securities, banking, savings and loan, insurance and other governmental or regulatory authority and the agencies and staffs thereof (the entities in the foregoing clauses (i) through (iv) together with the SEC, being referred to herein collectively as the "Regulatory Authorities" and individually as a "Regulatory Authority"). All such reports and statements filed with any such Regulatory Authority are collectively referred to herein as the "Seller Reports." As of its respective date, each Seller Report complied in all material respects with all the rules and regulations promulgated by the applicable Regulatory Authority and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements -19- 21 therein, in light of the circumstances under which they were made, not misleading. 2.07. Properties and Leases. Except as may be --------------------- reflected in the Seller Financial Statements, except for any Lien for current taxes not yet delinquent and except with respect to assets classified as real estate owned, Seller and its Subsidiaries have good title free and clear of any material Lien to all the real and personal property reflected in Seller's consolidated balance sheet as of September 30, 1994 and, in each case, all real and personal property acquired since such date, except such real and personal property as has been disposed of in the ordinary course of business. All leases material to Seller or any Seller Subsidiary pursuant to which Seller or any Seller Subsidiary, as lessee, leases real or personal property, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any material existing default by Seller or any Seller Subsidiary or any event which, with notice or lapse of time or both, would constitute such a material default. Substantially all of Seller's and Seller Subsidiaries' buildings, structures and equipment in regular use have been well maintained and are in substantially good and serviceable condition, normal wear and tear excepted. -20- 22 2.08. Taxes. Except as previously disclosed to ----- Buyer, Seller and each Seller Subsidiary have timely filed or will timely (including extensions) file all material tax returns required to be filed at or prior to the Closing Date ("Seller Returns"). Each of Seller and its Subsidiaries has paid, or set up adequate reserves on the Seller Financial Statements for the payment of, all taxes required to be paid in respect of the periods covered by such returns and has set up adequate reserves on the most recent financial statements Seller has provided to Buyer for the payment of all taxes anticipated to be payable in respect of all periods up to and including the latest period covered by such financial statements. Except as previously disclosed in writing to Buyer, neither Seller nor any Seller Sub- sidiary will have any liability material to the Condition of Seller and the Seller Subsidiaries, taken as a whole, for any such taxes in excess of the amounts so paid or reserves so established and no material deficiencies for any tax, as- sessment or governmental charge have been proposed, asserted or assessed (tentatively or definitely) against any of Seller or any Seller Subsidiary which would not be covered by existing reserves. Neither Seller nor any Seller Subsidiary is materially delinquent in the payment of any material tax, assessment or governmental charge, nor, except as previously disclosed, has it requested any extension of time within which to file any tax returns in -21- 23 respect of any fiscal year which have not since been filed and no requests for waivers of the time to assess any tax are pending. The federal and state income tax returns of Seller and the Seller Subsidiaries have been audited and settled by the Internal Revenue Service (the "IRS") or appropriate state tax authorities for all periods ended through December 31, 1986. Except as previously disclosed in writing to Buyer, there is no deficiency or refund litigation or matter in controversy with respect to Seller Returns. Except as previously disclosed in writing to Buyer, neither Seller nor any Seller Subsidiary has extended or waived any statute of limitations on the assessment of any tax due that is currently in effect. 2.09. Material Adverse Change. Since September 30, ----------------------- 1994, there has been no material adverse change in the Con- dition of Seller and its Subsidiaries, taken as a whole, except as may have resulted or may result from changes to laws and regulations or changes in economic conditions applicable to banking institutions generally or in general levels of interest rates that affect Seller and its Subsidiaries, taken as a whole, consistent with the manner in which changes in the general levels of interest rates since December 31, 1993 have affected Seller and its Subsidiaries, taken as a whole. -22- 24 2.10. Commitments and Contracts. (a) Neither ------------------------- Seller nor any Seller Subsidiary is a party or subject to any of the following (whether written or oral, express or implied): (i) any material agreement, arrangement or commitment (A) not made in the ordinary course of business or (B) pursuant to which Seller or any of its Subsidiaries is or may become obligated to invest in or contribute capital to any Seller Subsidiary; (ii) any agreement, indenture or other instrument not reflected in the Seller Financial Statements relating to the borrowing of money by Seller or any Seller Subsidiary or the guarantee by Seller or any Seller Subsidiary of any such obligation (other than trade payables or instruments related to transactions entered into in the ordinary course of business by any Seller Subsidiary, such as deposits and Fed Funds bor- rowings); (iii) any contract, agreement or under- standing with any labor union or collective bar- gaining organization; -23- 25 (iv) any contract containing covenants which limit the ability of Seller or any Seller Subsidiary to compete in any line of business or with any person or which involve any restriction of the geographical area in which, or method by which, Seller or any Seller Subsidiary may carry on its business (other than as may be required by law or any applicable Regulatory Authority); or (v) any lease with annual rental payments aggregating $250,000 or more; except in case for those documents that are identified on Schedule 2.10 and true and complete copies of which have been provided to Buyer. (b) Neither Seller nor any Seller Subsidiary is in violation of its charter documents or bylaws or in default under any material agreement, commitment, arrangement, lease, insurance policy, or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event that, with the lapse of time or giving of notice or both, would constitute such a default, except, in all cases, where such default would not have a material adverse effect on the Condition of Seller and its Subsidiaries, taken as a whole. -24- 26 2.11. Litigation and Other Proceedings. Except as -------------------------------- set forth on Schedule 2.11, neither Seller nor any Seller Subsidiary is a party to any pending or, to the best knowl- edge of Seller, threatened claim, action, suit, investigation or proceeding, or is subject to any order, judgment or decree, except for matters which, in the aggregate, will not have, or reasonably could not be expected to have, a material adverse effect on the Condition of Seller and its Subsidiaries, taken as a whole, or which purports or seeks to enjoin or restrain the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, except as set forth on Schedule 2.11, there are no actions, suits, or proceedings pending or, to the best knowledge of Seller, threatened against Seller or any Seller Subsidiary or any of their respective officers or directors by any shareholder of Seller or any Seller Subsidiary (or any former shareholder of Seller or any Seller Subsidiary) or involving claims under the Securities Act, the Exchange Act, the Community Reinvestment Act of 1977, as amended, or the fair lending laws. 2.12. Insurance. Set forth on Schedule 2.12 is a --------- list of all insurance policies maintained by or for the benefit of Seller or its Subsidiaries or their directors, officers, employees or agents. -25- 27 2.13. Compliance with Laws. (a) Seller and each of -------------------- its Subsidiaries have all permits, licenses, authorizations, orders and approvals of, and have made all filings, applications and registrations with, all Regulatory Author- ities that are required in order to permit them to own or lease their properties and assets and to carry on their business as presently conducted and that are material to the business of Seller and its Subsidiaries; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the best knowledge of Seller, no suspension or cancellation of any of them is threatened; and all such filings, applications and regis- trations are current. (b) Except for failures to comply or defaults which individually or in the aggregate would not have a material adverse effect on the Condition of Seller and its Subsidiaries, taken as a whole, (i) each of Seller and its Subsidiaries has complied with all laws, regulations and orders (including without limitation zoning ordinances, building codes, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and securities, tax, envi- ronmental, civil rights, and occupational health and safety laws and regulations and including without limitation in the case of any Seller Subsidiary that is a bank or savings association, banking organization, banking corporation or -26- 28 trust company, all statutes, rules, regulations and policy statements pertaining to the conduct of a banking, deposit- taking, lending or related business, or to the exercise of trust powers) and governing instruments applicable to them and to the conduct of their business, and (ii) neither Seller nor any Seller Subsidiary is in default under, and no event has occurred which, with the lapse of time or notice or both, could result in the default under, the terms of any judgment, order, writ, decree, permit, or license of any Regulatory Authority or court, whether federal, state, municipal, or local and whether at law or in equity. Except for liabilities which individually or in the aggregate reasonably could not be expected to have a material adverse effect on the Condition of Seller and its Subsidiaries, taken as a whole, neither Seller nor any Seller Subsidiary is subject to or reasonably likely to incur a liability as a result of its ownership, operation, or use of any Property (as defined below) of Seller (whether directly or, to the best knowledge of Seller, as a consequence of such Property being part of the investment portfolio of Seller or any Seller Subsidiary) (A) that is contaminated by or contains any hazardous waste, toxic substance, or related materials, including without limitation asbestos, PCBs, pesticides, herbicides, and any other substance or waste that is hazardous to human health or the environment (collectively, a "Toxic Substance"), or (B) -27- 29 on which any Toxic Substance has been stored, disposed of, placed, or used in the construction thereof. "Property" of a person shall include all property (real or personal, tangible or intangible) owned or controlled by such person, including without limitation property under foreclosure, property held by such person or any Subsidiary of such person in its capacity as a trustee and property in which any venture capital or similar unit of such person or any Subsidiary of such person has an interest. No claim, action, suit, or proceeding is pending against Seller or any Seller Subsidiary relating to Property of Seller before any court or other Regulatory Authority or arbitration tribunal relating to hazardous substances, pollution, or the environment, and there is no outstanding judgment, order, writ, injunction, decree, or award against or affecting Seller or any Seller Subsidiary with respect to the same. Except for statutory or regulatory restrictions of general application, no Regulatory Authority has placed any restriction on the business of Seller or any Seller Subsidiary which reasonably could be expected to have a material adverse effect on the Condition of Seller and its Subsidiaries, taken as a whole. (c) From and after January 1, 1991, neither Seller nor any Seller Subsidiary has received any notification or communication which has not been resolved from any Regulatory Authority (i) asserting that any Seller or any Subsidiary of -28- 30 Seller, is not in substantial compliance with any of the statutes, regulations or ordinances that such Regulatory Authority enforces, except with respect to matters which (A) are set forth on Schedule 2.13C or in any writing previously furnished to Buyer and (B) reasonably could not be expected to have a material adverse effect on the Condition of Seller and its Subsidiaries, taken as a whole, (ii) threatening to revoke any license, franchise, permit or governmental authorization that is material to the Condition of Seller and its Subsidiaries, taken as a whole, including without limitation such company's status as an insured depositary institution under the Federal Deposit Insurance Act, or (iii) requiring or threatening to require Seller or any of its Subsidiaries, or indicating that Seller or any of its Subsidiaries may be required, to enter into a cease and desist order, agreement or memorandum of understanding or any other agreement restricting or limiting or purporting to direct, restrict or limit in any manner the operations of Seller or any of its Subsidiaries, including without limitation any restriction on the payment of dividends. No such cease and desist order, agreement or memorandum of understanding or other agreement is currently in effect. (d) Neither Seller nor any Seller Subsidiary is required by Section 32 of the Federal Deposit Insurance Act to give prior notice to any federal banking agency of the -29- 31 proposed addition of an individual to its board of directors or the employment of an individual as a senior executive officer. 2.14. Labor. No work stoppage involving Seller or ----- any Seller Subsidiary, is pending or, to the best knowledge of Seller, threatened. Neither Seller nor any Seller Sub- sidiary is involved in, or, to the best knowledge of Seller, threatened with or affected by, any labor dispute, arbitra- tion, lawsuit or administrative proceeding which reasonably could be expected to have a material adverse affect on the Condition of Seller and its Subsidiaries, taken as a whole. Employees of neither Seller nor any Seller Subsidiary, are represented by any labor union or any collective bargaining organization. 2.15. Material Interests of Certain Persons. (a) ------------------------------------- Except as set forth on Schedule 2.15A, to the best knowledge of Seller, no officer or director of Seller or any Subsidiary of Seller, or any "associate" (as such term is defined in Rule l4a-1 under the Exchange Act) of any such officer or director, has any material interest in any material contract or property (real or personal, tangible or intangible), used in, or pertaining to the business of, Seller or any Subsidiary of Seller, which would be required to be disclosed -30- 32 by Item 404 of Regulation S-K if such company had a class of securities registered under Section 12 of the Exchange Act. (b) Set forth on Schedule 2.15B is a list of all loans from Seller or any Seller Subsidiary to any present officer, director, employee or any associate or related in- terest of any such person which was or would be required under any rule or regulation to be approved by or reported to Seller's or Seller Subsidiary's Board of Directors ("Insider Loans"). All outstanding Insider Loans from Seller or any Seller Subsidiary were approved by or reported to the appropriate board of directors in accordance with applicable law and regulations. 2.16. Allowance for Loan and Lease Losses; Non- ----------------------------------------- performing Assets. (a) The allowances for loan and lease - ------------------ losses contained in the Seller Financial Statements were established in accordance with the past practices and expe- riences of Seller and its Subsidiaries, and the allowance for loan losses shown on the consolidated condensed balance sheet of Seller and its Subsidiaries dated September 30, 1994 is adequate in all material respects under the requirements of GAAP to provide for possible losses on loans (including without limitation accrued interest receivable) and credit commitments (including without limitation stand- by letters of credit) outstanding as of the date of such balance sheet. -31- 33 (b) The aggregate amount of all Nonperforming Assets (as defined below) on the books of Seller and its Subsidiaries does not exceed $6,000,000. "Nonperforming Assets" shall mean (i) all loans (A) that are contractually past due 90 days or more in the payment of principal and/or interest, (B) that are on nonaccrual status, (C) where a reasonable doubt exists, in the reasonable judgment of Seller, as to the timely future collectibility of principal and/or in- terest, whether or not interest is still accruing or the loan is less than 90 days past due, (D) where the interest rate terms have been reduced and/or the maturity dates have been extended subsequent to the agreement under which the loan was originally created due to concerns regarding the borrower's ability to pay in accordance with such initial terms, or (E) where a specific reserve allocation exists in connection therewith, and (ii) all assets classified as real estate acquired through foreclosure or repossession and other assets acquired through foreclosure or repossession. 2.17. Employee Benefit Plans. (a) There are no ---------------------- existing stock option, stock purchase, stock ownership or stock appreciation right plans or arrangements maintained by or contributed to by Seller or any Seller Subsidiary. Except as set forth in Schedule 2.17A, neither Seller nor any Seller Subsidiary is a party to any existing employment, management, -32- 34 consulting, deferred compensation, change-in-control or other similar contract. Schedule 2.17A lists all pension, retirement, supplemental retirement, savings, profit sharing, deferred compensation, consulting, bonus, medical, disability, workers' compensation, vacation, group insurance, severance and other material employee benefit, incentive and welfare policies, contracts, plans and arrangements, and all trust agreements related thereto, maintained (currently or at any time in the last five years) by or contributed to by Seller or any Seller Subsidiary in respect of any of the present or former directors, officers, or other employees of and/or consultants to Seller or any Seller Subsidiary (collectively, "Seller Employee Plans"). Seller has furnished Buyer with the following documents with respect to each Seller Employee Plan: (i) a true and complete copy of all written documents comprising such Seller Employee Plan (including amendments and individual agreements relating thereto) or, if there is no such written document, an accurate and complete description of the Seller Employee Plan; (ii) the most recent Form 5500 or Form 5500-C (including all schedules thereto), if applicable; (iii) the most recent financial statements and actuarial reports, if any; (iv) the summary plan description currently in effect and all material modifications thereof, if any; and (v) the most recent Internal Revenue Service determination letter, if any. -33- 35 (b) All Seller Employee Plans have been maintained and operated materially in accordance with their terms and with the material requirements of all applicable statutes, orders, rules and final regulations, including without limitation ERISA and the Internal Revenue Code. All contributions required to be made to Seller Employee Plans have been made. (c) With respect to each of the Seller Employee Plans which is a pension plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"): (i) each Pension Plan which is intended to be "qualified" within the meaning of Section 401(a) of the Internal Revenue Code has been determined to be so qualified by the Internal Revenue Service and, to the knowledge of Seller, such determination letter may still be relied upon, and each related trust is exempt from taxation under Section 501(a) of the Internal Revenue Code; (ii) the present value of all benefits vested and all benefits accrued (Accumulated Benefit Obligation) under each Pension Plan which is subject to Title IV of ERISA, valued using the assumptions in the actuarial report dated as of December 31, 1993, did not, in each case, exceed the value of the assets of the Pension Plan allocable to such vested or accrued benefits dated as of December 31, 1993; (iii) to the best knowledge of Seller, there has been no "prohibited -34- 36 transaction," as such term is defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA, which could subject any Pension Plan or associated trust, or the Seller or any Seller Subsidiary, to any material tax or penalty; (iv) except as set forth on Schedule 2.17C, no Pension Plan or any trust created thereunder has been terminated, nor have there been any "reportable events" with respect to any Pension Plan, as that term is defined in Section 4043 of ERISA on or after January 1, 1985; and (v) no Pension Plan or any trust created thereunder has incurred any "accumulated funding deficiency", as such term is defined in Section 302 of ERISA (whether or not waived). No Pension Plan is a "multiemployer plan" as that term is defined in Section 3(37) of ERISA. With respect to each Pension Plan that is described in Section 4063(a) of ERISA (a "Multiple Employer Pension Plan"): (i) neither Seller nor any Seller Subsidiary would have any liability or obligation to post a bond under Section 4063 of ERISA if Seller and all Seller Subsidiaries were to withdraw from such Multiple Employer Pension Plan; and (ii) neither Seller nor any Seller Sub- sidiary would have any liability under Section 4064 of ERISA if such Multiple Employer Pension Plan were to terminate. (d) Neither Seller nor any Seller Subsidiary has any liability for any post-retirement health, medical or -35- 37 similar benefit of any kind whatsoever, except as required by statute or regulation. (e) Neither Seller nor any Seller Subsidiary has any material liability under ERISA or the Internal Revenue Code as a result of its being a member of a group described in Sections 414(b), (c), (m) or (o) of the Internal Revenue Code. (f) Except as set forth on Schedule 2.17F, neither the execution nor delivery of this Agreement, nor the consummation of any of the transactions contemplated hereby, will (i) result in any material payment (including without limitation severance, unemployment compensation or golden parachute payment) becoming due to any director or employee of Seller or any Seller Subsidiary from any of such entities, (ii) materially increase any benefit otherwise payable under any of the Seller Employee Plans or (iii) result in the acceleration of the time of payment of any such benefit. Seller shall use its best efforts to insure that no amounts paid or payable by Seller, Seller Subsidiaries or Buyer to or with respect to any employee or former employee of Seller or any Seller Subsidiary will fail to be deductible for federal income tax purposes by reason of Section 280G of the Internal Revenue Code. -36- 38 2.18. Conduct of Seller to Date. From and after ------------------------- January 1, 1994 through the date of this Agreement, except as set forth on Schedule 2.18 or in Seller Financial Statements: (i) Seller and the Seller Subsidiaries have conducted their respective businesses in the ordinary and usual course consistent with past practices; (ii) Seller has not issued, sold, granted, conferred or awarded any of its Equity Securities, or any corporate debt securities which would be classified under GAAP as long-term debt on the balance sheets of Seller; (iii) Seller has not effected any stock split or adjusted, combined, reclassified or otherwise changed its capitalization; (iv) Seller has not declared, set aside or paid any dividend (other than its regular quarterly preferred or regular semi-annual common dividends) or other distribution in respect of its capital stock, or purchased, redeemed, retired, repurchased, or exchanged, or otherwise acquired or disposed of, directly or indirectly, any of its Equity Securities, whether pursuant to the terms of such Equity Securities or otherwise; (v) neither Seller nor any Seller Subsidiary has incurred any material obliga- tion or liability (absolute or contingent), except normal trade or business obligations or liabilities incurred in the ordinary course of business, or subjected to Lien any of its assets or properties other than in the ordinary course of business consistent -37- 39 with past practice; (vi) neither Seller nor any Seller Subsidiary has discharged or satisfied any material Lien or paid any material obligation or liability (absolute or contingent), other than in the ordinary course of business; (vii) neither Seller nor any Seller Subsidiary has sold, assigned, transferred, leased, exchanged, or otherwise disposed of any of its properties or assets other than for a fair consideration in the ordinary course of business; (viii) except as required by contract or law, neither Seller nor any Seller Subsidiary has (A) increased the rate of compensation of, or paid any bonus to, any of its directors, officers, or other employees, except merit or promotion increases in accordance with existing policy, (B) entered into, terminated, or substantially modified any of the Seller Employee Plans or (C) agreed to do any of the foregoing; (ix) neither Seller nor any Seller Subsidiary has suffered any material damage, destruction, or loss, whether as the result of fire, explosion, earthquake, accident, casualty, labor trouble, requisition, or taking of property by any Regulatory Authority, flood, windstorm, embargo, riot, act of God or the enemy, or other casualty or event, and whether or not covered by insurance; (x) neither Seller nor any Seller Subsidiary has cancelled or compromised any debt, except for debts charged off or compromised in accordance with the past practice of Seller and its Subsidiaries, and (xi) neither Seller nor any -38- 40 Seller Subsidiary has entered into any material transaction, contract or commitment outside the ordinary course of its business. 2.19. Proxy Statement, etc. None of the infor- -------------------- mation regarding Seller or any Seller Subsidiary supplied or to be supplied by Seller for inclusion or included in (i) the registration statement on Form S-4 to be filed with the SEC by Buyer for the purpose of registering the shares of Buyer Common Stock to be exchanged for shares of Seller Common Stock pursuant to the provisions of this Agreement (the "Registration Statement"), (ii) the proxy or information statement (the "Proxy Statement") to be mailed to Seller's shareholders in connection with the transactions contemplated by this Agreement or (iii) any other documents to be filed with any Regulatory Authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with any Regulatory Authority and, in the case of the Registration Statement, when it be- comes effective and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any ma- terial fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the meeting of Seller's shareholders referred to in Section 5.03 (the "Meeting") (or, -39- 41 if no Meeting is held, at the time the Proxy Statement is first furnished to Seller's shareholders), be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the Meeting. All documents which Seller or any Seller Subsidiary is responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. 2.20. Registration Obligations. Neither Seller nor ------------------------ any Seller Subsidiary is under any obligation, contingent or otherwise to register any of its securities under the Secu- rities Act. 2.21. State Takeover Statutes. The transactions ----------------------- contemplated by this Agreement are not subject to any applicable state takeover law. 2.22 Accounting, Tax and Regulatory Matters. -------------------------------------- Neither Seller nor any Seller Subsidiary has taken or agreed to take any action or has any knowledge of any fact or cir- cumstance that would (i) prevent the transactions contem- plated hereby from qualifying (A) for pooling-of-interests accounting treatment or (B) as a reorganization within the meaning of Section 368 of the Internal Revenue Code or (ii) -40- 42 materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. 2.23. Brokers and Finders. Except for Stifel, ------------------- Nicolaus & Company, Incorporated, neither Seller nor any Seller Subsidiary nor any of their respective officers, di- rectors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Seller or any Seller Subsidiary in connection with this Agreement or the transactions contemplated hereby. 2.24. Other Activities. (a) Except as set forth on ---------------- Schedule 2.24A, neither Seller nor any of its Subsidiaries engages in any insurance activities other than acting as a principal, agent or broker for insurance that is directly related to an extension of credit by Seller or any of its Subsidiaries and limited to assuring the repayment of the balance due on the extension of credit in the event of the death, disability or involuntary unemployment of the debtor. (b) Except as set forth on Schedule 2.24B, to the knowledge of Seller's management: each Subsidiary that is a bank that performs personal trust, corporate trust and other fiduciary activities ("Trust Activities") has done so with -41- 43 requisite authority under applicable law of Regulatory Au- thorities and in material accordance with the agreements and instruments governing such Trust Activities, sound fiduciary principles and applicable law and regulation (specifically including but not limited to Section 9 of Title 12 of the Code of Federal Regulations); there is no investigation or inquiry by any governmental entity pending or threatened against Seller or any of its Subsidiaries thereof relating to the compliance by Seller or any of its Subsidiaries with sound fiduciary principles and applicable law and regula- tions; and each employee of any such bank had the authority to act in the capacity in which such employee acted with respect to Trust Activities in each case in which such em- ployee was held out as a representative of such bank; and such bank has established policies and procedures for the purpose of complying with applicable laws of governmental entities relating to Trust Activities, has followed such policies and procedures in all material respects and has performed appropriate internal audit reviews of Trust Activities, which audits have disclosed no material viola- tions of applicable laws of governmental entities or such policies and procedures. 2.25. Interest Rate Risk Management Instruments. ----------------------------------------- (a) Set forth on Schedule 2.25A is a list of all interest rate swaps, caps, floors, and option agreements and other -42- 44 interest rate risk management arrangements to which Seller or any of its Subsidiaries is a party or by which any of their properties or assets may be bound. (b) All interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements to which Seller or any of its Subsidiaries is a party or by which any of their properties or assets may be bound were entered into in the ordinary course of business and, to the knowledge of Seller's management, in accordance with prudent banking practice and applicable rules, regula- tions and policies of Regulatory Authorities and with coun- terparties believed to be financially responsible at the time and are legal, valid and binding obligations and are in full force and effect. Seller and each of its Subsidiaries has duly performed in all material respects all of its obligations thereunder to the extent that such obligations to perform have accrued, and to the knowledge of Seller's management, there are no material breaches, violations or defaults or allegations or assertions of such by any party thereunder. 2.26. Accuracy of Information. The statements of ----------------------- Seller contained in this Agreement, the Schedules and any other written document executed and delivered by or on behalf of Seller pursuant to the terms of this Agreement are true -43- 45 and correct in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained therein not misleading. ARTICLE III ----------- REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER Buyer represents, and warrants to and covenants with Seller as follows: 3.01. Organization and Authority. Buyer and each -------------------------- of its Subsidiaries is a corporation, bank, trust company or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of organization, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted, except, in the case of the Buyer Subsidiaries, where the failure to be so qualified would not have a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole. Buyer is registered as a bank holding company with the Board under the Holding Company Act. True and complete copies of the Articles of Incorporation and Bylaws of Buyer, each in effect on the date of this Agreement, have been provided to Seller. -44- 46 3.02. Capitalization of Buyer. The authorized ----------------------- capital stock of Buyer consists of (i) 100,000,000 shares of Buyer Common Stock, of which, as of November 30, 1994, 43,290,784 shares were issued and outstanding and (ii) 5,000,000 shares of preferred stock, no par value ("Buyer Preferred Stock"), issuable in series, of which none are issued or outstanding. Buyer has designated 1,000,000 shares of Buyer Preferred Stock as "Series A Junior Participating Preferred Stock" and has reserved such shares under a Rights Agreement dated May 23, 1988 (the "Buyer Rights Agreement"), between Buyer and Mercantile Bank of St. Louis National Association, as Rights Agent. As of November 30, 1994 Buyer had reserved (i) 4,721,246 shares of Buyer Common Stock for issuance under various employee stock option and incentive plans ("Buyer Employee Stock Options"), (ii) 970,000 shares of Buyer Common Stock for issuance upon the acquisition of Wedge Bank ("Wedge") pursuant to the Agreement and Plan of Reorganization dated as of July 6, 1994 between Buyer, Mercantile Bancorporation of Illinois Inc., Wedge and The Wedge Holding Company, (iii) 1,731,142 shares of Buyer Common Stock for issuance upon the acquisition of UNSL Financial Corp. ("UNSL") pursuant to the Agreement and Plan or Reorganization dated July 12, 1994 between Buyer, Ameribanc, Inc. and UNSL, (iv) 2,625,533 shares of Buyer Common Stock for issuance upon acquisition of Central Mortgage Bancshares, -45- 47 Inc. ("CMBI") pursuant to Amended and Restated Agreement and Plan of Merger dated as of November 1, 1994 between Buyer, Ameribanc, Inc. and CMBI, and (v) 351,101 shares of Buyer Common Stock for issuance upon conversion of Buyer's 8% Subordinated Capital Convertible Notes due 1995. From November 30, 1994 through the date of this Agreement, no shares of Buyer Common Stock or other Equity Securities of Buyer have been issued excluding any such shares which may have been issued pursuant to stock-based employee benefit or incentive plans and programs, or conversion of the Convertible Notes. Buyer continually evaluates possible acquisitions and may prior to the Effective Time enter into one or more agreements providing for, and may consummate, the acquisition by it of another bank, association, bank holding company, savings and loan holding company or other company (or the assets thereof) for consideration that may include equity securities. In addition, prior to the Effective Time, Buyer may, depending on market conditions and other factors, oth- erwise determine to issue equity, equity-linked or other securities for financing purposes. Notwithstanding the foregoing, Buyer will not take any action that would (i) prevent the transactions contemplated hereby from qualifying (A) for pooling-of-interests accounting treatment or (B) as a -46- 48 reorganization within the meaning of Section 368 of the Internal Revenue Code or (ii) materially impede or delay re- ceipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. Except as set forth above and except for secu- rities to be issued in connection with Buyer's pending ac- quisitions of Wedge, UNSL and CMBI, and except pursuant to the Buyer Rights Agreement, there are no other Equity Secu- rities of Buyer outstanding. All of the issued and out- standing shares of Buyer Common Stock are validly issued, fully paid, and nonassessable, and have not been issued in violation of any preemptive right of any stockholder of Buyer. At the Effective Time, the Buyer Common Stock and the Buyer New Preferred Stock to be issued in the Merger will be duly authorized, validly issued, fully paid and non- assessable, and will not be issued in violation of any preemptive right of any stockholder of Buyer. 3.03. Authorization. (a) Subject to receipt of ------------- approval from Buyer's Board of Directors of the terms of the Buyer New Preferred Stock, Buyer has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. No stockholder vote is required for Buyer to approve this Agreement. Subject to receipt of ap- proval from Buyer's Board of Directors of the terms of Buyer New Preferred Stock, the execution, delivery and performance -47- 49 of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby have been duly autho- rized by all requisite corporate action of Buyer. This Agreement is a valid and binding obligation of Buyer en- forceable against Buyer in accordance with its terms. (b) Neither the execution, delivery and perfor- mance by Buyer of this Agreement, nor the consummation by Buyer of the transactions contemplated hereby, nor compliance by Buyer with any of the provisions hereof, will (i) violate, conflict with or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any Lien upon any of the material properties or assets of Buyer or any Buyer Subsidiary under any of the terms, conditions or provisions of (x) its articles or certificate of incorporation or bylaws, or (y) any material note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Buyer or any of the material properties or assets of Buyer is a party or by which it may be bound, or to which Buyer may be subject, or (ii) subject to compliance with the statutes and regulations referred to in paragraph (c) of this Section 3.03, to the best knowledge of Buyer, violate any -48- 50 judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Buyer or any of its Subsidiaries or any of their respective material properties or assets. (c) Other than in connection with or in compliance with the provisions of the Missouri Act, the Arkansas Act, the Securities Act, the Exchange Act, the securities or blue sky laws of the various states or filings, consents, reviews, authorizations, approvals or exemptions required under the Holding Company Act, and the HSR Act, or any re- quired approvals of any other Regulatory Authority, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Buyer of the transactions contemplated by this Agreement. 3.04. Buyer Financial Statements. The supplemental -------------------------- consolidated and parent company only balance sheets of Buyer and its Subsidiaries as of December 31, 1993, 1992 and 1991 and related supplemental consolidated and parent company only statements of income, cash flows and changes in stock- holders' equity for each of the three years in the three- year period ended December 31, 1993, together with the notes thereto, audited by KPMG Peat Marwick ("Buyer Auditors") and included in Buyer's current report on Form 8-K dated June 17, -49- 51 1994 as filed with the SEC, and the unaudited consolidated balance sheets of Buyer and its Subsidiaries as of March 31, June 30, and September 30, 1994 and the related unaudited consolidated statements of income and cash flows for the periods then ended included in quarterly reports on Form 10-Q as filed with the SEC (collectively, the "Buyer Financial Statements"), have been prepared in accordance with GAAP, present fairly the consolidated financial position of Buyer and its Subsidiaries at the dates and the consolidated results of operations, changes in stockholders' equity and cash flows of Buyer and its Subsidiaries for the periods stated therein and are derived from the books and records of Buyer and its Subsidiaries, which are complete and accurate in all material respects and have been maintained in all material respects in accordance with applicable laws and regulations. Neither Buyer nor any of its Subsidiaries has any material liabilities of any nature (whether or not required to be disclosed or accrued under SFAS No. 5) other than (i) those which have arisen in the ordinary course since the date of the latest financial statements described above, (ii) those which are reflected in the financial statements described above and (iii) those that do not individually amount to more than $750,000. 3.05. Buyer Reports. Since January 1, 1991, each ------------- of Buyer and the Buyer Subsidiaries has filed all material -50- 52 reports, registrations and statements, together with any required material amendments thereto, that it was required to file with any Regulatory Authority. All such reports and statements filed with any such Regulatory Authority are collectively referred to herein as the "Buyer Reports." As of its respective date, each Buyer Report complied in all material respects with all the rules and regulations pro- mulgated by the applicable Regulatory Authority and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or nec- essary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.06. Material Adverse Change. Since September 30, ----------------------- 1994, there has been no material adverse change in the Con- dition of Buyer and its Subsidiaries, taken as a whole, except as may have resulted or may result from changes to laws and regulations or changes in economic conditions applicable to banking institutions generally or in general levels of interest rates affecting banking institutions generally. 3.07. Commitments and Contracts. Neither Buyer nor ------------------------- any of its Subsidiaries is in violation of its charter documents or bylaws or in default under any material agree- ment, commitment, arrangement, lease, insurance policy, or -51- 53 other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event that, with the lapse of time or giving of notice or both, would constitute such a default, except, in all cases, where such default would not have a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole. 3.08. Litigation and Other Proceedings. Neither -------------------------------- Buyer nor any Buyer Subsidiary is a party to any pending or, to the best knowledge of Buyer, threatened claim, action, suit, investigation or proceeding, or is subject to any or- der, judgment or decree, except for matters which, in the aggregate, will not have, or reasonably could not be expected to have, a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole, or which purports or seeks to enjoin or restrain the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, there are no actions, suits, or proceedings pending or, to the best knowledge of Buyer, threatened against Buyer or any Buyer Subsidiary or any of their respective officers or directors involving claims under the Community Reinvestment Act of 1977, as amended, or the fair lending laws. No claim, action, suit, or proceeding is pending against Buyer or any Buyer Subsidiary relating to Property of Buyer before any court or Regulatory Authority or -52- 54 arbitration tribunal relating to hazardous substances, pollution, or the environment, and there is no outstanding judgment, order, writ, injunction, decree, or award against or affecting Buyer or any Buyer Subsidiary with respect to the same. Except as previously disclosed to Seller, since January 1, 1991, neither Buyer nor any Buyer Subsidiary has received any notification or communication which has not been resolved from any Regulatory Authority (i) asserting that Buyer or any Subsidiary of Buyer, is not in substantial compliance with any of the statutes, regulations or ordinances that such Regulatory Authority enforces, except with respect to matters which reasonably could not be expected to have a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole, (ii) threatening to revoke any license, franchise, permit or governmental authorization that is material to the Condition of Buyer and its Subsidiaries, taken as a whole, including without limitation such company's status as an insured depositary institution under the Federal Deposit Insurance Act or (iii) requiring or threatening to require Buyer or any of its Subsidiaries, or indicating that Buyer or any of its Subsidiaries may be required, to enter into a cease and desist order, agreement or memorandum of understanding or any other agreement restricting or limiting or purporting to direct, restrict or limit in any manner the operations of Buyer or any of its -53- 55 Subsidiaries, including without limitation any restriction on the payment of dividends and no such cease and desist order, agreement or memorandum of understanding or other agreement is currently in effect. 3.09. Compliance with Laws. Each of Buyer and its -------------------- Subsidiaries has complied with all laws, regulations, and orders (including without limitation zoning ordinances, building codes, ERISA, and securities, tax, environmental, civil rights, and occupational health and safety laws and regulations and including without limitation in the case of any Buyer Subsidiary that is a bank, banking organization, banking corporation or trust company, all statutes, rules and regulations, pertaining to the conduct of a banking, deposit-taking or lending or related business or to the exercise of trust powers) and governing instruments applicable to them and to the conduct of their business, except where such failure to comply would not have a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole, and (ii) neither Buyer nor any Buyer Subsidiary is in default under, and no event has occurred which, with the lapse of time or notice or both, could result in the default under, the terms of any judgment, order, writ, decree, permit, or license of any Regulatory Authority or court, whether federal, state, municipal, or local and whether at law or in equity, except where such default would not have a material -54- 56 adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole. Neither Buyer nor any Buyer Subsidiary is subject to or reasonably likely to incur a liability as a result of its ownership, operation, or use of any Property of Buyer (whether directly or, to the best knowledge of Buyer, as a consequence of such Property being part of the investment portfolio of Buyer or any Buyer Subsidiary) (A) that is contaminated by or contains any Toxic Substance, or (B) on which any Toxic Substance has been stored, disposed of, placed, or used in the construction thereof; and which, in each case, reasonably could be expected to have a material adverse effect on the Condition of Buyer and its Subsidiar- ies, taken as a whole. Except for statutory or regulatory restrictions of general application, no Regulatory Authority has placed any restriction on the business of Buyer or any Buyer Subsidiary which reasonably could be expected to have a material adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole. 3.10. Registration Statement, etc. None of the --------------------------- information regarding Buyer or any of its Subsidiaries sup- plied or to be supplied by Buyer for inclusion or included in (i) the Registration Statement, (ii) the Proxy Statement, or (iii) any other documents to be filed with any Regulatory Authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed -55- 57 with any Regulatory Authority and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement, when mailed (or furnished to shareholders of Seller), be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the Meeting, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the Meeting. All documents which Buyer or any of its Subsidiaries are responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. 3.11. Brokers and Finders. Neither Buyer nor any ------------------- of its Subsidiaries nor any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Buyer or any of its Subsidiaries in connection with this Agreement or the transactions contemplated hereby. -56- 58 3.12. Accounting, Tax and Regulatory Matters. -------------------------------------- Neither Buyer nor any Buyer Subsidiary has taken or agreed to take any action or has any knowledge of any fact or circumstance that would (i) prevent the transactions contemplated hereby from qualifying (A) for pooling-of- interests accounting treatment or (B) as a reorganization within the meaning of Section 368 of the Internal Revenue Code or (ii) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. 3.13. Accuracy of Information. The statements of ----------------------- Buyer contained in this Agreement, the Schedules and in any other written document executed and delivered by or on behalf of Buyer pursuant to the terms of this Agreement are true and correct in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained herein or therein not misleading. ARTICLE IV ---------- CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME 4.01. Conduct of Businesses Prior to the Effective -------------------------------------------- Time. During the period from the date of this Agreement to - ---- the Effective Time, each of Buyer and Seller shall, and shall cause each of their respective Subsidiaries to, conduct its -57- 59 business according to the ordinary and usual course consistent with past practices and shall, and shall cause each such Subsidiary to, use its best efforts to maintain and preserve its business organization, employees and advantageous business relationships and retain the services of its officers and key employees. 4.02. Forbearances. Except as set forth on ------------ Schedule 4.02 or as otherwise contemplated by this Agreement, during the period from the date of this Agreement to the Effective Time, Seller shall not and shall not permit any of its Subsidiaries to, without the prior written consent of Buyer: (a) declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock (other than dividends from a Sub- sidiary of Seller to Seller or another Subsidiary of Seller), except that Seller may declare and pay (i) cash dividends on the Seller Common Stock of not more than (x) for dividends payable in 1994, $60 per share per semi-annual period and (y) for dividends payable in 1995, per quarterly period, the greater of (A) $30 per share or (B) an amount per share equal to the product of the Exchange Ratio and the most recent quarterly dividend paid by Buyer on the Buyer Common Stock, (ii) -58- 60 quarterly cash dividends on the Seller Series A Preferred Stock of not more than $10.00 per share and (iii) quarterly cash dividends on the Seller Series B Preferred Stock of not more than $21.25 per share; provided, that Seller shall not declare or pay any dividends on Seller Common Stock or Seller Preferred Stock for any period in which its stockholders will be entitled to receive any regular quarterly dividend on the shares of Buyer Common Stock or Buyer New Preferred Stock to be issued in the Merger; or, (b) except as described on Schedule 2.05, enter into or amend any employment, severance or similar agreement or arrangement with any director or officer or employee, or materially modify any of the Seller Employee Plans or grant any salary or wage increase or materially increase any employee benefit (including incentive or bonus payments), except normal individual increases in compensation to employees consistent with past practice, or as required by law or contract; or, (c) authorize, recommend (subject to the fiduciary duties of Seller's Board of Directors, based upon written advice of counsel to Seller, which counsel is reasonably acceptable to Buyer), propose or announce an intention to authorize, so recommend or propose, or -59- 61 enter into an agreement in principle with respect to, any merger, consolidation or business combination (other than the Merger), any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any release or relinquishment of any material contract rights; or (d) propose or adopt any amendments to its arti- cles of incorporation, association or other charter document or bylaws; or (e) issue, sell, grant, confer or award any of its Equity Securities or effect any stock split or adjust, combine, reclassify or otherwise change its capitali- zation as it existed on the date of this Agreement; or (f) purchase, redeem, retire, repurchase, or ex- change, or otherwise acquire or dispose of, directly or indirectly, any of its Equity Securities, whether pur- suant to the terms of such Equity Securities or other- wise; or (g) (i) without first consulting with Buyer, enter into, renew or increase any loan or credit com- mitment (including stand-by letters of credit) to, or invest or agree to invest in any person or entity or -60- 62 modify any of the material provisions or renew or oth- erwise extend the maturity date of any existing loan or credit commitment (collectively, "Lend to") in an amount in excess of $1,500,000 or in an amount which, or when aggregated with any and all loans or credit commitments to such person or entity, would be in excess of $1,500,000; (ii) without first obtaining the written consent of Buyer, lend to any person or entity in an amount in excess of $3,000,000 or in an amount which, when aggregated with any and all loans or credit commitments to such person or entity, would be in excess of $3,000,000; (iii) Lend to any person other than in accordance with lending policies as in effect on the date hereof; provided that in the case of clauses (ii) -------- and (iii) Seller or any Seller Subsidiary may make any such loan in the event (A) Seller or any Seller Subsidiary has delivered to Buyer or its designated representative a notice of its intention to make such loan and such information as Buyer or its designated representative may reasonably require in respect thereof and (B) Buyer or its designated representative shall not have reasonably objected to such loan by giving written or facsimile notice of such objection within two business days following the delivery to Buyer of the notice of intention and information as aforesaid; or (iv) Lend to -61- 63 any person or entity any of the loans or other extensions of credit to which or investments in which are on a "watch list" or similar internal report of Seller or any Seller Subsidiary (except those denoted "pass" thereon), in an amount in excess of $250,000; provided, however, that nothing in this paragraph -------- ------- shall prohibit Seller or any Seller Subsidiary from honoring any contractual obligation in existence on the date of this Agreement or, with respect to loans described in clause (i) above, making such loans after consulting with Buyer; or (h) directly or indirectly (including through its officers, directors, employees or other representatives) initiate, solicit or encourage any discussions, inquiries or proposals with any third party relating to the disposition of any significant portion of the business or assets of Seller or any Seller Subsidiary or the acquisition of Equity Securities of Seller or any Seller Subsidiary or the merger of Seller or any Seller Subsidiary with any person (other than Buyer) or any similar transaction (each such transaction being referred to herein as an "Acquisition Transaction"), or provide any such person with information or assistance or negotiate with any such person with respect to an -62- 64 Acquisition Transaction, and Seller shall promptly notify Buyer orally of all the relevant details relating to all inquiries, indications of interest and proposals which it may receive with respect to any Acquisition Transaction; or (i) [intentionally omitted] (j) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money, assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity; or (k) restructure or materially change its investment securities portfolio, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported; or (l) agree in writing or otherwise to take any of the foregoing actions or engage in any activity, enter into any transaction or take or omit to take any other act which would make any of the representations and warranties in Article II of this Agreement untrue or incorrect in any material respect if made anew after -63- 65 engaging in such activity, entering into such trans- action, or taking or omitting such other act. ARTICLE V --------- ADDITIONAL AGREEMENTS 5.01. Access and Information. (a) Buyer and its ---------------------- Subsidiaries, on the one hand, and Seller and its Subsid- iaries, on the other hand, shall each afford to each other, and to the other's accountants, counsel and other represen- tatives, full access during normal business hours, during the period prior to the Effective Time, to all their respective properties, books, contracts, commitments and records and, during such period, each shall furnish promptly to the other (i) a copy of each report, schedule and other document filed or received by it during such period pursuant to the requirements of federal and state securities laws and (ii) all other information concerning its business, properties and personnel as such other party may reasonably request. Each party hereto shall, and shall cause its advisors and representatives to, (A) hold confidential all information obtained in connection with any transaction contemplated hereby with respect to the other party which is not otherwise public knowledge, (B) return all documents (including copies thereof) obtained hereunder from the other party to such -64- 66 other party and (C) use its best efforts to cause all information obtained pursuant to this Agreement or in connection with the negotiation of this Agreement to be treated as confidential and not use, or knowingly permit others to use, any such information unless such information becomes generally available to the public. (b) Each party promptly following the date of this Agreement shall commence its review of the other and the respective operations, business affairs, prospects and financial conditions of each, including, without limitation, those matters which are the subject of Seller's representa- tions and warranties (the "Due Diligence Review"). Each party shall conclude such review by not later than thirty (30) days after the date of this Agreement (the "Due Dili- gence Period"), but the pendency of such Due Diligence Review shall not delay Buyer's obligation pursuant to Section 5.02 of this Agreement to file a Registration Statement with the SEC and all other necessary applications and filings with the appropriate federal and state regulatory agencies. Each party shall promptly advise the other of any situation, event, circumstance of other matter which first came to the attention of Buyer after the date hereof which could result in the termination of this Agreement pursuant to Section 7.01 hereof, or, if applicable, of the absence of any situation, -65- 67 event, circumstance or other matter. Notwithstanding anything herein or implied to the contrary, the Due Diligence Review shall not limit, restrict or preclude, or be construed to limit, restrict or preclude, either party, at any time or from time to time thereafter, from conducting such further reviews or from exercising any rights available to it here- under as a result of the existence or occurrence prior to the Due Diligence Period of any event or condition which was not detected in the Due Diligence Review and which would constitute a breach of any representation, warranty or agreement under this Agreement. 5.02. Registration Statement; Regulatory Matters. ------------------------------------------ (a) Buyer shall prepare and, subject to the review and consent of Seller with respect to matters relating to Seller, file with the SEC as soon as is reasonably practicable the Registration Statement (or the equivalent in the form of preliminary proxy material) with respect to the shares of Buyer Common Stock to be issued in the Merger. Buyer shall prepare and file an ap- plication with the Federal Reserve Board as soon as reasonably practicable. Buyer shall use all reasonable efforts to cause the Registration Statement to become effective. Buyer shall also take any action required to be taken under any applicable state blue sky or securities laws in connection with the issuance of such shares, and Seller and its Subsidiaries shall -66- 68 furnish Buyer all information concerning Seller and its Subsidiaries and the stockholders thereof as Buyer may reasonably request in connection with any such action. (b) Seller and Buyer shall cooperate and use their respective best efforts to prepare all documentation, to effect all filings and to obtain all permits, consents, ap- provals and authorizations of all third parties and Regula- tory Authorities necessary to consummate the transactions contemplated by this Agreement and, as and if directed by Buyer, to consummate such other mergers, consolidations or asset transfers or other transactions by and among Buyer's Subsidiaries and Seller's Subsidiaries concurrently with or following the Effective Time. 5.03. Stockholder Approval. Seller shall call a -------------------- meeting of its shareholders to be held as soon as practicable for the purpose of voting upon the Merger or take other action for shareholders to authorize the Merger. In connection therewith, Buyer shall prepare the Proxy Statement and, with the approval of each of Buyer and Seller, the Proxy Statement shall be mailed to the shareholders of Seller. The Board of Directors of Seller shall submit for approval of Seller's shareholders the matters to be voted upon in order to authorize the Merger. The Board of Directors of Seller hereby does and will recommend this Agreement and the -67- 69 transactions contemplated hereby to shareholders of Seller and will use its best efforts to obtain any vote of Seller's shareholders that is necessary for the approval and adoption of this Agreement and consummation of the transactions contemplated hereby. 5.04. Current Information. During the period from ------------------- the date of this Agreement to the Effective Time, each party shall promptly furnish the other with copies of all monthly and other interim financial statements as the same become available and shall cause one or more of its designated representatives to confer on a regular and frequent basis with representatives of the other party. Each party shall promptly notify the other party of any material change in its business or operations and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the institution or the threat of material litigation involving such party, and shall keep the other party fully informed of such events. 5.05. [Intentionally Omitted] 5.06. Expenses. Each party hereto shall bear its -------- own expenses incident to preparing, entering into and car- rying out this Agreement and to consummating the Merger. -68- 70 5.07. Miscellaneous Agreements and Consents. ------------------------------------- Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its respective best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as expeditiously as possible, including without limitation using its respective best efforts to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. Each party shall, and shall cause each of its respective subsidiaries to, use its best efforts to obtain consents of all third parties and Regulatory Authorities necessary or, in the opinion of Buyer, desirable for the consummation of the transactions contemplated by this Agreement. 5.08. Employee Benefits. As soon as practicable, ----------------- following the Effective Time, employees of Sellers and Seller's Subsidiaries will receive employee benefits that are substantially the same as benefits from time to time provided to Buyer's similarly situated employees under its employee plans and policies. The service with Seller and Seller's Subsidiaries of the employees of Seller and Seller's Subsidiaries shall be recognized for purposes of vesting and -69- 71 eligibility for participation in Buyer's employee benefit plans generally made available to the other employees of Buyer and Buyer Subsidiaries, except that such service shall not be recognized for purposes of benefit accrual under any defined benefit plan of Buyer or Buyer's Subsidiaries. 5.09. Press Releases. Except as may be required by -------------- law, Seller and Buyer shall consult and agree with each other as to the form and substance of any proposed press release relating to this Agreement or any of the transactions contemplated hereby. 5.10. State Takeover Statutes. Seller will take ----------------------- all steps necessary to exempt the transactions contemplated by this Agreement and any agreement contemplated hereby from, and if necessary challenge the validity of, any applicable state takeover law. 5.11. D&O Indemnification. Buyer agrees that the ------------------- Merger shall not affect or diminish any of Seller's duties and obligations of indemnification existing as of the Ef- fective Time in favor of employees, agents, directors or officers of Seller or its Subsidiaries arising by virtue of its Certificate of Incorporation or Bylaws in the form in effect at the date of this Agreement or arising by operation of law or arising by virtue of any contract, resolution or other agreement or document existing at the date of this -70- 72 Agreement, and such duties and obligations shall continue in full force and effect for so long as they would (but for the Merger) otherwise survive and continue in full force and effect. 5.12. Best Efforts. Each of Buyer and Seller ------------ undertakes and agrees to use its best efforts to cause the Merger (i) to qualify (A) for pooling-of-interests accounting treatment and (B) as a reorganization within the meaning of Section 368 of the Internal Revenue Code (including, if necessary, to take reasonable steps to restructure the transactions contemplated by this Agreement to so qualify) and (ii) to occur as soon as practicable. Each of Buyer and Seller agrees to not take any action that would materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Buyer or Seller to obtain any approval of any Regulatory Authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement. 5.13. Insurance. As soon as practicable following --------- the date hereof, Seller shall, and Seller shall cause its Subsidiaries to, use its best efforts to maintain its existing insurance and, if not already obtained, obtain (and maintain through the Effective Time) insurance with respect -71- 73 to fiduciary liability insurance in respect of employee benefit matters and umbrella insurance in respect of automobile fleet coverage for amounts as reasonably requested by Buyer with financially sound and reputable insurance companies. 5.14. Bank Minority Shares. Seller shall use its -------------------- best efforts to cause all agreements pursuant to which any shareholders of each of the Banks (other than Seller or its Subsidiaries) hold shares of capital stock of such Banks, whether as qualifying shares or otherwise, to be amended and/or restated, in a manner and on terms reasonably acceptable to Buyer, so as to provide Seller and its suc- cessors an unqualified right to repurchase such shares at any time and/or from time to time, subject only to payment by Seller or its successors of the amounts specified in such agreements for the repurchase thereof. ARTICLE VI ---------- CONDITIONS 6.01. Conditions to Each Party's Obligation To ---------------------------------------- Effect the Merger. The respective obligations of each party - ----------------- to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: -72- 74 (a) This Agreement shall have received the req- uisite approval of shareholders of Seller. (b) All requisite approvals of this Agreement and the transactions contemplated hereby shall have been received from the Federal Reserve Board, the State Bank Regulators and any other Regulatory Authority. (c) The Registration Statement shall have been declared effective and shall not be subject to a stop order or any threatened stop order. (d) Neither Seller nor Buyer shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger. (e) Each of Buyer and Seller shall have received, from counsel reasonably satisfactory to it, an opinion reasonably satisfactory in form and substance to it to the effect that the Merger will constitute a reorgani- zation within the meaning of Section 368 of the Internal Revenue Code and that no gain or loss will be recognized by the shareholders of Seller to the extent they receive Buyer Common Stock solely in exchange for shares of Seller Common Stock. -73- 75 (f) Each of Buyer and Seller shall have received an opinion of Buyer Auditors addressed to Buyer, sat- isfactory in form and substance to Buyer, that the Merger will qualify for pooling-of-interests accounting treatment, which opinion shall not have been withdrawn. 6.02. Conditions to Obligations of Seller To Effect --------------------------------------------- the Merger. The obligations of Seller to effect the Merger - ---------- shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The repre- ------------------------------ sentations and warranties of Buyer set forth in Article III of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time except (i) to the extent such rep- resentations and warranties are by their express pro- visions made as of a specified date or period and (ii) for the effect of transactions contemplated by this Agreement) and Seller shall have received a certificate of the chairman or vice chairman of Buyer to that effect. (b) Performance of Obligations. Buyer shall have -------------------------- performed in all material respects all obligations re- quired to be performed by it under this Agreement prior -74- 76 to the Effective Time, and Seller shall have received a certificate of the chairman or vice chairman of Buyer to that effect. 6.03. Conditions to Obligations of Buyer To Effect -------------------------------------------- the Merger. The obligations of Buyer to effect the Merger - ---------- shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The repre- ------------------------------ sentations and warranties of Seller set forth in Article II of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time except (i) to the extent such representations and warranties are by their express provisions made as of a specific date or period and (ii) for the effect of transactions contemplated by this Agreement) and Buyer shall have received a certificate of the chairman of Seller and a certificate of the president and chief executive officer of Seller to that effect. (b) Performance of Obligations. Seller shall have -------------------------- performed in all material respects all obligations re- quired to be performed by it under this Agreement prior to the Effective Time, and Buyer shall have received a -75- 77 certificate of the chairman of Seller and a certificate of the president and chief executive officer of Seller to that effect. ARTICLE VII ----------- TERMINATION, AMENDMENT AND WAIVER 7.01. Termination. This Agreement may be termi- ----------- nated at any time prior to the Effective Time, whether before or after any requisite stockholder approval: (a) by mutual consent by the Executive Committee of the Board of Directors of Buyer and the Board of Directors of Seller; (b) by the Executive Committee of the Board of Directors of Buyer or the Board of Directors of Seller at any time after the date that is ten months after the date of this Agreement if the Merger shall not theretofore have been consummated (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein); (c) by the Executive Committee of the Board of Directors of Buyer or the Board of Directors of Seller if the Federal Reserve Board has denied approval of the -76- 78 Merger and such denial has become final and nonappeal- able; (d) by the Executive Committee of the Board of Directors of Buyer in the event of a material breach by Seller of any representation, warranty, covenant or other agreement contained in this Agreement, which breach is not cured within 30 days after written notice thereof to Seller by Buyer; (e) by the Executive Committee of the Board of Directors of Buyer in the event that (i) Buyer's Due Diligence Review of Seller and its Subsidiaries discloses matters the impact of which affects Seller and its Subsidiaries, taken as a whole, except as may have resulted from changes to laws and regulations or changes in economic conditions applicable to banking institutions generally, or in general interest rates that affect Seller and its Subsidiaries, taken as a whole, consistent with the manner in which changes in the general levels of interest rates since December 31, 1993 have affected Seller and its Subsidiaries, taken as a whole, which the Executive Committee of the Board of Directors of Buyer in the good faith exercise of its reasonable judgment believes either (A) to be inconsistent in any material and adverse respect with -77- 79 any of the representations or warranties of Seller, or (B) (x)to be of such significance as to materially and adversely affect the Condition of Seller and its Subsidiaries, taken as a whole, or (y) to deviate ma- terially and adversely from the financial statements for the year ended December 31, 1993 of Seller, (ii) Buyer notifies Seller of such matters within 30 days of the date of this Agreement, and (iii) such matters (A) are not capable of being cured or (B) have not been cured within 30 days after written notice thereof to Seller by Buyer; (f) by the Board of Directors of Seller in the event that (i) Seller's Due Diligence Review of Buyer and its Subsidiaries discloses matters the impact of which affects Buyer and its Subsidiaries, taken as a whole, except as may have resulted from changes to laws and regulations or changes in economic conditions applicable to banking institutions generally, or in general levels of interest rates that affect Buyer and its Subsidiaries, taken as a whole, consistent with the manner in which changes in the general levels of interest rates since December 31, 1993 has affected Buyer and its Subsidiaries, taken as a whole, which the Board of Directors of Seller in the good faith exercise of its reasonable judgment believe either (A) to be inconsistent in any material and adverse respect with any of the representations or -78- 80 warranties of Buyer, or (B)(x) to be of such significance as to materially and adversely affect the Condition of Buyer and its Subsidiaries, taken as a whole, or (y) to deviate materially and adversely from the financial statement for the year ended December 31, 1993 of Buyer, (ii) Seller notifies Buyer of such matters within 30 days of the date of this Agreement, and (iii) such matters (A) are not capable of being cured or (B) have not been cured within 30 days after written notice thereof to Buyer; or (g) by the Board of Directors of Seller in the event of a material breach by Buyer of any representation, warranty, covenant or other agreement contained in this Agreement, which breach is not cured within 30 days after written notice thereof is given to Buyer by Seller. 7.02. Effect of Termination. In the event of ter- --------------------- mination of this Agreement as provided in Sections 7.01(a) through 7.01(c) and Section 7.01(e) above, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Buyer or Seller or their respective officers or directors except as set forth in the second sen- tence of Section 5.01 and in Section 5.06. 7.03. Amendment. This Agreement and the Schedules --------- hereto may be amended by the parties hereto, by action taken by or on behalf of their respective Boards of Directors, at -79- 81 any time before or after approval of this Agreement by the shareholders of Seller; provided, however, that after any -------- ------- such approval by the shareholders of Seller no such modifi- cation shall alter or change the amount or kind of consid- eration to be received by holders of Seller Common Stock as provided in this Agreement. This Agreement may not be amended except by an instrument in writing signed on behalf of each of Buyer and Seller. 7.04. Severability. Any term, provision, covenant ------------ or restriction contained in this Agreement held by a court or a Regulatory Authority of competent jurisdiction to be invalid, void or unenforceable, shall be ineffective to the extent of such invalidity, voidness or unenforceability, but neither the remaining terms, provisions, covenants or re- strictions contained in this Agreement nor the validity or enforceability thereof in any other jurisdiction shall be affected or impaired thereby. Any term, provision, covenant or restriction contained in this Agreement that is so found to be so broad as to be unenforceable shall be interpreted to be as broad as is enforceable. 7.05. Waiver. Any term, condition or provision of ------ this Agreement may be waived in writing at any time by the party which is, or whose stockholders are, entitled to the benefits thereof. -80- 82 ARTICLE VIII ------------ GENERAL PROVISIONS 8.01. Non-Survival of Representations, Warranties ------------------------------------------- and Agreements. No investigation by the parties hereto made - -------------- heretofore or hereafter shall affect the representations and warranties of the parties which are contained herein and each such representation and warranty shall survive such investigation. Except as set forth below in this Section 8.01, all representations, warranties and agreements in this Agreement of Buyer and Seller or in any instrument delivered by Buyer or Seller pursuant to or in connection with this Agreement shall expire at the Effective Time or upon termi- nation of this Agreement in accordance with its terms or, in the case of any other such instrument, in accordance with the terms of such instrument. In the event of consummation of the Merger, the agreements contained in or referred to in Sections 5.02(b), 5.07, 5.08, 5.09 and 5.12 shall survive the Effective Time. In the event of termination of this Agreement in accordance with its terms, the agreements contained in or referred to in the second sentence of Section 5.01, Section 5.06 and Section 7.02 shall survive such termination. 8.02. Notices. All notices and other communica- ------- tions hereunder shall be in writing and shall be deemed to be duly received (i) on the date given if delivered personally -81- 83 or (ii) upon confirmation of receipt, if by facsimile transmission or (iii) on the date received if mailed by registered or certified mail (return receipt requested), or (iv) on the business date after being delivered to a reputable overnight delivery service, if by such service, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Buyer: Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, Missouri 63166-0524 Attention: Ralph W. Babb, Jr. Vice Chairman Copies to: Jon W. Bilstrom, Esq. General Counsel Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, Missouri 63166-0524 and Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Edward D. Herlihy, Esq. Telecopy: (212) 403-2000 (ii) if to Seller: One Riverfront Place #400 North Little Rock, Arkansas 72119 Attention: Frank Lyon, Jr. Chairman -82- 84 Copies to: One Riverfront Place #400 Second Floor North Little Rock, Arkansas 72119 Attention: T.E. Renaud Chief Executive Officer and President and Mitchell, Williams, Selig, Gates & Woodward, a Professional Limited Company 320 West Capitol Avenue, Suite 1000 Little Rock, Arkansas 72201-3525 Attention: John S. Selig Telecopy: (501) 688-8807 8.03. Miscellaneous. This Agreement (including the ------------- Schedules and other written documents referred to herein or provided hereunder) (i) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof, including any confidentiality agreement between the parties hereto, (ii) is not intended to confer upon any person not a party hereto any rights or remedies hereunder, (iii) shall not be assigned by operation of law or otherwise and (iv) shall be governed in all respects by the laws of the State of Missouri, except as otherwise specifically provided herein or required by the Arkansas Act. This Agreement may be executed in counterparts which together shall constitute a single agreement. -83- 85 IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be signed and, by such signature, ac- knowledged by their respective officers thereunto duly au- thorized, and such signatures to be attested to by their respective officers thereunto duly authorized, all as of the date first written above. Attest: MERCANTILE BANCORPORATION INC. - ------ /s/Jon W. Bilstrom By: /s/Ralph W. Babb, Jr. - ---------------------- ------------------------ Jon W. Bilstrom Ralph W. Babb, Jr. Attest: TCBANKSHARES, INC. - ------ /s/Jay Morgan By: /s/Frank Lyon, Jr. - ---------------------- ------------------------ Frank Lyon, Jr. -84- EX-2.2 3 SUPPORT AGREEMENT 1 Support Agreement December 2, 1994 Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, Missouri 63166-0524 Dear Sirs: Mercantile Bancorporation Inc. ("Buyer") and TCBankshares, Inc. ("Seller") are entering into an Agreement and Plan of Reorganization (the "Agreement") providing for, among other things, a merger between a wholly-owned subsidiary of Buyer and Seller (the "Merger"), in which all of the outstanding shares of capital stock of Seller will be exchanged for capital stock of Buyer. The undersigned is a stockholder of Seller ("Stock- holder") and is entering into this letter agreement to induce Buyer to enter into the Agreement and to consummate the transactions contemplated thereby. All capitalized terms used herein and not otherwise defined shall have the meaning ascribed thereto in the Agreement. Stockholder confirms its agreement with Buyer as follows: 1. Stockholder represents, warrants and agrees that Schedule I annexed hereto sets forth the shares of the capital stock of Seller of which Stockholder is the record or beneficial owner (the "Shares") and that Stockholder is on the date hereof the lawful owner of the number of shares set forth in Schedule I, free and clear of all liens, charges, encumbrances, voting agreements and commitments of every kind. Except as set forth in Schedule I, Stockholder does not own or hold any rights to acquire any additional shares of the capital stock of Seller or of any Seller Subsidiary (by exercise of stock options or otherwise) or any interest therein or any voting rights with respect to any additional shares, other than as previously disclosed to Buyer. 2 2. Stockholder agrees that Stockholder will not, and will not permit any company, trust or other entity controlled by Stockholder to, contract to sell, sell or otherwise transfer or dispose of any of the Shares or any interest therein or securities convertible thereinto or any voting rights with respect thereto, other than (i) pursuant to the Merger or (ii) with Buyer's prior written consent. 3. Stockholder agrees that all of the Shares beneficially owned by Stockholder, or over which Stockholder has voting power or control, directly or indirectly, in each case at the record date for any meeting of stockholders of Seller called to consider and vote to approve the Agreement and/or the transactions contemplated thereby will be voted by the undersigned in favor thereof. 4. Stockholder agrees to, and will cause any company, trust or other entity controlled by Stockholder to, cooperate with Buyer in connection with the Agreement and the transactions contemplated thereby. Stockholder agrees that Stockholder will not, and will not permit any such company, trust or other entity directly or indirectly (including through its officers, directors, employees or other representatives) to initiate, solicit or encourage any discussions, inquiries or proposals with any third party relating to the disposition of any significant portion of the business or assets of Seller or any Seller Subsidiary or the acquisition of Equity Securities of Seller or any Seller Subsidiary or the merger of Seller or any Seller Subsidiary with any person (other than Buyer) or any similar transaction (each such transaction being referred to herein as an "Acquisition Transaction"), or provide any such person with information or assistance or negotiate with any such person with respect to an Acquisition Transaction or agree to or otherwise assist in the effectuation of any Acquisition Transaction. 5. Stockholder agrees that he will execute and deliver a certificate containing such representations as are reasonably necessary and customary for tax counsel to each of Buyer and Seller to render an opinion to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986 and that no gain or loss will be recognized by the shareholders of Seller to the extent they receive Buyer Common Stock and Buyer New Preferred Stock solely in exchange for shares of Seller Common Stock and Seller Preferred Stock. - 2 - 3 Stockholder has all necessary power and authority to enter into this letter agreement. This agreement is the legal, valid and binding agreement of the Stockholder, and is enforceable against Stockholder in accordance with its terms. This letter agreement shall terminate upon termination of the Agreement. Please confirm that the foregoing correctly states the understanding between us by signing and returning to us a counterpart hereof. Very truly yours, By: /s/ Frank Lyon, Jr. ---------------------- AGREED AND ACCEPTED: MERCANTILE BANCORPORATION INC. By: /s/ Ralph W. Babb, Jr. ----------------------- - 3 - 4 Schedule I ---------- Stock Ownership Owned Beneficially - ------------------ Through James Frank Lyon, Jr., Revocable Trust: 2,473.9225 Shares of Series A Preferred Stock 4,429.375 Shares of Series B Preferred Stock 1,234.7734 Shares of Common Stock Through Frank Lyon, Jr., Trust: 2,832.0775 Shares of Series A Preferred Stock 5,070.625 Shares of Series B Preferred Stock 808.6702 Shares of Common Stock Owned of Record - --------------- None EX-2.3 4 SUPPORT AGREEMENT 1 Support Agreement December 2, 1994 Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, Missouri 63166-0524 Dear Sirs: Mercantile Bancorporation Inc. ("Buyer") and TCBankshares, Inc. ("Seller") are entering into an Agreement and Plan of Reorganization (the "Agreement") providing for, among other things, a merger between a wholly-owned subsidiary of Buyer and Seller (the "Merger"), in which all of the outstanding shares of capital stock of Seller will be exchanged for capital stock of Buyer. The undersigned is a stockholder of Seller ("Stockholder") and is entering into this letter agreement to induce Buyer to enter into the Agreement and to con- summate the transactions contemplated thereby. All capi- talized terms used herein and not otherwise defined shall have the meaning ascribed thereto in the Agreement. Stockholder confirms its agreement with Buyer as follows: 1. Stockholder represents, warrants and agrees that Schedule I annexed hereto sets forth the shares of the capital stock of Seller of which Stockholder is the record or beneficial owner (the "Shares") and that Stockholder is on the date hereof the lawful owner of the number of shares set forth in Schedule I, free and clear of all liens, charges, encumbrances, voting agreements and commitments of every kind except for liens and rights of first refusal in favor of Frank Lyon, Jr. or trusts for his benefit. Except as set forth in Schedule I, Stockholder does not own or hold any rights to acquire any additional shares of the capital stock of Seller or of any Seller Subsidiary (by exercise of stock options or otherwise) or any interest therein or any voting rights with respect to any additional shares, other than as previously disclosed to Buyer. 2 2. Stockholder agrees that Stockholder will not, and will not permit any company, trust or other entity con- trolled by Stockholder to, contract to sell, sell or other- wise transfer or dispose of any of the Shares or any interest therein or securities convertible thereinto or any voting rights with respect thereto, other than (i) pursuant to the Merger or (ii) with Buyer's prior written consent or (iii) to a grantor trust in which stockholder is trustee. 3. Stockholder agrees that all of the Shares beneficially owned by Stockholder, or over which Stockholder has voting power or control, directly or indirectly, in each case at the record date for any meeting of stockholders of Seller called to consider and vote to approve the Agreement and/or the transactions contemplated thereby will be voted by the undersigned in favor thereof. 4. Stockholder agrees to, and will cause any company, trust or other entity controlled by Stockholder to, cooperate with Buyer in connection with the Agreement and the transactions contemplated thereby. Stockholder agrees that Stockholder will not, and will not permit any such company, trust or other entity directly or indirectly (including through its officers, directors, employees or other representatives) to initiate, solicit or encourage any discussions, inquiries or proposals with any third party relating to the disposition of any significant portion of the business or assets of Seller or any Seller Subsidiary or the acquisition of Equity Securities of Seller or any Seller Subsidiary or the merger of Seller or any Seller Subsidiary with any person (other than Buyer) or any similar transaction (each such transaction being referred to herein as an "Acquisition Transaction"), or provide any such person with information or assistance or negotiate with any such person with respect to an Acquisition Transaction or agree to or otherwise assist in the effectuation of any Acquisition Transaction. 5. Stockholder agrees that he will execute and deliver a certificate containing such representations as are reasonably necessary and customary for tax counsel to each of Buyer and Seller to render an opinion to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986 and that no gain or loss will be recognized by the shareholders of Seller to the extent they receive Buyer Common Stock and Buyer New - 2 - 3 Preferred Stock solely in exchange for shares of Seller Common Stock and Seller Preferred Stock. Stockholder has all necessary power and authority to enter into this letter agreement. This agreement is the legal, valid and binding agreement of the Stockholder, and is enforceable against Stockholder in accordance with its terms. This letter agreement shall terminate upon termination of the Agreement. Please confirm that the foregoing correctly states the understanding between us by signing and returning to us a counterpart hereof. Very truly yours, By: /s/ T.E. Renaud --------------- AGREED AND ACCEPTED: MERCANTILE BANCORPORATION INC. By: /s/ Ralph W. Babb, Jr. ---------------------- - 3 - 4 Schedule I ---------- Stock Ownership Owned Beneficially - ------------------ Owned of Record - --------------- 88.2934 Shares of Common Stock EX-20 5 PRESS RELEASE 1 FOR IMMEDIATE RELEASE: DECEMBER 5, 1994 CONTACT: PATRICK STRICKLER (314) 425-3835 NYSE SYMBOL: MTL IN NEWSPAPER STOCK TABLES GENERALLY MercBc or MercBcpMO MERCANTILE BANCORPORATION TO ENTER ARKANSAS THROUGH MERGER WITH TCBANKSHARES Mercantile Bancorporation Inc., of St. Louis, today announced that it will enter the Arkansas banking market by merging with TCBankshares Inc., the state's third largest bank holding company. TCBankshares, based in North Little Rock, had approximately $1.4 billion in assets as of September 30, 1994, and owns six banks with 36 offices in central, northern and western Arkansas. The company's lead bank, The Twin City Bank, is the third largest bank in Little Rock/North Little Rock, the state's largest metropolitan area. Its five other banks are among the top three institutions in seven of the eight counties they serve. Mercantile, one of the premier banking organizations in the U.S., had September 30, 1994 assets of $12.2 billion. The corporation operates 41 Mercantile Banks located throughout the state of Missouri, and in eastern Kansas, southern Illinois and northern Iowa. --more-- 2 MERCANTILE TO MERGE WITH TCBANKSHARES--FIRST ADD "Merging with TCBankshares will allow Mercantile to assume a solid market share in the state's capital, and strong positions in several other attractive and growing communities in Arkansas," explained Thomas H. Jacobsen, Mercantile's chairman and chief executive officer. "TCBankshares' network adjoins existing Mercantile markets north of the state line in Missouri, making it an excellent complement to Mercantile's franchise. Mercantile's strength has always been its strong sense of community banking and the involvement of local people as directors of those banks." "Mercantile's strong commitment to banking fundamentals and its tradition of supporting the communities that it serves fit perfectly with the philosophy that TCBankshares has followed over the years," noted Frank Lyon, Jr., chairman of TCBankshares. "Further, it allows my family an expanded and more diversified interest in the banking industry in addition to providing TCB with the wherewithal to more aggressively pursue its growth and acquisition strategies to better serve the financial needs of our customers." "As we become part of the Mercantile organization, it is with the assurance that Twin City Bank will continue to offer the quality of service and care to our customers and employees that we have traditionally offered," said T.E. Renaud, chairman and chief executive officer of the bank. --more-- 3 MERCANTILE TO MERGE WITH TCBANKSHARES--SECOND ADD "We will immediately begin to take advantage of the capital strength, range of services and increased efficiency that this affiliation will provide, while at the same time keeping Twin City Bank's present management structure, customer service culture, and commitment to customers, employees and communities intact," Renaud said. He plans to remain as chairman and chief executive officer of Twin City Bank and the local boards of directors of the banks within TCBankshares will remain, Renaud added. Renaud is also chief executive officer of TCBankshares. In addition to North Little Rock-based Twin City Bank, TCBankshares owns First National Bank of Crawford County, in Van Buren; The First National Bank of Conway County, in Morrilton; First National Bank of Cleburne County, in Heber Springs; 1st Ozark National Bank, in Flippin; and TCB--The Community Bank of Arkansas, in Batesville. According to the terms of the merger agreement, Mercantile will issue 4.75 million shares of its common stock in exchange for the common stock of TCBankshares. In addition, Mercantile will assume, through an exchange, outstanding, non-convertible preferred stock of TCBankshares with a value of $12.1 million. The merger is subject to the approval of all appropriate regulatory authorities. # # # EX-23.1 6 CONSENT OF EXPERTS 1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-4, No. 33-56603) and related Prospectus of Mercantile Bancorporation, Inc. for the registration of 2,625,533 shares of its common stock, our report dated March 7, 1994, with respect to the consolidated financial statements of TCBankshares, Inc. included in Mercantile Bancorporation, Inc.'s Current Report on Form 8-K dated December 21, 1994, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Little Rock, Arkansas December 21, 1994 -----END PRIVACY-ENHANCED MESSAGE-----