-----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, r6GfD1X7rqlDmG3y7Sp2vSjWPn+v6IzGks5Nm888ER+Q0Q1chcJV4DE6UwXY2DIC VVbyqSgZ0lk+b6p7Ab246A== 0000950114-94-000110.txt : 19941006 0000950114-94-000110.hdr.sgml : 19941006 ACCESSION NUMBER: 0000950114-94-000110 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19941005 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCANTILE BANCORPORATION INC CENTRAL INDEX KEY: 0000064907 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 430951744 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 033-55779 FILM NUMBER: 94551739 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 S-4 1 MERCANTILE BANCORPORATION INC. FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 5, 1994 Registration No. 33------ =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------ FORM S-4 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ------------------------------ MERCANTILE BANCORPORATION INC. (Exact name of registrant as specified in its charter) MISSOURI 6712 43-0951744 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Classification Identification incorporation or Code Number) Number) organization) P.O. Box 524 St. Louis, Missouri 63166-0524 (314) 425-2525 (Address, including ZIP code, and telephone number, including area code, of registrant's principal executive offices) ------------------------------ RALPH W. BABB, JR. Vice Chairman Mercantile Bancorporation Inc. P.O. Box 524 St. Louis, Missouri 63166-0524 (314) 425-2525 (Name, address, including ZIP code, and telephone number, including area code, of agent for service) ------------------------------ Copy to: JON W. BILSTROM, ROBERT M. LaROSE, RONALD C. MOTTAZ, ESQ. ESQ. ESQ. General Counsel Thompson & Mitchell Thomas, Mottaz, and Secretary One Mercantile Center Eastman & Sherwood Mercantile St. Louis, Missouri 307 Henry Street Bancorporation Inc. 63101 P.O. Box 398 P.O. Box 524 (314) 231-7676 Alton, Illinois 62002 St. Louis, Missouri (618) 462-9201 63166-0524 (314) 425-2525 ------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / ------------------------------
CALCULATION OF REGISTRATION FEE ================================================================================================================================== Title of each class of Amount to be Proposed maximum Proposed maximum Amount of securities to be registered registered offering price per unit aggregate offering price registration fee - ---------------------------------------------------------------------------------------------------------------------------------- Common Stock, $5.00 par value 970,000 shares N/A $19,121,000 $6,593.45 ================================================================================================================================== Includes one attached Preferred Share Purchase Right per share. Estimated solely for purposes of computing the Registration Fee pursuant to the provisions of Rule 457(f)(2), and based upon the $19,121,000 aggregate book value of the 144,320 shares of Common Stock, $10.00 par value, of Wedge Bank issued and outstanding as of June 30, 1994.
------------------------------ The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. =============================================================================== 2 MERCANTILE BANCORPORATION INC. CROSS REFERENCE SHEET FURNISHED PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING HEADING OR LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-4 -----------------------------------------------------------
Form S-4 Item Number and Caption Heading or Location in Prospectus -------------------------------- --------------------------------- A. Information about the Transaction 1. Forepart of Registration Statement Facing Page; Cross Reference Sheet; and Outside Front Cover Page Outside Front Cover Page of Prospectus of Prospectus 2. Inside Front and Outside Back Available Information; Incorporation of Cover Pages of Prospectus Certain Information by Reference; Table of Contents 3. Risk Factors, Ratio of Earnings Summary Information; Pro Forma Financial to Fixed Charges and Other Information Information 4. Terms of the Transaction Summary Information; Incorporation of Certain Information by Reference; Terms of the Proposed Acquisition; Certain Federal Income Tax Consequences of the Acquisition; Information Regarding MBI Common Stock 5. Pro Forma Financial Pro Forma Financial Information Information 6. Material Contacts with the Summary Information; Terms of the Company Being Acquired Proposed Acquisition 7. Additional Information Required Not Applicable for Reoffering by Persons and Parties Deemed to be Underwriters 8. Interests of Named Experts and Legal Matters Counsel 9. Disclosure of Commission Not Applicable Position on Indemnification for Securities Act Liabilities -i- 3 Form S-4 Item Number and Caption Heading or Location in Prospectus -------------------------------- --------------------------------- B. Information About the Registrant 10. Information with Respect to S-3 Incorporation of Certain Information by Registrants Reference; Summary Information; Information Regarding MBI Common Stock 11. Incorporation of Certain Incorporation of Certain Information by Information by Reference Reference 12. Information with Respect to S-2 Not Applicable or S-3 Registrants 13. Incorporation of Certain Not Applicable Information by Reference 14. Information with Respect to Not Applicable Registrants Other Than S-2 or S-3 Registrants C. Information About the Company Being Acquired 15. Information with Respect to S-3 Not Applicable Companies 16. Information with Respect to S-2 Not Applicable or S-3 Companies 17. Information with Respect to Summary Information; Information Companies Other Than S-2 or Regarding Wedge Holding and Wedge Bank S-3 Companies D. Voting and Management Information 18. Information if Proxies, Consents Information Regarding Special Meetings; or Authorizations are to be Incorporation of Certain Information by Solicited Reference; Dissenters' Rights of Stockholders of Wedge Bank; Information Regarding Wedge Holding and Wedge Bank 19. Information if Proxies, Consents Not Applicable or Authorizations are not to be Solicited in an Exchange Offer
-ii- 4 [WEDGE HOLDING LETTERHEAD] ---------------, 1994 Dear Stockholder: The Board of Directors cordially invites you to attend a Special Meeting of Stockholders of The Wedge Holding Company ("Wedge Holding") to be held at ----------, Central Time, on ---------------, 1994, at -------------------------------------------------- ("Special Meeting"). At this important meeting, you will be asked to consider and vote upon the Agreement and Plan of Reorganization dated as of July 6, 1994, and the related Plan of Merger dated as of August 31, 1994 (collectively, the "Merger Agreement"), pursuant to which Mercantile Bancorporation Incorporated of Illinois ("Mercantile Illinois"), a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI") will acquire all of the outstanding capital stock of Wedge Bank, an Illinois state bank ("Wedge Bank") through the consummation of two concurrent and interdependent transactions: (i) the exchange (the "Exchange") of all shares of common stock of Wedge Bank owned beneficially and of record by Wedge Holding for shares of MBI Common Stock, and (ii) the merger (the "Merger") of a to-be-formed Illinois state bank, which will be a wholly owned subsidiary of Mercantile Illinois, with and into Wedge Bank. I have enclosed the following items relating to the Special Meeting and the Exchange and the Merger: 1. Joint Proxy Statement/Prospectus; 2. Proxy card; and 3. A pre-addressed return envelope to Wedge Holding for the proxy card. The Joint Proxy Statement/Prospectus and related proxy materials set forth, or incorporate by reference, financial data and other important information relating to Wedge Holding, Wedge Bank and MBI, and describe the terms and conditions of the proposed Exchange and Merger. The Board of Directors requests that you carefully review these materials before completing the enclosed proxy card or attending the Special Meeting. THE BOARD OF DIRECTORS OF WEDGE HOLDING CAREFULLY CONSIDERED AND APPROVED THE TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST INTEREST OF WEDGE HOLDING AND ITS STOCKHOLDERS. THE WEDGE HOLDING BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT. --- APPROVAL OF THE MERGER AGREEMENT IS A CONDITION TO THE CONSUMMATION OF THE EXCHANGE AND THE MERGER. Accordingly, it is important that your shares be represented at the Special Meeting, whether or not you plan to attend the Special Meeting in person. Please complete, sign and date the enclosed proxy card and return it to Wedge Holding in the enclosed pre-addressed envelope which requires no postage if mailed within the United States. If you later decide to attend the Special Meeting and vote in person, or if you wish to revoke your proxy for any reason prior to the vote at the Special Meeting, you may do so and your proxy will have no further effect. You may revoke your proxy by delivering to the Secretary of Wedge Holding a written notice of revocation or another proxy relating to the same shares bearing a later date than the proxy being revoked or by attending the Special Meeting and voting in person. Attendance at the Special Meeting will not in itself constitute a revocation of an earlier dated proxy. If you need assistance in completing your proxy card or if you have any questions about the Joint Proxy Statement/Prospectus, please feel free to contact -------------------- at (-----) ----------. Sincerely, Melvin G. Hall Chairman and Chief Executive Officer Robert Lynn Hall President -iii- 5 [WEDGE BANK LETTERHEAD] ---------------, 1994 Dear Stockholder: The Board of Directors cordially invites you to attend a Special Meeting of Stockholders of Wedge Bank to be held at ----------, Central Time, on ----------, 1994, at - -------------------------------------------------- ("Special Meeting"). At this important meeting, you will be asked to consider and vote upon the Agreement and Plan of Reorganization dated as of July 6, 1994, and the related Plan of Merger dated as of August 31, 1994 (collectively, the "Merger Agreement"), pursuant to which Mercantile Bancorporation Incorporated of Illinois ("Mercantile Illinois"), a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI") will acquire all of the outstanding capital stock of Wedge Bank through the consummation of two concurrent and interdependent transactions: (i) the exchange (the "Exchange") of all shares of common stock of Wedge Bank owned beneficially and of record by The Wedge Holding Company for shares of MBI Common Stock, and (ii) the merger (the "Merger") of a to-be-formed Illinois state bank, which will be a wholly owned subsidiary of Mercantile Illinois, with and into Wedge Bank. I have enclosed the following items relating to the Special Meeting and the Exchange and the Merger: 1. Joint Proxy Statement/Prospectus; 2. Proxy card; and 3. A pre-addressed return envelope to Wedge Bank for the proxy card. The Joint Proxy Statement/Prospectus and related proxy materials set forth, or incorporate by reference, financial data and other important information relating to Wedge Bank, Wedge Holding and MBI, and describe the terms and conditions of the proposed Exchange and Merger. The Board of Directors requests that you carefully review these materials before completing the enclosed proxy card or attending the Special Meeting. THE BOARD OF DIRECTORS OF WEDGE BANK CAREFULLY CONSIDERED AND APPROVED THE TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST INTEREST OF WEDGE BANK AND ITS STOCKHOLDERS. THE WEDGE BANK BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT. --- APPROVAL OF THE MERGER AGREEMENT IS A CONDITION TO THE CONSUMMATION OF THE EXCHANGE AND THE MERGER. Accordingly, it is important that your shares be represented at the Special Meeting, whether or not you plan to attend the Special Meeting in person. Please complete, sign and date the enclosed proxy card and return it to Wedge Bank in the enclosed pre-addressed envelope which requires no postage if mailed within the United States. If you later decide to attend the Special Meeting and vote in person, or if you wish to revoke your proxy for any reason prior to the vote at the Special Meeting, you may do so and your proxy will have no further effect. You may revoke your proxy by delivering to the Secretary of Wedge Bank a written notice of revocation or another proxy relating to the same shares bearing a later date than the proxy being revoked or by attending the Special Meeting and voting in person. Attendance at the Special Meeting will not in itself constitute a revocation of an earlier dated proxy. If you need assistance in completing your proxy card or if you have any questions about the Joint Proxy Statement/Prospectus, please feel free to contact -------------------- at (-----) ----------. Sincerely, Melvin G. Hall Chairman and Chief Executive Officer Robert Lynn Hall President -iv- 6 THE WEDGE HOLDING COMPANY 620 E. Broadway Alton, Illinois 62002-9007 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS To Be Held ---------------, 1994 TO THE STOCKHOLDERS OF WEDGE HOLDING: Notice is hereby given that a Special Meeting of Stockholders of THE WEDGE HOLDING COMPANY, a Delaware corporation ("Wedge Holding"), will be held at ----------------------------- --------------------- , on ---------------, 1994, at ---------- Central Time, for the following purposes: (1) To consider and vote upon the adoption and approval of the Agreement and Plan of Reorganization dated as of July 6, 1994 and the related Plan of Merger dated as of August 31, 1994, pursuant to which (i) Wedge Holding and Mercantile Bancorporation Incorporated of Illinois ("Mercantile Illinois"), a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"), will effect an exchange (the "Exchange") of all shares of the Common Stock of Wedge Bank owned by Wedge Holding for shares of MBI Common Stock, (ii) a wholly owned subsidiary of Mercantile Illinois will be merged with and into Wedge Bank (the "Merger") in a transaction which would result in the business and operations of Wedge Bank being continued through such wholly owned subsidiary, and whereby, upon the consummation of the Merger, each share of Wedge Bank (other than shares held by Mercantile Illinois or Wedge Holding) will be converted into the right to receive shares of MBI Common Stock, and (iii) Wedge Holding will be entitled to receive in the Exchange, and the stockholders of Wedge Bank (other than Mercantile Illinois or Wedge Holding) will be entitled to receive in the Merger, the number of shares of MBI Common Stock determined by multiplying such stockholders' respective percentage ownership interest in Wedge Bank by 970,000, the total number of shares of MBI Common Stock to be issued in the Exchange and the Merger. (2) To transact such other business as may properly come before the Special Meeting or any adjournment thereof. The record date for determining the stockholders entitled to receive notice of, and to vote at, the Special Meeting or any adjournment thereof has been fixed as of the close of business on ---------------, 1994. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. BY ORDER OF THE BOARD OF DIRECTORS Melvin G. Hall Chairman and Chief Executive Officer Robert Lynn Hall President Alton, Illinois - ---------------, 1994 7 WEDGE BANK 620 E. Broadway Alton, Illinois 62002-9007 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS To Be Held ---------------, 1994 TO THE STOCKHOLDERS OF WEDGE BANK: Notice is hereby given that a Special Meeting of Stockholders of WEDGE BANK, an Illinois state bank ("Wedge Bank"), will be held at - --------------------------------------------------, on ---------------, 1994, at ---------- Central Time, for the following purposes: (1) To consider and vote upon the adoption and approval of the Agreement and Plan of Reorganization dated as of July 6, 1994 and the related Plan of Merger dated as of August 31, 1994, pursuant to which (i) The Wedge Holding Company ("Wedge Holding") and Mercantile Bancorporation Incorporated of Illinois ("Mercantile Illinois"), a wholly owned subsidiary of Mercantile Bancorporation Inc., will effect an exchange (the "Exchange") of all shares of the Common Stock of Wedge Bank owned by Wedge Holding for shares of MBI Common Stock, (ii) a wholly owned subsidiary of Mercantile Illinois will be merged with and into Wedge Bank (the "Merger") in a transaction which would result in the business and operations of Wedge Bank being continued through such wholly owned subsidiary, and (iii) Wedge Holding will be entitled to receive in the Exchange, and the stockholders of Wedge Bank (other than Mercantile Illinois or Wedge Holding) will be entitled to receive in the Merger, the number of shares of MBI Common Stock determined by multiplying such stockholders' respective percentage ownership interest in Wedge Bank by 970,000, the total number of shares of MBI Common Stock to be issued in the Exchange and the Merger. (2) To transact such other business as may properly come before the Special Meeting or any adjournment thereof. The record date for determining the stockholders entitled to receive notice of, and to vote at, the Special Meeting or any adjournment thereof has been fixed as of the close of business on - ---------------, 1994. Any stockholder of Wedge Bank who (1) files with Wedge Bank prior to the Special Meeting a written objection to the Merger, (2) does not vote in favor of the Merger, and (3) within 20 days after receiving written notice of the date the Merger became effective files a written demand with Wedge Bank for payment of the fair value of such stockholder's shares as of the day prior to the date on which the vote was taken approving the Merger, shall be entitled to fair value of the stockholder's shares of Wedge Bank Common Stock, under the applicable provisions of the Illinois Banking Act, as set forth in Annex A to the ------- attached Joint Proxy Statement/Prospectus. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. BY ORDER OF THE BOARD OF DIRECTORS Melvin G. Hall Chairman and Chief Executive Officer Robert Lynn Hall President Alton, Illinois - ---------------, 1994 8 SUBJECT TO COMPLETION, DATED OCTOBER 5, 1994 MERCANTILE BANCORPORATION INC. PROSPECTUS -------------------- THE WEDGE HOLDING COMPANY WEDGE BANK JOINT PROXY STATEMENT SPECIAL MEETINGS OF STOCKHOLDERS TO BE HELD ON ---------------, 1994 This Prospectus of Mercantile Bancorporation Inc. ("MBI") relates to up to 970,000 shares of Common Stock, $5.00 par value, and attached Preferred Share Purchase Rights (the "Rights"), of MBI (the Common Stock and Rights are collectively referred to herein as the "MBI Common Stock"), to be issued upon the acquisition by Mercantile Bancorporation Incorporated of Illinois, a Missouri corporation and a wholly owned subsidiary of MBI ("Mercantile Illinois"), of all of the outstanding capital stock of Wedge Bank, an Illinois state bank ("Wedge Bank"). The acquisition will be accomplished through the consummation of two concurrent and interdependent transactions: (i) the exchange (the "Exchange") of all shares of common stock of Wedge Bank owned beneficially and of record by The Wedge Holding Company, a Delaware corporation ("Wedge Holding"), for shares of MBI Common Stock, and (ii) the merger (the "Merger" and together with the Exchange, the "Acquisition") of a to-be-formed Illinois state bank which will be a wholly owned subsidiary of Mercantile Illinois (the "Acquisition Bank") with and into Wedge Bank. The Acquisition will be consummated in accordance with the terms and conditions, including regulatory and stockholder approvals, as set forth in the Agreement and Plan of Reorganization dated July 6, 1994 by and among MBI, Mercantile Illinois, Wedge Holding and Wedge Bank, and the related Plan of Merger dated as of August 31, 1994 (collectively, the "Merger Agreement"). This Prospectus also serves as the Proxy Statement of each of Wedge Holding and Wedge Bank for use in connection with the Special Meeting of Stockholders of Wedge Holding (the "Wedge Holding Special Meeting") and the Special Meeting of Stockholders of Wedge Bank (the "Wedge Bank Special Meeting" and, collectively with the Wedge Holding Special Meeting, the "Special Meetings"), both of which will be held on -------------, 1994 at the time and place and for the purposes stated in the Notices of Special Meeting of Stockholders accompanying this Joint Proxy Statement/Prospectus. Pursuant to the Acquisition, MBI will issue up to an aggregate of 970,000 shares of MBI Common Stock (the "Acquisition Consideration"). Upon the consummation of the Exchange, Wedge Holding will be entitled to receive the number of shares of MBI Common Stock representing Wedge Holding's percentage ownership interest in Wedge Bank multiplied by the Acquisition Consideration. Pursuant to the Merger Agreement, Wedge Holding shall liquidate and dissolve within six months after the Exchange (the "Liquidation") and effect a liquidating distribution to the holders of the capital stock of Wedge Holding of all shares of MBI Common Stock then owned beneficially and of record by Wedge Holding. Upon consummation of the Merger, the business and operations of Wedge Bank will be continued through Wedge Bank as a wholly owned subsidiary of Mercantile Illinois, and each issued and outstanding share of the common stock of Wedge Bank, $10 par value (the "Wedge Bank Common Stock"), held by a stockholder of Wedge Bank (other than any shares owned by Mercantile Illinois or Wedge Holding or shares owned by stockholders of Wedge Bank who exercise their dissenters' rights under the Illinois Banking Act) shall cease to be outstanding and will be converted into the right to receive the number of shares of MBI Common Stock as is determined by multiplying his or her percentage ownership interest in Wedge Bank by the Acquisition Consideration. The fair market value of MBI Common Stock to be issued as the Acquisition Consideration may fluctuate and at the consummation of the Acquisition may be more or less than the current fair market value of such shares. See "TERMS OF THE PROPOSED ACQUISITION - General Description of the Acquisition." No fractional shares of MBI Common Stock will be issued in the Acquisition, but cash will be paid in lieu of such fractional shares. See "TERMS OF THE PROPOSED ACQUISITION - Fractional Shares." (cover page continued on next page) 9 The transaction is intended to qualify as a tax-deferred reorganization under the Internal Revenue Code of 1986, as amended (the "Code"). The Acquisition generally is intended to achieve certain tax- deferral benefits for federal income tax purposes for stockholders of Wedge Bank who do not exercise their dissenters' rights under the Illinois Banking Act. See "SUMMARY INFORMATION - Federal Income Tax Consequences in General" and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION." MBI Common Stock is traded on the New York Stock Exchange (the "NYSE") under the symbol "MTL." On October 4, 1994, the closing sale price for MBI Common Stock as reported on the NYSE Composite Tape was $35.375. This Joint Proxy Statement/Prospectus, the Notices of Special Meetings and the forms of proxy were first mailed to the stockholders of Wedge Holding and Wedge Bank on or about ---------------, 1994. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Joint Proxy Statement/Prospectus is ---------------, 1994. (end of cover page) -2- 10 AVAILABLE INFORMATION --------------------- MBI is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by MBI with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices located at Suite 1300, Seven World Trade Center, New York, New York 10048 and Room 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. MBI Common Stock is listed on the NYSE, and such reports, proxy statements and other information concerning MBI are available for inspection and copying at the offices of the NYSE, 20 Broad Street, New York, New York 10005. This Joint Proxy Statement/Prospectus does not contain all of the information set forth in the Registration Statement on Form S-4 and exhibits thereto (the "Registration Statement") covering the securities offered hereby which has been filed by MBI with the Commission. As permitted by the rules and regulations of the Commission, this Joint Proxy Statement/Prospectus omits certain information contained or incorporated by reference in the Registration Statement. Statements contained in this Joint Proxy Statement/ Prospectus provide a summary of the contents of any contract or other document referenced herein but are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement. For such further information, reference is made to the Registration Statement. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ------------------------------------------------- THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO MBI, EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST TO JON W. BILSTROM, GENERAL COUNSEL AND SECRETARY, MERCANTILE BANCORPORATION INC., P.O. BOX 524, ST. LOUIS, MISSOURI 63166-0524, TELEPHONE (314) 425-2525. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY - -----------------, 1994. The following documents filed with the Commission by MBI under the Exchange Act are incorporated herein by reference: (a) MBI's Report on Form 10-K for the year ended December 31, 1993. (b) MBI's Reports on Form 10-Q for the quarters ended March 31 and June 30, 1994. (c) MBI's Current Reports on Form 8-K dated February 11, 1994, June 17, 1994 and September 21, 1994. (d) The description of MBI's Common Stock set forth in Item 1 of MBI's Registration Statement on Form 8-A, dated March 5, 1993, and any amendment or report filed for the purpose of updating such description. -3- 11 (e) The description of MBI's Preferred Share Purchase Rights set forth in Item 1 of MBI's Registration Statement on Form 8-A, dated March 5, 1993, and any amendment or report filed for the purpose of updating such description. All documents filed by MBI pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof and until the date of the Special Meetings shall be deemed to be incorporated by reference herein and made a part hereof from the date any such document is filed. The information relating to MBI contained in this Joint Proxy Statement/Prospectus does not purport to be complete and should be read together with the information in the documents incorporated by reference herein. Any statement contained herein or in a document incorporated herein by reference shall be deemed to be modified or superseded for purposes hereof to the extent that a subsequent statement contained herein or in any other subsequently filed document incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part hereof. Any statements contained in this Joint Proxy Statement/Prospectus involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MBI, WEDGE HOLDING OR WEDGE BANK. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF MBI COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES PURSUANT HERETO SHALL IMPLY OR CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MBI OR ITS SUBSIDIARIES, WEDGE HOLDING OR WEDGE BANK OR IN THE INFORMATION SET FORTH HEREIN SUBSEQUENT TO THE DATE HEREOF. -4- 12
TABLE OF CONTENTS Page AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SUMMARY INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Business of MBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Business of Wedge Holding and Wedge Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 The Proposed Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Special Meetings of Stockholders of Wedge Holding and Wedge Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Reasons for the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Waiver and Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Federal Income Tax Consequences in General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Dissenters' Rights of Stockholders of Wedge Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Markets and Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Comparative Unaudited Per Share Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Summary Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 INFORMATION REGARDING SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Date, Time and Place. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Record Date; Vote Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Voting and Revocation of Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 TERMS OF THE PROPOSED ACQUISITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 General Description of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Background of and Reasons for the Merger; Board Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Conditions of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Termination of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Surrender of Wedge Bank Stock Certificates and Receipt of MBI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Certain Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Business Pending the Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Waiver and Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Interests of Certain Persons in the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 -5- 13 Page ---- DISSENTERS' RIGHTS OF STOCKHOLDERS OF WEDGE BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Comparative Unaudited Per Share Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Pro Forma Combined Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 INFORMATION REGARDING WEDGE HOLDING AND WEDGE BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Management's Discussion and Analysis of Financial Condition and Results of Operations of Wedge Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 INFORMATION REGARDING MBI STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Description of MBI Common Stock and Attached Preferred Share Purchase Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Restrictions on Resale of MBI Stock by Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Comparison of the Rights of Stockholders of MBI, Wedge Holding and Wedge Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 SUPERVISION AND REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Certain Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Payment of Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Capital Adequacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Support of Subsidiary Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 FIRREA and FDICIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Depositor Preference Statute. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 ANNEX Annex A - Dissenters' Rights Provisions of the Illinois Banking Act . . . . . . . . . . . . . . . . . . . . A-1 -6- 14 SUMMARY INFORMATION The following is a summary of the important terms of the proposed Acquisition and related information discussed elsewhere in this Joint Proxy Statement/Prospectus but does not purport to be complete and is qualified in its entirety by reference to the more detailed information which appears elsewhere in this Joint Proxy Statement/Prospectus and the documents incorporated by reference herein, including the annex attached to this Joint Proxy Statement/Prospectus. Stockholders of Wedge Holding and Wedge Bank are urged to read this Joint Proxy Statement/Prospectus and the annex hereto in their entirety. BUSINESS OF MBI MBI, a Missouri corporation, was organized in 1970 and is a registered bank holding company under the federal Bank Holding Company Act of 1956, as amended (the "BHCA"). At August 30, 1994, MBI owned, directly or indirectly, all of the capital stock of Mercantile Bank of St. Louis National Association ("Mercantile Bank") and 40 other commercial banks which operate from 244 banking offices and 249 Fingertip Banking automated teller machines, including 25 off-premises machines, located throughout Missouri, southern Illinois, eastern Kansas and Iowa. MBI's services concentrate in four major lines of business -- consumer, corporate, investment banking and trust services. MBI also operates non-banking subsidiaries which provide related financial services, including investment management, brokerage services and asset- based lending. As of June 30, 1994, MBI had 43,146,531 shares of its Common Stock issued and outstanding. As of June 30, 1994, MBI reported, on a consolidated basis, total assets of $11.9 billion, total deposits of $9.1 billion, total loans of $7.6 billion and shareholders' equity of $1.0 billion. In the first quarter of 1994, MBI completed the acquisition of United Postal Bancorp, Inc. ("UPB"), a Missouri-based holding company for United Postal Savings Association, which as of December 31, 1993 reported total assets of $1.3 billion and total deposits of $1.0 billion. Also during the first quarter of 1994, MBI acquired Metro Bancorporation, an Iowa-based holding company for The Waterloo Savings Bank, which as of December 31, 1993 reported total assets of $370 million and total deposits of $333 million. The acquisition of these entities was accounted for under the pooling-of-interests method of accounting and, accordingly, MBI has restated its consolidated financial statements for all periods reported herein. MBI has filed supplemental financial statements as of and for the years ended December 31, 1993, 1992 and 1991 in a Current Report on Form 8-K, dated June 17, 1994, which has been incorporated by reference into this Joint Proxy Statement/Prospectus. On July 13, 1994, MBI announced that it had entered into a definitive Agreement and Plan of Reorganization whereby MBI will acquire UNSL Financial Corp ("UNSL"), a Missouri-based holding company for United Savings Bank. As of June 30, 1994, UNSL reported, on a consolidated basis, total assets of $464 million, total deposits of $376 million, total loans of $417 million and shareholders' equity of $39 million. The acquisition will be accounted for under the pooling-of- interests method of accounting and is anticipated to be completed in the first quarter of 1995. On September 21, 1994, MBI entered into an agreement to acquire Central Mortgage Bancshares, Inc., a Missouri corporation ("CMB") and a multi-bank holding company based in Kansas City, Missouri. CMB owns all of the outstanding capital stock of four Missouri state banks with 17 offices in western Missouri and a mortgage banking unit based in Springfield, Missouri. At June 30, 1994, CMB reported total assets of $629 million, total deposits of $542 million, total loans of $377 million and shareholders' equity of $51.2 million. -7- 15 MBI's principal executive offices are located at One Mercantile Center, St. Louis, Missouri 63101, and its telephone number is (314) 425-2525. BUSINESS OF WEDGE HOLDING AND WEDGE BANK Wedge Holding, a Delaware corporation, commenced operations in 1977 and is a registered bank holding company under the BHCA. Wedge Holding currently owns 82.15% of the issued and outstanding shares of the capital stock of Wedge Bank, an Illinois state bank founded in 1902 which operates from six locations in Alton, East Alton, Bethalto, Brighton and Godfrey, Illinois. As of June 30, 1994, Wedge Holding had 63,734 shares of its preferred stock, $50 par value ("Wedge Holding Preferred Stock"), and 15,318 shares of its common stock, $100 par value ("Wedge Holding Common Stock"), issued and outstanding, and Wedge Bank had 144,320 shares of its Common Stock issued and outstanding. As of June 30, 1994, Wedge Holding reported, on a consolidated basis, total assets of $210.6 million, total deposits of $162.2 million, total loans of $113.2 million and stockholders' equity of $16.7 million. The principal executive offices of Wedge Holding and Wedge Bank are located at 620 E. Broadway, Alton, Illinois 62002-9007. THE PROPOSED ACQUISITION Pursuant to the Merger Agreement, Mercantile Illinois will acquire all of the outstanding capital stock of Wedge Bank through the consummation of two concurrent and interdependent transactions: (i) the Exchange of all shares of Wedge Bank Common Stock owned beneficially and of record by Wedge Holding for shares of MBI Common Stock, and (ii) the Merger of Acquisition Bank with and into Wedge Bank. Upon consummation of the Exchange and the Merger, the separate corporate existence of Acquisition Bank will terminate, and the business and operations of Wedge Bank will be continued through Wedge Bank as a wholly owned subsidiary of Mercantile Illinois. Following the Closing Date, MBI intends to cause Mercantile Bank of Illinois National Association, a national banking association and wholly owned subsidiary of Mercantile Illinois, to merge with and into Wedge Bank, with the surviving entity being an Illinois state bank which shall thereafter change its name to "Mercantile Bank of Illinois." Pursuant to the Acquisition, MBI will issue up to an aggregate of 970,000 shares of MBI Common Stock as the Acquisition Consideration. Upon the consummation of the Exchange, Wedge Holding will be entitled to receive the number of shares of MBI Common Stock representing Wedge Holding's percentage ownership interest in Wedge Bank multiplied by the Acquisition Consideration. Pursuant to the Merger Agreement, within six months of the Exchange Wedge Holding shall effect the Liquidation and a liquidating distribution to the holders of Wedge Holding Preferred Stock and Wedge Holding Common Stock of all shares of MBI Common Stock that are then owned beneficially and of record by Wedge Holding. Upon the consummation of the Merger, each issued and outstanding share of Wedge Bank Common Stock (other than any shares held by Mercantile Illinois or Wedge Holding or shares owned by stockholders of Wedge Bank who exercise dissenters' rights under the Illinois Banking Act) shall cease to be outstanding and will be converted into the rights to receive the number of shares of MBI Common Stock as is determined by multiplying his or her percentage ownership interest in Wedge Bank by the Acquisition Consideration. The fair market value of MBI Common Stock to be issued as the Acquisition Consideration may fluctuate and at the consummation of the Acquisition may be more or less than the current fair market value of such shares. -8- 16 The Merger Agreement provides that the consummation of the Merger is subject to certain terms and conditions, including the approval of the Merger Agreement by the affirmative vote of the holders of a majority of the outstanding shares of Wedge Holding Preferred Stock and Wedge Holding Common Stock, voting as a single class, and Wedge Bank Common Stock, and receipt of the requisite regulatory approvals and an opinion of counsel regarding certain federal income tax aspects of the transaction. For a discussion of each of the conditions to the Merger, see "TERMS OF THE PROPOSED ACQUISITION - Conditions of the Acquisition." The Acquisition will be consummated and become effective on the date and at the time (the "Effective Time") that the certificate of merger is issued by the Illinois Commissioner of Banks and Trust Companies (the "Illinois Commissioner"). Unless the parties otherwise agree, the date of the closing of the Acquisition (the "Closing Date"), shall be on the first business day of the month immediately following the month in which the last of the following events occurs (i) the approval of the Merger Agreement by the stockholders of Wedge Holding and Wedge Bank, (ii) the thirtieth day after the approval of the Merger by the Federal Deposit Insurance Corporation (the "FDIC"), and (iii) the approval by the Illinois Commissioner and any other bank regulatory agency that may be necessary or appropriate. The Merger Agreement may be terminated at any time prior to the Closing Date by the mutual consent of the parties or, unilaterally, by either party upon the occurrence of certain events or if the Acquisition is not consummated by March 31, 1995. See "TERMS OF THE PROPOSED ACQUISITION - Conditions of the Acquisition" and "- Termination of the Merger Agreement." OTHER AGREEMENTS Voting Agreements. In addition to and contemporaneously with the Merger Agreement, MBI executed separate Voting Agreements (the "Voting Agreements") with each of Melvin G. Hall and Robert Lynn Hall. Pursuant to the Voting Agreements, each of Melvin G. Hall and Robert Lynn Hall agreed that he will vote all of the shares of Wedge Holding Common Stock and/or Wedge Bank that he then owned or subsequently acquired in favor of the approval of the Merger Agreement at the Special Meetings and to take any and all actions necessary to cause all shares of Wedge Bank Common Stock owned by Wedge Holding or subsequently acquired in favor of the Merger Agreement at the Wedge Bank Special Meeting. In addition, until the earliest to occur of the Closing Date of the Acquisition, the termination of the Merger Agreement or the abandonment of the Acquisition, each further agreed that he will not vote any such shares in favor of the approval of any other competing acquisition proposal involving Wedge Holding or Wedge Bank and a third party. Each of Melvin G. Hall and Robert Lynn Hall also agreed that he will not transfer shares of Wedge Holding or Wedge Bank Common Stock owned by him and will not take any action to cause Wedge Holding to transfer any shares of Wedge Bank Common Stock owned by Wedge Holding. Employment Agreements. Each of Melvin G. Hall, Chairman and Chief Executive Officer of Wedge Holding and Wedge Bank, and Robert Lynn Hall, President of Wedge Holding and Wedge Bank, have entered into an employment agreement providing for his employment by Wedge Bank and election to Wedge Bank's Board of Directors following the Closing Date. See "TERMS OF THE PROPOSED ACQUISITION - Interests of Certain Persons in the Acquisition." SPECIAL MEETINGS OF STOCKHOLDERS OF WEDGE HOLDING AND WEDGE BANK The Special Meetings will be held on --------------, 1994, at ----- P.M. Central Time, at - ---------------------------------------------------------------------. Approval by the stockholders of Wedge Holding and Wedge Bank of the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Wedge Holding Preferred Stock and Wedge Holding Common Stock, voting as a single class, and Wedge Bank Common Stock. -9- 17 Only holders of record of Wedge Holding and Wedge Bank Common Stock at the close of business on -----------, 1994 (the "Record Date") will be entitled to notice of, and to vote at, the Special Meetings. At such date, there were 63,734 shares of Wedge Holding Preferred Stock outstanding, 15,318 shares of Wedge Holding Common Stock outstanding and 144,320 shares of Wedge Bank Common Stock outstanding. As of the Record Date, directors and officers of Wedge Holding and their affiliates owned beneficially an aggregate of 59,933 shares of Wedge Holding Preferred Stock and 14,409 shares of Wedge Holding Common Stock, or approximately 94% of the shares of Wedge Holding Preferred Stock and Wedge Holding Common Stock entitled to vote at the Wedge Holding Special Meeting. All of Wedge Holding's directors and officers and their affiliates have indicated their intention to vote their shares for the approval of the Merger Agreement. As of the Record Date, directors and officers of Wedge Bank and their affiliates owned beneficially an aggregate of 132,807 shares of Wedge Bank Common Stock, or approximately 92% of the shares entitled to vote at the Wedge Bank Special Meeting. All of Wedge Bank's directors and officers and their affiliates have indicated their intention to vote their shares for the approval of the Merger Agreement. THE BOARD OF DIRECTORS OF WEDGE HOLDING CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE ACQUISITION AS BEING IN THE BEST INTEREST OF WEDGE HOLDING AND ITS STOCKHOLDERS. THE WEDGE HOLDING BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER --- AGREEMENT. THE BOARD OF DIRECTORS OF WEDGE BANK CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE ACQUISITION AS BEING IN THE BEST INTEREST OF WEDGE BANK AND ITS STOCKHOLDERS. THE WEDGE BANK BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER --- AGREEMENT. REASONS FOR THE ACQUISITION The respective Boards of Directors of Wedge Holding and Wedge Bank believe that the Acquisition will result in a combined entity that is (i) committed to serving the banking and other financial needs of Wedge Bank's depositors, employees, customers and communities, (ii) capable of competing more effectively with larger financial institutions that have exerted increased competitive pressure on Wedge Bank, and (iii) well capitalized and capable of enjoying significant market penetration throughout the southern Illinois bank market. The respective Boards of Directors of Wedge Holding and Wedge Bank also believe that the Acquisition will provide the holders of Wedge Holding Common Stock and Wedge Bank Common Stock with an opportunity to receive a premium over the book value of their shares, and will enable such stockholders to participate as MBI shareholders, on a tax deferred basis, in the expanded opportunities for growth and profitability made possible by the Acquisition. See "TERMS OF THE PROPOSED ACQUISITION - Background of and Reasons for the Acquisition; Board Recommendations." MBI's Board of Directors believes that the Acquisition will enable MBI to (i) take advantage of an opportunity for MBI to increase its presence in the regional banking market in southern Illinois through the acquisition of an established banking organization, and (ii) enhance MBI's ability to compete in the increasingly competitive banking and financial services industry. See "TERMS OF THE PROPOSED ACQUISITION - Background of and Reasons for the Acquisition; Board Recommendations." -10- 18 FRACTIONAL SHARES No fractional shares of MBI Common Stock will be issued to Wedge Holding or the former stockholders of Wedge Bank in connection with the Acquisition. Wedge Holding and each former holder of Wedge Bank Common Stock who otherwise would have been entitled to receive a fraction of a share of MBI Common Stock shall receive in lieu thereof cash, without interest, in an amount equal to the holder's fractional share interest in Wedge Bank multiplied by the closing stock price of MBI Common Stock on the NYSE Composite Tape as reported in The Wall Street Journal on the ----------------------- Closing Date of the Merger. Cash received by Wedge Bank stockholders in lieu of fractional shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION." WAIVER AND AMENDMENT Any provision of the Merger Agreement, including, without limitation, the conditions to the consummation of the Acquisition and the restrictions described under the caption "TERMS OF THE PROPOSED ACQUISITION - Business Pending the Acquisition," may be (i) waived in writing at any time by the party that is, or whose stockholders are, entitled to the benefits thereof or (ii) amended at any time by written agreement of the parties approved by or on behalf of their respective Boards of Directors, whether before or after the Special Meetings, provided, however, that after approval of the Merger Agreement by the - -------- ------- stockholders of Wedge Holding and Wedge Bank at the Special Meetings no such modification may alter or change any of the terms of the Merger Agreement if such alteration or change would adversely affect the stockholders of Wedge Holding or Wedge Bank (which, in all cases, would include an alteration or change (a) in the amount or form of the consideration to be received by Wedge Holding and the stockholders of Wedge Bank in the Acquisition and (b) that would result in materially different income tax consequences than those described in "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION" in this Joint Proxy Statement/ Prospectus). If any amendment to the Merger Agreement adversely affects the rights of the stockholders of Wedge Holding and Wedge Bank thereunder, Wedge Holding and Wedge Bank will resolicit proxies from the stockholders of Wedge Holding and Wedge Bank by means of a revised Joint Proxy Statement/Prospectus and related proxy materials prior to the consummation of the Acquisition. FEDERAL INCOME TAX CONSEQUENCES IN GENERAL A condition of the Exchange and the Merger is that Thompson & Mitchell, MBI's legal counsel, deliver its opinion to the effect that, assuming the Exchange and the Merger occur in accordance with the Merger Agreement and conditioned on the accuracy of certain representations made by MBI, Mercantile Illinois, Wedge Holding, Wedge Bank, and certain stockholders of Wedge Holding, each of the Exchange and the Merger will constitute a "reorganization" for federal income tax purposes and that, accordingly, no gain or loss will be recognized by stockholders of Wedge Holding or stockholders of Wedge Bank who exchange their shares of stock solely for shares in MBI Common Stock in the Exchange, the Merger or the Liquidation. However, cash received in lieu of fractional shares may give rise to taxable income. EACH STOCKHOLDER OF WEDGE HOLDING AND WEDGE BANK IS URGED TO CONSULT HIS OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE EXCHANGE AND THE MERGER TO HIM, INCLUDING THE APPLICABILITY OF VARIOUS STATE, LOCAL, AND FOREIGN TAX LAWS. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION." -11- 19 REGULATORY APPROVALS Applications regarding the Acquisition have been filed with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") the FDIC and the Illinois Commissioner. The Acquisition cannot be consummated until receipt of such approvals and the lapse of the 30- day waiting period after the approval of the applications. In reviewing the Acquisition, the FDIC will consider various factors, including possible anticompetitive effects of the Acquisition and will examine the financial and managerial resources and future prospects of the combined organization. The United States Department of Justice has the right to initiate litigation challenging the Merger upon antitrust grounds during the 30-day waiting period. There can be no assurance that the necessary regulatory approvals will be received or as to the timing of such approvals. See "TERMS OF THE PROPOSED ACQUISITION - Certain Regulatory Approvals" and "SUPERVISION AND REGULATION." DISSENTERS' RIGHTS OF STOCKHOLDERS OF WEDGE BANK Under the Illinois Banking Act, a holder of shares of Wedge Bank Common Stock may, in lieu of the consideration such stockholder would otherwise receive in the Merger, seek payment of the fair value of such shares and receive payment of such fair value in cash if the Merger is consummated by following certain procedures set forth in Section 29 of the Illinois Banking Act, the text of which is attached hereto as Annex ----- A. Failure to follow such procedures may result in a loss of such - - stockholder's dissenters' rights. Any Wedge Bank stockholder returning a blank executed proxy card will be deemed to have approved the Merger Agreement, thereby waiving any such dissenters' rights. Stockholders of Wedge Holding do not have dissenters' rights with respect to the Exchange. See "DISSENTERS' RIGHTS OF STOCKHOLDERS OF WEDGE BANK." ACCOUNTING TREATMENT It is intended that the Acquisition will be accounted for under the pooling-of-interests method of accounting. See "TERMS OF THE PROPOSED ACQUISITION - Accounting Treatment." MARKETS AND MARKET PRICES MBI Common Stock is currently traded on the NYSE under the symbol "MTL." Prior to March 25, 1993, MBI Common Stock was quoted on the National Market System of the National Association of Securities Dealers Automated Quotations System ("NMS/NASDAQ") under the symbol "MTRC." The last sale price reported for MBI Common Stock on July 5, 1994, the last trading date preceding the public announcement of the Acquisition, was $35.25. To the knowledge of management of Wedge Holding, there have not been any transactions in Wedge Holding Preferred Stock or Wedge Holding Common Stock during the past three fiscal years. Although Wedge Bank Common Stock is not traded in an established trading market, management of Wedge Bank is aware of certain transactions in Wedge Bank Common Stock. Management of Wedge Bank does not have knowledge of the prices paid in all transactions involving its shares and have not necessarily verified the prices indicated in the table with both parties to the relevant transaction. Because of the lack of an established public market for shares of Wedge Bank Common Stock, the prices indicated may not reflect the prices which would be paid for such shares in an active market. The last sale price for Wedge Bank Common Stock known to management prior to the public announcement of the Acquisition on July 5, 1994, was $58.00. -12- 20
MBI Wedge Bank --------------------------------------- -------------------------------- Cash Cash Sales Price Dividend Sales Price Dividend --------------- -------------- High Low Declared High Low Declared ---- --- -------- ---- --- -------- 1992 - ---- First Quarter $27.375 $23.125 $ .2325 $58.00 $58.00 -- Second Quarter 29.500 25.625 .2325 58.00 58.00 .75 Third Quarter 29.375 25.375 .2325 -- -- 2.00 Fourth Quarter 32.125 25.875 .2325 -- -- 2.50 1993 - ---- First Quarter $35.625 $30.625 $ .2475 -- -- -- Second Quarter 37.625 29.375 .2475 -- -- 1.50 Third Quarter 34.375 31.625 .2475 -- -- -- Fourth Quarter 34.625 29.125 .2475 -- -- 2.50 1994 - ---- First Quarter $34.125 $29.875 $ .28 -- -- -- Second Quarter 38.125 31.125 .28 -- -- 3.00 Third Quarter 39.25 34.875 .28 -- -- 4.48 Fourth Quarter (through 36.875 35.25 October 4, 1994) - ----------------------------- For a recent sale price of MBI Common Stock, see the cover of this Joint Proxy Statement/Prospectus. The last transaction in Wedge Bank Common Stock for which a price is known to management of Wedge Bank occurred in the second quarter of 1992.
COMPARATIVE UNAUDITED PER SHARE DATA The following table sets forth for the periods indicated selected historical per share data of MBI and Wedge Bank and the corresponding pro forma and pro forma equivalent per share amounts giving effect to the proposed Acquisition, individually and in conjunction with the completed merger of Ameribanc, Inc. ("ABNK"), which was completed on April 30, 1992 and accounted for as a purchase, and the proposed mergers of UNSL and CMB. The data presented is based upon the consolidated financial statements and related notes of MBI, Wedge Bank, UNSL and CMB included in this Joint Proxy Statement/ Prospectus or in documents incorporated herein by reference, and the pro forma combined consolidated balance sheet and income statements, including the notes thereto, appearing elsewhere herein. This information should be read in conjunction with such historical and pro forma financial statements and related notes thereto. The assumptions used in the preparation of this table appear in the notes on page 42 of this Joint Proxy Statement/Prospectus. See "PRO FORMA FINANCIAL INFORMATION." This data is not necessarily indicative of the results of the future operations of the combined organization or the actual results that would have occurred if the Acquisition, the completed merger of ABNK or the proposed mergers of UNSL and CMB had been consummated prior to the periods indicated. -13- 21
MBI/ MBI/ Wedge Bank All Entities MBI Wedge Bank Pro Forma Pro Forma Reported Reported Combined Combined -------- ---------- ------------- ------------- Book Value per Share: June 30, 1994 $ 23.49 $132.78 23.41 23.23 December 31, 1993 22.40 131.11 22.33 22.16 Cash Dividends Declared per Share: Six months ended June 30, 1994 .56 3.01 .56 .56 Year ended December 31, 1993 .99 4.01 .99 .99 Year ended December 31, 1992 .93 5.16 .93 .93 Year ended December 31, 1991 .93 1.74 .93 .93 Earnings per Share: Six months ended June 30, 1994 1.84 9.33 1.83 1.79 Year ended December 31, 1993 2.80 24.19 2.82 2.79 Year ended December 31, 1992 2.36 16.76 2.33 2.37 Year ended December 31, 1991 2.37 9.68 2.23 2.21 Market Price per Share: At July 5, 1994 35.25 -- -- -- At October 4, 1994 35.375 -- -- -- - ---------------------------------------- Includes the effect of pro forma adjustments for ABNK and Wedge Bank as appropriate. See "PRO FORMA FINANCIAL INFORMATION." Includes the effect of pro forma adjustments for ABNK, Wedge Bank, UNSL and CMB as appropriate. See "PRO FORMA FINANCIAL INFORMATION." The market value of MBI Common Stock was determined as of the last trading day preceding the public announcement of the proposed acquisition and as of the latest available date prior to the filing of the Joint Proxy Statement/Prospectus, based on the last sale price as reported on the NYSE Composite Tape. The market value of Wedge Bank Common Stock was determined as of the second quarter of 1992, the date of the last transaction known to management of Wedge Bank prior to the public announcement of the proposed acquisition.
SUMMARY FINANCIAL DATA The following table sets forth for the periods indicated certain summary historical consolidated financial information for MBI, Wedge Holding and certain summary historical financial information for Wedge Bank. The balance sheet data and income statement data included in the summary financial data for the five years ended December 31, 1993 are taken from audited consolidated financial statements of MBI as of and for such years, from the audited consolidated financial statements of Wedge Holding as of and for the years ended December 31, 1993 and 1992, and from the audited financial statements of Wedge Bank as of and for the years ended December 31, 1993 and 1992 and the unaudited financial statements of Wedge Bank as of and for the three years ended December 31, 1991. The balance sheet data and income statement data included in the summary financial data as of and for the six months ended June 30, 1994 and 1993 are taken from the unaudited consolidated financial statements of MBI and Wedge Holding as of, and for the six months ended, June 30, 1994 and 1993 and the unaudited financial statements of Wedge Bank as of, and for the six months ended June 30, 1994 and 1993. These data include all adjustments which are, in the opinion of the respective managements of MBI, Wedge Holding and Wedge Bank, necessary to present a fair statement of these periods and are of a normal recurring nature. Results for the six months ended June 30, 1994 are not necessarily indicative of results for the entire year. The following information should be read in conjunction with the consolidated financial statements of MBI and Wedge Holding and the financial statements of Wedge Bank, and the related notes thereto, included herein or in documents incorporated herein by reference, and in conjunction with the unaudited pro forma combined consolidated financial information, including the notes thereto, appearing elsewhere in this Joint Proxy Statement/ Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL INFORMATION." -14- 22 MERCANTILE BANCORPORATION INC. SUMMARY FINANCIAL DATA
Six Months Ended June 30 Year Ended December 31 ---------------- ------------------------------------------------ 1994 1993 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- ---- PER SHARE DATA Net income . . . . . . . . . $ 1.84 $ 1.58 $ 2.80 $ 2.36 $ 2.37 $ 2.18 $ 0.29 Dividends declared. . . . . . . . 0.56 0.49 0.99 0.93 0.93 0.93 0.93 Book value at period end. . . . . 23.49 21.50 22.40 20.25 18.86 17.14 15.86 Average common shares outstanding (thousands). . . . . . . . . . . 42,948 42,243 42,439 39,492 31,791 30,144 29,092 EARNINGS (THOUSANDS) Interest income . . . . . . . . . $402,464 $421,512 $829,930 $873,447 $879,471 $882,148 $836,446 Interest expense. . . . . . . . . 150,346 171,140 328,734 417,358 506,916 552,231 528,008 -------- -------- -------- -------- -------- -------- -------- Net interest income . . . . . . . 252,118 250,372 501,196 456,089 372,555 329,917 308,438 Provision for possible loan losses . . . . . . . . . . . . . 16,398 28,534 61,013 74,579 58,076 50,886 104,708 Other income. . . . . . . . . . . 95,938 99,872 199,158 183,944 155,696 137,356 150,038 Other expense . . . . . . . . . . 206,487 215,376 444,909 418,068 383,348 318,887 335,266 Income taxes (benefit). . . . . . 46,113 39,422 75,568 52,346 18,673 27,658 (1,804) -------- -------- -------- -------- -------- -------- -------- Net income . . . . . . . . . . . $ 79,058 $ 66,912 $118,864 $ 95,040 $ 68,154 $ 69,842 $ 20,306 ======== ======== ======== ======== ======== ======== ======== ENDING BALANCE SHEET (MILLIONS) Total assets. . . . . . . . . . . $ 11,934 $ 11,778 $ 12,141 $ 12,273 $ 10,765 $ 10,137 $ 9,536 Earning assets. . . . . . . . . . 11,045 10,823 11,114 11,186 9,827 9,016 8,477 Investment securities . . . . . . 3,302 3,320 3,401 3,401 2,475 1,886 1,904 Loans and leases, net of unearned income . . . . . 7,619 7,469 7,382 7,499 6,946 6,884 6,358 Deposits. . . . . . . . . . . . . 9,141 9,321 9,602 9,928 8,776 8,278 7,601 Long-term debt. . . . . . . . . . 290 274 273 299 203 233 308 Shareholders' equity. . . . . . . 1,013 913 959 851 690 581 536 Reserve for possible loan losses. 172 152 169 166 146 149 149 SELECTED RATIOS Return on average assets. . . . . 1.30% 1.09% 0.97% 0.80% 0.67% 0.73% 0.23% Return on average equity. . . . . 15.99 15.14 13.00 11.95 10.52 12.51 3.81 Net interest rate margin. . . . . 4.64 4.57 4.59 4.33 4.12 3.97 4.09 Equity to assets. . . . . . . . . 8.49 7.75 7.90 6.94 6.41 5.73 5.62 Reserve for possible loan losses to Outstanding loans. . . . . . . . 2.26 2.03 2.28 2.21 2.10 2.16 2.35 Non-performing loans . . . . . . 495.20 238.41 293.39 156.85 113.14 119.68 121.55 Based on weighted average common shares outstanding.
-15- 23 THE WEDGE HOLDING COMPANY SUMMARY FINANCIAL DATA
Six Months Ended June 30 Year Ended December 31 ---------------- ------------------------------------------------ 1994 1993 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- ---- PER SHARE DATA Net income. . . . . . . . . . . . $ 64.48 $ 76.63 $ 172.70 $ 129.80 $ 67.81 $ 48.31 $ 14.74 Dividends declared. . . . . . . . -- -- -- -- -- -- -- Book value at period end. . . . . 1,114.64 997.17 1,091.41 1,145.68 1,023.27 973.38 930.63 Average common shares outstanding (thousands). . . . . . . . . . . 14,968 14,498 14,615 14,230 13,965 13,600 13,090 EARNINGS (THOUSANDS) Interest income . . . . . . . . . $ 6,969 $ 6,721 $ 15,258 $ 15,931 $ 16,461 $ 16,053 $ 15,006 Interest expense. . . . . . . . . 2,689 2,578 5,526 6,981 8,934 9,227 8,670 -------- -------- -------- -------- -------- -------- -------- Net interest income . . . . . . . 4,280 4,143 9,732 8,950 7,527 6,826 6,336 Provision for possible loan losses . . . . . . . . . . . . . 76 164 240 191 1,132 380 80 Other income. . . . . . . . . . . 1,058 1,612 2,912 2,732 2,679 1,983 1,967 Other expense . . . . . . . . . . 3,666 3,772 8,113 8,158 7,268 7,215 7,658 Income taxes. . . . . . . . . . . 385 484 1,036 996 662 415 189 Minority interests. . . . . . . . 216 224 731 490 197 142 183 -------- -------- -------- -------- -------- -------- -------- Net income. . . . . . . . . . . . $ 995 $ 1,111 $ 2,524 $ 1,847 $ 947 $ 657 $ 193 ======== ======== ======== ======== ======== ======== ======== ENDING BALANCE SHEET (THOUSANDS) Total assets. . . . . . . . . . . $210,619 $209,980 $210,837 $206,497 $198,272 $181,619 $179,026 Earning assets. . . . . . . . . . 196,296 199,236 196,699 193,499 181,770 163,518 161,727 Investment securities . . . . . . 82,992 77,787 80,334 70,535 62,526 56,869 64,681 Loans and leases. . . . . . . . . 113,247 117,104 112,071 119,689 112,504 97,749 92,518 Deposits. . . . . . . . . . . . . 162,203 179,070 169,749 174,387 170,475 161,223 158,675 Long-term debt . . . . . . . . . -- -- -- -- 688 917 1,302 Shareholders' equity. . . . . . . 16,684 14,457 15,951 16,303 14,290 13,238 12,182 Reserve for possible loan losses. 1,399 1,729 1,452 1,637 1,503 962 1,249 SELECTED RATIOS Return on average assets. . . . . 0.96% 1.12% 1.30% 0.94% 0.48% 0.36% 0.12% Return on average equity. . . . . 8.73 10.58 12.39 9.00 5.20 3.81 1.16 Net interest margin . . . . . . . 4.33 4.73 5.25 4.83 4.34 4.32 4.31 Equity to assets. . . . . . . . . 7.92 6.88 7.57 7.90 7.21 7.29 6.80 Reserve for possible loan losses to: Outstanding loans. . . . . . . . 1.24 1.48 1.30 1.37 1.34 0.98 1.35 Non-performing loans . . . . . . 211.97 102.13 80.49 65.38 49.28 44.01 47.69
-16- 24 WEDGE BANK SUMMARY FINANCIAL DATA
Six Months Ended June 30 Year Ended December 31 ---------------- ------------------------------------------------ 1994 1993 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- ---- PER SHARE DATA Net income . . . . . . . . . . . $ 9.33 $ 11.86 $ 24.19 $ 16.76 $ 9.68 $ 10.29 $ 11.70 Dividends declared. . . . . . . . 3.01 1.50 4.00 5.16 2.02 3.00 1.50 Book value at period end. . . . . 132.78 118.32 131.11 128.87 130.06 146.87 137.46 Average common shares outstanding (thousands). . . . . . . . . . . 144,000 144,000 144,000 144,000 124,000 103,000 103,000 EARNINGS (THOUSANDS) Interest income . . . . . . . . . $ 6,969 $ 6,721 $ 15,258 $ 15,931 $ 16,461 $ 16,053 $ 15,006 Interest expense. . . . . . . . . 2,685 2,568 5,505 6,875 8,882 9,138 8,537 -------- -------- -------- -------- -------- -------- -------- Net interest income . . . . . . . 4,284 4,153 9,753 9,056 7,579 6,915 6,469 Provision for possible loan losses . . . . . . . . . . . . . 76 164 240 191 1,132 380 80 Other income. . . . . . . . . . . 1,058 1,622 2,852 2,685 2,379 1,977 1,967 Other expense . . . . . . . . . . 3,537 3,265 7,918 8,112 6,947 6,986 6,624 Income taxes. . . . . . . . . . . 385 638 964 1,025 679 466 527 -------- -------- -------- -------- -------- -------- -------- Net income. . . . . . . . . . . . $ 1,344 $ 1,708 $ 3,483 $ 2,413 $ 1,200 $ 1,060 $ 1,205 ======== ======== ======== ======== ======== ======== ======== ENDING BALANCE SHEET (THOUSANDS) Total assets. . . . . . . . . . . $209,951 $209,379 $209,994 $205,611 $197,660 $180,858 $177,950 Earning assets. . . . . . . . . . 196,296 199,236 196,699 193,499 181,770 163,518 161,727 Investment securities . . . . . . 82,955 77,787 80,334 70,535 62,526 58,869 64,681 Loans and leases. . . . . . . . . 113,247 117,104 112,071 119,689 112,504 97,749 92,518 Deposits. . . . . . . . . . . . . 162,391 179,091 169,811 174,544 170,718 161,559 158,965 Shareholders' equity. . . . . . . 19,121 17,038 18,880 18,557 16,127 15,128 14,158 Reserve for possible loan losses. 1,399 1,729 1,452 1,637 1,503 962 1,249 SELECTED RATIOS Return on average assets. . . . . 1.28% 1.76% 1.78% 1.22% 0.64% 0.62% 0.75% Return on average equity. . . . . 13.85 19.70 20.23 13.38 7.43 7.02 8.43 Net interest margin . . . . . . . 4.33 4.74 5.26 4.88 4.37 4.38 4.40 Equity to assets. . . . . . . . . 9.11 8.14 8.99 9.03 8.16 8.36 7.96 Reserve for possible loan losses to: Outstanding loans. . . . . . . . 1.24 1.48 1.30 1.37 1.34 0.98 1.35 Non-performing loans . . . . . . 211.97 102.13 80.49 65.38 49.28 44.01 47.69 -17- 25 INFORMATION REGARDING SPECIAL MEETINGS GENERAL This Joint Proxy Statement/Prospectus is being furnished to holders of Wedge Holding Preferred Stock, Wedge Holding Common Stock and Wedge Bank Common Stock in connection with the solicitation of proxies by the respective Boards of Directors of Wedge Holding and Wedge Bank for use at the Special Meetings and any adjournments thereof at which the stockholders of Wedge Holding and Wedge Bank will consider and vote upon a proposal to approve the Merger Agreement and consider and vote upon any other business which may properly be brought before the Special Meetings or any adjournments thereof. Each copy of this Joint Proxy Statement/Prospectus is accompanied by the Notices of Special Meetings of Stockholders of Wedge Holding and Wedge Bank, respectively, a proxy card and related instructions and a self- addressed return envelope for the proxy card. This Joint Proxy Statement/Prospectus is also furnished by MBI to each holder of Wedge Holding Preferred Stock, Wedge Holding Common Stock and Wedge Bank Common Stock as a prospectus in connection with the issuance by MBI of shares of MBI Common Stock upon the consummation of the Acquisition. This Joint Proxy Statement/Prospectus and the Notices of Special Meetings, proxy card and related materials are being first mailed to stockholders of Wedge Holding and Wedge Bank on ---------, 1994. DATE, TIME AND PLACE The Special Meetings will be held at - ------------------------------------------, on -------------, 1994, at ----- P.M. Central Time. RECORD DATE; VOTE REQUIRED On the Record Date, there were 63,734 shares of Wedge Holding Preferred Stock and 15,318 shares of Wedge Holding Common Stock outstanding and entitled to vote at the Wedge Holding Special Meeting. Each such share is entitled to one vote on each matter properly brought before the Wedge Holding Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Wedge Holding Preferred Stock and Wedge Holding Common Stock, voting as a single class, is required to approve the Merger Agreement. On the Record Date, there were 144,320 shares of Wedge Bank Common Stock outstanding and entitled to vote at the Wedge Bank Special Meeting. Each such share is entitled to one vote on each matter properly brought before the Wedge Bank Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Wedge Bank Common Stock is required to approve the Merger Agreement. As of the Record Date, directors and officers of Wedge Holding and their affiliates owned beneficially an aggregate of 59,933 shares of Wedge Holding Preferred Stock and 14,409 shares of Wedge Holding Common Stock, or approximately 94% of the outstanding shares of Wedge Holding Preferred Stock and Wedge Holding Common Stock entitled to vote at the Wedge Holding Special Meeting. All directors and officers of Wedge Holding and their affiliates have indicated their intention to vote their shares for the approval of the Merger Agreement at the Wedge Holding Special Meeting. As of the Record Date, directors and officers of Wedge Bank and their affiliates owned beneficially an aggregate of 132,807 shares of Wedge Bank Common Stock, or approximately 92% -18- 26 of the outstanding shares of Wedge Bank Common Stock entitled to vote at the Wedge Bank Special Meeting. All directors and officers of Wedge Bank and their affiliates have indicated their intention to vote their shares for the approval of the Merger Agreement at the Wedge Bank Special Meeting. VOTING AND REVOCATION OF PROXIES Shares of Wedge Holding Common Stock and Wedge Bank Common Stock which are represented by a properly executed proxy received prior to the vote at the Special Meetings will be voted at such Special Meetings in the manner directed on the proxy card, unless such proxy is revoked in the manner set forth herein in advance of such vote. ANY WEDGE HOLDING OR WEDGE BANK STOCKHOLDER RETURNING A BLANK EXECUTED PROXY CARD WILL BE DEEMED TO HAVE APPROVED THE MERGER AGREEMENT. Failure to return a properly executed proxy card or to vote in person at the Special Meetings will have the practical effect of a vote against the Merger Agreement. Shares subject to abstentions will be treated as shares that are present at the Special Meetings for purposes of determining the presence of a quorum and as voted for the purposes of determining the base number of shares voting on the proposal. Shares subject to abstentions will, therefore, have the effect of a vote against the approval of the Merger Agreement. If a broker or other nominee holder indicates on the proxy card that it does not have discretionary authority to vote the shares it holds of record on the proposal, those shares will not be treated as shares that are present at the Special Meetings for purposes of determining the presence of a quorum and will not be considered as voted for purposes of determining the approval of stockholders on the proposal. Any stockholder of Wedge Holding or Wedge Bank giving a proxy may revoke it at any time prior to the vote at the Special Meetings. Stockholders of Wedge Holding or Wedge Bank wishing to revoke a proxy prior to the vote may do so by delivering to the Secretary of Wedge Holding or Wedge Bank, as the case may be, at 602 E. Broadway, Alton, Illinois 62002-9007, a written notice of revocation bearing a later date than the proxy or a later dated proxy relating to the same shares, or by attending the Wedge Holding Special Meeting or Wedge Bank Special Meeting, as the case may be, and voting such shares in person. Attendance at the Special Meetings will not in itself constitute the revocation of a proxy. The respective Boards of Directors of Wedge Holding and Wedge Bank are not currently aware of any business to be brought before the Special Meetings other than that described herein. If, however, other matters are properly brought before such Special Meetings, or any adjournments thereof, the persons appointed as proxies will have discretionary authority to vote the shares represented by duly executed proxies in accordance with their discretion and judgment as to the best interest of Wedge Holding and Wedge Bank. SOLICITATION OF PROXIES Each of Wedge Holding and Wedge Bank will bear its own costs of soliciting proxies, except that MBI will pay printing and mailing expenses and registration fees incurred in connection with preparing this Joint Proxy Statement/Prospectus. Proxies will initially be solicited by mail, but directors, officers and selected other employees of Wedge Holding and Wedge Bank may also solicit proxies in person or by telephone. Directors, executive officers and any other employees of Wedge Holding and Wedge Bank who solicit proxies will not be specially compensated for such services. Brokerage houses, nominees, fiduciaries, and other custodians will be requested to forward proxy materials to beneficial owners and will be reimbursed for their reasonable expenses incurred in sending proxy materials to beneficial owners. -19- 27 HOLDERS OF WEDGE HOLDING COMMON STOCK AND WEDGE BANK COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE APPROPRIATE ACCOMPANYING PROXY CARD(S) AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. TERMS OF THE PROPOSED ACQUISITION --------------------------------- The following is a summary of the material terms and conditions of the Merger Agreement, which document is incorporated by reference herein. This summary is qualified in its entirety by the full text of the Merger Agreement. MBI, upon written request, will furnish a copy of the Merger Agreement, without charge, to any person who receives a copy of this Joint Proxy Statement/Prospectus. Such requests should be directed to Jon W. Bilstrom, General Counsel and Secretary, Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524. GENERAL DESCRIPTION OF THE ACQUISITION Pursuant to the Merger Agreement, Mercantile Illinois will acquire all of the outstanding capital stock of Wedge Bank through the consummation of two concurrent and interdependent transactions: (i) the Exchange of all shares of Wedge Bank Common Stock owned beneficially and of record by Wedge Holding for shares of MBI Common Stock, and (ii) the Merger of Acquisition Bank with and into Wedge Bank. Upon consummation of the Exchange and the Merger, the separate corporate existence of Acquisition Bank will terminate, and the business and operations of Wedge Bank will be continued through Wedge Bank as a wholly owned subsidiary of Mercantile Illinois. Following the Closing Date, MBI intends to cause Mercantile Bank of Illinois National Association, a national banking association and wholly owned subsidiary of Mercantile Illinois, to merge with and into Wedge Bank, with the surviving entity being an Illinois state bank which shall thereafter change its name to "Mercantile Bank of Illinois." Pursuant to the Acquisition, MBI will issue up to an aggregate of 970,000 shares of MBI Common Stock as the Acquisition Consideration. Upon the consummation of the Exchange, Wedge Holding will be entitled to receive the number of shares of MBI Common Stock representing Wedge Holding's percentage ownership interest in Wedge Bank multiplied by the Acquisition Consideration. Pursuant to the Merger Agreement, within six months after the Exchange Wedge Holding shall effect the Liquidation and a liquidating distribution to the holders of Wedge Holding Preferred Stock and Wedge Holding Common Stock of all shares of MBI Common Stock that are then owned beneficially and of record by Wedge Holding. Upon the consummation of the Merger, each issued and outstanding share of Wedge Bank Common Stock (other than any shares held by Mercantile Illinois or Wedge Holding or shares owned by stockholders of Wedge Bank who exercise dissenters' rights under the Illinois Banking Act) shall cease to be outstanding and will be converted into the rights to receive the number of shares of MBI Common Stock as is determined by multiplying his or her percentage ownership interest in Wedge Bank by the Acquisition Consideration. The fair market value of MBI Common Stock to be issued as the Acquisition Consideration may fluctuate and at the consummation of the Acquisition may be more or less than the current fair market value of such shares. The amount and nature of the Acquisition Consideration was established through arm's-length negotiations between MBI, Wedge Holding and Wedge Bank, and reflects the balancing of a number of countervailing factors. The total amount of the consideration reflects a price both parties concluded was appropriate. See "- Background of and Reasons for the Acquisition; Board -20- 28 Recommendations." The fact that the consideration is payable in shares of MBI Common Stock reflects the desire to have the favorable tax attributes of a "reorganization" for federal income tax purposes (see "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION"), and the potential for change in the value of the MBI Common Stock. NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET VALUE OF MBI COMMON STOCK ON THE DATE SUCH STOCK IS RECEIVED BY A WEDGE HOLDING OR WEDGE BANK STOCKHOLDER OR AT ANY OTHER TIME. THE FAIR MARKET VALUE OF MBI COMMON STOCK RECEIVED BY A WEDGE HOLDING OR A WEDGE BANK STOCKHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK DUE TO NUMEROUS MARKET FACTORS. Following the Closing Date, each stockholder of Wedge Bank will be required to submit to Society National Bank, Cleveland, Ohio, which has been appointed as exchange agent in the Acquisition (the "Exchange Agent"), a properly executed letter of transmittal and surrender to the Exchange Agent the stock certificate(s) formerly representing the shares of Wedge Bank Common Stock prior to the issuance of the stock certificate evidencing the shares of MBI Common Stock to which such stockholder is entitled. No dividends or other distributions will be paid to a former Wedge Bank stockholder with respect to shares of MBI Common Stock until such stockholder's letter of transmittal and stock certificates formerly representing Wedge Bank Common Stock, or documentation acceptable to the Exchange Agent in lieu of lost or destroyed certificates, is delivered to the Exchange Agent. See "TERMS OF THE PROPOSED ACQUISITION - Surrender of Wedge Bank Stock Certificates and Receipt of MBI Common Stock." No fractional shares of MBI Common Stock will be issued in the Acquisition, but cash will be paid in lieu of such fractional shares, such cash being calculated by multiplying the holder's fractional share interest by the closing stock price of MBI Common Stock on the NYSE Composite Tape as reported in The Wall Street Journal on the ----------------------- Closing Date of the Acquisition. See "TERMS OF THE PROPOSED ACQUISITION - Fractional Shares." The shares of MBI Common Stock to be issued pursuant to the Acquisition will be freely transferable except by certain stockholders of Wedge Holding and Wedge Bank who are deemed to be "affiliates" of Wedge Holding and/or Wedge Bank. The shares of MBI Common Stock issued to such affiliates will be restricted in their transferability in accordance with the rules and regulations promulgated by the Commission. See "INFORMATION REGARDING MBI STOCK - Restrictions on Resale of MBI Stock by Affiliates." OTHER AGREEMENTS In addition to and contemporaneously with the Merger Agreement, MBI executed separate Voting Agreements with each of Melvin G. Hall and Robert Lynn Hall. Pursuant to the Voting Agreements, each of Melvin G. Hall and Robert Lynn Hall agreed that he will vote all of the shares of Wedge Holding Common Stock and/or Wedge Bank that he then owned or subsequently acquired in favor of the approval of the Merger Agreement at the Special Meetings and to take any and all actions necessary to cause all shares of Wedge Bank Common Stock owned by Wedge Holding or subsequently acquired in favor of the Merger Agreement at the Wedge Bank Special Meeting. In addition, until the earliest to occur of the Closing Date of the Acquisition, the termination of the Merger Agreement or the abandonment of the Acquisition, each further agreed that he will not vote any such shares in favor of the approval of any other competing acquisition proposal involving Wedge Holding or Wedge Bank and a third party. Each of Melvin G. Hall and Robert Lynn Hall also agreed that he will not transfer shares of Wedge Holding or Wedge Bank Common Stock owned by him and will not take any action to cause Wedge Holding to transfer any shares of Wedge Bank Common Stock owned by Wedge Holding. -21- 29 BACKGROUND OF AND REASONS FOR THE MERGER; BOARD RECOMMENDATIONS Wedge Holding's and Wedge Bank's Reasons and Board Recommendations. Beginning in 1993, the respective Boards of Directors of Wedge Holding and Wedge Bank began reviewing the desirability of a business combination with a larger financial institution in light of increased economic and competitive pressures on community banks and the current trends in acquisitions and consolidations of banking organizations within Wedge Bank's service area. In response to this review, management contacted several larger bank holding companies, including MBI, to explore interest in a potential business combination with Wedge Bank. Several institutions expressed preliminary interest in pursuing a business combination, and active negotiations were held with one large regional bank holding company which did not result in the execution of a definitive agreement. Thereafter, representatives of Wedge Holding and Wedge Bank met informally with representatives of MBI to ascertain whether there was any interest in a business combination between MBI and Wedge Bank. During the first quarter of 1994, preliminary negotiations were held with MBI relating to a business combination. During June and July, 1994, representatives of MBI, Wedge Holding and Wedge Bank and their respective counsel negotiated the form of the Merger Agreement and on July 6, 1994, the Boards of Directors of Wedge Holding and Wedge Bank met to consider the Merger Agreement. Based on a variety of factors described below, the respective Board of Directors of Wedge Holding and Wedge Bank approved the Merger Agreement at such meetings. The Merger Agreement was executed on July 6, 1994 by representatives of MBI, Wedge Holding and Wedge Bank, and MBI publicly announced the execution of the Merger Agreement. The Boards of Directors of Wedge Holding and Wedge Bank, after careful study and evaluation of economic, financial, legal and market factors, believes that the Merger Agreement is in the best interest of Wedge Holding, Wedge Bank and their respective stockholders. The Boards believe that the MBI Common Stock to be received by stockholders of Wedge Holding and Wedge Bank in the Acquisition represents an opportunity for the stockholders of Wedge Holding and Wedge Bank to exchange their shares in Wedge Holding and/or Wedge Bank at a favorable exchange ratio for a security with a greater market liquidity. Among the other factors considered by the Boards of Directors of Wedge Holding and Wedge Bank in deciding to approve and recommend the execution of the Merger Agreement were MBI's respective businesses, the results of operations and financial condition (including the assets, quality and capital levels), growth prospects, products available to customers, historical dividend and market performance, and the fact that MBI Common Stock is traded on the NYSE. The Boards also considered the management strength and depth of MBI, and the significant market penetration that the combined organization would have within the regional banking market served by Wedge Bank. Additionally, the Boards considered MBI's commitment to serving the banking and other needs of Wedge Banks depositors, employees, customers and community, as well as MBI's policy emphasizing the local character of community banks. Upon careful review and analysis of all of the factors described above, no single factor being substantially more important in the review process than any other, each of the Boards unanimously approved the Merger Agreement as being in the best interest of Wedge Holding, Wedge Bank and their respective stockholders. The respective Boards of Directors of Wedge Holding and Wedge Bank recommends approval of the Merger Agreement. Such Boards believe that the terms of the Merger Agreement are fair and that the Exchange and the Merger are in the best interest of Wedge Holding, Wedge Bank and their respective stockholders. The directors of each of Wedge Holding and Wedge Bank have unanimously indicated that they intend to vote their shares of Wedge Holding and/or Wedge Bank that they hold in favor of the Merger Agreement. See "INFORMATION CONCERNING THE SPECIAL MEETINGS -- Record Date; Vote Required." -22- 30 MBI's Reasons and Board Recommendations. The Executive Committee of the Board of Directors of MBI considered a number of factors, including, among other things, the financial condition of Wedge Holding and Wedge Bank and projected synergies which are anticipated to result from the Acquisition. The Executive Committee concluded that the Acquisition presents an unique opportunity for MBI to increase its presence in the regional banking market in southern Illinois through the acquisition of an established banking organization. MBI believes that the most effective and least costly means to achieve this entry was the acquisition of a banking organization having significant operations in the targeted area. MBI's decision to pursue discussions with Wedge Holding and Wedge Bank was primarily a result of MBI's assessment of the value of Wedge Bank's banking franchise, its substantial asset base within that area and the compatibility of the businesses of the two banking organizations. CONDITIONS OF THE ACQUISITION The respective obligations of MBI, Mercantile Illinois, Wedge Holding and Wedge Bank to consummate the Acquisition are subject to the satisfaction of certain mutual conditions, including the following: (1) The Merger Agreement shall be approved by the holders of a majority of the outstanding shares of Wedge Holding Common Stock and Wedge Bank Common Stock at the Special Meetings. (2) The Merger Agreement and the transactions contemplated therein shall have been approved by the FDIC, Federal Reserve Board, the Illinois Commissioner and any other federal and/or state regulatory agency whose approval is required for the consummation of the transactions contemplated therein. (3) The Registration Statement of which this Joint Proxy Statement/Prospectus is a part, registering shares of MBI Common Stock to be issued in the Acquisition, shall have been declared effective and not be subject to a stop order or any threatened stop order. (4) Neither MBI, Mercantile Illinois, Wedge Holding or Wedge Bank 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 Acquisition. (5) MBI, Mercantile Illinois and Wedge Holding shall have taken all actions as are necessary to effect the Exchange simultaneously with the Merger. The obligation of MBI and Mercantile Illinois to consummate the Acquisition is subject to the satisfaction, unless waived, of certain other conditions, including the following: (1) The representations and warranties of Wedge Holding and Wedge Bank made in the Merger Agreement shall be true and correct in all material respects as of the Closing Date (except such as are not of a magnitude as to be materially adverse to the business, financial condition, results of operations or prospects of Wedge Bank on a consolidated basis taken as a whole) and all obligations required to be performed by Wedge Holding and Wedge Bank prior to the Closing Date shall have been performed in all material respects, and MBI shall have received an officers' certificate from each of Wedge Holding and Wedge Bank to that effect. -23- 31 (2) Wedge Holding and Wedge Bank shall have obtained any and all material consents or waivers from other parties to loan agreements, leases or other contracts material to Wedge Bank's businesses required for the consummation of the Acquisition, and Wedge Holding and Wedge Bank shall have obtained any and all material permits, authorizations, consents, waivers and approvals required for the lawful consummation of the Acquisition. (3) Since the date of the Merger Agreement, there shall have been no material adverse change in the business, financial condition, results of operations or prospects of Wedge Bank. (4) The combined number of shares of Wedge Holding Common Stock and Wedge Bank Common Stock as to which written demand for the fair value of their shares pursuant to applicable law has been delivered to Wedge Holding or Wedge Bank, as the case may be, by the holders thereof prior to the Special Meetings shall not exceed 8% of the total direct or indirect equity interests of Wedge Bank Common Stock outstanding at the time when such votes are taken. (5) MBI and Mercantile Illinois shall be satisfied that the Acquisition, in form and substance, will qualify for pooling-of-interests accounting treatment. (6) Thomas, Mottaz, Eastman & Sherwood, counsel to Wedge Holding and Wedge Bank, shall have delivered to MBI an opinion regarding certain legal matters. (7) Wedge Holding shall have delivered to the Exchange Agent the certificates evidencing shares of Wedge Bank Common Stock owned beneficially or of record by Wedge Holding, and such other documentation as shall be reasonably required by MBI or the Exchange Agent to effect the Exchange. The obligation of Wedge Holding and Wedge Bank to consummate the Acquisition is subject to the satisfaction, unless waived, of certain other conditions, including the following: (1) The representations and warranties of MBI and Mercantile Illinois made in the Merger Agreement shall be true and correct in all material respects as of the Closing Date (except such as are not of a magnitude as to be materially adverse to the business, financial condition, results of operations or prospects of MBI on a consolidated basis taken as a whole) and all obligations required to be performed by MBI and Mercantile Illinois prior to the Effective Time shall have been performed in all material respects, and Wedge Holding and Wedge Bank shall have received an officers' certificate from MBI and Mercantile Illinois to that effect. (2) MBI and Mercantile Illinois shall have obtained any and all material permits, authorizations, consents, waivers and approvals required of MBI or Mercantile Illinois for the lawful consummation of the Acquisition. (3) Since the date of the Merger Agreement, there shall have been no material adverse change in the business, financial condition, results of operations or prospects of MBI on a consolidated basis taken as a whole. -24- 32 (4) Thompson & Mitchell, counsel to MBI, shall have delivered to Wedge Holding and Wedge Bank an opinion regarding certain legal matters. (5) Thompson & Mitchell, counsel to MBI, shall have delivered to Wedge Holding and Wedge Bank an opinion regarding certain federal income tax matters. TERMINATION OF THE MERGER AGREEMENT The Merger Agreement may be terminated at any time prior to the Closing Date, whether before or after approval by the stockholders of Wedge Holding and Wedge Bank, by mutual consent of the Executive Committee of the Board of Directors of MBI and the Boards of Directors of Mercantile Illinois, Wedge Holding and Wedge Bank, or unilaterally by the Executive Committee of the Board of Directors of MBI or the Boards of Directors of Mercantile Illinois, Wedge Holding or Wedge Bank: (i) at any time after March 31, 1995 if the Acquisition has not been consummated by such date; or (ii) if the Federal Reserve Board, the FDIC, the Illinois Commissioner or any other federal and/or state regulatory authority whose approval is required for consummation of the Acquisition has denied approval of the Acquisition. The Merger Agreement may also be terminated by the Board of Directors of Wedge Holding or Wedge Bank or the Executive Committee of the Board of Directors of MBI in the event of a breach of the Merger Agreement by the other party, which breach is of such a magnitude as to be materially adverse to the business, financial condition, results of operations or prospects of the breaching party on a consolidated basis taken as a whole and is not cured after 45 days following written notice of such breach given by the other party. No assurance can be given that the Acquisition will be consummated on or before March 31, 1995 or that MBI, Mercantile Illinois, Wedge Holding or Wedge Bank will not elect to terminate the Merger Agreement if the Acquisition has not been consummated on or before such date. INDEMNIFICATION MBI, Mercantile Illinois, Wedge Holding and Wedge Bank have agreed to indemnify each other against any claims or liabilities to which such party may become subject under federal or state securities laws or regulations, to the extent that such claim or liability arises out of information furnished to the party subject to such liability by the other party, or out of an omission by such other party to state a necessary or material fact in the Registration Statement of which this Joint Proxy Statement/ Prospectus is a part. CLOSING DATE The Merger will be consummated and become effective on the Closing Date upon issuance of a certificate of merger by the Illinois Commissioner. Under the Merger Agreement, unless the parties otherwise agree, the Closing Date shall be the first business day of the month immediately succeeding the month in which the last of the following events occurs: (i) the receipt of the requisite approval of the Merger Agreement by stockholders of Wedge Holding and Wedge Bank, (ii) the thirtieth day after the approval of the Acquisition by the FDIC, and (iii) the approval by the Illinois Commissioner and any other federal and/or state bank regulatory agency that may be necessary or appropriate. SURRENDER OF WEDGE BANK STOCK CERTIFICATES AND RECEIPT OF MBI COMMON STOCK Except for the shares of Wedge Bank Common Stock subject to the exercise of dissenters' rights, at the Effective Time of the Merger each outstanding share of Wedge Bank Common Stock will be converted into the right to receive shares of MBI Common Stock as set forth in the Merger -25- 33 Agreement. See "TERMS OF THE PROPOSED ACQUISITION - General Description of the Acquisition." Each holder of Wedge Bank Common Stock, upon submission to the Exchange Agent of a properly executed letter of transmittal and surrender to the Exchange Agent of the stock certificate(s) formerly representing shares of Wedge Bank Common Stock, will be entitled to receive a stock certificate evidencing the shares of MBI Common Stock to which such stockholder is entitled. Within five business days after the Effective Time of the Acquisition, the Exchange Agent will mail to each former Wedge Bank stockholder of record as of the Effective Time notification of the consummation of the Acquisition. The Exchange Agent will also provide a letter of transmittal and instructions as to the procedure for the surrender of the stock certificates evidencing the Wedge Bank Common Stock and the receipt of shares of MBI Common Stock pursuant to the Acquisition. Following the Effective Time of the Acquisition, it will be the responsibility of each former holder of Wedge Bank Common Stock shares to submit all certificates evidencing that former holder's shares of Wedge Bank Common Stock to the Exchange Agent. No dividends or other distribution will be paid to a former Wedge Bank stockholder with respect to shares of MBI Common Stock until such stockholder's properly completed letter of transmittal and stock certificates formerly representing Wedge Bank Common Stock, or documentation acceptable to the Exchange Agent in lieu of a lost or destroyed certificate, is delivered to the Exchange Agent. The Exchange Agent may also require the stockholder of a lost or destroyed certificate to post an insurance bond acceptable to the Exchange Agent. All dividends or other distributions on the MBI Common Stock declared between the Closing Date of the Acquisition and the date of the surrender of a Wedge Bank stock certificate will be held for the benefit of the stockholder and will be paid to the stockholder, without interest thereon, upon the surrender of such stock certificate or documentation and/or insurance bond in lieu thereof. FRACTIONAL SHARES No fractional shares of MBI Common Stock will be issued to Wedge Holding or the former stockholders of Wedge Bank in connection with the Acquisition. Each former holder of Wedge Bank Common Stock who otherwise would have been entitled to receive a fraction of a share of MBI Common Stock shall receive in lieu thereof cash, without interest, in an amount equal to the holder's fractional share interest multiplied by the closing stock price of MBI Common Stock on the NYSE Composite Tape as reported in The Wall -------- Street Journal on the Closing Date of the Merger. Cash received by - -------------- Wedge Bank stockholders in lieu of fractional shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION." CERTAIN REGULATORY APPROVALS In addition to the approval of the Merger Agreement by the stockholders of Wedge Holding and Wedge Bank, the obligations of the parties to effect the Acquisition are subject to prior approval of the Federal Reserve Board, the FDIC and the Illinois Commissioner. As bank holding companies, MBI, Mercantile Illinois and Wedge Holding are subject to regulation under the BHCA. The Acquisition is subject to approval by the Federal Reserve Board under Section 3 of the BHCA. Under the BHCA, the Federal Reserve Board may withhold approval of the Acquisition if, among other things, it determines that the effect of the Acquisition would be to substantially lessen competition in the relevant market. In addition, the Federal Reserve Board must consider whether the combined organization meets the requirements of the Community Reinvestment Act of 1977, as amended, by assessing the involved entities' respective records of meeting the credit needs of the local communities in which they are chartered, consistent with the safe and sound operation of such institutions. In its review, the Federal Reserve Board must also examine the financial and managerial resources and future prospects of the -26- 34 combined organization and analyze the capital structure and soundness of the resulting entity. The Federal Reserve Board has the authority to deny an application if it concludes that the combined organization would have inadequate capital. The BHCA also prohibits the acquisition by a bank holding company of shares of a bank located outside the state in which the operations of its banking subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statute of the state in which the bank to be acquired is located. Missouri and Illinois have enacted legislation that satisfies this BHCA requirement with respect to the Acquisition. As a state bank insured by the FDIC under the Federal Deposit Insurance Act of 1950, as amended (the "FDI Act"), Wedge Bank is subject to regulation under the FDI Act. Under Section 18(c) of the FDI Act, Wedge Bank is required to obtain the prior approval of the FDIC for the Merger. Under the FDI Act, the FDIC may withhold approval of the Merger if, among other things, it determines that the effect of the Merger would be to lessen competition substantially in the relevant market. In addition, the FDIC must consider whether the resulting organization will meet the requirements of the Community Reinvestment Act of 1977, as amended, by assessing the involved entities' respective records of meeting credit needs of the local communities in which they are chartered, consistent with safe and sound operation of such institutions. In its review, the FDIC must also examine the financial and managerial resources and future prospects of the resulting organization and analyze the capital structure and soundness of the resulting entity. The Acquisition is also subject to the approval of the Illinois Commissioner, who must approve the organization of Acquisition Bank and the merger of Acquisition Bank with and into Wedge Bank. In processing MBI's application to acquire Wedge Bank, the Illinois Commissioner must consider, among other matters, the privileges granted to Illinois bank holding companies to acquire Missouri banks, the capital adequacy of Wedge Bank following the Merger, MBI's record in providing service to communities it presently serves and MBI's plans with respect to the services to be provided to Wedge Bank's service area following the Acquisition. Applications have been filed with the Federal Reserve Board, the FDIC and the Illinois Commissioner. The Acquisition cannot be consummated until the receipt of such approvals and the lapse of the 30-day waiting period after the approval of the applications. During this 30-day waiting period, the United States Department of Justice has the right to initiate litigation challenging the Merger upon antitrust grounds. There can be no assurance that the Federal Reserve Board, the FDIC and the Illinois Commissioner will approve the applications filed with regard to the Acquisition or that the United States Department of Justice will not challenge the Acquisition during the 30-day waiting period. See "SUPERVISION AND REGULATION." BUSINESS PENDING THE ACQUISITION The Merger Agreement provides that, during the period from the date of the Merger Agreement to the Effective Time, Wedge Holding and Wedge Bank will conduct their respective businesses according to the ordinary and usual course consistent with past and current practices and use their best efforts to maintain and preserve their respective business organization, employees and advantageous business relationships and retain the services of its officers and key employees. Furthermore, from the date of the Merger Agreement to the Closing Date, except as provided in the Merger Agreement, Wedge Holding and Wedge Bank will not, without the prior written consent of MBI and Mercantile Illinois: -27- 35 (1) declare and/or pay any dividends on its outstanding shares of capital stock, except that from the date of the Merger Agreement through the Closing Date, the Board of Directors of Wedge Bank shall be entitled to declare a dividend for each quarter in which the MBI Board of Directors shall declare a dividend on shares of MBI Common Stock that in the aggregate is not in excess of the aggregate quarterly dividend that would have been paid by MBI on the shares of MBI Common Stock issuable as the Acquisition Consideration if the transactions contemplated by the Merger Agreement had been consummated on or before the date of the Merger Agreement, and except that the Board of Directors of Wedge Bank shall be entitled to declare a single dividend equal to $375,000 which Wedge Holding shall use for the repayment of indebtedness; (2) enter into or amend any employment, severance or similar agreements or arrangements with any director or officer of Wedge Bank, or amend, modify or terminate any employee plans or policies of Wedge Bank; (3) propose or adopt any amendments to the Articles of Incorporation of Wedge Holding, the charter of Wedge Bank or their respective By-Laws; (4) issue any shares of its capital stock or effect any stock split or otherwise change the capitalization of Wedge Bank as it existed on July 6, 1994; (5) grant, confer or award any options, warrants, conversion rights or other rights not existing as of July 6, 1994, to acquire any shares of the capital stock of Wedge Bank; (6) purchase or redeem any shares of the capital stock of Wedge Holding or Wedge Bank; (7) enter into or increase any loan or credit commitment (including standby letters of credit) to, or invest or agree to invest in any person or entity in an amount in excess of $100,000 without first consulting with MBI, and, in the case of persons or entities to which it has outstanding aggregate credit commitments and loans exceeding $100,000, increase or agree to invest in, such person or entity by more than 25% of such amount or in an amount in excess of $250,000, without first consulting with MBI; (8) enter into, increase or renew any loan or credit commitment (including standby letters of credit) to any executive officer or director of Wedge Holding or Wedge Bank, any shareholder of Wedge Holding, or any entity controlled, directly or indirectly, by any of the foregoing or to engage in any transaction with any of the foregoing of which is the type or nature sought to be regulated in 12 U.S.C. 371c and 12 U.S.C. 371c-1, without first obtaining the prior written consent of MBI or Mercantile Illinois, which consent shall not be unreasonably withheld; or (9) 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 action which would make any of representations and warranties of Wedge Holding or Wedge Bank in the Merger Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other action; -28- 36 (10) take any action that would: (i) adversely affect or delay the ability of MBI to obtain regulatory approval for the Merger or to perform its covenants and agreements under the Merger Agreement, (ii) prevent the Acquisition from qualifying for pooling-of-interests accounting treatment or as a reorganization under the Code, or (iii) not be in the ordinary course of business consistent with past practices; or (11) 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 Wedge Holding or Wedge Bank, or the acquisition of the capital stock (or rights or options exercisable for, or securities convertible or exchangeable into, capital stock) of Wedge Holding or Wedge Bank, or the merger of Wedge Holding or Wedge Bank with any person other than MBI or Mercantile Illinois, or provide any such person with information or assistance or negotiate with any person with respect thereto, and Wedge Holding and Wedge Bank shall promptly notify MBI and Mercantile Illinois orally of all the relevant details relating to all inquiries, indications of interest and proposals which they may receive with respect thereto. WAIVER AND AMENDMENT Any provision of the Merger Agreement, including, without limitation, the conditions to the consummation of the Acquisition and the restrictions described under the caption "TERMS OF THE PROPOSED ACQUISITION - Business Pending the Acquisition," may be (i) waived in writing at any time by the party that is, or whose stockholders are, entitled to the benefits thereof or (ii) amended at any time by written agreement of the parties approved by or on behalf of their respective Boards of Directors, whether before or after the Special Meetings, provided, however, that after approval ----------------- of the Merger Agreement by the stockholders of Wedge Holding and Wedge Bank at the Special Meetings no such modification may alter or change any of the terms of the Merger Agreement if such alteration or change would adversely affect the stockholders of Wedge Holding or Wedge Bank (which, in all cases, would include an alteration or change (a) in the amount or form of the consideration to be received by Wedge Holding and the stockholders of Wedge Bank in the Acquisition and (b) that would result in materially different income tax consequences than those described in "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION" in this Joint Proxy Statement/Prospectus). If any amendment to the Merger Agreement adversely affects the rights of the stockholders of Wedge Holding and Wedge Bank thereunder, Wedge Holding and Wedge Bank will resolicit proxies from the stockholders of Wedge Holding and Wedge Bank by means of a revised Joint Proxy Statement/Prospectus and related proxy materials prior to the consummation of the Acquisition. ACCOUNTING TREATMENT The Acquisition will be accounted for under the pooling-of- interests method of accounting. Following the Effective Time, data regarding the financial condition and results of operations of Wedge Bank will be included in MBI's consolidated financial statements as if the Acquisition had occurred on the first day of the earliest period presented. -29- 37 INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION Melvin G. Hall, Chairman and Chief Executive Officer of Wedge Holding and Wedge Bank, has entered into an employment agreement with MBI dated July 6, 1994. Pursuant to such agreement, Melvin G. Hall shall be employed as Senior Chairman and as a director of Wedge Bank for a period ending on the later to occur of (i) six months after the Closing Date, or (ii) June 30, 1995. Mr. Hall shall be compensated at the same rate as is currently payable to other non-employee directors of Wedge Bank. Additionally, to the extent that Mr. Hall shall not have previously received a 1994 incentive bonus from Wedge Holding or Wedge Bank of $243,500, MBI shall make a cash payment of the unpaid portion of such amount on the Closing Date. Mr. Hall shall also receive use of an office, secretarial services, use of an automobile and payment of club dues and reimbursement of business-related club expenses. Mr. Hall has agreed that for a period of three years following his employment he will not engage in any active solicitation of new business that is of a type or nature which is permitted to commercial banking or thrift institutions under state and/or federal law in Madison County, Illinois (the "Territory"), or enter the employ of, or have any direct or indirect interest in any other person, firm, corporation or other entity engaged in any such activity in the Territory, whether such other person, firm, corporation or entity maintains an office or facility in the Territory or otherwise. Mr. Hall's employment agreement with MBI is intended to replace Mr. Hall's other employment agreements with Wedge Holding or Wedge Bank. Robert Lynn Hall, President of Wedge Holding and Wedge Bank, has entered into an employment agreement with MBI dated July 6, 1994. Pursuant to such agreement, Robert Lynn Hall shall be employed as the President and as a director of Wedge Bank for a period of one year or until December 31, 1995, whichever shall be the last to occur. Additionally, to the extent that Mr. Hall shall not have previously received a 1994 incentive bonus from Wedge Holding or Wedge Bank of $212,000, MBI shall make a cash payment of the unpaid portion of such amount on the Closing Date. During Mr. Hall's employment, he shall receive a base salary of $217,500 per year and will be paid an incentive bonus of $212,000 for 1995. Mr. Hall will also receive employee benefits and customary perquisites equivalent to those provided by MBI to similarly situated officers. Mr. Hall has agreed that for a period of three years following his employment he will not engage in any active solicitation of new business that is of a type or nature which is permitted to commercial banking or thrift institutions under state and/or federal law in Madison County, Illinois (the "Territory"), or enter the employ of, or have any direct or indirect interest in any other person, firm, corporation or other entity engaged in any such activity in the Territory, whether such other person, firm, corporation or entity maintains an office or facility in the Territory or otherwise. Mr. Hall's employment agreement with MBI is intended to replace Mr. Hall's other employment agreements with Wedge Holding or Wedge Bank. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION ---------------------------------------------------------- The following is a discussion of the material federal income tax consequences of the Exchange, the Merger and the Liquidation to certain stockholders of Wedge Holding and Wedge Bank. The discussion does not purport to be a complete analysis or listing of all potential tax considerations or consequences relevant to a decision whether to vote for the approval of the Exchange or the Merger. The discussion does not address all aspects of federal income taxation that may be applicable to stockholders of Wedge Holding and Wedge Bank subject to special federal income tax treatment including (without limitation) foreign persons, insurance companies, tax-exempt entities, retirement plans, dealers in securities, persons who acquired their Wedge Holding Common Stock, Wedge Holding Preferred Stock or Wedge Bank Common Stock pursuant to the exercise of employee stock options or otherwise as compensation, or persons who acquired their Wedge Holding Preferred Stock or Wedge Holding Common Stock after July 6, 1994, if any. The discussion addresses neither the effect of any applicable state, local, or foreign tax laws, nor the effect of any federal tax laws other than those pertaining to the federal income tax. IN VIEW OF THE INDIVIDUAL NATURE OF FEDERAL INCOME TAX CONSEQUENCES, EACH -30- 38 STOCKHOLDER OF WEDGE HOLDING AND WEDGE BANK IS URGED TO CONSULT HIS OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE EXCHANGE, THE MERGER AND THE LIQUIDATION TO HIM. The discussion is based on the Code, regulations and rulings now in effect or proposed thereunder, current administrative rulings and practice, and judicial precedent, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences discussed herein. The discussion is also based on certain assumptions regarding the factual circumstances that will exist at the Effective Time, including certain representations of MBI, Mercantile Illinois, Wedge Holding, Wedge Bank, and certain stockholders of Wedge Holding and Wedge Bank. If any of these factual assumptions is inaccurate, the tax consequences of the Exchange, the Merger or the Liquidation could differ from those described herein. The discussion assumes that shares of Wedge Holding Common Stock, Wedge Holding Preferred Stock and Wedge Bank Common Stock are held as capital assets (within the meaning of Section 1221 of the Code). Assuming the Exchange and the Merger occur in accordance with the Merger Agreement, each of the Exchange and the Merger will constitute a "reorganization" for federal income tax purposes under Section 368(a)(1) of the Code with the following federal income tax consequences: 1. No gain or loss will be recognized by Wedge Holding on its transfer of Wedge Bank Common Stock solely in exchange for MBI Common Stock in the Exchange. 2. No gain or loss will be recognized by Wedge Holding on its distribution of MBI Common Stock to its stockholders in the Liquidation. 3. Each stockholder of Wedge Holding who exchanges, in the Liquidation, his or its shares of Wedge Holding Common Stock solely for shares of MBI Common Stock: a) will recognize no gain or loss; b) will have an aggregate adjusted basis for the shares of MBI Common Stock received equal to the aggregate basis of the shares of Wedge Holding Common Stock surrendered; and c) will have a holding period for the share of MBI Common Stock received which includes the period during which the shares of Wedge Holding Common Stock surrendered were held. 4. Each stockholder of Wedge Holding who exchanges, in the Liquidation, his or its shares of Wedge Holding Preferred Stock solely for shares of MBI Common Stock: a) will recognize no gain or loss; b) will have an aggregate adjusted basis for the shares of MBI Common Stock received equal to the aggregate basis of the shares of Wedge Holding Preferred Stock surrendered; and c) will have a holding period for the shares of MBI Common Stock received which includes the period during which the shares of Wedge Holding Preferred Stock surrendered were held. 5. Each stockholder of Wedge Bank who exchanges, in the Merger, his or its shares of Wedge Bank Common Stock solely for shares of MBI Common Stock: -31- 39 a) will recognize no gain or loss, except with regard to cash received in lieu of a fractional share, as discussed; b) will have an aggregate adjusted basis for the shares of MBI Common Stock received (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 6, below) equal to the aggregate basis of the shares of Wedge Bank Common Stock surrendered; and c) will have a holding period for the shares of MBI Common Stock received (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 6, below) which includes the period during which the shares of Wedge Bank Common Stock surrendered were held. 6. Each stockholder of Wedge Bank who receives cash in lieu of a fractional share of MBI Common Stock will be treated as if the fractional share had been received and then redeemed by MBI. The receipt of such cash will cause the recipient to recognize capital gain or loss, equal to the difference between the amount of cash received and the portion of such holder's adjusted tax basis in the shares of MBI Common Stock allocable to the fractional share interest. The obligations of Wedge Holding and Wedge Bank to consummate the Exchange and the Merger are subject to the condition that each shall have received from Thompson & Mitchell, counsel for MBI, an opinion to the effect that each of the Exchange and the Merger will constitute a "reorganization" for federal income tax purposes under Section 368(a)(1) of the Code and that the other federal income tax consequences of the Exchange, the Merger and the Liquidation will in all material respects be as described in this section. Such opinion will be subject to the conditions and assumptions stated therein and will also rely on various representations made by MBI, Mercantile Illinois, Wedge Holding, Wedge Bank, and certain stockholders of Wedge Holding. Copies of the opinion will be available, without charge, upon written request to MBI. An opinion of counsel, unlike a private letter ruling from the Internal Revenue Service (the "Service"), has no binding effect on the Service. The Service could take a position contrary to counsel's opinion and, if the matter is litigated, a court may reach a decision contrary to the opinion. The Service is not expected to issue a ruling on the tax consequences of the Exchange, the Merger or the Liquidation, and no such ruling has been requested. THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE, THE MERGER AND THE LIQUIDATION TO CERTAIN STOCKHOLDERS AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH STOCKHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH STOCKHOLDER. IN VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX CONSEQUENCES, EACH STOCKHOLDER SHOULD CONSULT HIS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE EXCHANGE, THE MERGER, OR THE LIQUIDATION TO HIM, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS. DISSENTERS' RIGHTS OF STOCKHOLDERS OF WEDGE BANK ------------------------------------------------ Each stockholder of Wedge Bank has the right to dissent from the Merger and receive the fair value of his or her shares of Wedge Bank Common Stock in cash if the stockholder follows the procedures set forth under Section 5/29 of the Illinois Banking Act, set forth as Annex A hereto and the material provisions of which are ------- summarized below. Stockholders of Wedge Holding do not have dissenters' rights in connection with the Exchange. -32- 40 Under the Illinois Banking Act, a stockholder of Wedge Bank who (i) files with Wedge Bank prior to the Wedge Bank Special Meeting a written objection to the Merger, (ii) does not vote in favor of the approval of the Merger Agreement, and (iii) within 20 day of receiving notice of the date the Merger became effective, delivers to Wedge Bank a written demand for payment of the fair value of his or her shares as of the day prior to the date of the Wedge Bank Special Meeting, shall be entitled to receive from Wedge Bank in cash the fair value of his or her shares upon the surrender of the stock certificate or certificates representing his or her shares. A VOTE AGAINST THE EXCHANGE WILL NOT, BY ITSELF, BE REGARDED AS A WRITTEN OBJECTION FOR PURPOSES OF ASSERTING APPRAISAL RIGHTS. If within 30 days after the date on which the Merger is consummated Wedge Bank and a dissenting stockholder shall agree upon the fair value of the shares of such dissenting stockholder, Wedge Bank shall pay such agreed value within 90 days after the consummation of the Merger, upon the surrender of the certificate or certificates representing such shares. If within such 30-day period Wedge Bank and a dissenting stockholder do not agree on the fair value of such shares, the dissenting stockholder may, within 60 days after the expiration of the 30-day period after the consummation of the Merger, file a complaint in circuit court of Illinois asking for a finding and determination of the fair value of his or her shares. Such dissenting shareholder shall be entitled to judgment for the amount of the fair value as determined by the court with interest thereon to the date of such judgment. THE PRECEDING DISCUSSION IS A FAIR SUMMARY OF THE PROVISIONS REGARDING DISSENTERS' RIGHTS UNDER THE ILLINOIS BANKING ACT AND IS QUALIFIED IN ITS ENTIRETY BY THE TEXT OF SECTION 29 OF THE ILLINOIS BANKING ACT WHICH IS ATTACHED HERETO AS ANNEX A. WEDGE BANK ------- STOCKHOLDERS WHO ARE INTERESTED IN PERFECTING DISSENTERS' RIGHTS PURSUANT TO THE ILLINOIS BANKING ACT IN CONNECTION WITH THE MERGER MAY WISH TO CONSULT WITH THEIR COUNSEL FOR ADVICE AS TO THE PROCEDURES REQUIRED TO BE FOLLOWED. PRO FORMA FINANCIAL INFORMATION ------------------------------- COMPARATIVE UNAUDITED PER SHARE DATA The following table sets forth for the periods indicated selected historical per share data of MBI and Wedge Bank and the corresponding pro forma and pro forma equivalent per share amounts giving effect to the proposed Acquisition, individually and in conjunction with the completed merger of Ameribanc, Inc. ("ABNK"), which was completed on April 30, 1992 and accounted for as a purchase, and the proposed mergers of UNSL and CMB. The data presented is based upon the consolidated financial statements and related notes of MBI, Wedge Bank, UNSL and CMB included in this Joint Proxy Statement/ Prospectus or in documents incorporated herein by reference, and the pro forma combined consolidated balance sheet and income statements, including the notes thereto, appearing elsewhere herein. This information should be read in conjunction with such historical and pro forma financial statements and related notes thereto. The assumptions used in the preparation of this table appear in the notes on page 42 of this Joint Proxy Statement/ Prospectus. This data is not necessarily indicative of the results of the future operations of the combined organization or the actual results that would have occurred if the Acquisition, the completed merger of ABNK or the proposed mergers of UNSL and CMB had been consummated prior to the periods indicated. -33- 41
MBI/ MBI/ Wedge Bank All Entities MBI Wedge Bank Pro Forma Pro Forma Reported Reported Combined Combined -------- ---------- ------------- ------------ Book Value per Share: June 30, 1994 $ 23.49 $132.78 $ 23.41 $ 23.23 December 31, 1993 22.40 131.11 22.33 22.16 Cash Dividends Declared per Share: Six months ended June, 1994 .56 3.01 .56 .56 Year ended December 31, 1993 .99 4.01 .99 .99 Year ended December 31, 1992 .93 5.16 .93 .93 Year ended December 31, 1991 .93 1.74 .93 .93 Earnings per Share: Six months ended June 30, 1994 1.84 9.33 1.83 1.79 Year ended December 31, 1993 2.80 24.19 2.82 2.79 Year ended December 31, 1992 2.36 16.76 2.33 2.37 Year ended December 31, 1991 2.37 9.68 2.23 2.21 Market Price per Share: At July 5, 1994 35.25 -- -- -- At October 4, 1994 35.375 -- -- -- - ------------------------------------ Includes the effect of pro forma adjustments for ABNK and Wedge Bank as appropriate. See "PRO FORMA FINANCIAL INFORMATION." Includes the effect of pro forma adjustments for ABNK, Wedge Bank, UNSL and CMB as appropriate. See "PRO FORMA FINANCIAL INFORMATION." The market value of MBI Common Stock was determined as of the last trading day preceding the public announcement of the proposed acquisition and as of the latest available date prior to the filing of the Joint Proxy Statement/Prospectus, based on the last sale price as reported on the NYSE Composite Tape. The market value of Wedge Bank Common Stock was determined as of the second quarter of 1992, the date of the last transaction known to management of Wedge Bank prior to the public announcement of the proposed acquisition.
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited pro forma combined consolidated balance sheet gives effect to the Acquisition and the proposed mergers of UNSL and CMB, as if each of the mergers were consummated on June 30, 1994. MBI acquired ABNK on April 30, 1992, which acquisition was accounted for under the purchase method of accounting. Accordingly, the historical results of operations of MBI include the results of operations of ABNK from May 1, 1992 forward. The following pro forma combined consolidated income statements include the results of operations of ABNK from January 1, 1991 through the date of acquisition. The following pro forma combined consolidated income statements for the six months ended June 30, 1994 and 1993 and for the years ended December 31, 1993, 1992 and 1991 set forth the results of operations of MBI combined with the results of operations of Wedge Bank, UNSL and CMB as if the Acquisition and the proposed mergers of UNSL and CMB had occurred as of the first day of the period presented. As stated above, the pro forma combined consolidated income statements for the years ended December 31, 1992 and 1991 include the results of operations of ABNK from January 1, 1991 through the date of acquisition. The unaudited pro forma combined consolidated financial statements should be read in conjunction with the accompanying Notes to the Pro Forma Combined Consolidated Financial Statements and with the historical Financial Statements of MBI, Wedge Holding, Wedge Bank, UNSL and ABNK. The -34- 42 historical interim financial information for the six months ended June 30, 1994 and 1993, used as a basis for the pro-forma combined consolidated financial statements, include all necessary adjustments which, in management's opinion, are necessary to present the data fairly. These pro forma combined consolidated financial statements may not be indicative of the results of operations that actually would have occurred if the completed and proposed mergers had been consummated on the dates assumed above or of the results of operations that may be achieved in the future. -35- 43 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET JUNE 30, 1994 (THOUSANDS) (UNAUDITED)
All Entities Pro Forma Pro Forma Wedge Bank Combined CMB & UNSL Combined MBI Wedge Bank Adjustments Consolidated UNSL CMB Adjustments Consolidated ----------- ---------- ----------- ------------ -------- -------- ----------- ------------ ASSETS Cash and due from banks $ 556,843 $ 7,825 $ $ 564,668 $ 3,038 $ 22,787 $ $ 590,493 Due from banks - interest bearing . . . 10,992 94 11,086 18,854 0 29,940 Federal funds sold and repurchase agreements. 113,939 0 113,939 0 11,025 124,964 Investments in debt and equity securities Trading. . . . . . . 6,020 0 6,020 0 0 6,020 Available-for-sale . 315,152 59,005 374,157 0 48,359 422,516 Held-to-maturity . . 2,980,348 23,950 3,004,298 16,026 146,919 3,167,243 ----------- -------- -------- ----------- -------- -------- -------- ----------- Total . . . . . . 3,301,520 82,955 0 3,384,475 16,026 195,278 0 3,595,779 Loans and leases. . . . 7,619,002 113,165 7,732,167 420,274 376,542 8,528,983 Reserve for possible loan losses. . . . . . (172,493) (1,399) (173,892) (3,631) (6,430) (183,953) ----------- -------- -------- ----------- -------- -------- -------- ----------- Net Loans and Leases 7,446,509 111,766 0 7,558,275 416,643 370,112 0 8,345,030 Bank premises and equipment. . . . . . . 203,040 3,858 206,898 5,923 11,660 224,481 Due from customers on acceptances. . . . . . 12,174 0 12,174 0 0 12,174 Goodwill. . . . . . . . 54,678 0 54,678 70 5,835 60,583 Other intangibles . . . 14,070 0 14,070 103 0 14,173 Other assets. . . . . . 220,136 3,453 19,121 223,589 3,267 12,358 38,577 239,214 (19,121) (38,577) 51,224 (51,224) ----------- -------- -------- ----------- -------- -------- -------- ----------- Total Assets. . . . . $11,933,901 $209,951 $ 0 $12,143,852 $463,924 $629,055 $ 0 $13,236,831 =========== ======== ======== =========== ======== ======== ======== =========== LIABILITIES Deposits Non-interest bearing. . $ 1,473,103 $ 23,651 $ $ 1,496,754 $ 10,218 $ 74,197 $ $ 1,581,169 Interest bearing. . . . 7,551,827 138,740 7,690,567 365,365 467,908 8,523,840 Foreign . . . . . . . . 115,576 0 115,576 0 0 115,576 ----------- -------- -------- ----------- -------- -------- -------- ----------- Total Deposits . . . 9,140,506 162,391 0 9,302,897 375,583 542,105 0 10,220,585 Federal funds purchased and repurchase agreements . . . . . . 673,345 26,380 699,725 0 22,309 722,034 Other short-term borrowings . . . . . . 628,374 0 628,374 45,000 1,100 674,474 Long-term debt. . . . . 290,162 0 290,162 0 5,619 295,781 Bank acceptances outstanding. . . . . . 12,174 0 12,174 0 0 12,174 Other liabilities . . . 175,897 2,059 177,956 4,764 6,698 189,418 ----------- -------- -------- ----------- -------- -------- -------- ----------- Total Liabilities. . 10,920,458 190,830 0 11,111,288 425,347 577,831 0 12,114,466 SHAREHOLDERS' EQUITY Preferred stock . . . . - - 430 (430) 0 Common stock. . . . . . 215,734 1,443 4,850 220,584 1,744 3,735 7,892 241,604 (1,443) (1,744) 13,128 (3,735) Capital surplus . . . . 168,140 5,145 1,738 169,878 7,180 24,376 (2,581) 182,710 (5,145) (7,180) 15,413 (24,376) Retained earnings . . . 629,569 12,533 12,533 642,102 33,266 22,683 33,266 698,051 (12,533) (33,266) 22,683 (22,683) Treasury Stock. . . . . 0 (3,613) 0 3,613 0 ----------- -------- -------- ----------- -------- -------- -------- ----------- Total Shareholders' Equity. . . . . . . 1,013,443 19,121 0 1,032,564 38,577 51,224 0 1,122,365 ----------- -------- -------- ----------- -------- -------- -------- ----------- Total Liabilities and Shareholders' Equity. . . . . . . $11,933,901 $209,951 $ 0 $12,143,852 $463,924 $629,055 $ 0 $13,236,831 =========== ======== ======== =========== ======== ======== ======== =========== See notes to pro forma combined consolidated financial statements.
-36- 44 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 1994 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
Wedge Bank All Entities Pro Forma Pro Forma Combined Combined MBI Wedge Bank Consolidated UNSL CMB Consolidated ---------- ---------- ------------ ------- ------- ------------ Interest Income . . . . . . . . . . . . $402,464 $ 6,969 $409,433 $14,185 $21,195 $444,813 Interest Expense. . . . . . . . . . . . 150,346 2,685 153,031 7,342 8,861 169,234 -------- ------- -------- ------- ------- -------- Net Interest Income . . . . . . . . . 252,118 4,284 256,402 6,843 12,334 275,579 Provision for Possible Loan Losses. . . 16,398 76 16,474 60 545 17,079 -------- ------- -------- ------- ------- -------- Net Interest Income after Provision for Possible Loan Losses. . . . . . 235,720 4,208 239,928 6,783 11,789 258,500 Other Income Trust . . . . . . . . . . . . . . . . 31,574 212 31,786 0 0 31,786 Investment banking. . . . . . . . . . 4,632 0 4,632 0 0 4,632 Service charges . . . . . . . . . . . 28,941 579 29,520 472 1,528 31,520 Credit card fees. . . . . . . . . . . 11,598 0 11,598 0 0 11,598 Securities gains. . . . . . . . . . . 433 184 617 20 0 637 Other . . . . . . . . . . . . . . . . 18,760 83 18,843 1,146 2,210 22,199 -------- ------- -------- ------- ------- -------- Total Other Income. . . . . . . . 95,938 1,058 96,996 1,638 3,738 102,372 Other Expense Salaries and employee benefits. . . . 110,964 2,131 113,095 2,526 5,465 121,086 Net occupancy and equipment . . . . . 29,685 473 30,158 542 1,307 32,007 Other . . . . . . . . . . . . . . . . 65,838 933 66,771 2,128 3,889 72,788 -------- ------- -------- ------- ------- -------- Total Other Expense . . . . . . . 206,487 3,537 210,024 5,196 10,661 225,881 -------- ------- -------- ------- ------- -------- Income Before Income Taxes. . . . 125,171 1,729 126,900 3,225 4,866 134,991 Income Taxes. . . . . . . . . . . . . . 46,113 385 46,498 1,182 1,457 49,137 -------- ------- -------- ------- ------- -------- Net Income. . . . . . . . . . . . $ 79,058 $ 1,344 $ 80,402 $ 2,043 $ 3,409 $ 85,854 ======== ======= ======== ======= ======= ======== Per Share Data Average Common Shares Outstanding . . 42,947,890 43,917,890 48,053,728 Net Income. . . . . . . . . . . . . . $1.84 $1.83 $1.79 See notes to pro forma combined consolidated financial statements.
-37- 45 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 1993 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
Wedge Bank All Entities Pro Forma Pro Forma Combined Combined MBI Wedge Bank Consolidated UNSL CMB Consolidated ---------- ---------- ------------ ------- ------- ------------ Interest Income. . . . . . . . . . . . . $421,512 $6,721 $428,233 $13,996 $15,008 $457,237 Interest Expense . . . . . . . . . . . . 171,140 2,568 173,708 7,055 6,483 187,246 -------- ------ -------- ------- ------- -------- Net Interest Income. . . . . . . . . . 250,372 4,153 254,525 6,941 8,525 269,991 Provision for Possible Loan Losses . . . 28,534 164 28,698 260 466 29,424 -------- ------ -------- ------- ------- -------- Net Interest Income after Provision for Possible Loan Losses . . . . . . 221,838 3,989 225,827 6,681 8,059 240,567 Other Income Trust. . . . . . . . . . . . . . . . . 30,619 197 30,816 0 0 30,816 Investment banking . . . . . . . . . . 4,775 0 4,775 0 0 4,775 Service charges. . . . . . . . . . . . 28,619 584 29,203 422 814 30,439 Credit card fees . . . . . . . . . . . 11,850 0 11,850 0 0 11,850 Securities gains . . . . . . . . . . . 2,679 10 2,689 0 0 2,689 Other. . . . . . . . . . . . . . . . . 21,330 831 22,161 997 1,656 24,814 -------- ------ -------- ------- ------- -------- Total Other Income . . . . . . . . 99,872 1,622 101,494 1,419 2,470 105,383 Other Expense Salaries and employee benefits . . . . 105,640 2,000 107,640 2,470 3,994 114,104 Net occupancy and equipment. . . . . . 29,567 364 29,931 487 776 31,194 Other. . . . . . . . . . . . . . . . . 80,169 901 81,070 1,484 2,535 85,089 -------- ------ -------- ------- ------- -------- Total Other Expense. . . . . . . . 215,376 3,265 218,641 4,441 7,305 230,387 -------- ------ -------- ------- ------- -------- Income Before Income Taxes . . . . 106,334 2,346 108,680 3,659 3,224 115,563 Income Taxes . . . . . . . . . . . . . . 39,422 638 40,060 1,352 891 42,303 -------- ------ -------- ------- ------- -------- Net Income Before Change in Accounting Principle . . . . . . . $ 66,912 $1,708 $ 68,620 $ 2,307 $ 2,333 $ 73,260 ======== ====== ======== ======= ======= ======== Per Share Data Average Common Shares Outstanding. . . 42,243,319 43,213,319 46,842,085 Net Income Before Change in Accounting Principle. . . . . . . . . . . . . . $1.58 $1.59 $1.56 See notes to pro forma combined consolidated financial statements.
-38- 46 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
Wedge Bank All Entities Pro Forma Pro Forma Combined Combined MBI Wedge Bank Consolidated UNSL CMB Consolidated ---------- ---------- ------------ ------- ------- ------------ Interest Income. . . . . . . . . . . . . $829,930 $15,258 $845,188 $27,834 $34,452 $907,474 Interest Expense . . . . . . . . . . . . 328,734 5,505 334,239 14,071 14,194 362,504 -------- ------- -------- ------- ------- -------- Net Interest Income. . . . . . . . . . 501,196 9,753 510,949 13,763 20,258 544,970 Provision for Possible Loan Losses . . . 61,013 240 61,253 320 956 62,529 -------- ------- -------- ------- ------- -------- Net Interest Income after Provision for Possible Loan Losses . . . . . . 440,183 9,513 449,696 13,443 19,302 482,441 Other Income Trust. . . . . . . . . . . . . . . . . 61,138 409 61,547 0 0 61,547 Investment banking . . . . . . . . . . 8,486 0 8,486 0 0 8,486 Service charges. . . . . . . . . . . . 58,511 1,300 59,811 908 2,254 62,973 Credit card fees . . . . . . . . . . . 24,060 0 24,060 0 0 24,060 Securities gains . . . . . . . . . . . 3,742 195 3,937 0 0 3,937 Other. . . . . . . . . . . . . . . . . 43,221 948 44,169 2,261 3,615 50,045 -------- ------- -------- ------- ------- -------- Total Other Income . . . . . . . . 199,158 2,852 202,010 3,169 5,869 211,048 Other Expense Salaries and employee benefits . . . . 215,333 5,286 220,619 4,995 9,161 234,775 Net occupancy and equipment. . . . . . 62,638 822 63,460 1,037 2,162 66,659 Other. . . . . . . . . . . . . . . . . 166,938 1,810 168,748 3,714 6,805 179,267 -------- ------- -------- ------- ------- -------- Total Other Expense. . . . . . . . 444,909 7,918 452,827 9,746 18,128 480,701 -------- ------- -------- ------- ------- -------- Income Before Income Taxes . . . . 194,432 4,447 198,879 6,866 7,043 212,788 Income Taxes . . . . . . . . . . . . . . 75,568 964 76,532 2,549 1,913 80,994 -------- ------- -------- ------- ------- -------- Net Income Before Change in Accounting Principle . . . . . . . $118,864 $ 3,483 $122,347 $ 4,317 $ 5,130 $131,794 ======== ======= ======== ======= ======= ======== Per Share Data Average Common Shares Outstanding. . . 42,439,298 43,409,298 47,248,436 Net Income Before Change in Accounting Principle. . . . . . . . . . . . . . $2.80 $2.82 $2.79 See notes to pro forma combined consolidated financial statements.
-39- 47 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1992 (THOUSANDS EXCEPT FOR PER SHARE DATA) (UNAUDITED)
ABNK Wedge Bank All Entities ABNK Pro Forma Pro Forma Pro Forma 1/1/92- ABNK Combined Combined Combined MBI 4/30/92 Adjustments Consolidated Wedge Bank Consolidated UNSL CMB Consolidated ---------- ------- ----------- ------------ ---------- ------------ ------- ------- ------------ Interest Income. . . . . . $873,447 $30,729 $(1,692) $902,395 $15,931 $918,326 $32,332 $28,577 $979,235 (89) Interest Expense . . . . . 417,358 16,549 433,907 6,875 440,782 18,517 13,616 472,915 -------- ------- ------- -------- ------- -------- ------- ------- -------- Net Interest Income. . . 456,089 14,180 (1,781) 468,488 9,056 477,544 13,815 14,961 506,320 Provision for Possible Loan Losses . . . . . . . 74,579 1,913 76,492 191 76,683 296 913 77,892 -------- ------- ------- -------- ------- -------- ------- ------- -------- Net Interest Income after Provision for Possible Loan Losses. . 381,510 12,267 (1,781) 391,996 8,865 400,861 13,519 14,048 428,428 Other Income Trust. . . . . . . . . . 57,501 613 58,114 444 58,558 0 0 58,558 Investment banking . . . 8,918 136 9,054 0 9,054 0 0 9,054 Service charges. . . . . 55,399 2,143 57,542 1,228 58,770 908 1,559 61,237 Credit card fees . . . . 21,487 87 21,574 0 21,574 0 0 21,574 Securities gains . . . . 5,518 0 5,518 439 5,957 0 0 5,957 Other. . . . . . . . . . 35,121 1,130 36,251 574 36,825 2,221 3,233 42,279 -------- ------- ------- -------- ------- -------- ------- ------- -------- Total Other Income . . 183,944 4,109 0 188,053 2,685 190,738 3,129 4,792 198,659 Other Expense Salaries and employee benefits. . . . . . . . 192,015 7,199 199,214 5,123 204,337 4,521 7,617 216,475 Net occupancy and equipment . . . . . . . 55,588 2,027 (31) 57,584 771 58,355 944 1,630 60,929 Other. . . . . . . . . . 170,465 5,339 (93) 175,711 2,218 177,929 3,415 4,607 185,951 -------- ------- ------- -------- ------- -------- ------- ------- -------- Total Other Expense. . 418,068 14,565 (124) 432,509 8,112 440,621 8,880 13,854 463,355 -------- ------- ------- -------- ------- -------- ------- ------- -------- Income Before Income Taxes . . . . . . . . 147,386 1,811 (1,657) 147,540 3,438 150,978 7,768 4,986 163,732 Income Taxes . . . . . . . 52,346 513 (595) 52,264 1,025 53,289 2,540 1,245 57,074 -------- ------- ------- -------- ------- -------- ------- ------- -------- Net Income . . . . . . $ 95,040 $ 1,298 $(1,062) $ 95,276 $ 2,413 $ 97,689 $ 5,228 $ 3,741 $106,658 ======== ======= ======= ======== ======= ======== ======= ======= ======== Per Share Data Average Common Shares Outstanding . . . . . . 39,492,237 40,188,849 41,158,849 44,255,654 Net Income . . . . . . . $2.36 $2.32 $2.33 $2.37 See notes to pro forma combined consolidated financial statements.
-40- 48 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1991 (THOUSANDS EXCEPT FOR PER SHARE DATA) (UNAUDITED)
ABNK Wedge Bank All Entities Pro Forma Pro Forma Pro Forma ABNK Combined Combined Combined MBI ABNK Adjustments Consolidated Wedge Bank Consolidated UNSL CMB Consolidated ---------- -------- ----------- ------------ ---------- ------------ ------- ------- ------------ Interest Income. . . . . . $879,471 $103,630 $(5,075) $977,760 $16,461 $994,221 $39,191 $25,706 $1,059,118 (266) Interest Expense . . . . . 506,916 63,042 569,958 8,882 578,840 26,417 13,260 618,517 -------- -------- ------- -------- ------- -------- ------- ------- ---------- Net Interest Income. . . 372,555 40,588 (5,341) 407,802 7,579 415,381 12,774 12,446 440,601 Provision for Possible Loan Losses . . . . . . . 58,076 2,477 60,553 1,132 61,685 1,263 870 63,818 -------- -------- ------- -------- ------- -------- ------- ------- ---------- Net Interest Income after Provision for Possible Loan Losses. . 314,479 38,111 (5,341) 347,249 6,447 353,696 11,511 11,576 376,783 Other Income Trust. . . . . . . . . . 49,400 1,860 51,260 442 51,702 0 0 51,702 Investment banking . . . 7,463 0 7,463 0 7,463 0 0 7,463 Service charges. . . . . 47,504 6,008 53,512 1,051 54,563 952 1,458 56,973 Credit card fees . . . . 20,636 0 20,636 0 20,636 0 0 20,636 Securities gains . . . . 4,334 4 4,338 493 4,831 244 0 5,075 Other. . . . . . . . . . 26,359 3,389 29,748 393 30,141 1,705 2,794 34,640 -------- -------- ------- -------- ------- -------- ------- ------- ---------- Total Other Income . . 155,696 11,261 0 166,957 2,379 169,336 2,901 4,252 176,489 Other Expense Salaries and employee benefits. . . . . . . . 172,155 21,245 193,400 3,846 197,246 3,895 6,494 207,635 Net occupancy and equipment . . . . . . . 50,098 6,102 (92) 56,108 754 56,862 973 1,549 59,384 Other. . . . . . . . . . 161,095 16,150 (280) 176,965 2,347 179,312 5,263 3,896 188,471 -------- -------- ------- -------- ------- -------- ------- ------- ---------- Total Other Expense. . 383,348 43,497 (372) 426,473 6,947 433,420 10,131 11,939 455,490 -------- -------- ------- -------- ------- -------- ------- ------- ---------- Income Before Income Taxes . . . . . . . . 86,827 5,875 (4,969) 87,733 1,879 89,612 4,281 3,889 97,782 Income Taxes . . . . . . . 18,673 1,466 (1,785) 18,354 679 19,033 1,767 924 21,724 -------- -------- ------- -------- ------- -------- ------- ------- ---------- Net Income . . . . . . $ 68,154 $ 4,409 $(3,184) $ 69,379 $ 1,200 $ 70,579 $ 2,514 $ 2,965 $ 76,058 ======== ======== ======= ======== ======= ======== ======= ======= ========== Per Share Data Average Common Shares Outstanding . . . . . . 31,790,914 33,867,754 34,837,754 37,748,653 Net Income . . . . . . . $2.37 $2.26 $2.23 $2.21 See notes to pro forma combined consolidated financial statements.
-41- 49 MERCANTILE BANCORPORATION INC. NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The acquisitions of Wedge Bank, UNSL and CMB will be accounted for as poolings-of-interests. Acquisition of Wedge Bank with 970,000 shares of MBI Common Stock. Elimination of MBI's investment in Wedge Bank. Acquisition of UNSL with 1,578,445 shares of MBI Common Stock, based on the exchange ratio of 1.0604 of a share of MBI Common Stock per share of UNSL Common Stock. Elimination of MBI's investment in UNSL. The acquisition of ABNK by MBI on April 30, 1992, was accounted for as a purchase transaction. The MBI historical financial data includes ABNK from the date of acquisition. The results of operations of ABNK were included in the MBI pro forma combined income statement from January 1, 1991. Amortization of purchase price adjustment of $7,690,000 on investment securities portfolio. Interest income, at an estimated short-term interest rate of 3%, lost on cash of $8,851,000 paid to ABNK's shareholders. Reduced depreciation and amortization of bank premises and equipment as a result of the valuation adjustment of $1,102,000. Goodwill of $2,285,000 amortized under the straight line method over a period of 15 years, net of the elimination of ABNK's annual goodwill amortization of $432,000. Tax effect of pro forma adjustments. Acquisition of CMB with 2,625,533 shares of MBI Common Stock, based on exchange ratio of .5970 of a share of MBI Common Stock per share of CMB Common Stock. 43,000 shares of CMB Preferred Stock were converted to 549,000 shares of CMB Common Stock prior to said acquisition. Elimination of MBI's Investment in CMB. -42- 50 INFORMATION REGARDING WEDGE HOLDING AND WEDGE BANK -------------------------------------------------- BUSINESS GENERAL. The Wedge Holding Company is a registered bank holding company incorporated on October 3, 1977, under the laws of the State of Delaware. As of the date hereof, Wedge Holding has nine (9) shareholders. Wedge Holding's principal office is located at 620 East Broadway, Alton, Illinois. Wedge Holding owns 82.15% of the issued and outstanding Wedge Bank Common Stock. Wedge Bank, located in Alton, Illinois, has branch facilities in East Alton, Brighton, Bethalto and Godfrey, Illinois. Wedge Bank is a community bank serving the needs of Alton, Illinois since 1902. Its Board of Directors is composed of individuals who reside in its service area. Wedge Bank's net income consists primarily of net interest income and other income. Wedge Bank's principal non-interest expenses are salaries and employee benefits, occupancy expenses, equipment expenses, provisions for loan losses, FDIC insurance expenses, professional services and other operating expenses. SUBSIDIARY BANK AND MARKET AREA. As of June 30, 1994, Wedge Bank had total assets of $210 million and total deposits of $162 million. Wedge Bank offers a full range of financial services to commercial, industrial and individual customers, including short-term and medium-term loans, revolving credit arrangements, inventory and accounts receivable financing, equipment financing, real estate lending, savings accounts, interest and non-interest bearing checking accounts, and installment and other personal loans. Other services include safe-deposit boxes, federal tax depository and night depository services. The Wedge Edge(R) Automatic Teller Machine (ATM) network provides 24 hour banking and is affiliated with the regional BankMate(R) network and the international CIRRUS(R) and Plus(R) networks. Wedge Bank also provides trust and agency services, primarily to individuals and, to a lesser extent, to partnerships, corporations and other entities. Such services include providing investment, management, administrative and advisory services for agency and trust accounts, acting as trustee of living and testamentary trusts and employee benefit plans, and serving as personal representative, administrator and/or conservator of estates. Wedge Bank is an Illinois bank, chartered by the Illinois Commissioner of Banks and Trusts. It is insured by the FDIC to the full extent provided by applicable laws and regulations. LENDING ACTIVITIES. Wedge Bank has a diverse lending portfolio consisting of commercial/consumer loans and residential real estate loans. The primary lending area is the Greater Alton Area located in Madison County, Illinois, with some loans being made in Macoupin and Jersey counties. Few loans are made outside of this area, although Wedge Bank does participate in loans made by the Greene County National Bank in Carrollton, Illinois, and the First Community Bank of Taney County in Branson, Missouri. As of June 30, 1994, Wedge Bank had aggregate loans outstanding of $113,247,000 representing 69.74% of total deposits and 53.94% of total assets. EMPLOYEES. As of June 30, 1994, Wedge Bank employed 164 people, 148 of whom work full-time. None of the employees are subject to a collective bargaining agreement. Relationship with the employees is considered to be good. LITIGATION. Wedge Holding and Wedge Bank are, from time to time, parties to various legal actions which arise in the normal course of business. Management believes, after discussion with legal counsel, that there is no proceeding, threatened or pending, against Wedge Holding or Wedge Bank, which if determined adversely, would have a material adverse affect on the business or financial position of Wedge Holding or Wedge Bank. -43- 51 PROPERTIES. Wedge Holding's headquarters are situated at 620 East Broadway, Alton, Illinois. This building also serves as the main facility for Wedge Bank. In addition to the main facility, Wedge Bank operates three branch facilities in Alton, Illinois, one in Godfrey, Illinois, one in Brighton, Illinois, two in Bethalto, Illinois and one in East Alton, Illinois. 1. The main offices are located at 620 East Broadway, Alton, Illinois. This facility consists of a three story building with a basement. The total floor area for the building is approximately 24,825 square feet. 2. A branch bank is located at 4365 North Alby Street, Alton Square, Alton, Illinois. This is a one story building with a basement and consists of approximately 3,500 square feet. There are five drive-up lanes, a lobby with three walk-up tellers, customer service desks and two loan offices. 3. A drive-up facility is maintained at 620 East Front Street, Alton, Illinois. There are five drive-up lanes and an office building of approximately 3,900 square feet with three walk-up tellers. Co-located with this facility is a 2,220 square foot warehouse. 4. A drive-up facility is maintained at 2703 Godfrey Road, Godfrey, Illinois. This building consists of approximately 3,750 square feet of which 75% is occupied by tenants. There are two drive-up lanes and a lobby with one walk-up teller. 5. The main Godfrey branch is located at 5759 Godfrey Road, Godfrey, Illinois. It is a one story building consisting of approximately 5,000 square feet. There are four drive-up lanes, a lobby with four walk-up tellers, customer service desks, a loan department, and safe deposit boxes. 6. A branch bank is located in Brighton, Illinois at 200 North Main Street, Brighton, Illinois. This two story building consists of approximately 10,000 square feet. It has two drive-up lanes, a lobby with four walk-up tellers, customer service desks, loan area and safe deposit boxes. The second floor is currently unoccupied. 7. A branch bank is located in Bethalto, Illinois at 101 South Prairie Street, Bethalto, Illinois. This building consists of approximately 4,900 square feet. It has five drive-up lanes, a lobby with four walk-up tellers, customer service desks, a loan area and safe deposit boxes. 8. A drive-up facility is maintained at #1 Terminal Drive, East Alton, Illinois. This building consists of approximately 1,920 square feet of office space plus a full basement. It has five drive-up lanes and a lobby with two walk-up tellers. Wedge Bank owns the real estate and buildings out of which it operates including drive-up facilities and branch locations, except for the 5759 Godfrey location, which is leased. In addition, the bank has recently purchased a three story office building at 620 East Third Street with approximately 24,600 square feet and a one story building at 622-624 East Broadway with approximately 2,300 square feet of space. The buildings are presently occupied by commercial tenants and will be available for future expansion by June 30, 1995. VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF. The following table sets forth the beneficial ownership of shares of Wedge Holding Preferred Stock and Wedge Holding Common Stock -44- 52 as of June 30, 1994, held by: (i) each person who is known to Wedge Holding to beneficially own more than 5% of the outstanding shares of Wedge Holding Preferred Stock or Wedge Holding Common Stock; (ii) each person who is a director of Wedge Holding; and (iii) all directors and executive officers as a group. Unless otherwise indicated, all shares are held with sole voting and investment power.
Amount and Nature of Percent of Name of Beneficial Owners: Beneficial Ownership Class - ------------------------- ------------------------- ---------- Melvin G. Hall, Trustee Under the Melvin G. Hall Revocable Trust P.O. Box 2393 Alton, Illinois 62002-2393 Preferred 46,112 72.35% Common 8,254 53.88% Robert Lynn Hall P.O. Box 2393 Alton, Illinois 62002-2393 Preferred 10,020 15.72% Common 4,734 30.90% M. Cheryl Hall 526 Middleton Ct. St. Louis, Missouri 63122 Preferred 3,801 5.96% Common 1,246 8.39% M. Leon Hall 216 West Jackson Webster Groves, Missouri 63119 Preferred 3,801 5.96% Common 680 4.44% Minnie L. Hall Common 175 1.14% All directors and executive officers as a group (4 persons) Preferred 59,933 94.04% Common 14,409 94.07% - ------------------------------------- Beneficial ownership of shares as of June 30, 1994, as determined in accordance with the applicable Securities and Exchange Commission rules, includes all shares as to which a person directly or indirectly has or shares voting and/or investment power and all shares as to which the person has a right to acquire sole or shared voting and/or investment power and all shares as to which the person has a right to acquire sole or shared voting and/or investment power within 60 days of the reporting date. The listed owner is the sole record and beneficial owner of all shares listed unless otherwise noted. Based upon 63,734 shares of Wedge Holding Preferred Stock and 15,318 shares of Wedge Holding Common Stock outstanding as of June 30, 1994.
-45- 53 The following table sets forth the beneficial ownership of shares of Wedge Bank Common Stock as of June 30, 1994, held by: (i) each person who is known to Wedge Bank to beneficially own more than 5% of the outstanding shares of Wedge Bank Common Stock; (ii) each person who is a director of Wedge Bank; and (iii) all of the directors and executive officers as a group. Unless otherwise indicated, all shares are held with sole voting and investment power.
Amount and Nature of Percent of Name of Beneficial Owners: Beneficial Ownership Class - -------------------------- ------------------------- ---------- Melvin G. Hall 128,921 89.32% P.O. Box 2393 Alton, Illinois 62002-2393 The Wedge Holding Company 118,556 82.15% P.O. Box 2393 Alton, Illinois 62002-2393 Robert Lynn Hall 2,354 1.63% Casper J. Jacoby, III 678 Robert Watson 270 Ronald C. Mottaz 200 Homer E. Clark, Jr. 100 Charles W. Earnshaw, Jr. -- J. Richard Miller 100 Harold J. Thomeczek 100 Eugene F. Tutoky 100 All directors and executive officers 132,807 92.02% as a group (15 persons) - ------------------------------------ Beneficial ownership of shares as of June 30, 1994, as determined in accordance with the applicable Securities and Exchange Commission rules, includes all shares as to which a person directly or indirectly has or shares voting and/or investment power and all shares as to which the person has a right to acquire sole or shared voting and/or investment power and all shares as to which the person has a right to acquire sole or shared voting and/or investment power within 60 days of the reporting date. The listed owner is the sole record and beneficial owner of all shares listed unless otherwise noted. Based upon 144,320 shares of Wedge Bank Common Stock outstanding as of June 30, 1994. Total includes 6,702 shares held by a trust in which Mr. Hall is trustee, 118,556 shares owned of record by Wedge Holding and to which Mr. Hall may be deemed to have voting and investment power as the controlling stockholder of Wedge Holding, 660 shares held of record by Branson Inn and to which Mr. Hall may be deemed to have voting and investment power as the controlling -46- 54 stockholder, and 2,803 shares held of record by MCL Holding Company and as to which Mr. Hall may be deemed to have voting and investment power as the controlling stockholder. Total includes 969 shares held of record jointly with Mr. Hall's wife and 515 shares held of record by Mr. Hall's wife, as to which shares Mr. Hall has shared voting and investment power. Total includes 578 shares held by a trust in which Mr. Jacoby is trustee. Less than one percent.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF WEDGE BANK The following management's discussion and analysis is intended to provide a review of significant factors affecting the financial conditions and results of operations of Wedge Bank as of and for the six months ended June 30, 1994 and 1993, and the years ended December 31, 1993, 1992 and 1991. All trends for the years ended December 31, 1993, 1992 and 1991 are also reflective of the operations, in all material respects, of Wedge Holding. Comparison of Operating Results for the Six Months Ended June 30, - ----------------------------------------------------------------- 1994 and 1993 - ------------- General. Net income for the six months ended June 30, 1994 was $1.3 million, compared to net income of $1.7 million for the six months ended June 30, 1993. The decrease of $400,000 was primarily attributable to an increase in net interest income of $131,000 offset by a decrease in other income of $564,000 and an increase in other expenses of $272,000. Interest Income. Interest income increased $248,000 or 3.7% for the six months ended June 30, 1994 compared to 1993. The increase resulted primarily from increases in interest income on investment securities of $433,000 partially offset by a decrease in interest income on loans of $198,000. The increase in interest income on investment securities resulted from an increase in the average balance of investment securities from $70.9 million in 1993 to $81.0 million in 1994 and an increase in the average yield on investment securities from 5.7% in 1993 to 6.0% in 1994. The increase in the average balance of investment securities reflects the investment of increased public fund deposits. The average yield increased due to the upward swing in interest rates during the first two quarters of 1994. The decrease in interest income on loans resulted from a decrease in the average balance of loans outstanding from $117.4 million in 1993 to $112.5 million in 1994, with the average yield on loans remaining constant at 7.9% in 1993 and 1994. the decrease in the average balance of loans outstanding during 1994 reflects the assumption of approximately $2.8 million of student loans by SLMA. These loans are originated by Wedge Bank and held in the portfolio until principal payments begin, at which time SLMA assumes the loan from Wedge Bank. The remaining decrease is primarily attributable to principal payments in excess of originations. Interest Expense. Interest expense increased $117,000, or 4.6% for the six months ended June 30, 1994 compared to 1993. The increase resulted primarily from increases in interest expenses on short term borrowings of $235,000 partially offset by a decrease in interest expense on deposits of $118,000. The increase in interest expense on short term borrowings securities resulted from an increase in the average balance of short term borrowings outstanding from $10.4 million in 1993 to $21.9 million in 1994 and an increase in the average rate paid on such borrowings from 3.5% in 1993 to 3.8% -47- 55 in 1994. The increase in the average balance short term borrowings outstanding was primarily attributable to the addition of securities sold under agreements to repurchase with the State of Illinois. The average rate paid on such borrowings increased due to the upward swing in interest rates during the first two quarters of 1994. The decrease in interest expense on deposits resulted from an increase in the average rate paid on such deposits outstanding from 3.0% in 1993 to 3.2% in 1994 offset by a decrease in the average balance of interest bearing deposits outstanding from $159.8 million in 1993 to $141.2 million in 1994. The decrease in the average balance of interest bearing deposits resulted from certain state certificates of deposit which matured, being converted to repurchase agreements and a change in structure of certain deposit accounts from interest bearing to noninterest bearing. The average rate paid for deposits increased due to the upward swing in interest rates during the first two quarters of 1994. Provision for Loan Losses. The provision for loan losses was $76,000 for the six months ended June 30, 1994 compared to $164,000 for the six months ended June 30, 1993. The provision for loan losses is established based upon management's estimate of the allowance for loan losses required to absorb losses inherent in existing loans and commitments to extend credit. Other Income. Other income decreased $564,000 for the six months ended June 30, 1994 compared to 1993. The decrease is primarily attributable to a decrease in gains on sale of real estate acquired in settlement of loans of $764,000 partially offset by an increase in net securities gains of $174,000. Gains on sale of real estate acquired in settlement of loans decreased due to the sale of one large commercial real estate property located in Southwest Missouri during 1993. Net securities gains increased due to the existence of conditions during 1994 which prompted management to sell investment securities prior to maturity because of changes in prepayment risk, asset/liability management strategy, interest rate outlook or other reasons. Other Expenses. Other expenses increased $272,000 for the six months ended June 30, 1994 compared to 1993. The increase is primarily attributable to normal cost of living adjustments. The increase in equipment costs is primarily attributable to increased service fees for computer equipment. Income Taxes. Income tax decreased $253,000 for the six months ended June 30, 1994 compared to 1993. Income tax decreased due to the decrease in taxable income before income taxes during 1994. Comparison of Operating Results for the Years Ended December 31, - ---------------------------------------------------------------- 1993 and 1992 - ------------- General. Net income for the year ended December 31, 1993 was $3.5 million, compared to net income of $2.4 million for the year ended December 31, 1992. The increase of $1.1 million was primarily attributable to an increase in net interest income of $697,000, an increase in other income of $167,000 and a decrease in other expenses of $194,000. Interest Income. Interest income decreased $673,000, or 4.2%, for the year ended December 31, 1993 compared to 1992. The decrease resulted primarily from decreases in interest income on loans of $567,000, and in interest income on taxable investment securities of $632,000 partially offset by an increase in interest income on tax-exempt investment securities of $452,000. The decrease in interest income on loans resulted from a decrease in the average balance of loans outstanding from $116.2 million in 1992 to $112.2 million in 1993 and a decrease in the average yield on loans from 9.36% in 1992 to 9.18% in 1993. The decrease in the average balance of loans outstanding during 1993 reflects the assumption of approximately $2.8 million of student loans by the Student Loan Marketing Association ("SLMA"). -48- 56 These loans are originated by Wedge Bank and held in portfolio until principal payments begin, at which time SLMA assumes the loan from Wedge Bank. The remaining decrease is primarily attributable to principal payments in excess of originations. The average yield decreased due to the overall declining interest rate environment. The decrease in interest income on taxable investment securities resulted from a decrease in the average balance of taxable investment securities outstanding from $57.4 million in 1992 to $51.6 million in 1993 and a decrease in the average yield on taxable investment securities from 7.62% in 1992 to 7.25% in 1993. The decrease in the average balance of taxable investment securities outstanding during 1993 reflects the shifting of funds within the investment portfolio to tax-exempt securities. The average yield decreased due to the overall declining interest rate environment. The increase in tax-exempt interest income resulted principally from an increase in the average balance of tax-exempt investment securities outstanding from $9.4 million in 1992 to $16.5 million in 1993. Interest Expense. Interest expense decreased $1.4 million, or 20%, for the year ended December 31, 1993 compared to 1992. The decrease resulted primarily from a decrease in interest expense on deposits of $1.4 million partially offset by an increase in interest expense on short-term borrowings of $59,000. The decrease in interest expense on deposits resulted from a decrease in the average balance of interest-bearing deposits outstanding from $157.7 million in 1992 to $146.8 million in 1993 and a decrease in the average rate paid on such deposits from 4.10% in 1992 to 3.43% in 1993. The decrease in the average balance of interest-bearing deposits resulted primarily from the absence of State of Illinois deposits in 1993 compared to 1992. The average rate paid on such deposits decreased due to the overall declining interest rate environment. The increase in interest expense on short-term borrowings was primarily attributable to an increase in the average balance of such borrowings from $8.4 million in 1992 to $13.2 million in 1993 partially offset by a decrease in the average rate paid on such borrowings from 4.84% in 1992 to 3.51% in 1993. The increase in the average balance of short-term borrowings outstanding was primarily due to the addition of securities sold under agreements to repurchase with the State of Illinois. The average rate paid on short-term borrowings decreased due to the overall declining interest rate environment. Provision for Loan Losses. The provision for loan losses was $240,000 for the year ended December 31, 1993 compared to $191,000 for the year ended December 31, 1992. The provision for loan losses is established based upon management's estimate of the allowance for loan losses required to absorb losses inherent in existing loans and commitments to extend credit. In determining the adequacy of the allowance, management takes into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, prior loss experience, loan concentration, specific problem loans and current and anticipated economic conditions that may affect the borrowers' ability to pay. Other Income. Other income increased $167,000 for the year ended December 31, 1993 compared to 1992. The increase is primarily due to increases in service charge income of $72,000 and gains on sale of real estate acquired in settlement of loans of $401,000 partially offset by a decrease in net securities gains of $244,000. The increase in service charge income is the result of increases in the average balance of noninterest-bearing deposits from $12.2 million in 1992 to $16.1 million in 1993 and the resultant increased number of accounts subject to minimum balance charges. Gains on sale of real estate acquired in settlement of loans increased due to the sale of one large commercial real estate property located in Southwest Missouri. Net securities gains decreased due to the absence of conditions which would prompt management from time to time to sell investment securities prior to maturity because of changes in prepayment risk, asset/liability management strategy, interest rate outlook or other reasons. -49- 57 Other Expenses. Other expenses decreased $194,000 for the year ended December 31, 1993 compared to 1992. The decrease is primarily attributable to a decrease in employee benefits of $251,000, a decrease in other expenses of $354,000, partially offset by an increase in salaries of $414,000. The decrease in employee benefits resulted from increased levels of compensation expense recognized in 1992 related to Wedge Bank's deferred compensation plan. The decrease in other expenses resulted principally from decreased professional fees and numerous other miscellaneous decreases. The increase in salaries is attributable to bonuses paid to certain members of management due to the successful sale of a commercial real estate property and normal cost of living adjustments. Income Taxes. Income tax expense decreased $61,000 for the year ended December 31, 1993 compared to 1992. Income tax expense remained relatively constant since the increased levels of income before income taxes were primarily the result of increases in tax-exempt investment income. Comparison of Operating Results for the Years Ended December 31, - ---------------------------------------------------------------- 1992 and 1991 - ------------- General. Net income for the year ended December 31, 1992 was $2.4 million, compared to net income of $1.2 million for the year ended December 31, 1991. The increase of $1.2 million was primarily attributable to an increase in net interest income of $1.5 million, a decrease in the provision for loan losses of $941,000 partially offset by an increase in income tax expense of $346,000, and increases in other income of $306,000 and other expenses of $1.2 million. Interest Income. Interest income decreased $530,000, or 3.2%, for the year ended December 31, 1992 compared to 1991. The decrease resulted from decreases in interest income on loans of $48,000, interest income on taxable investment securities of $481,000, interest income on other interest-bearing deposits (principally Fed funds) of $254,000 partially offset by increases in interest income on tax-exempt investment securities of $253,000. The decrease in interest income on loans resulted from a decrease in the average yield on loans from 10.28% in 1991 to 9.36% in 1992. This yield decrease was partially offset by an increase in the average balance of loans from $106.1 million in 1991 to $116.2 million in 1992. The average yield on loans decreased due to a declining interest rate environment. The average balance of loans increased due to an active residential real estate market. The decrease in interest income on taxable investment securities resulted from a decrease in the average yield on taxable investment securities from 8.51% in 1991 to 7.62% in 1992 partially offset by an increase in the average balance of taxable investment securities outstanding from $57.1 million in 1991 to $57.4 million in 1992. The average yield decreased due to the overall declining interest rate environment. The average balance increased due to the timing of purchases and maturities. Interest income from tax- exempt securities increased primarily due to the increase in the average balance of such securities from $5.3 million in 1991 to $9.4 million in 1992. This increase follows management's intent to invest available funds into tax-exempt securities. The decrease in interest income on other interest-bearing investments was primarily the result of a decrease in the average balance of such investments from $4.9 million in 1991 to $2.5 million in 1992 and a decrease in the average yield from 7.18% in 1991 to 3.95% in 1992. The decrease in the average balance was attributable to proceeds from maturities being used to fund loan demand and the decrease in rate was attributable to a declining interest rate environment. Interest Expense. Interest expense decreased $2.0 million, or 22.5%, for the year ended December 31, 1992 compared to 1991. The decrease resulted primarily from a decrease in interest expense on deposits of $2.3 million offset by an increase in interest expense on short-term borrowings of $318,000. The decrease in interest expense on deposits resulted from an increase in the average -50- 58 balance of deposits from $153.4 million in 1991 to $157.7 million in 1992 offset by a decrease in the average rate paid on deposits from 5.73% in 1991 to 4.10% in 1992. The increase in the average balance of deposits resulted primarily from the addition of State of Illinois deposits in 1992 compared to 1991. The average rate paid on deposits decreased due to the overall declining interest rate environment. The increase in interest expense on short-term borrowings is primarily attributable to an increase in the average balance from $1.6 million in 1991 to $8.4 million in 1992 partially offset by a decrease in the average rate paid on short-term borrowings from 5.29% in 1991 to 4.84% in 1992. The increase in the average balance of short-term borrowings is primarily due to the net increase in advances from the Federal Home Loan Bank in 1992 over 1991. These borrowings were used to fund loan originations. The average rate paid on short-term borrowings decreased due to the overall declining interest rate environment. Provision for Loan Losses. The provision for loan losses was $191,000 for the year ended December 31, 1992 compared to $1.1 million for the year ended December 31, 1991. The decrease in the provision for loan losses in 1992 was due to the absence of a significant provision for a loan in 1991 related to a commercial real estate property located in Southwest Missouri. Other Income. Other income increased $306,000 for the year ended December 31, 1992 compared to 1991. The increase in other income is primarily attributable to the increase in gains on sale of real estate acquired in settlement of loans as a result of a sale of a commercial real estate property in Southwest Missouri in 1992. Other Expenses. Other expenses increased $1.2 million for the year ended December 31, 1992 compared to 1991. The increase is primarily related to increases in salaries and employee benefits resulting from normal cost of living adjustments, additional staff and increased levels of compensation expense recognized in 1992 related to Wedge Bank's deferred compensation plan. Income Taxes. Income tax expense increased $346,000 for the year ended December 31, 1992 compared to 1991 primarily due to increased levels of income before income taxes. AVERAGE BALANCE SHEETS; NET INTEREST INCOME The following tables set forth for the periods indicated, certain information relating to Wedge Bank's average balance sheets and its average yields on assets and average costs of liabilities. Such yields and costs are calculated by dividing income or expense by the applicable average balance of assets or liabilities. Daily balances are used to calculate average balances. Nonaccruing loans are not significant and have been included in the average loan balances for purposes of this computation. -51- 59
Year Ended December 31, 1993 -------------------------------------- (Dollars In Thousands) Interest Average Average Income/ Yield/ Assets Balance Expense Rate Paid ------- -------- --------- Loans (net of unearned income) $112,185 $10,301 9.18% Investment securities: Taxable 51,629 3,742 7.25 Tax-exempt 16,506 1,044 6.32 Federal funds sold 5,157 171 3.32 -------- ------- Total earning assets/interest income/yield 185,477 15,258 8.23 ------- Allowance for loan losses (1,481) Cash and due from banks 5,586 Other assets 5,873 -------- Total assets $195,455 ======== Liabilities and Stockholders' Equity Interest-bearing deposit accounts $146,797 5,041 3.43% Other borrowings 13,220 464 3.51 -------- ------- Total interest-bearing liabilities/interest expense/rate 160,017 5,505 3.44 ------- Noninterest-bearing demand deposits 16,068 Other liabilities 2,154 -------- Total liabilities 178,239 Stockholders' equity 17,216 -------- Total liabilities and stockholders' equity $195,455 ======== Net interest income/net yield on earning assets (net interest income divided by total earning assets) $ 9,753 5.26% =======
-52- 60
Year Ended December 31, 1992 -------------------------------------- (Dollars In Thousands) Interest Average Average Income/ Yield/ Assets Balance Expense Rate Paid ------- -------- --------- Loans (net of unearned income) $116,163 $10,868 9.36% Investment securities: Taxable 57,438 4,374 7.62 Tax-exempt 9,356 592 6.33 Federal funds sold 2,458 97 3.95 -------- ------- Total earning assets/interest income/yield 185,415 15,931 8.59 ------- Allowance for loan losses (1,545) Cash and due from banks 6,836 Other assets 7,602 -------- Total assets $198,308 ======== Liabilities and Stockholders' Equity Interest-bearing deposit accounts $157,695 6,470 4.10% Other borrowings 8,373 405 4.84 -------- ------- Total interest-bearing liabilities/interest expense/rate 166,068 6,875 4.14 ------- Noninterest-bearing demand deposits 12,234 Other liabilities 1,975 -------- Total liabilities 180,277 Stockholders' equity 18,031 -------- Total liabilities and stockholders' equity $198,308 ======== Net interest income/net yield on earning assets (net interest income divided by total earning assets) $ 9,056 4.88% =======
-53- 61
Year Ended December 31, 1991 -------------------------------------- (Dollars In Thousands) Interest Average Average Income/ Yield/ Assets Balance Expense Rate Paid ------- -------- --------- Loans (net of unearned income) $106,142 $10,916 10.28% Investment securities: Taxable 57,060 4,855 8.51 Tax-exempt 5,271 339 6.43 Federal funds sold 4,890 351 7.18 -------- ------- Total earning assets/interest income/yield 173,363 16,461 9.50 ------- Allowance for loan losses (947) Cash and due from banks 7,370 Other assets 7,932 -------- Total assets $187,718 ======== Liabilities and Stockholders' Equity Interest-bearing deposit accounts $153,363 8,795 5.73% Other borrowings 1,645 87 5.29 -------- ------- Total interest-bearing liabilities/interest expense/rate 155,008 8,882 5.73 ------- Noninterest-bearing demand deposits 14,496 Other liabilities 2,063 -------- Total liabilities 171,567 Stockholders' equity 16,151 -------- Total liabilities and stockholders' equity $187,718 ======== Net interest income/net yield on earning assets (net interest income divided by total earning assets) $ 7,579 4.37% =======
CHANGES IN INTEREST INCOME AND EXPENSE - 1993 COMPARED TO 1992 AND 1991 COMPARED TO 1990 The following tables set forth for the years indicated, a summary of the changes in interest income and interest expense resulting from changes in volume and changes in rates. The rate and volume differences have been included in the changes in rate. -54- 62
1993 Compared to 1992 ----------------------------------------- (Dollars In Thousands) Increase Total (Decrease) of Net attributable Increase to change in ----------------------- (Decrease) Volume Rate ---------- ------ ---- Interest income: Loans (net of unearned income) $ (567) $ (368) $ (199) Investment securities: Taxable (632) (428) (204) Tax-exempt 452 452 Federal funds sold 74 92 (18) --------- ------- ------- Total interest income (673) (252) (421) --------- ------- ------- Interest expense: Interest-bearing deposit accounts (1,429) (425) (1,004) Other borrowings 59 191 (132) --------- ------- ------- Total interest expense (1,370) (234) (1,136) --------- ------- ------- Net interest income $ 697 $ (18) $ 715 ========= ======= ======= 1992 Compared to 1991 ----------------------------------------- (Dollars In Thousands) Increase Total (Decrease) of Net attributable Increase to change in ----------------------- (Decrease) Volume Rate ---------- ------ ---- Interest income: Loans (net of unearned income) $ (48) $ 983 $(1,031) Investment securities: Taxable (481) 32 (513) Tax-exempt 253 259 (6) Federal funds sold (254) (133) (121) --------- ------- ------- Total interest income (530) 1,141 (1,671) --------- ------- ------- Interest expense: Interest-bearing deposit accounts (2,325) 242 (2,567) Other borrowings 318 326 (8) --------- ------- ------- Total interest expense (2,007) 568 (2,575) --------- ------- ------- Net interest income $ 1,477 $ 573 $ 904 ========= ======= =======
-55- 63 LENDING ACTIVITIES Wedge Bank's loan portfolio consists primarily of real estate loans, commercial loans, and consumer loans. Wedge Bank has no foreign loans. At June 30, 1994, Wedge Bank had total net loans of $113.2 million, equaling 69.7% of total deposits and 53.9% of total assets. Wedge Bank's primary market focus has been on commercial, installment, and mortgage lending to businesses and individuals in its service area. Consequently, adverse changes in economic conditions in this area would impair Wedge Bank's ability to collect loans and would otherwise have a negative effect on the financial condition of Wedge Holding. Few loans are made outside of Wedge Bank's service area. The following tables show the classification of loans by major category for Wedge Bank as of June 30, 1994:
Loan Distribution by Type (in thousands) Loan Type June 30, 1994 - ------------------------------------- ------------- Agricultural $ 49 Commercial & industrial 14,940 Floor plan - automobiles 235 Residential real estate 87,892 Personal consumer loans 1,385 Home improvement - direct 204 Automobile - direct 978 Automobile - indirect 46 Recreational vehicles 98 Student loans 1,457 Revolving home equity 1,627 Revolving overdraft checking 26 Premiums on mortgage loans 132 FHA Title I property loans 4,178 -------- Gross loans 113,247 Less income collected not earned 82 -------- Loans net of unearned income 113,165 Less allowance for loan losses 1,399 -------- Loans net of unearned income and allowance for loan losses $111,766 ========
-56- 64
Loan Portfolio Growth (in thousands) December 31, June 30, --------------------------------------------------- 1994 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- Commercial, agriculture & other $ 15,224 $ 8,444 $ 8,745 $ 10,324 $ 12,912 $ 16,822 Real estate/ mortgage 93,829 98,877 102,334 91,826 71,256 58,955 Installment 4,194 4,750 8,610 10,354 13,581 16,741 -------- -------- -------- -------- -------- -------- Total gross loans $113,247 $112,071 $119,689 $112,504 $ 97,749 $ 92,518 ======== ======== ======== ======== ======== ========
The following table shows the approximate maturities for fixed rate loans at December 31, 1993: Approximate Maturities of Loans at December 31, 1993 (in thousands)
Under 1-5 Over Total 1 Year Years 5 Years Loans ------ ----- ------- ----- Commercial, agricultural & other $ 2,009 $ 1,321 $ 5,114 $ 8,444 Real estate/ mortgage 1,454 4,547 92,876 98,877 Installment 1,018 3,121 611 4,750 -------- -------- -------- -------- Total (gross loans) $ 4,481 $ 8,989 $ 98,601 $112,071 ======== ======== ======== ========
Interest rates charged on loans are calculated on market and credit risk, competitive factors, regulatory considerations and profitability objectives. The following table shows the amount of loans as of December 31, 1993, by maturity that have fixed interest rates and that have variable interest rates: Distribution of Fixed and Variable Rate Loans at December 31, 1993 (in thousands)
Fixed Variable Total Maturity Class Rate Rate Loans - -------------- ----- -------- ----- Due up to one year $ 1,521 $ 2,960 $ 4,481 Due over one year 40,512 67,078 107,590 -------- -------- -------- Total $ 42,033 $ 70,038 $112,071 ======== ======== ========
-57- 65 Nonperforming loans consist of nonaccrual loans, loans contractually past due 90 days or more, and restructured loans (as defined by the FDIC). Although there is no assurance that Wedge Bank has identified all loans within its portfolio that should be classified as potential problem loans, Wedge Bank's management has initiated proactive procedures to closely review new loan applications, monitor the continued quality of the existing portfolio and liquidate problem loans. The following table sets forth the amount of nonperforming loans, as well as those identified by management as potential problem loans, for the periods indicated:
Nonperforming Loans (in thousands) December 31, June 30, --------------------------------------------- 1994 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- Nonaccrual Loans $489 $420 $695 $1,504 $867 $1,027 Interest income which would have been recorded on such loans if they had been current throughout year 17 40 53 120 -- -- Interest income recorded on such loans during year -- -- -- -- -- -- Loans contractually past due 90 days or more as to interest or principal payments 70 1,068 969 683 858 1,052 Loans not included above which are TDRs -- -- 234 240 -- -- Loans identified by management as potential problem loans 101 316 606 623 461 540
Wedge Bank has no individual borrower or borrowers engaged in the same industry exceeding 10% of total loans. Wedge Bank has no other interest- bearing assets, other than loans, that meet the nonaccrual, past due, restructured or potential loss criteria. The following table summarizes, for the periods indicated, certain information regarding loan loss experience: -58- 66
Loan Loss Experience (in thousands) December 31, June 30, ------------------------------------------------------ 1994 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- Average loans outstanding, net of unearned income $112,456 $112,185 $116,163 $106,142 $ 93,089 $ 86,435 ======== ======== ======== ======== ======== ======== Reserve at beginning of year 1,452 1,637 1,503 962 1,249 1,087 Loans charged off: Commercial/Agricultural/other 183 428 86 490 271 364 Real estate/mortgage 3 52 58 80 269 49 Installment 0 0 13 108 196 70 -------- -------- -------- -------- -------- -------- Total charge-offs 186 480 157 678 736 483 -------- -------- -------- -------- -------- -------- Recoveries: Commercial/Agricultural/other 20 35 68 76 58 534 Real estate/mortgage 0 0 18 2 1 6 Installment 37 20 14 9 10 25 -------- -------- -------- -------- -------- -------- Total recoveries 57 55 100 87 69 565 -------- -------- -------- -------- -------- -------- Net loans charged off 129 425 57 591 667 (82) -------- -------- -------- -------- -------- -------- Current year provision 76 240 191 1,132 380 80 -------- -------- -------- -------- -------- -------- Reserve at year end $ 1,399 $ 1,452 $ 1,637 $ 1,503 $ 962 $ 1,249 ======== ======== ======== ======== ======== ======== Ratio of net charge- offs during year to average loans outstanding 0.11% 0.38% 0.05% 0.56% 0.72% (0.09)% ======== ======== ======== ======== ======== ======== Ratio of allowance for loan losses to average loans 1.24% 1.29% 1.41% 1.42% 1.03% 1.45% ======== ======== ======== ======== ======== ========
POLICY FOR ALLOWANCE The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb losses inherent in existing loans and commitments to extend credit. In determining the adequacy of the allowance, management takes into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, prior loss experience, loan concentration, specific problem loans and current and anticipated economic conditions that may affect the borrowers' ability to -59- 67 pay. The following table summarizes the allowance for loan losses by major categories of loans and the percentage for loans in each category to total loans for the periods indicated: -60- 68 Allowance for Loan Losses by Major Loan Categories (in thousands)
December 31, ----------------------------------------------------------------------------------------- June 30, 1994 1993 1992 1991 1990 1989 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- % of Loans % of Loans % of Loans % of Loans % of Loans % of Loans in Each in Each in Each in Each in Each in Each Category Category Category Category Category Category to Total to Total to Total to Total to Total to Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- Commercial, agriculture & other 59 13% 281 8% 536 8% 582 9% 461 13% 159 19% Real estate/mortgage 42 83% 35 88% 70 85% 41 82% 0 73% 381 63% Installment 0 4% 0 4% 0 7% 0 9% 0 14% 0 18% Unallocated surplus 1,298 -- 1,136 -- 1,031 -- 880 -- 501 -- 709 -- ----- --- ----- --- ----- --- ----- --- ----- --- ----- --- Total 1,399 100% 1,452 100% 1,637 100% 1,503 100% 962 100% 1,249 100% ===== ==== ===== ==== ===== ==== ===== ==== ===== ==== ===== ====
- 61 - 69 DEPOSITS The following table sets forth the distribution of Wedge Bank's deposit accounts at the dates indicated and the average interest rates for each category of deposits: Distribution of Deposits (in thousands)
December 31, ---------------------------------------------------------------- June 30, 1994 1993 1992 1991 -------------------- -------------------- -------------------- -------------------- Average Average Average Average Average Average Average Average Balance Rate Balance Rate Balance Rate Balance Rate --------- --------- --------- --------- --------- --------- --------- --------- Noninterest-bearing transaction accounts $23,986 N/A $16,068 N/A $12,234 N/A $14,496 N/A Interest-bearing transaction accounts 34,182 2.15% 40,716 2.15% 43,682 2.48% 37,332 3.50% Savings deposits 40,762 2.80% 38,133 3.08% 36,257 3.77% 26,799 5.03% Time deposits 66,291 4.01% 67,948 4.40% 77,756 5.17% 89,232 6.73% ------- ------- ------- ------- Total Deposits $165,221 $162,865 $169,929 $167,859 ======= ======= ======= =======
Risks normally associated with large certificates of deposit include the risk of reduced liquidity if Wedge Bank is unable to retain such deposits. However, Wedge Bank believes these risks are not significant because these certificates are held primarily by customers in its service area who have been depositors of Wedge Bank for extended periods of time. The following table sets forth at December 31, 1993, the amount of certificates of deposit in amounts of $100,000 or more by maturity periods: CD's in Amounts of $100,000 or More (in thousands)
Maturity December 31, 1993 ------------------------ ----------------- 3 Months or Less 6,643 Over 3 through 6 Months 582 Over 6 through 12 Months 4,718 Over 12 Months 1,790 ------ Total 13,733 ======
SHORT TERM BORROWINGS The following table sets forth information as of June 30, 1994 and the years ended December 31, 1993, 1992 and 1991 regarding each category of Wedge Bank's short-term borrowings for which the average balance outstanding during the period was more than 30% of the stockholders' equity of Wedge Bank at the end of the period: - 62 - 70 Short-Term Borrowings For Which the Average Balance Outstanding During the Year Was 30% or More of Stockholders' Equity at Year End (in thousands)
June 30, 1994 December 31, 1993 -------------------------------------------------------- ------------------------------------------------ Maximum Six Month Six Month Maximum YTD YTD Year End Year End Month End End Average End Average Year End Year End Month End Average Average Balance Rate Balance Balance Rate Balance Rate Balance Balance Rate ------- ---- ------- ------- ---- ------- ---- ------- ------- ---- Advances from FHLB 14,000 5.85% 14,000 12,371 3.93% 10,500 3.24% 10,500 10,496 3.35% Securities sold under agreement to repurchase 9,580 3.51% 9,580 9,502 3.47% 8,230 3.50% 8,230 8,230 3.50%
December 31, 1992 December 31, 1991 -------------------------------------------------------- ------------------------------------------------ Maximum YTD YTD Maximum YTD YTD Year End Year End Month End Average Average Year End Year End Month End Average Average Balance Rate Balance Balance Rate Balance Rate Balance Balance Rate ------- ---- ------- ------- ---- ------- ---- ------- ------- ---- Advances from FHLB 9,500 3.73% 9,500 8,367 3.80% 6,250 5.15% 6,250 1,623 5.24% Securities sold under agreement to repurchase 0 N/A N/A N/A N/A 0 N/A N/A N/A N/A
INVESTMENT PORTFOLIO Investment securities are stated at cost, adjusted for premiums and discounts. Premiums and discounts are recognized as adjustments to interest income using the level yield method. Gains and losses on dispositions are recorded based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method. Wedge Bank monitors and manages liquidity by structuring the maturity dates of its investments in accordance with its policies and guidelines. A primary goal of such policies and guidelines is to maintain an appropriate balance between rate- sensitive assets and liabilities to continually maximize interest rate spreads. Wedge Bank's permitted investments are in U.S. Treasury securities, securities guaranteed by the U.S. Government or agencies of the U.S. Government, and mortgage-backed securities, municipal bonds, money market instruments and other securities meeting Wedge Bank's standards. The table below sets forth the book value and maturity distribution of certain categories of investments in debt securities by Wedge Bank at December 31, 1993, 1992, and 1991. Also shown are the approximate yields by type and maturity distribution of the securities at December 31, 1993. - 63 - 71 Investment Portfolio (in thousands)
December 31, ---------------------------------------------------- 1993 1992 1991 ---- ---- ---- Book Book Book Yield Value Value Value ----- ----- ----- ----- U.S. Government & agency obligations within 1 year 8.08% $ 1,873 $ 0 $ 2,798 1-5 Years 6.00% 16,140 14,232 14,782 5-10 Years 6.87% 14,532 14,993 8,708 >10 Years 5.55% 7,319 2,493 2,212 -------- -------- -------- Total 39,864 31,718 28,500 -------- -------- -------- Obligations of states & political subsidiaries within 1 year 6.40% 530 762 273 1-5 Years 6.05% 2,458 4,254 4,624 5-10 Years 5.68% 4,704 4,169 1,088 > 10 Years 5.76% 14,353 2,540 1,295 -------- -------- -------- Total 22,045 11,725 7,280 -------- -------- -------- Mortgage-backed securities within 1 year 9.14% 953 13 0 1-5 Years 9.45% 949 2,437 4,342 5-10 Years 8.62% 1,362 3,489 4,659 >10 Years 9.22% 14,107 18,017 17,135 -------- -------- -------- Total 17,371 23,956 26,136 -------- -------- -------- Other securities Equity securities 1,054 3,136 610 -------- -------- -------- Total investments in debt and equity securities $ 80,334 $ 70,535 $ 62,526 ======== ======== ========
As of December 31, 1993, there were no investment securities of any issuer, other than securities of the U.S. Government and U.S. Government Agencies and corporations, exceeding 10% of stockholders' equity. RETURN ON EQUITY AND ASSETS The following table sets forth the return on equity and assets and other relevant information for the years ended December 31, 1993, 1992 and 1991: - 64 - 72
Return on Equity and Assets June 30, 1994 (annualized) 1993 1992 1991 ------------ ------ ------ ------ Return on average assets 1.28% 1.78% 1.22% 0.64% Return on average equity 13.85 20.23 13.38 7.43 Dividend payout ratio 32.30 16.56 30.79 20.83 Average equity to average total assets 18.55 8.81 9.09 8.60 - ---------------------------- Net income divided by average total assets. Net income divided by average equity. Dividends declared per weighted average shares outstanding divided by net income per weighted average shares outstanding. Average equity divided by average total assets.
LIQUIDITY AND INTEREST RATE SENSITIVITY Wedge Bank seeks to maintain sufficient liquidity to meet its depositors' needs as well as the credit needs of its customers. The principal sources of funds which provide liquidity are customer deposits, principal and interest payments on loans, maturities of investment securities and earnings. Other sources of liquidity include federal funds purchased and other short-term borrowings. A substantial portion of Wedge Bank's interest- bearing and noninterest-bearing liabilities are stable core deposits attributable to long-term customer relationships. Maturities of interest-earning assets and interest-bearing liabilities are monitored to plan for liquidity needs. The maintenance of planned maturity schedules and an appropriate balance of interest sensitivity between assets and liabilities is a fundamental aspect of Wedge Bank's financial planning. Rate-sensitive assets and liabilities are those assets and liabilities which can be repriced upward or downward within a specified time period. The following table illustrates Wedge Bank's position (rate- sensitive assets minus rate-sensitive liabilities) at December 31, 1993, for various time periods as well as the cumulative gap position at December 31, 1993 and June 30, 1994. - 65 - 73
Over Three Over Six Over One Three Months Months Year Months or Through Through Twelve Through Over Three Less Six Months Months Three Years Years Total --------- ---------- -------------- ----------- ---------- -------- (Dollars in thousands) Interest-earning assets: Loans, gross $ 20,155 $ 7,018 $ 13,612 $ 10,491 $ 60,795 $112,071 Investment in debt securities 12,048 300 1,963 4,229 61,794 80,334 Interest-bearing deposits in other depository institutions 94 Federal funds sold 4,200 4,200 -------- -------- -------- -------- -------- -------- Total interest-earning assets 36,403 7,318 15,669 14,720 122,589 196,699 -------- -------- -------- -------- -------- -------- Interest-bearing liabilities: Interest-bearing deposits 20,163 11,404 14,368 83,305 13,693 142,933 Other borrowings 11,300 8,230 19,530 -------- -------- -------- -------- -------- -------- Total interest-bearing liabilities 31,463 11,404 22,598 83,305 13,693 162,463 -------- -------- -------- -------- -------- -------- Interest sensitivity gap at December 31, 1993 $ 4,940 $ (4,086) $ (6,929) $(68,585) $108,896 ======== ======== ======== ======== ======== Cumulative gap at December 31, 1993 $ 4,940 $ 854 $ 6,075 $(74,660) $ 34,236 ======== ======== ======== ======== ======== Cumulative gap at June 30, 1994 $ (530) $ (4,131) $ 3,045 $(57,723) $ 31,176 ======== ======== ======== ======== ========
CAPITAL RESOURCES Effective December 31, 1992, the fully phased-in regulatory capital requirements for banks categorized as "adequately capitalized" under the provisions of The Federal Deposit Insurance Corporation Improvement Act of 1991, are (1) a minimum leverage capital ratio of Tier 1 capital, as defined, to total adjusted assets of 3% for the highest rated institutions or 4% to 5% for all other institutions, and (2) a minimum ratio of total capital, as defined, to risk-weighted assets of 8% and the Tier 1 capital included in total capital is at least equal to 4% of risk-weighted assets. The Bank's ratio of Tier 1 capital to total adjusted assets was 8.93% and 8.95% at December 31, 1993 and 1992, respectively. Its ratio of capital to risk-weighted assets was 21.27% and 23.52% of which Tier 1 capital comprised 20.02% and 22.03% of risk-weighted assets at December 31, 1993 and 1992, respectively. Bank dividends are the principal source of funds for Wedge Holding. The payment of dividends by Wedge Bank, which is state-chartered, is subject to regulation by the FDIC and the State of Illinois. Wedge Bank is not restricted as to the amount of dividends that can be paid, other than what prudent and sound banking principles permit and what must be retained to meet minimum legal capital requirements. Accordingly, $3,838,000 could be paid at December 31, 1993, without reducing the capital of Wedge Bank below minimum standards. Wedge Bank believes that its current capital and earnings will be adequate to meet its operating needs for the foreseeable future. - 66 - 74 PROSPECTIVE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In May 1993, FASB issued Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan ("SFAS 114"). The adoption of SFAS 114 is required for fiscal years beginning after December 15, 1994. It requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or the loan's market price, or the fair value of the collateral if the loan is collateral dependent. When adopted in 1995, SFAS 114 is not expected to have a material effect on Wedge Bank's financial statements. In November 1992, FASB issued Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits ("SFAS 112"). Adoption of SFAS 112 is required for fiscal years beginning after December 15, 1993. In December 1990, FASB issued Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106"). Adoption of SFAS 106 is required for fiscal years beginning after December 15, 1994. As Wedge Bank does not provide postemployment or postretirement benefits, SFAS 112 and 106 do not and will not have any effect on Wedge Bank's financial statements. IMPACT OF INFLATION The asset and liability structure of financial institutions differs from that of other industries in that virtually all assets and liabilities of a financial institution are monetary in nature. Interest rates, although they do not necessarily move in the same direction or in the same magnitude as the prices of other goods and services, may have a significant impact on a financial institution's performance. Inflation directly affects salaries and benefits, insurance, data processing and other noninterest costs. Wedge Bank continually strives to offset the effects of inflation by controlling costs, developing more efficient operating procedures, and managing the maturity distribution and interest sensitivity of its assets and liabilities. INFORMATION REGARDING MBI STOCK ------------------------------- DESCRIPTION OF MBI COMMON STOCK AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS GENERAL. MBI has authorized 5,000,000 shares of MBI Preferred Stock, no par value, and 100,000,000 shares of MBI Common Stock, $5.00 par value. At June 30, 1994, MBI had no issued or outstanding shares of MBI Preferred Stock and 43,146,531 shares of MBI Common Stock issued and outstanding. Under Missouri law, MBI's Board of Directors may generally approve the issuance of authorized shares of Preferred Stock and Common Stock without shareholder approval. MBI's Board of Directors is also authorized to fix the number of shares and determine the designation of any series of Preferred Stock and to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any series of MBI Preferred Stock. Except for the designation and reservation of Series A Junior Participating Preferred Stock pursuant to MBI's Preferred Share Purchase Rights Plan described below, MBI's Board of Directors has not acted to designate or issue any shares of MBI Preferred Stock. The existence of a substantial number of unissued and unreserved shares of MBI Common Stock and undesignated shares of MBI Preferred Stock may enable the Board of Directors to issue shares to such persons and in such manner as may be deemed to have an anti-takeover effect. DIVIDENDS. The holders of MBI Common Stock are entitled to share ratably in dividends when, as and if declared by the Board of Directors from funds legally available therefor, after full - 67 - 75 cumulative dividends have been paid or declared, and funds sufficient for the payment thereof set apart, on all series of MBI Preferred Stock ranking superior as to dividends to MBI Common Stock. The Board of Directors of MBI intends to maintain its present policy of paying quarterly cash dividends on MBI Common Stock, when justified by the financial condition of MBI and its subsidiaries. The declaration and amount of future dividends will depend on circumstances existing at the time, including MBI's earnings, financial condition and capital requirements as well as regulatory limitations, note and indenture provisions and such other factors as the Board of Directors may deem relevant. The payment of dividends to MBI by subsidiary banks is subject to extensive regulation by various state and federal regulatory agencies. See "SUPERVISION AND REGULATION." VOTING RIGHTS. Each holder of MBI Common Stock has one vote for each share held on matters presented for consideration by the shareholders, except that, in the election of directors, such shareholders have cumulative voting rights which entitle each such shareholder to the number of votes which equals the number of shares held by the shareholder multiplied by the number of directors to be elected. All such cumulative votes may be cast for one candidate for election as a director or may be distributed among two or more candidates. PREEMPTIVE RIGHTS. The holders of MBI Common Stock have no preemptive right to acquire any additional unissued shares or treasury shares of MBI. LIQUIDATION RIGHTS. In the event of liquidation, dissolution or winding up of MBI, whether voluntary or involuntary, the holders of MBI Common Stock will be entitled to share ratably in any of its assets or funds that are available for distribution to its shareholders after the satisfaction of its liabilities (or after adequate provision is made therefor) and after preferences on any outstanding MBI Preferred Stock. ASSESSMENT AND REDEMPTION. Shares of MBI Common Stock are and will be, when issued, fully paid and nonassessable. Such shares do not have any redemption provisions. PREFERRED SHARE PURCHASE RIGHTS PLAN. One preferred share purchase right (a "Right") is attached to each share of MBI Common Stock. The Rights trade automatically with shares of MBI Common Stock, and become exercisable and will trade separately from the MBI Common Stock on the tenth day after public announcement that a person or group has acquired, or has the right to acquire, beneficial ownership of 20% or more of the outstanding shares of MBI Common Stock, or upon commencement or announcement of intent to make a tender offer for 20% or more of the outstanding shares of MBI Common Stock, in either case without prior written consent of the Board. When exercisable, each Right will entitle the holder to buy 1/100 of a share of MBI Series A Junior Participating Preferred Stock at an exercise price of $100 per Right. In the event a person or group acquires beneficial ownership of 20% or more of MBI Common Stock, holders of Rights (other than the acquiring person or group) may purchase MBI Common Stock having a market value of twice the then current exercise price of each Right. If MBI is acquired by any person or group after the Rights become exercisable, each Right will entitle its holder to purchase stock of the acquiring company having a market value of twice the current exercise price of each Right. The Rights are designed to protect the interests of MBI and its shareholders against coercive takeover tactics. The purpose of the Rights is to encourage potential acquirors to negotiate with MBI's Board of Directors prior to attempting a takeover and to give the Board leverage in negotiating on behalf of all shareholders the terms of any proposed takeover. The Rights may deter certain takeover proposals. The Rights, which can be redeemed by MBI's Board of Directors in certain circumstances, expire by their terms on June 3, 1998. CLASSIFICATION OF BOARD OF DIRECTORS. The Board of Directors of MBI is divided into three classes, and the directors are elected by classes to three-year terms, so that one of the three classes - 68 - 76 of the directors of MBI will be elected at each annual meeting of the shareholders. While this provision promotes stability and continuity of the Board of Directors, classification of the Board of Directors may also have the effect of decreasing the number of directors that could otherwise be elected at each annual meeting of shareholders by a person who obtains a controlling interest in the MBI Common Stock and thereby could impede a change in control of MBI. Because fewer directors will be elected at each annual meeting, such classification also will reduce the effectiveness of cumulative voting as a means of establishing or increasing minority representation on the Board of Directors. OTHER MATTERS. MBI's Articles of Incorporation and By- Laws also contain provisions which: (i) require the affirmative vote of holders of at least 75% of the voting power of all of the outstanding shares of MBI entitled to vote in the election of directors to remove a director or directors without cause; (ii) require the affirmative vote of the holders of at least 75% of the voting power of all shares of the outstanding capital stock of MBI to approve certain "business combinations" with "interested parties" unless at least two-thirds of the Board of Directors first approves such business combinations; and (iii) require an affirmative vote of at least 75% of the voting power of all shares of the outstanding capital stock of MBI for the amendment, alteration, change or repeal of any of the above provisions unless at least two-thirds of the Board of Directors first approves such an amendment, alteration, change or repeal. Such provisions may be deemed to have an anti-takeover effect. RESTRICTIONS ON RESALE OF MBI STOCK BY AFFILIATES Under Rule 145 of the Securities Act of 1933 (the "Securities Act"), certain persons who receive MBI Common Stock pursuant to the Acquisition and who are deemed to be "affiliates" of Wedge Holding and/or Wedge Bank will be limited in their right to resell the stock so received. The term "affiliate" is defined to include any person who, directly or indirectly, controls, or is controlled by, or is under common control with Wedge Holding and/or Wedge Bank at the time the Acquisition is submitted to a vote of the stockholders of Wedge Holding and Wedge Bank. Each affiliate of Wedge Holding and/or Wedge Bank (generally any director or executive officer or stockholder of Wedge Holding and/or Wedge Bank who beneficially owns a substantial number of outstanding shares of Wedge Holding Common Stock and/or Wedge Bank Common Stock) who desires to resell the MBI Common Stock received in the Acquisition must sell such stock either pursuant to an effective Registration Statement or in accordance with an applicable exemption, such as the applicable provisions of Rule 145(d) under the Securities Act. Rule 145(d) provides that persons deemed to be affiliates may resell their stock received in the Acquisition pursuant to certain of the requirements of Rule 144 under the Securities Act if such stock is sold within the first two years after the receipt thereof. After two years if such person is not an affiliate of MBI and if MBI is current with respect to its required public filings, a former affiliate of Wedge Holding or Wedge Bank may freely resell the stock received in the Acquisition without limitation. After three years from the issuance of the stock, if such person is not an affiliate of MBI at the time of sale and for at least three months prior to such sale, such person may freely resell such stock, without limitation, regardless of the status of MBI's required public filings. The shares of MBI stock to be received by affiliates of Wedge Holding or Wedge Bank in the Acquisition will be legended as to the restrictions imposed upon resale of such stock. COMPARISON OF THE RIGHTS OF STOCKHOLDERS OF MBI, WEDGE HOLDING AND WEDGE BANK MBI is incorporated under the laws of the State of Missouri. Wedge Holding is organized under the laws of the State of Delaware. Wedge Bank is organized under the Illinois Banking Act. The rights of MBI's shareholders are governed by MBI's Restated Articles of Incorporation and By-Laws and the General and Business Corporation Act of the State of Missouri (the "Missouri Act"). The rights of Wedge Holding stockholders are governed by Wedge Holding's Certificate of Incorporation and By-Laws and by The General Corporation Law of the State of Delaware (the "Delaware Corporation Law"). The - 69 - 77 rights of stockholders of Wedge Bank are governed by Wedge Bank's Charter and By-Laws and by the Illinois Banking Act. The rights of Wedge Holding stockholders who receive shares of MBI Common Stock after the corporate liquidation of Wedge Holding following the Acquisition, and the rights of Wedge Bank stockholders who receive shares of MBI Common Stock in the Acquisition will thereafter be governed by MBI's Restated Articles of Incorporation and By-Laws and by the Missouri Act. The material rights of such stockholders, and, where applicable, the differences between the rights of MBI shareholders and Wedge Holding and Wedge Bank stockholders, are summarized below. PREFERRED SHARE PURCHASE RIGHTS PLAN. As described above under "- Description of MBI Common Stock and Attach Preferred Share Purchase Rights - Preferred Share Purchase Rights Plan," MBI Common Stock has attached Rights, which may deter certain takeover proposals. Neither Wedge Holding nor Wedge Bank has a rights plan. SUPERMAJORITY PROVISIONS. MBI's Restated Articles of Incorporation and MBI's By-Laws contain provisions requiring a supermajority vote of the shareholders of MBI to approve certain proposals. Under both MBI's Restated Articles and By-Laws, removal by the shareholders of the entire Board of Directors or any individual director from office without cause requires the affirmative vote of not less than 75% of the total votes entitled to be voted at a meeting of shareholders called for the election of directors. Amendment by the shareholders of MBI's Restated Articles or By-Laws relating to (i) the number or qualification of directors; (ii) the classification of the Board of Directors; (iii) the filling of vacancies on the Board of Directors; or (iv) the removal of directors, requires the affirmative vote of not less than 75% of the total votes of MBI's then outstanding capital stock entitled to vote, voting together as a single class, unless such amendment has previously been expressly approved by at least 66 2/3% of the Board of Directors. The Restated Articles of MBI additionally provide that, in addition to any shareholder vote required under the Missouri Act, the affirmative vote of the holders of not less than 75% of the total votes to which all of the then outstanding shares of capital stock of MBI are entitled, voting together as a single class (the "Voting Stock"), shall be required for the approval of any Business Combination. A "Business Combination" is defined generally to include sales, exchanges, leases, transfers or other dispositions of assets, mergers or consolidations, issuances of securities, liquidations or dissolutions of MBI, reclassifications of securities or recapitalizations of MBI, involving MBI on the one hand, and an Interested Shareholder or an affiliate of an Interested Shareholder on the other hand. An "Interested Shareholder" is defined generally to include any person, firm, corporation or other entity which is the beneficial owner of 5% or more of the voting power of the outstanding Voting Stock. If, however, at least 66 2/3% of the Board of Directors of MBI approve the Business Combination, such Business Combination shall require only the vote of shareholders as provided by Missouri law or otherwise. The amendment of the provisions of MBI's Restated Articles relating to the approval of Business Combinations requires the affirmative vote of the holders of at least 75% of the Voting Stock unless such amendment has previously been approved by at least 66 2/3% of the Board of Directors. To the extent that a potential acquiror's strategy depends on the passage of proposals which require a supermajority vote of MBI's shareholders, such provisions requiring a supermajority vote may have the effect of discouraging takeover attempts that do not have Board approval by making passage of such proposals more difficult. Wedge Holding's Certificate of Incorporation and By-Laws and Wedge Bank's Charter and By-Laws do not contain supermajority vote provisions. VOTING FOR DIRECTORS. MBI's By-Laws provide for cumulative voting in the election of directors. Cumulative voting entitles each shareholder to cast an aggregate number of votes equal to the number of voting shares held, multiplied by the number of directors to be elected. Each shareholder may cast all such votes for one nominee or distribute them among two or more nominees, thus permitting holders of less than a majority of the outstanding shares of voting stock to achieve board representation. Wedge Holding's Certificate of Incorporation and By-Laws do not provide for cumulative voting. The By-Laws of Wedge Bank provide for cumulative voting in the election of directors. - 70 - 78 CLASSIFIED BOARD. As described under "- Description of MBI Common Stock and Attached Preferred Share Purchase Rights - Classification of Board of Directors," the Board of Directors of MBI is divided into three classes of directors, with each class being elected to a staggered three-year term. By reducing the number of directors to be elected in any given year, the existence of a classified Board diminishes the benefits of the cumulative voting rights to minority shareholders. Neither Wedge Holding nor Wedge Bank has a classified Board of Directors. ANTI-TAKEOVER STATUTES. The Missouri Act contains certain provisions applicable to Missouri corporations such as MBI which may be deemed to have an anti-takeover effect. Such provisions include Missouri's business combination and the control share acquisition statute. The Missouri business combination statute protects domestic corporations from hostile takeovers by prohibiting certain transactions once an acquiror has gained control. The statute restricts certain "Business Combinations" between a corporation and an "Interested Shareholder" or affiliates of the Interested Shareholder for a period of five years unless certain conditions are met. A "Business Combination" includes a merger or consolidation, certain sales, leases exchanges, pledges and similar dispositions of corporate assets or stock and certain reclassifications and recapitalizations. An "Interested Shareholder" includes any person or entity which beneficially owns or controls 20% or more of the outstanding voting shares of the corporation. During the initial five-year restricted period, no Business Combination may occur unless such Business Combination or the transaction in which an Interested Shareholder becomes "interested" is approved by the board of directors of the corporation. Business Combinations may occur during such five-year period if: (i) prior to the stock acquisition by the Interested Shareholder, the board of directors approves the transaction in which the Interested Shareholder became such or approves the Business Combination in question; (ii) the holders of a majority of the outstanding voting stock, other than stock owned by the Interested Shareholder, approve the Business Combination; or (iii) the Business Combination satisfies certain detailed fairness and procedural requirements. The Missouri Act exempts from its provisions: (i) corporations not having a class of voting stock registered under Section 12 of the Exchange Act; (ii) corporations which adopt provisions in their articles of incorporation or bylaws expressly electing not to be covered by the statute; and (iii) certain circumstances in which a shareholder inadvertently becomes an Interested Shareholder. MBI's Restated Articles of Incorporation and By-Laws do not "opt out" of the Missouri Business Combination Statute. The Missouri Act also contains a "Control Share Acquisition Statute" which provides that an "Acquiring Person" who after any acquisition of shares of a publicly traded corporation has the voting power, when added to all shares of the same corporation previously owned or controlled by the Acquiring Person, to exercise or direct the exercise of: (i) 20% but less than 33 1/3%, (ii) 33 1/3% or more but less than a majority or (iii) a majority, of the voting power of outstanding stock of such corporation must obtain shareholder approval for the purchase of the "Control Shares." If approval is not given, the Acquiring Person's shares lose the right to vote. The statute prohibits an Acquiring Person from voting its shares unless certain disclosure requirements are met and the retention or restoration of voting rights is approved by both: (i) a majority of the outstanding voting stock, and (ii) a majority of the outstanding voting stock after exclusion of "Interested Shares." Interested Shares are defined as shares owned by the Acquiring Person, by directors who are also employees, and by officers of the corporation. Shareholders are given dissenters' rights with respect to the vote on Control Share Acquisitions and may demand payment of the fair value of their shares. A number of acquisitions of shares are deemed not to constitute Control Share Acquisitions, including good faith gifts, transfers pursuant to wills, purchases pursuant to an issuance by the corporation, mergers involving the corporation which satisfy the other requirements of the Missouri - 71 - 79 Act, transactions with a person who owned a majority of the voting power of the corporation within the prior year, or purchases from a person who has previously satisfied the provisions of the Control Share Acquisition Statute so long as the transaction does not result in the purchasing party having voting power after the purchase in a percentage range (such ranges are as set forth in the immediately preceding paragraph) beyond the range for which the selling party previously satisfied the provisions of the statute. Additionally, a corporation may exempt itself from application of the statute by inserting a provision in its articles of incorporation or bylaws expressly electing not to be covered by the statute. MBI's Restated Articles of Incorporation and By-Laws do not "opt out" of the Control Share Acquisition Statute. The Delaware Corporation Law applicable to Wedge Holding contains a business combination statute similar to that contained in the Missouri Act. Like the Missouri business combination statute, the Delaware business combination statute generally prohibits a domestic corporation from engaging in mergers or other business combinations with "Interested Persons" (as defined in the Delaware Corporation Law) for a statutory time period. The prohibition can be avoided if the business combination is approved by the board of directors prior to the date on which the Interested Person acquires the requisite percentage of stock. The Missouri Act imposes a longer prohibition period on transactions with Interested Persons (five years) than the Delaware Corporation Law (three years), thereby potentially increasing the period during which a hostile takeover may be frustrated. In addition, the Delaware Corporation Law, unlike its Missouri counterpart, does not apply if the Interested Person obtains at least 85% of the corporation's voting stock upon consummation of the transactions which resulted in the stockholder becoming an Interested Person. Thus, a person acquiring at least 85% of the corporation's voting stock could circumvent the defensive provisions of the Delaware Corporation Law while being unable to do so under the Missouri Act. The Delaware Corporation Law does not contain a control share acquisition statute similar to that contained in the Missouri Act. The Illinois Banking Act applicable to Wedge Bank has no analogous statutes to the Missouri business combination statute or the Missouri control share acquisition statute. DISSENTERS' RIGHTS. Under the Missouri Act, a shareholder of any corporation which is a party to a merger or consolidation, or which sells all or substantially all of its assets, has the right to dissent from such corporate action and to demand payment of the fair value of such shares. Under the Delaware Corporation Law and the Illinois Banking Act applicable to the stockholders of Wedge Holding and Wedge Bank, respectively, stockholders are entitled to dissenters' rights which are similar but not identical to those under the Missouri Act. Specifically, the Delaware Corporation Law and the Illinois Banking Act do not provide for dissenters' rights with respect to the sale of all or substantially all of the assets of a corporation, and the procedures and filing deadlines applicable to dissenters' rights under the Missouri Act differ from those applicable in dissenters' rights proceedings under the Delaware Corporation Law and the Illinois Banking Act. Additionally, unlike the Missouri Act, the dissenters' rights provisions of the Delaware Corporation Law contain an exception for circumstances in which the shareholder seeking to exercise such rights owns shares in a widely held, publicly traded corporation and is to receive, or continue to hold after the transaction under which such shareholder is seeking to exercise dissenters' rights, shares of a widely held, publicly traded corporation. STOCKHOLDERS' RIGHT TO INSPECT. Under the Delaware Corporation Law, any stockholder may inspect the corporation's stock ledger, stockholder list and other books and records for any proper purpose. A "proper purpose" is defined as a purpose reasonably related to such person's interest as a stockholder. The Delaware Corporation Law specifically provides that a stockholder may appoint an agent for the purpose of examining the stock ledger, list of stockholders or other books and records of the corporation. A stockholder may apply to the Delaware Court of Chancery to compel inspection in the event the stockholder's request to examine the books and records is refused. In general, the stockholder has the burden of proving a proper purpose when seeking to inspect books and records other than the stock ledger and stockholder list, and the corporation has the burden of proving an improper purpose where a stockholder requests to examine the stockholder ledger or stockholder list. The Illinois - 72 - 80 Banking Act provides that stockholders have the right to inspect a list of stockholder names, addresses and number of shares held, but is silent with respect to the right of a stockholder to inspect other books and records. The right of stockholders to inspect under the Missouri Act is generally similar to that of stockholders under the Delaware Corporation Law and, accordingly, provides shareholders with greater inspection rights than the Illinois Banking Act. Neither the Missouri Act nor Missouri case law, however, provides any specific guidance as to whether a shareholder may appoint an agent for the purpose of examining books and records or the extent to which a shareholder must have a "proper purpose." Accordingly, in comparison with the Delaware Corporation Law, in a given situation a Missouri shareholder may be provided with less guidance as to the scope of his or her ability to inspect the books and records of the corporation. SIZE OF BOARD OF DIRECTORS. As permitted under the Missouri Act, the number of directors on the Board of Directors of MBI is set forth in MBI's By-Laws, which provide that the number of directors may be fixed from time to time at not less than 12 nor more than 24 by an amendment of the By-Laws or by a resolution of the Board of Directors, in either case, adopted by the vote or consent of at least 66 2/3% of the number of directors then authorized under the By-Laws. Similar to the Missouri Act, the Delaware Corporation Law provides that a corporation may fix the number of directors in its articles of incorporation or bylaws. Under the Illinois Banking Act, the number of directors, which must be not fewer than 5 nor more than 25, may be fixed from time to time by the affirmative vote of at least two thirds of the outstanding stock entitled to vote. Wedge Holding's By-Laws provide that the number of directors on the Board of Directors may be fixed from time to time at not less than three nor more than seven by a resolution of the Board of Directors or stockholders at the annual meeting. Wedge Bank's By-Laws provide that the number of directors on the Board of Directors shall be not less than five nor more than twenty-four. The supermajority vote required for the amendment of MBI's By-Laws regarding a change in the number of directors may have the effect of making it more difficult to force an immediate change in the composition of a majority of the Board of Directors and may be deemed to have an anti-takeover effect. SUPERVISION AND REGULATION -------------------------- GENERAL As a bank holding company, MBI is subject to regulation under the BHCA and its examination and reporting requirements. Under the BHCA, a bank holding company may not directly or indirectly acquire the ownership or control of more than 5% of the voting shares or substantially all of the assets of any company, including a bank or savings and loan association, without the prior approval of the Federal Reserve Board. In addition, bank holding companies are generally prohibited under the BHCA from engaging in nonbanking activities, subject to certain exceptions. MBI and its subsidiaries are subject to supervision and examination by applicable federal and state banking agencies. The earnings of MBI's subsidiaries, and therefore the earnings of MBI, are affected by general economic conditions, management policies and the legislative and governmental actions of various regulatory authorities, including the Federal Reserve Board and the Comptroller of the Currency (the "Comptroller"). In addition, there are numerous governmental requirements and regulations that affect the activities of MBI and its subsidiaries. CERTAIN TRANSACTIONS WITH AFFILIATES There are various legal restrictions on the extent to which a bank holding company and certain of its nonbank subsidiaries can borrow or otherwise obtain credit from its bank subsidiaries. In general, these restrictions require that any such extensions of credit must be on non-preferential terms and secured by designated amounts of specified collateral and be limited, as to any one of the holding - 73 - 81 company or such nonbank subsidiaries, to 10% of the lending bank's capital stock and surplus, and as to the holding company and all such nonbank subsidiaries in the aggregate, to 20% of such capital stock and surplus. PAYMENT OF DIVIDENDS MBI is a legal entity separate and distinct from its banking and other subsidiaries. The principal source of MBI's revenues is dividends from its national and state banking subsidiaries. Various federal and state statutory provisions limit the amount of dividends the affiliate banks can pay to MBI without regulatory approval. The approval of the appropriate bank regulator is required for any dividend by a national bank or state member bank if the total of all dividends declared by the bank in any calendar year would exceed the total of its net profits, as defined by regulatory agencies, for such year combined with its retained net profits for the preceding two years. In addition, a national bank or a state member bank may not pay a dividend in an amount greater than its net profits then on hand. The payment of dividends by any affiliate bank may also be affected by other factors, such as the maintenance of adequate capital for such affiliate bank. CAPITAL ADEQUACY The Federal Reserve Board has issued standards for measuring capital adequacy for bank holding companies. These standards are designed to provide risk-responsive capital guidelines and to incorporate a consistent framework for use by financial institutions operating in major international financial markets. The banking regulators have issued standards for banks that are similar to, but not identical with, the standards for bank holding companies. In general, the risk-related standards require banks and bank holding companies to maintain capital based on "risk-adjusted" assets so that categories of assets with potentially higher credit risk will require more capital backing than categories with lower credit risk. In addition, banks and bank holding companies are required to maintain capital to support off-balance sheet activities such as loan commitments. The standards classify total capital for this risk-based measure into two tiers referred to as Tier 1 and Tier 2. Tier 1 capital consists of common shareholders' equity, certain non- cumulative and cumulative perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries; Tier 2 capital consists of the allowance for loan and lease losses (within certain limits), perpetual preferred stock not included in Tier 1, hybrid capital instruments, term subordinated debt, and intermediate-term preferred stock. By December 31, 1992, bank holding companies were required to meet a minimum ratio of 8% of qualifying total capital to risk-adjusted assets, and a minimum ratio of 4% of qualifying Tier 1 capital to risk-adjusted assets. Capital that qualifies as Tier 2 capital is limited in amount to 100% of Tier 1 capital in testing compliance with the total risk- based capital minimum standards. In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 capital to adjusted average total assets (the "leverage ratio") of 3% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. Other bank holding companies generally are required to maintain a leverage ratio of at least 3% plus 100 to 200 basis points. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above minimum supervisory levels, without significant reliance on intangible assets. Furthermore, the Federal Reserve Board has indicated that it may consider other indicia of capital strength in evaluating proposals for expansion or new activities. - 74 - 82 SUPPORT OF SUBSIDIARY BANKS Under Federal Reserve Board policy, MBI is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each of the subsidiaries in circumstances where it might not choose to do so absent such a policy. In addition, any capital loans by MBI to any of its subsidiaries would also be subordinate in right of payment to deposits and certain other indebtedness of such subsidiary. This support may be required at times when MBI may not find itself able to provide it. Consistent with this policy regarding bank holding companies serving as a source of financial strength for their subsidiary banks, the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common stockholders has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the bank holding company's capital needs, asset quality and overall financial condition. FIRREA AND FDICIA The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") contains a cross-guarantee provision which could result in insured depository institutions owned by MBI being assessed for losses incurred by the FDIC in connection with assistance provided to, or the failure of, any other insured depository institution owned by MBI. Under FIRREA, failure to meet the capital guidelines could subject a banking institution to a variety of enforcement remedies available to federal regulatory authorities, including the termination of deposit insurance by the FDIC. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") made extensive changes to the federal banking laws. FDICIA instituted certain changes to the supervisory process, including provisions that mandate certain regulatory agency actions against undercapitalized institutions within specified time limits, and contain various provisions that may affect the operations of banks and savings institutions. The prompt corrective action provision of FDICIA requires the federal banking regulators to assign each insured institution to one of five capital categories ("well capitalized," "adequately capitalized" or one of three "undercapitalized" categories) and to take progressively more restrictive actions as specified below. Under FDICIA, capital requirements would include a leverage limit, a risk-based capital requirement and any other measure of capital deemed appropriate by the federal banking regulators for measuring the capital adequacy of an insured depository institution. All institutions, regardless of their capital levels, are restricted from taking any capital distribution or paying any management fees that would cause the institution to fail to satisfy the minimum levels for any relevant capital measure. An institution that fails to meet the minimum level for any relevant capital measure (an "undercapitalized institution") may be: (i) subject to increased monitoring by the appropriate federal banking regulator; (ii) required to submit an acceptable capital restoration plan within 45 days; (iii) subject to asset growth limits; and (iv) required to obtain prior regulatory approval for acquisitions, branching and new lines of businesses. The capital restoration plan must include a guarantee by the institution's holding company (under which the holding company would be liable up to the lesser of 5% of the institution's total assets or the amount necessary to bring the institution into capital compliance as of the date it failed to comply with its capital restoration plan) that the institution will comply with the plan until it has been adequately capitalized on average for four consecutive quarters. The FDIC and the Federal Reserve Board adopted capital- related regulations under FDICIA. Under those regulations, a bank will be well capitalized if it: (i) had a risk-based capital ratio of 10% or greater; (ii) had a ratio of Tier 1 capital to risk-adjusted assets of 6% or greater; (iii) had a ratio of Tier 1 capital to adjusted total assets of 5% or greater; and (iv) was not subject to an order, - 75 - 83 written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. An association will be adequately capitalized if it was not "well capitalized" and: (i) had a risk-based capital ratio of 8% or greater; (ii) had a ratio of Tier 1 capital to risk-adjusted assets of 4% or greater; and (iii) had a ratio of Tier 1 capital to adjusted total assets of 4% or greater (except that certain associations rated "Composite 1" under the federal banking agencies' CAMEL rating system may be adequately capitalized if their ratios of core capital to adjusted total assets were 3% or greater). Under FDICIA, a bank or savings institution that is undercapitalized may not accept, renew or roll over deposits obtained through a deposit broker, may not solicit deposits by offering interest rates that are significantly higher than market rates and cannot provide pass-through insurance on certain collective deposits. Banks that are "adequately capitalized" but are not "well capitalized" will be required to obtain a waiver from the FDIC in order to accept, renew, or roll over brokered deposits, and may not pay interest on deposits that significantly exceeds market rates for deposits of similar maturity or provide pass- through insurance. FDICIA directs the FDIC to establish a risk-based assessment system for deposit insurance by January 1, 1994. On September 15, 1992, the Board of Directors of the FDIC approved a transitional system of risk-based deposit insurance pursuant to which the insurance assessments would vary depending upon the level of capital of the institution and the degree to which it is the subject of supervisory concern to the FDIC. Under the risk-based insurance premium schedule approved by the FDIC's Board of Directors, effective January 1, 1993, the assessment rate varies from .23% of eligible deposits for "healthy" well-capitalized banks to .31% of eligible deposits for less than adequately capitalized banks that pose substantial supervisory concerns. FDICIA also makes extensive changes in existing rules regarding audits, examinations and accounting. It generally requires annual on-site, full scope examinations by each bank's primary federal regulator. It also imposes new responsibilities on management, the independent audit committee and outside accountants to develop or approve reports regarding the effectiveness of internal controls, legal compliance and off-balance sheet liabilities and assets. DEPOSITOR PREFERENCE STATUTE Legislation enacted in August 1993 provides a preference for deposits and certain claims for administrative expenses and employee compensation against an insured depository institution, such as Wedge Bank and MBI's insured bank subsidiaries, in the liquidation or other resolution of such an institution by any receiver. Such obligations would be afforded priority over other general unsecured claims against such an institution, including federal funds and letters of credit, as well as any obligation to shareholders of such an institution in their capacity as such. RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS ----------------------------------------- KPMG Peat Marwick LLP served as MBI's independent accountants for the year ended December 31, 1993 and continues to serve in such capacity. Services provided in connection with the audit function included examination of the annual consolidated financial statements, review and consultation regarding filings with the Securities and Exchange Commission and other regulatory authorities and consultation on financial accounting and reporting matters. Deloitte & Touche LLP served as Wedge Holding's and Wedge Bank's independent accountants for the year ended December 31, 1993 and continues to serve in such capacity. Services provided in connection with the audit function included examination of the annual consolidated financial statements and consultation on financial accounting and reporting matters. - 76 - 84 LEGAL MATTERS ------------- Certain legal matters will be passed upon for MBI by Thompson & Mitchell, St. Louis, Missouri and for Wedge Holding and Wedge Bank by Thomas, Mottaz, Eastman & Sherwood, Alton, Illinois. EXPERTS ------- The consolidated financial statements of Mercantile Bancorporation Inc. as of December 31, 1993, 1992 and 1991, and for each of the years in the three-year period ended December 31, 1993, incorporated by reference in MBI's Annual Report on Form 10-K, and the supplemental consolidated financial statements of Mercantile Bancorporation Inc. as of December 31, 1993, 1992 and 1991, and for each of the years in the three-year period ended December 31, 1993, contained in MBI's Current Report on Form 8-K dated June 17, 1994, have been incorporated by reference herein in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP dated January 13, 1994, except as to Note Q which is as of February 10, 1994, contains an explanatory paragraph referring to the change in accounting for income taxes. The consolidated financial statements of The Wedge Holding Company and the financial statements of Wedge Bank as of December 31, 1993 and 1992 and for the years then ended included in this Proxy Statement/Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. OTHER MATTERS ------------- The respective Boards of Directors of Wedge Holding and Wedge Bank, at the date hereof, are not aware of any business to be presented at the Special Meetings other than that referred to in the Notices of Special Meetings and discussed herein. If any other matter should properly come before the Special Meetings, the persons named as proxies will have discretionary authority to vote the shares represented by proxies in accordance with their discretion and judgment as to the best interests of Wedge Holding and Wedge Bank. SHAREHOLDER PROPOSALS --------------------- If the Acquisition is approved, the other conditions to the Acquisition are satisfied and the Acquisition is consummated, stockholders of Wedge Bank will become shareholders of MBI at the Effective Time. MBI shareholders may submit to MBI proposals for formal consideration at the 1995 annual meeting of MBI's shareholders and inclusion in MBI's proxy statement for such meeting. All such proposals must be received in writing by the Corporate Secretary at Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524 by November 22, 1994 in order to be considered for inclusion in MBI's Proxy Statement and proxy for the 1995 annual meeting. - 77 - 85 INDEX TO FINANCIAL STATEMENTS -----------------------------
Page ---- The Wedge Holding Company and Subsidiary: Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1 Consolidated Balance Sheets, June 30, 1994 and December 31, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-2 Consolidated Statements of Income, six months ended June 30, 1994 and 1993 and years ended December 31, 1993, 1992 and 1991. . . . . . . . . . . . . . . . . . . . .F-3 Consolidated Statements of Stockholders' Equity, six months ended June 30, 1994 and years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . .F-4 Consolidated Statements of Cash Flows, six months ended June 30, 1994 and 1993 and years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . F-5 to F-6 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . .F-7 to F-21 Wedge Bank: Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22 Balance Sheets, June 30, 1994 and December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23 Statements of Income, six months ended June 30, 1994 and 1993 and years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . F-24 Statements of Stockholders' Equity, six months ended June 30, 1994 and years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . F-25 Statements of Cash Flows, six months ended June 30, 1994 and 1993 and years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . F-26 to F-27 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-28 to F-39
- 78 - 86 To the Board of Directors and Stockholders of The Wedge Holding Company: We have audited the accompanying consolidated balance sheets of The Wedge Holding Company and subsidiary as of December 31, 1993 and 1992, and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended. 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiary at December 31, 1993 and 1992, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP March 25, 1994 87 THE WEDGE HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) - ------------------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31, ------------ -------------------------- ASSETS 1994 1993 1992 (UNAUDITED) ASSETS: Cash and due from depository institutions (Note 3) $ 7,825 $ 8,110 $ 7,720 Federal funds sold 4,200 3,275 -------- -------- -------- Total cash and cash equivalents 7,825 12,310 10,995 Interest-bearing deposits in other depository institutions 94 94 Investment securities available for sale 59,042 Investments securities held to maturity (approximate market values June 30, 1994 $23,827; December 31, 1993 $81,798; December 31, 1992 $71,511) (Notes 4 and 7) 23,950 80,334 70,535 Loans (Note 5) 113,247 112,071 119,689 Less: Unearned discounts 82 81 106 Allowance for loan losses 1,399 1,452 1,637 -------- -------- -------- Total 111,766 110,538 117,946 Premises and equipment - net (Note 6) 3,858 3,492 3,198 Accrued interest receivable 1,837 1,945 1,460 Real estate acquired in settlement of loans 694 762 990 Other assets (Note 8) 1,553 1,362 1,373 -------- -------- -------- TOTAL ASSETS $210,619 $210,837 $206,497 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits: Noninterest-bearing $ 23,651 $ 26,878 $ 13,526 Interest-bearing 138,552 142,871 160,861 -------- -------- -------- Total deposits 162,203 169,749 174,387 Short-term borrowings (Note 7) 26,380 19,830 10,725 Accrued interest payable 527 467 582 Advance payments by borrowers for taxes and insurance 685 625 695 Accrued expenses and other liabilities 877 1,091 1,310 -------- -------- -------- Total liabilities 190,672 191,762 187,699 MINORITY INTERESTS 3,263 3,124 2,495 STOCKHOLDERS' EQUITY: Preferred stock, voting, $50 par value - authorized, 76,400 shares; issued and outstanding, 63,734 shares 3,187 3,187 3,187 Common stock, voting, $100 par value - authorized, 16,250 shares; issued and outstanding, 15,318 shares at June 30, 1994, 14,848 at December 31, 1993 and 14,378 at December 31, 1992 1,532 1,485 1,438 Additional paid-in capital 1,227 867 596 Net unrealized losses on investment securities available for sale, net of tax (669) Retained earnings 11,407 10,412 11,082 -------- -------- -------- Total stockholders' equity (Note 9) 16,684 15,951 16,303 -------- -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $210,619 $210,837 $206,497 ======== ======== ======== See notes to consolidated financial statements.
F-2 88 THE WEDGE HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) - -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ------------------ ------------------------------------------ 1994 1993 1993 1992 1991 (UNAUDITED) (UNAUDITED) INTEREST INCOME: Loans $4,430 $4,628 $10,301 $10,868 $10,916 Investment securities: Taxable 1,836 1,624 3,742 4,374 4,855 Tax-exempt 625 404 1,044 592 339 Other 78 65 171 97 351 ------ ------ ------- ------- ------- Total interest income 6,969 6,721 15,258 15,931 16,461 ------ ------ ------- ------- ------- INTEREST EXPENSE: Deposits 2,267 2,385 5,041 6,470 8,795 Short-term borrowings 422 193 485 405 87 Long-term debt 106 52 ------ ------ ------- ------- ------- Total interest expense 2,689 2,578 5,526 6,981 8,934 ------ ------ ------- ------- ------- NET INTEREST INCOME 4,280 4,143 9,732 8,950 7,527 PROVISION FOR LOAN LOSSES (Note 5) 76 164 240 191 1,132 ------ ------ ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,204 3,979 9,492 8,759 6,395 ------ ------ ------- ------- ------- OTHER INCOME: Service charges 579 584 1,300 1,228 1,051 Securities gains - net 184 10 195 439 493 Gains on sale of real estate acquired in settlement of loans 26 790 859 458 96 Trust fees 212 197 409 444 442 Other 57 31 149 163 597 ------ ------ ------- ------- ------- Total other income 1,058 1,612 2,912 2,732 2,679 ------ ------ ------- ------- ------- OTHER EXPENSES: Salaries and employee benefits (Note 10) 2,255 2,508 5,286 5,123 3,846 Occupancy and equipment 473 364 822 771 754 Federal insurance premiums 189 166 380 387 394 Data processing 191 136 358 405 318 Other 558 598 1,267 1,472 1,956 ------ ------ ------- ------- ------- Total other expenses 3,666 3,772 8,113 8,158 7,268 ------ ------ ------- ------- ------- INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 1,596 1,819 4,291 3,333 1,806 INCOME TAX EXPENSE (Note 8) 385 484 1,036 996 662 ------ ------ ------- ------- ------- INCOME BEFORE MINORITY INTERESTS 1,211 1,335 3,255 2,337 1,144 MINORITY INTERESTS (216) (224) (731) (490) (197) ------ ------ ------- ------- ------- NET INCOME $ 995 $1,111 $ 2,524 $ 1,847 $ 947 ====== ====== ======= ======= ======= EARNINGS PER SHARE $66.48 $76.63 $172.70 $129.80 $ 67.81 ====== ====== ======= ======= ======= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 14,968 14,498 14,615 14,230 13,965 ====== ====== ======= ======= ======= See notes to consolidated financial statements.
F-3 89 THE WEDGE HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED LOSSES ON INVESTMENT SECURITIES ADDITIONAL AVAILABLE PREFERRED COMMON PAID-IN FOR SALE, RETAINED STOCK STOCK CAPITAL NET OF TAX EARNINGS TOTAL BALANCE, DECEMBER 31, 1990 (Unaudited): As previously reported (unaudited) $3,187 $1,385 $ 378 $ - $ 5,042 $ 9,992 As restated for pooling of interest (unaudited) 3,246 3,246 ------ ------ ------ ------- ------- ------- Balance, as restated (unaudited) 3,187 1,385 378 8,288 13,238 Net income (unaudited) 947 947 Stock issuance (unaudited) 23 82 105 ------ ------ ------ ------- ------- ------- BALANCE, DECEMBER 31, 1991 3,187 1,408 460 - 9,235 14,290 Net income 1,847 1,847 Stock issuance (Note 10) 30 136 166 ------ ------ ------ ------- ------- ------- BALANCE, DECEMBER 31, 1992 3,187 1,438 596 - 11,082 16,303 Net income 2,524 2,524 Stock issuance (Note 10) 47 271 318 Distribution at date of merger (Note 2) (3,194) (3,194) ------ ------ ------ ------- ------- ------- BALANCE, DECEMBER 31, 1993 3,187 1,485 867 - 10,412 15,951 Net income (unaudited) 995 995 Stock issuance (unaudited) 47 360 407 Implementation of change in accounting for marketable debt and equity securities (unaudited) 478 478 Unrealized losses on investment securities (unaudited) (1,147) (1,147) ------ ------ ------ ------- ------- ------- BALANCE, JUNE 30, 1994 (unaudited) $3,187 $1,532 $1,227 $ (669) $11,407 $16,684 ====== ====== ====== ======= ======= =======
See notes to consolidated financial statements. F-4 90 THE WEDGE HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) - -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ------------------ ------------------------------------------ 1994 1993 1993 1992 1991 (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 995 $ 1,030 $ 2,524 $ 1,847 $ 947 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion - net 225 236 503 607 398 Provision for loan losses 76 164 240 191 1,132 Deferred tax expense (benefit) (346) 16 16 (263) (49) Securities gains - net (184) (10) (195) (439) (493) Gains on sales of real estate acquired in settlement of loans (26) (790) (859) (458) (96) (Increase) decrease in accrued interest receivable 108 (75) (485) 91 22 (Increase) decrease in other assets 155 (150) (27) (136) (804) (Decrease) increase in other liabilities 313 (93) (494) 695 183 Other 407 407 318 124 -------- -------- -------- -------- -------- Net cash provided by operating activities 1,316 735 1,630 2,453 1,364 -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) decrease in interest-bearing deposits in other depository institutions - (94) (94) 840 - Proceeds from maturities of investment securities available for sale 3,926 Proceeds from sales of investment securities available for sale 3,666 Proceeds from maturities of investment securities held to maturity 860 6,992 18,036 14,296 7,730 Proceeds from sales of investment securities 7,276 17,075 25,500 17,395 Purchases of investment securities available for sale (11,587) Purchases of investment securities held to maturity (22,024) (44,774) (47,431) (29,229) Loan originations less than (in excess of) repayments (1,541) 3,444 6,950 (6,697) (17,172) Proceeds from sales of real estate acquired in settlement of loans 319 87 1,262 1,071 1,200 Net additions to premises and equipment (587) (108) (672) (213) (110) -------- -------- -------- -------- -------- Net cash used in investing activities (4,944) (4,427) (2,217) (12,634) (20,186) -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in deposits (7,546) 4,533 (4,638) 3,786 9,161 Increase in short-term borrowings 6,550 1,000 9,105 3,675 6,250 Distribution at date of merger (3,194) (3,194) Repayment of long-term debt (688) (229) Net increase in minority interests 139 449 629 335 98 -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities (857) 2,788 1,902 7,108 15,280 -------- -------- -------- -------- -------- (Continued) F-5 91 THE WEDGE HOLDING COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ------------------ ------------------------------------------ 1994 1993 1993 1992 1991 (UNAUDITED) (UNAUDITED) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (4,485) $ (904) $ 1,315 $ (3,073) $ (3,542) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,310 10,995 10,995 14,068 17,610 -------- -------- -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,825 $ 10,091 $ 12,310 $ 10,995 $ 14,068 ======== ======== ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid during the period for: Income taxes $ 50 $ 885 $ 1,435 $ 1,065 $ 564 Interest on deposits 2,230 2,362 5,156 6,908 8,733 Interest on short-term borrowings 422 193 485 405 228 Interest on long-term debt 106 52 NONCASH INVESTING AND FINANCING ACTIVITIES: Real estate acquired in settlement of loans 16 16 315 1,020 Issuance of stock pursuant to bonus plan 407 318 318 166 105 Unrealized losses on investment securities 669
See notes to consolidated financial statements. (Concluded) F-6 92 THE WEDGE HOLDING COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1992 - ------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of The Wedge Holding Company (the "Company") and subsidiary conform to generally accepted accounting principles and prevailing practices within the banking industry. A summary of the more significant accounting policies follows: PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of The Wedge Holding Company and its approximately 80%-owned subsidiary, Wedge Bank (the "Bank"). All significant intercompany accounts and transactions have been eliminated. CASH EQUIVALENTS - For purposes of reporting cash flows, cash and cash equivalents include cash on-hand and due from depository institutions and federal funds sold. Generally, federal funds are sold for one day periods. INVESTMENT SECURITIES - Investment securities are stated at cost, adjusted for premiums and discounts. Premiums and discounts are recognized as adjustments to interest income using the level yield method. The Company has the ability to hold these securities to maturity and the intent, at the time of the purchase, to hold them on a long-term basis. Although it is management's intent to hold these securities for investment purposes, they will from time to time sell investment securities prior to maturity because of changes in prepayment risk, asset/liability management strategy, interest rate outlook or other reasons. Gains and losses on dispositions are recorded based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method. LOANS - Loans are stated at the amount of unpaid principal, reduced by unearned discounts and an allowance for loan losses. Interest income on loans is generally accrued based on the principal amounts of the loans outstanding. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued when a reasonable doubt exists as to the full and timely collection of interest or principal or generally when a loan becomes contractually past-due by ninety days or more with respect to principal or interest. ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb losses inherent in existing loans and commitments to extend credit. In determining the adequacy of the allowance, management takes into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, prior loss experience, loan concentration, specific problem loans and current and anticipated economic conditions that may affect the borrowers' ability to pay. F-7 93 REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS - Real estate acquired in settlement of loans is included in other assets in the consolidated balance sheets and consists of assets acquired through foreclosure or deed in lieu of foreclosure. Real estate owned is valued at the lower of cost or estimated fair market value less estimated costs to dispose. Any loss incurred at the time of acquisition or reclassification is charged to the allowance for loan losses. Losses resulting from disposition or periodic reevaluation of real estate owned are charged to expense. PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less accumulated depreciation. Deprecation charged to operations is primarily computed using straight-line and accelerated methods over the estimated useful lives of the related assets. Estimated lives range from 20 to 50 years for buildings and 5 to 7 years for furniture and fixtures. INCOME TAXES - The Company and its subsidiary file a consolidated income tax return with each entity computing its taxes on a separate company basis. The difference between the consolidated tax provision and the subsidiary's tax provision is recorded by the parent company. Deferred income taxes are provided when income and expenses are recognized in different years for financial and income tax reporting purposes. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), which requires an asset-liability approach to measuring the impact of income taxes. The Company adopted SFAS 109 effective January 1, 1993. The effect of applying the new standard was not material to the consolidated financial statements of the Company. Prior to 1993, income taxes were determined under the deferred method in accordance with Accounting Principles Board Opinion No. 11, Accounting for Income Taxes. RECLASSIFICATIONS - Certain amounts included in the 1992 and 1991 consolidated financial statements have been reclassified to conform to the 1993 presentation. 2. BUSINESS COMBINATIONS On May 21, 1993, the Company consummated a merger whereby M&L Holding Company ("M&L"), an affiliate bank holding company, merged its wholly-owned subsidiary bank, Godfrey State Bank ("Godfrey") into the Company's subsidiary bank, Wedge Bank ("Wedge"). To affect this merger, Wedge exchanged one of its shares of common stock for every 2.14 shares of common stock of Godfrey. The merger has been accounted for similar to a pooling of interests. Accordingly, the Company's consolidated financial statements have been restated for all periods presented to include the accounts and operations of Godfrey. Amounts distributed to M&L in connection with the merger are shown as a distribution in the Company's consolidated statement of stockholders' equity for the year ended December 31, 1993. F-8 94 Net interest income and net income of the Company and Godfrey for the year prior to the merger were as follows (in thousands):
NET INTEREST NET 1992 INCOME INCOME The Wedge Holding Company $7,596 $1,566 Godfrey State Bank 1,354 281 ------ ------ Total $8,950 $1,847 ====== ======
On January 2, 1992, the Company merged two of its subsidiaries; First National Bank of Brighton ("First National") and Bethalto National Bank ("Bethalto") into Alton Banking and Trust Company. Each shareholder at First National Bank and Bethalto received one share of Alton Banking and Trust Company common stock, based upon the following conversion factors: First National Bank of Brighton 27 Bethalto National Bank 1.12
At the same time, Alton Banking and Trust Company changed its name to The Wedge Bank. 3. RESERVE BALANCE REQUIREMENTS The Bank is required to maintain certain cash and/or due from bank reserve balances in accordance with Federal Reserve Board requirements. The balances maintained under such requirements as of December 31, 1993 and 1992, were $1,433,000 and $1,277,000, respectively. F-9 95 4. INVESTMENT SECURITIES Investment securities at December 31 are summarized as follows:
1993 ---------------------------------------------------- GROSS GROSS APPROXIMATE AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE (IN THOUSANDS) U.S. Government and Agency obligations $39,864 $ 405 $ (23) $40,246 Obligations of states and political subdivisions 22,045 884 (121) 22,808 Mortgage-backed securities 17,371 379 (60) 17,690 Other securities 1,054 1,054 ------- ------ ----- ------- Total $80,334 $1,668 $(204) $81,798 ======= ====== ===== ======= 1992 ---------------------------------------------------- GROSS GROSS APPROXIMATE AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE (IN THOUSANDS) U.S. Government and Agency obligations $31,718 $ 337 $ (69) $31,986 Obligations of states and political subdivisions 11,725 306 (41) 11,990 Mortgage-backed securities 23,956 556 (113) 24,399 Other securities 3,136 3,136 ------- ------ ----- ------- Total $70,535 $1,199 $(223) $71,511 ======= ====== ===== =======
The amortized cost and approximate market value of investments in debt securities at December 31, 1993, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
APPROXIMATE AMORTIZED MARKET TERM TO MATURITY COST VALUE (IN THOUSANDS) 1 month - 1 year $ 2,403 $ 2,447 1 year - 5 years 18,598 18,914 5 years - 10 years 19,236 19,597 After 10 years 21,672 22,096 ------- ------- Total 61,909 63,054 Mortgage-backed securities 17,371 17,690 ------- ------- Total $79,280 $80,744 ======= =======
F-10 96 Proceeds from sales of investments in debt securities during 1993, 1992 and 1991 were $14,948,000, $23,250,000 and $17,395,000, respectively. Gross gains of $210,000, $463,000 and $504,000 and gross losses of $58,000, $37,000 and $13,000 were realized on such sales during 1993, 1992 and 1991, respectively. At December 31, 1993 and 1992, investment securities with carrying values totaling approximately $25,656,000 and $25,914,000 were pledged to secure public deposits and for other purposes. 5. LOANS Loans at December 31 are summarized as follows:
1993 1992 (IN THOUSANDS) Commercial and agricultural $ 8,444 $ 8,745 Residential real estate 98,877 102,334 Consumer 4,750 8,610 -------- -------- Total loans $112,071 $119,689 ======== ========
Substantially all of the Company's loans are with customers located in the Illinois counties of Madison, Macoupin, Jersey and Calhoun. Included in loans are loans to certain executive officers and directors that have been made in the ordinary course of business on substantially the same terms, including interest and collateral, as those prevailing for comparable transactions with others and do not involve more than the normal risk of collectibility. The activity in such loans during 1993 is as follows: Balance, December 31, 1992 $3,149,000 New loans 1,012,000 Repayments (493,000) ---------- Balance, December 31, 1993 $3,668,000 ==========
At December 31, 1993, 1992 and 1991, the aggregate principal balances of loans on which interest was not being accrued (under the accounting policies described in Note 1) were $420,000, $695,000 and $1,504,000, respectively, and the aggregate principal balances of loans on which the yield had been reduced due to declining financial condition of the borrowers were $0, $234,000 and $240,000, respectively. Interest income that would have been accrued, had these loans been current and had the terms of these loans not been modified because of troubled debt restructurings, was approximately $40,000, $53,000 and $120,000 in 1993, 1992 and 1991, respectively. There was no interest income recorded on these loans in 1993, 1992 or 1991. At December 31, 1993, there were no commitments to lend additional funds to borrowers whose loans are classified as nonaccrual or renegotiated. F-11 97 In the normal course of business, the Bank participates with several banks affiliated through common ownership in the origination of loans. These loans are purchased and/or sold among the banks based upon the respective banks' legal lending limits, liquidity needs and various other considerations. At December 31, the Bank's loan participations with affiliated banks are summarized as follows:
1993 1992 (IN THOUSANDS) Loan participations purchased $1,027 $1,233 Loan participations sold 3,202 1,442
Activity in the allowance for loan losses for the years ended December 31 is summarized as follows:
1991 1993 1992 (UNAUDITED) (IN THOUSANDS) Balance, beginning of year $1,637 $1,503 $ 962 Provision charged to expense 240 191 1,132 Charge-offs (480) (157) (678) Recoveries 55 100 87 ------ ------ ------ Balance, end of year $1,452 $1,637 $1,503 ====== ====== ======
6. PREMISES AND EQUIPMENT Premises and equipment at December 31 is summarized as follows:
1993 1992 (IN THOUSANDS) Land $ 403 $ 389 Buildings 4,510 4,346 Furniture and fixtures 3,057 2,584 ------ ------ Total 7,970 7,319 Less accumulated depreciation 4,478 4,121 ------ ------ Total $3,492 $3,198 ====== ======
F-12 98 The Bank leases a branch facility and various automated teller and computer equipment under noncancelable operating leases. The following is a schedule by years of minimum future rentals as of December 31, 1993:
YEAR ENDING DECEMBER 31 (IN THOUSANDS): 1994 $242 1995 242 1996 167 1997 132 1998 32 ---- Total $815 ====
7. SHORT-TERM BORROWINGS Short-term borrowings at December 31 are summarized as follows:
1993 1992 (IN THOUSANDS) Advances from Federal Home Loan Bank of Chicago $10,500 $ 9,500 Securities sold under agreements to repurchase 8,230 Treasury tax and loan - note option accounts 800 800 Bank demand note 300 425 ------- ------- Total short-term borrowings $19,830 $10,725 ======= =======
Advances from Federal Home Loan Bank of Chicago ("FHLB") are renewed daily. Interest is assessed daily at quoted rates. The interest rate at December 31, 1993, 1992 and 1991 was 3.24%, 3.73% and 5.15%, respectively. Investment securities with a carrying value of $10,917,000 at December 31, 1992 were pledged as collateral for the advances. At December 31, 1993, under a blanket agreement with the FHLB, the Company can obtain advances up to 60% of their qualifying first mortgage loans. These advances are secured under the blanket agreement which assigns all investments in FHLB stock as well as qualifying first mortgage loans equal to 170% of the outstanding balance. At December 31, 1993, the Company had approximately $48,800,000 additional borrowing capacity available to it under the above- mentioned borrowing arrangement. The Bank sells securities under agreements to repurchase the same securities at a later date. The agreements are accounted for as financing transactions and interest, which is paid at a specific rate during the terms of the agreements, is included in interest expense. Interest income on the securities involved in the transactions is recorded by the Company during the terms of the agreements. Repurchase dates for such agreements generally are within one year. F-13 99 As of December 31, 1993, all of the outstanding agreements were fixed-coupon repurchase agreements and are summarized as follows:
1993 (DOLLARS IN THOUSANDS) Average balance during the year $8,230 Average interest rate during the year 3.50% Maximum month-end balance during the year 8,230 Investment securities underlying the agreements at year-end: Carrying value 8,415 Market value 8,696
The Treasury Department (the "Department") allows the Bank to maintain a treasury, tax and loan note option account up to $800,000. Daily, the Department draws down funds in excess of this level. The deposit is callable upon notification by the Department. Interest payments at 2.70%, 2.65% and 4.00% at December 31, 1993, 1992 and 1991, respectively, are due weekly. Investment securities with a carrying value of $1,210,000 and $1,558,000 at December 31, 1993 and 1992 were pledged as collateral for the deposit. During 1992, the Company entered into a demand note agreement with a bank which was used to pay-off then existing long-term debt. The note requires interest at the "prime rate" minus 1/2% per annum. Interest is payable quarterly on the last day of March, June, September and December, commencing June 30, 1992. The note is collateralized by 81,885 shares of stock of the Bank. 8. INCOME TAXES Income tax expense (benefit) consists of the following components for the years ended December 31:
1991 1993 1992 (UNAUDITED) (IN THOUSANDS) Current $1,020 $1,259 $711 Deferred 16 (263) (49) ------ ------ ---- Total $1,036 $ 996 $662 ====== ====== ====
F-14 100 Income tax expense differs from the amount determined by applying the statutory federal tax rate (34%) to income before income taxes and minority interests as follows:
1993 1992 1991 (UNAUDITED) Computed tax at statutory rate $1,459 $1,134 $ 614 Increase (decrease) in income taxes resulting from: Tax-exempt interest income (355) (201) (115) Other - net (68) 63 163 ------ ------ ----- Total $1,036 $ 996 $ 662 ====== ====== =====
Significant timing differences used in the computation of the deferred tax benefit for the years ended December 31, 1992 and 1991 are as follows (in thousands):
1992 1991 (UNAUDITED) Shareholder bonus $(108) $ 75 Deferred compensation (106) Provision for loan losses (65) (127) Other 16 3 ----- ----- Total $(263) $ (49) ===== =====
The tax effect of temporary differences that give rise to deferred tax assets included in other assets in the accompanying consolidated financial statements (there are no deferred tax liabilities) at December 31, 1993, are presented below (in thousands): Deferred tax assets: Allowance for loan losses $183 Deferred compensation 125 Stock bonus plan 28 ---- Deferred tax assets $336 ====
The Company had no valuation allowance for deferred tax assets as of January 1, 1993; therefore there was no change in the valuation allowance for deferred tax assets for the year ended December 31, 1993. 9. REGULATORY CAPITAL REQUIREMENTS Effective December 31, 1992, the fully phased-in regulatory capital requirements for banks categorized as "adequately capitalized" under the provisions of The Federal Deposit Insurance Corporation Improvement Act of 1991, are (1) a minimum leverage capital ratio of Tier 1 capital, as defined, to total adjusted assets of 3% for the highest rated institutions or 4% to 5% for all other institutions, and (2) a minimum ratio of total capital, as defined, to risk-weighted assets of 8% and the Tier 1 capital included in total capital is at least equal to 4% of risk-weighted assets. F-15 101 The Company's minimum leverage capital ratio of Tier 1 capital to total adjusted assets was 8.93% and 8.95% at December 31, 1993 and 1992, respectively. Its minimum ratio of capital to risk-weighted assets was 21.27% and 23.52% of which Tier 1 capital comprised 20.02% and 22.03% of risk-weighted assets at December 31, 1993 and 1992, respectively. Bank dividends are the principal source of funds for the Company. The payment of dividends by the Bank, which is state- chartered, is subject to regulation by the Federal Deposit Insurance Corporation and the State of Illinois. The Bank is not restricted as to the amount of dividends that can be paid, other than what prudent and sound banking principles permit and what must be retained to meet minimum legal capital requirements. Accordingly, $3,838,000 could be paid at December 31, 1993, without reducing the capital of the Bank below minimum standards. 10. BENEFIT PLANS The Company and its subsidiary sponsor a 401(k) savings plan. Eligible employees may contribute up to 18% of their compensation (as defined by the plan). The Company matches up to 50% of each participant's contribution up to a maximum of 2%. The Company and its subsidiary's contributions pursuant to this plan were approximately $50,000, $47,000 and $45,000 in 1993, 1992 and 1991, respectively. In conjunction with its stock bonus plan for an officer/stockholder, the Company awarded 470 shares of common stock for 1993 and 1992 performance. Shares awarded under the plan are issued in the first quarter of the subsequent year. Compensation expense of $400,000, $484,000 and $105,000 was recognized during 1993, 1992 and 1991, respectively, as a result of this bonus plan. 11. CONTINGENCIES The Company and its subsidiary are involved in certain legal actions arising from normal business activities. Management believes that the ultimate liability, if any, resulting from these actions will not materially affect the Company's consolidated financial statements. 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, the Bank offers a variety of financial products to its customers to aid them in meeting their requirements for liquidity and credit enhancement. Generally accepted accounting principles recognize these transactions as contingent liabilities and, accordingly, they are not reflected in the accompanying consolidated financial statements. Following is a discussion of these transactions. STANDBY LETTERS OF CREDIT - These transactions are used by the Bank's customers as a means of improving their credit standing in transactions with unaffiliated third parties. Under these agreements, the Bank agrees to honor certain financial commitments in the event that its customers are unable to do so. At December 31, 1993 and 1992, the Bank had issued standby letters of credit amounting to $85,000 and $105,000, respectively. Management conducts regular reviews of these instruments on an individual customer basis, and the results are considered in assessing the adequacy of the Bank's allowance for loan losses. Management does not anticipate any material losses as a result of the letters of credit. F-16 102 LOAN COMMITMENTS - At December 31, 1993 and 1992, the Bank had commitments outstanding to extend credit totaling approximately $9,442,000 and $8,780,000, respectively. These commitments generally require the customers to maintain certain credit standards. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the counterparty. Management does not anticipate any material losses as a result of these commitments. 13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, Disclosures about Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The estimated fair values of the Company's financial instruments are as follows:
1993 1992 ------------------------ ------------------------ APPROXIMATE APPROXIMATE CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE (IN THOUSANDS) (IN THOUSANDS) Financial assets: Cash and due from depository institutions, federal funds sold and interest-bearing deposits in other depository institutions $ 12,404 $ 12,404 $ 10,995 $ 10,995 Investment securities 80,334 81,798 70,535 71,511 Loans 112,071 115,858 119,689 123,735 Less: Allowance for loan losses 1,452 1,452 1,637 1,637 -------- -------- -------- -------- Loans - net of allowance 110,619 114,406 118,052 122,098 Financial liabilities: Deposits 169,749 171,305 174,387 175,979 Short-term borrowings 19,830 19,830 10,725 10,725
CASH AND DUE FROM DEPOSITORY INSTITUTIONS, FEDERAL FUNDS SOLD AND INTEREST-BEARING DEPOSITS IN OTHER DEPOSITORY INSTITUTIONS - For these instruments, the carrying amount is a reasonable estimate of fair value. INVESTMENT SECURITIES - Fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. F-17 103 LOANS - The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. DEPOSITS -The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. SHORT-TERM BORROWINGS - The carrying amounts are a reasonable estimate of fair value. STANDBY LETTERS OF CREDIT AND LOAN COMMITMENTS - The Company does not have unrecognized financial instruments, other than those discussed in Note 12, which are subject to fair value disclosure. The difference between the fair value and the face value for the instruments disclosed in Note 12 are not considered material. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1993 and 1992. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since these dates, and current estimates of fair value may differ significantly from the amounts presented herein. 14. PROSPECTIVE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115"). Adoption of SFAS 115 is required for fiscal years beginning after December 15, 1993. The provisions of SFAS 115 require the classification of all debt securities and equity securities that have readily determinable fair values into one of the following three categories: * Held-to-maturity - reported at amortized cost * Available for sale - reported at fair value with unrealized gains and losses reported as a separate component of stockholders' equity * Trading - reported at fair value with unrealized gains and losses reported in income Accordingly, when adopted effective January 1, 1994, the Company will classify its debt securities into one of the three categories based upon the Company's assessment of interest rate and prepayment risks and its overall asset/liability management strategy. At December 31, 1993, management tentatively plans on classifying their investment securities in obligations of states and political subdivisions as held for investment and their U.S. Government and Agency obligations and mortgage-backed securities as available-for-sale. Because available-for-sale securities are recorded at fair value with unrealized holding gains and losses, net of related income tax effect, excluded from income, but reported as a separate component of stockholders' equity, management expects the adoption of SFAS 115 to increase their consolidated stockholders' equity by approximately $470,000. F-18 104 In May 1993, FASB issued Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan ("SFAS 114"). The adoption of SFAS 114 is required for fiscal years beginning after December 15, 1994. It requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or the loan's market price, or the fair value of the collateral if the loan is collateral dependent. When adopted in 1995, SFAS 114 is not expected to have a material effect on the Company's consolidated financial statements. In November 1992, FASB issued Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits ("SFAS 112"). Adoption of SFAS 112 is required for fiscal years beginning after December 15, 1993. In December 1990, FASB issued statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106"). Adoption of SFAS 106 is required for fiscal years beginning after December 15, 1994. As the Company does not provide postemployment or postretirement benefits, SFAS 112 and 106 will not have any effect on the Company's consolidated financial statements. 15. THE WEDGE HOLDING COMPANY (PARENT COMPANY ONLY) FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS DECEMBER 31, -------------------- ASSETS 1993 1992 (IN THOUSANDS) Cash $ 61 $ 159 Income tax receivable 77 50 Investment in subsidiary 15,756 16,062 Other assets 767 835 ------- ------- Total assets $16,661 $17,106 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Bank demand note $ 300 $ 425 Other liabilities 410 378 ------- ------- Total liabilities 710 803 STOCKHOLDERS' EQUITY 15,951 16,303 ------- ------- Total liabilities and stockholders' equity $16,661 $17,106 ======= =======
F-19 105
YEARS ENDED CONDENSED STATEMENTS OF INCOME DECEMBER 31, ------------------------------------- 1991 1993 1992 (UNAUDITED) (IN THOUSANDS) REVENUES: Dividends from subsidiary $ 474 $ 622 $209 Other 48 ------ ------ ---- Total revenue 474 670 209 ------ ------ ---- EXPENSES: Interest 70 106 52 Other 235 68 24 ------ ------ ---- Total expenss 305 174 76 ------ ------ ---- INCOME BEFORE INCOME TAX BENEFITS AND EQUITY IN INCOME OF SUBSIDIARY LESS DIVIDENDS RECEIVED 169 496 133 INCOME TAX BENEFITS 77 50 20 ------ ------ ---- INCOME BEFORE EQUITY IN INCOME OF SUBSIDIARY LESS DIVIDENDS RECEIVED 246 546 153 EQUITY IN INCOME OF SUBSIDIARY LESS DIVIDENDS RECEIVED 2,278 1,301 794 ------ ------ ---- NET INCOME $2,524 $1,847 $947 ====== ====== ====
F-20 106
CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, ----------------------------------------------------- 1991 1993 1992 (UNAUDITED) (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,524 $ 1,847 $ 947 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of subsidiary (2,278) (1,301) (794) Amortization expense 21 21 21 Increase in other assets 47 6 6 (Increase) decrease in income tax receivable (27) (30) 54 Increase (decrease) in other liabilities 351 210 25 ------- ------- ----- Net cash provided by operating activities 638 753 259 ------- ------- ----- CASH FLOWS FROM INVESTING ACTIVITIES -- Purchases of subsidiary stock from minority shareholders - - (54) ------- ------- ----- CASH FLOWS FROM FINANCING ACTIVITIES: Capital contribution to subsidiary bank (611) (574) (69) Proceeds from bank demand note 425 Repayment of bank demand note (125) Repayment of long-term debt (688) (229) ------- ------- ----- Net cash used by financing activities (736) (837) (298) ------- ------- ----- NET DECREASE IN CASH (98) (84) (93) CASH, BEGINNING OF YEAR 159 243 336 ------- ------- ----- CASH, END OF YEAR $ 61 $ 159 $ 243 ======= ======= ===== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Income taxes $ 1,435 $ 878 $ 564 Interest 21 106 52 Noncash financing activities - Issuance of stock pursuant to bonus plan 318 166 105 * * * * * *
F-21 107 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of The Wedge Bank: We have audited the accompanying balance sheets of The Wedge Bank as of December 31, 1993 and 1992, and the related statements of income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Bank'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, such financial statements present fairly, in all material respects, the financial position of the Bank at December 31, 1993 and 1992, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP March 25, 1994 F-22 108 THE WEDGE BANK BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) - ------------------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31, 1994 ------------------------ ASSETS (UNAUDITED) 1993 1992 ASSETS: Cash and due from depository institutions (Note 3) $ 7,825 $ 8,110 $ 7,720 Federal funds sold 4,200 3,275 -------- -------- -------- Total cash and cash equivalents 7,825 12,310 10,995 Interest-bearing deposits in other depository institutions 94 94 Investment securities available for sale 59,005 Investment securities held to maturity (approximate market values June 30, 1994 $23,827; December 31, 1993 $81,798; December 31, 1992 $71,511) (Notes 4 and 7) 23,950 80,334 70,535 Loans (Note 5) 113,247 112,071 119,689 Less: Unearned discounts 82 81 106 Allowance for loan losses 1,399 1,452 1,637 -------- -------- -------- Total 111,766 110,538 117,946 Premises and equipment - net (Note 6) 3,858 3,492 3,198 Accrued interest receivable 1,837 1,945 1,460 Real estate acquired in settlement of loans 694 762 990 Other assets (Note 8) 922 519 487 -------- -------- -------- TOTAL $209,951 $209,994 $205,611 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits: Noninterest-bearing $ 23,651 $ 26,878 $ 13,683 Interest-bearing 138,740 142,933 160,861 -------- -------- -------- Total deposits 162,391 169,811 174,544 Short-term borrowings (Note 7) 26,380 19,530 10,300 Accrued interest payable 527 467 523 Advance payments by borrowers for taxes and insurance 685 625 695 Accrued expenses and other liabilities 847 681 992 -------- -------- -------- Total liabilities 190,830 191,114 187,054 STOCKHOLDERS' EQUITY: Common stock, voting, $10 par value - 144,320 shares authorized, issued and outstanding 1,443 1,443 1,443 Additional paid-in capital Net unrealized losses on investment securities available for sale, 5,145 5,145 3,673 net of tax (669) Retained earnings 13,202 12,292 13,441 -------- -------- -------- Total stockholders' equity (Note 9) 19,121 18,880 18,557 -------- -------- -------- TOTAL $209,951 $209,994 $205,611 ======== ======== ======== See notes to consolidated financial statements.
F-23 109 THE WEDGE BANK STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) - --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEARS ENDED JUNE 30, DECEMBER 31, ---------------------- ------------------------------------------- 1994 1993 1993 1992 1991 (UNAUDITED) (UNAUDITED) INTEREST INCOME: Loans $4,430 $4,628 $10,301 $10,868 $10,916 Investment securities: Taxable 1,836 1,624 3,742 4,374 4,855 Tax-exempt 625 404 1,044 592 339 Other 78 65 171 97 351 ------ ------ ------- ------- ------- Total interest income 6,969 6,721 15,258 15,931 16,461 ------ ------ ------- ------- ------- INTEREST EXPENSE: Deposits 2,267 2,385 5,041 6,470 8,795 Short-term borrowings 418 183 464 405 87 ------ ------ ------- ------- ------- Total interest expense 2,685 2,568 5,505 6,875 8,882 ------ ------ ------- ------- ------- NET INTEREST INCOME 4,284 4,153 9,753 9,056 7,579 PROVISION FOR LOAN LOSSES (Note 5) 76 164 240 191 1,132 ------ ------ ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,208 3,989 9,513 8,865 6,447 ------ ------ ------- ------- ------- OTHER INCOME: Service charges 579 584 1,300 1,228 1,051 Securities gains - net 184 10 195 439 493 Gains on sale of real estate acquired in settlement of loans 26 790 859 458 96 Trust fees 212 197 409 444 442 Other 57 41 89 116 297 ------ ------ ------- ------- ------- Total other income 1,058 1,622 2,852 2,685 2,379 ------ ------ ------- ------- ------- OTHER EXPENSES: Salaries 1,661 1,618 3,552 3,138 2,965 Employee benefits (Note 10) 470 382 1,734 1,985 881 Occupancy 239 211 414 336 428 Equipment 234 153 408 435 326 Federal insurance premiums 189 166 380 387 394 Data processing 191 136 358 405 371 Other 553 599 1,072 1,426 1,582 ------ ------ ------- ------- ------- Total other expenses 3,537 3,265 7,918 8,112 6,947 ------ ------ ------- ------- ------- INCOME BEFORE INCOME TAXES 1,729 2,346 4,447 3,438 1,879 INCOME TAX EXPENSE (Note 8) 385 638 964 1,025 679 ------ ------ ------- ------- ------- NET INCOME $1,344 $1,708 $ 3,483 $ 2,413 $ 1,200 ====== ====== ======= ======= ======= EARNINGS PER SHARE $ 9.33 $11.86 $ 24.19 $ 16.76 $ 9.68 ====== ====== ======= ======= ======= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 144 144 144 144 124 ====== ====== ======= ======= ======= See notes to financial statements.
F-24 110 THE WEDGE BANK STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS) - ------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED LOSSES ON INVESTMENT ADDITIONAL SECURITIES COMMON PAID-IN AVAILABLE FOR RETAINED STOCK CAPITAL SALE, NET OF TAX EARNINGS TOTAL BALANCE, DECEMBER 31, 1990 (Unaudited): As previously reported (unaudited) $1,000 $2,399 $ - $ 6,984 $10,383 As restated for pooling of interest (unaudited) 28 89 3,194 3,311 ------ ------ ----- ------- ------- Balance, as restated (unaudited) 1,028 2,488 - 10,178 13,694 Stock issuance (unaudited) 415 1,185 1,600 Dividends paid (unaudited) (250) (250) Contribution of capital (unaudited) 69 69 Net income (unaudited) 1,200 1,200 ------ ------ ----- ------- ------- BALANCE, DECEMBER 31, 1991 1,443 3,673 - 11,197 16,313 Dividends paid (743) (743) Contribution of capital 574 574 Net income 2,413 2,413 ------ ------ ----- ------- ------- BALANCE, DECEMBER 31, 1992 1,443 3,673 - 13,441 18,557 Dividends paid (577) (577) Contribution of capital 611 611 Net income 3,483 3,483 Transfer 1,472 (1,472) Distribution at date of merger (Note 2) (3,194) (3,194) ------ ------ ----- ------- ------- BALANCE, DECEMBER 31, 1993 1,443 5,145 - 12,292 18,880 Unrealized losses on investment securities (unaudited) - - (669) (669) Dividends paid (unaudited) (434) (434) Net income (unaudited) 1,344 1,344 ------ ------ ----- ------- ------- BALANCE, DECEMBER 31, 1994 (Unaudited) $1,443 $5,145 $(669) $13,202 $19,121 ====== ====== ===== ======= ======= See notes to financial statements.
F-25 111 THE WEDGE BANK STATEMENTS OF CASH FLOWS (IN THOUSANDS) - --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEARS ENDED JUNE 30, DECEMBER 31, ------------------------ -------------------------------------------- 1994 1993 1993 1992 1991 (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,344 $ 1,708 $ 3,483 $ 2,413 $ 1,200 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion - net 214 144 437 704 312 Provision for loan losses 76 164 240 191 1,132 Deferred tax (benefit) expense (346) 16 16 (263) (49) Securities gains - net (184) (10) (195) (439) (493) Gains on sales of real estate acquired in settlement of loans (26) (790) (859) (458) (96) (Increase) decrease in accrued interest receivable 108 (75) (485) 91 22 Increase in other assets (46) (88) (5) (125) (370) (Decrease) increase in other liabilities 286 315 (437) 155 92 -------- -------- -------- -------- -------- Net cash provided by operating activities 1,426 1,384 2,195 2,269 1,750 -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) decrease in interest-bearing deposits in other depository institutions - (94) (94) 840 - Proceeds from maturities of investment securities available for sale 3,963 Proceeds from sales of investment securities available for sale 3,666 Proceeds from maturities of investment securities held to maturity 860 6,992 18,036 14,296 7,730 Proceeds from sales of investment securities 7,276 17,075 25,500 17,395 Purchases of investment securities available for sale (11,587) Purchases of investment securities held to maturity (22,024) (44,774) (47,431) (29,229) Loan originations less than (in excess of) repayments (1,541) 3,444 6,950 (6,697) (17,172) Proceeds from sales of real estate acquired in settlement of loans 319 87 1,262 1,071 1,200 Net additions to premises and equipment (587) (108) (672) (213) (110) -------- -------- -------- -------- -------- Net cash used in investing activities (4,907) (4,427) (2,217) (12,634) (20,186) -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in deposits (7,420) 4,547 (4,733) 3,786 9,161 Increase in short-term borrowings 6,850 1,000 9,230 3,675 6,250 Dividends paid to stockholders (434) (214) (577) (743) (250) Contribution of capital from holding company 611 574 69 Distribution at date of merger (3,194) (3,194) -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities (1,004) 2,139 1,337 7,292 15,230 -------- -------- -------- -------- -------- (Continued)
F-26 112 THE WEDGE BANK STATEMENTS OF CASH FLOWS (IN THOUSANDS) - --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEARS ENDED JUNE 30, DECEMBER 31, ------------------------ -------------------------------------------- 1994 1993 1993 1992 1991 (UNAUDITED) (UNAUDITED) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $(4,485) $ (904) $ 1,315 $(3,073) $(3,206) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,310 10,995 10,995 14,068 17,274 ------- ------- ------- ------- ------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,825 $10,091 $12,310 $10,995 $14,068 ======= ======= ======= ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid during the period for: Income taxes $ 50 $ 885 $ 1,235 $ 1,086 $ 699 Interest on deposits 2,230 2,362 5,156 6,908 8,733 Interest on short-term borrowings 418 183 464 405 228 NONCASH INVESTING AND FINANCING ACTIVITIES: Real estate acquired in settlement of loans - 16 16 315 1,020 Unrealized losses on investment securities 669 (Concluded) See notes to financial statements.
F-27 113 THE WEDGE BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of The Wedge Bank (the "Bank") conform to generally accepted accounting principles and prevailing practices within the banking industry. A summary of the more significant accounting policies follows: CASH EQUIVALENTS - For purposes of reporting cash flows, cash and cash equivalents include cash on-hand and due from depository institutions and federal funds sold. Generally, federal funds are sold for one day periods. INVESTMENT SECURITIES - Investment securities are stated at cost, adjusted for premiums and discounts. Premiums and discounts are recognized as adjustments to interest income using the level yield method. The Bank has the ability to hold these securities to maturity and the intent, at the time of the purchase, to hold them on a long-term basis. Although it is management's intent to hold these securities for investment purposes, they will from time to time sell investment securities prior to maturity because of changes in prepayment risk, asset/liability management strategy, interest rate outlook or other reasons. Gains and losses on dispositions are recorded based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method. LOANS - Loans are stated at the amount of unpaid principal, reduced by unearned discounts and an allowance for loan losses. Interest income on loans is generally accrued based on the principal amounts of the loans outstanding. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued when a reasonable doubt exists as to the full and timely collection of interest or principal or generally when a loan becomes contractually past-due by ninety days or more with respect to principal or interest. ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb losses inherent in existing loans and commitments to extend credit. In determining the adequacy of the allowance, management takes into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, prior loss experience, loan concentration, specific problem loans and current and anticipated economic conditions that may affect the borrowers' ability to pay. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS - Real estate acquired in settlement of loans is included in other assets in the consolidated balance sheets and consists of assets acquired through foreclosure or deed in lieu of foreclosure. Real estate owned is valued at the lower of cost or estimated fair market value. Any loss incurred at the time of acquisition or reclassification is charged to the allowance for loan losses. Losses resulting from disposition or periodic reevaluation of real estate owned are charged to expense. F-28 114 PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less accumulated depreciation. Deprecation charged to operations is primarily computed using straight-line and accelerated methods over the estimated useful lives of the related assets. Estimated lives range from 20 to 50 years for buildings and 5 to 7 years for furniture and fixtures. INCOME TAXES - The Bank files a consolidated income tax return with its Parent, the Wedge Holding Company, with each entity computing its taxes on a separate company basis. The difference between the consolidated tax provision and the Bank's tax provision is recorded by the parent company. Deferred income taxes are provided when income and expenses are recognized in different years for financial and income tax reporting purposes. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), which requires an asset-liability approach to measuring the impact of income taxes. The Bank adopted SFAS 109 effective January 1, 1993. The effect of applying the new standard was not material to the financial statements of the Bank. Prior to 1993, income taxes were determined under the deferred method in accordance with Accounting Principles Board Opinion No. 11, Accounting for Income Taxes. EARNINGS PER SHARE - Earnings per share is computed by dividing net income by the weighted average number of shares outstanding during each period. RECLASSIFICATIONS - Certain amounts included in the 1992 and 1991 financial statements have been reclassified to conform to the 1993 presentation. 2. BUSINESS COMBINATIONS On May 21, 1993, the Bank consummated a merger whereby M&L Holding Company ("M&L"), an affiliate bank holding company, merged its wholly-owned subsidiary bank, Godfrey State Bank ("Godfrey") into the Bank. To affect this merger, the Bank exchanged one of its shares of common stock for every 2.14 shares of common stock of Godfrey. The merger has been accounted for similar to a pooling of interests. Accordingly, the Bank's financial statements have been restated for all periods presented to include the accounts and operations of Godfrey. Amounts distributed to M&L in connection with the merger are shown as a distribution in the Bank's statement of stockholders' equity for the year ended December 31, 1993. Net interest income and net income of the Bank and Godfrey for the year prior to the merger were as follows (in thousands):
NET INTEREST NET 1992 INCOME INCOME The Wedge Bank $7,702 $2,132 Godfrey State Bank 1,354 281 ------ ------ Total $9,056 $2,413 ====== ======
F-29 115 On January 2, 1992, two affiliated entities; First National Bank of Brighton ("First National") and Bethalto National Bank ("Bethalto") were merged into Alton Banking and Trust Company. Each shareholder at First National and Bethalto received one share of Alton Banking and Trust Company common stock, based upon the following conversion factors: First National Bank of Brighton 27 Bethalto National Bank 1.12
At the same time, Alton Banking and Trust Company changed its name to The Wedge Bank. 3. RESERVE BALANCE REQUIREMENTS The Bank is required to maintain certain cash and/or due from bank reserve balances in accordance with Federal Reserve Board requirements. The balances maintained under such requirements as of December 31, 1993 and 1992, were $1,433,000 and $1,277,000, respectively. 4. INVESTMENT SECURITIES Investment securities at December 31 are summarized as follows:
1993 ---------------------------------------------------- GROSS GROSS APPROXIMATE AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE (IN THOUSANDS) U.S. Government and Agency obligations $39,864 $ 405 $ (23) $40,246 Obligations of states and political subdivisions 22,045 884 (121) 22,808 Mortgage-backed securities 17,371 379 (60) 17,690 Other securities 1,054 1,054 ------- ------ ----- ------- Total $80,334 $1,668 $(204) $81,798 ======= ====== ===== ======= 1992 ---------------------------------------------------- GROSS GROSS APPROXIMATE AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE (IN THOUSANDS) U.S. Government and Agency obligations $31,718 $ 337 $ (69) $31,986 Obligations of states and political subdivisions 11,725 306 (41) 11,990 Mortgage-backed securities 23,956 556 (113) 24,399 Other securities 3,136 3,136 ------- ------ ----- ------- Total $70,535 $1,199 $(223) $71,511 ======= ====== ===== =======
The amortized cost and approximate market value of investments in debt securities at December 31, 1993, by contractual maturity, are shown below. Expected maturities may differ from contractual F-30 116 maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
APPROXIMATE AMORTIZED MARKET TERM TO MATURITY COST VALUE (IN THOUSANDS) 1 month - 1 year $ 2,403 $ 2,447 1 year - 5 years 18,598 18,914 5 years - 10 years 19,236 19,597 After 10 years 21,672 22,096 ------- ------- Total 61,909 63,054 Mortgage-backed securities 17,371 17,690 ------- ------- Total $79,280 $80,744 ======= =======
Proceeds from sales of investments in debt securities during 1993, 1992 and 1991 were $14,948,000, $23,250,000 and $17,395,000, respectively. Gross gains of $210,000, $463,000 and $504,000 and gross losses of $58,000, $37,000 and $11,000 were realized on such sales during 1993, 1992 and 1991, respectively. At December 31, 1993 and 1992, investment securities with carrying values totaling approximately $25,656,000 and $25,914,000 were pledged to secure public deposits and for other purposes. 5. LOANS Loans at December 31 are summarized as follows:
1993 1992 (IN THOUSANDS) Commercial and agricultural $ 8,444 $ 8,745 Residential real estate 98,877 102,334 Consumer 4,750 8,610 -------- -------- Total loans $112,071 $119,689 ======== ========
Substantially all of the Bank's loans are with customers located in the Illinois counties of Madison, Macoupin, Jersey and Calhoun. F-31 117 Included in loans are loans to certain executive officers and directors that have been made in the ordinary course of business on substantially the same terms, including interest and collateral, as those prevailing for comparable transactions with others and do not involve more than the normal risk of collectibility. The activity in such loans during 1993 is as follows: Balance, December 31, 1992 $3,149,000 New loans 1,012,000 Repayments (493,000) ---------- Balance, December 31, 1993 $3,668,000 ==========
At December 31, 1993, 1992 and 1991, the aggregate principal balances of loans on which interest was not being accrued (under the accounting policies described in Note 1) were $420,000, $695,000 and $1,504,000, respectively, and the aggregate principal balances of loans on which the yield had been reduced due to declining financial condition of the borrowers were $0, $234,000 and $240,000, respectively. Interest income that would have been accrued, had these loans been current and had the terms of these loans not been modified because of troubled debt restructurings, was approximately $40,000, $53,000 and $120,000 in 1993, 1992 and 1991, respectively. There was no interest income recorded on these loans in 1993, 1992 or 1991. At December 31, 1993, there were no commitments to lend additional funds to borrowers whose loans are classified as nonaccrual or renegotiated. In the normal course of business, the Bank participates with several banks affiliated through common ownership in the origination of loans. These loans are purchased and/or sold among the banks based upon the respective banks' legal lending limits, liquidity needs and various other considerations. At December 31, the Bank's loan participations with affiliated banks are summarized as follows:
1993 1992 (IN THOUSANDS) Loan participations purchased $1,027 $1,233 Loan participations sold 3,202 1,442
Activity in the allowance for loan losses for the years ended December 31 is summarized as follows:
1991 1993 1992 (UNAUDITED) (IN THOUSANDS) Balance, beginning of year $1,637 $1,503 $ 962 Provision charged to expense 240 191 1,132 Charge-offs (480) (157) (678) Recoveries 55 100 87 ------ ------ ------ Balance, end of year $1,452 $1,637 $1,503 ====== ====== ======
F-32 118 6. PREMISES AND EQUIPMENT Premises and equipment at December 31 is summarized as follows:
1993 1992 (IN THOUSANDS) Land $ 403 $ 389 Buildings 4,510 4,346 Furniture and fixtures 3,057 2,584 ------ ------ Total 7,970 7,319 Less accumulated depreciation 4,478 4,121 ------ ------ Total $3,492 $3,198 ====== ======
The Bank leases a branch facility and various automated teller and computer equipment under noncancelable operating leases. The following is a schedule by years of minimum future rentals as of December 31, 1993:
YEAR ENDING DECEMBER 31 (IN THOUSANDS): 1994 $242 1995 242 1996 167 1997 132 1998 32 ---- Total $815 ====
7. SHORT-TERM BORROWINGS Short-term borrowings at December 31 are summarized as follows:
1993 1992 (IN THOUSANDS) Advances from Federal Home Loan Bank of Chicago $10,500 $ 9,500 Securities sold under agreements to repurchase 8,230 Treasury tax and loan - note option accounts 800 800 ------- ------- Total short-term borrowings $19,530 $10,300 ======= =======
Advances from Federal Home Loan Bank of Chicago ("FHLB") are renewed daily. Interest is assessed daily at quoted rates. The interest rate at December 31, 1993, 1992 and 1991 was 3.24%, 3.73% and 5.15%, respectively. Investment securities with a carrying value of $10,917,000 at December 31, 1992 were pledged as collateral for the advances. At December 31, 1993, under a blanket agreement with the FHLB, the Bank can obtain advances up to 60% of its qualifying first mortgage loans. These advances are secured under the blanket agreement which assigns all investments in FHLB stock as well F-33 119 as qualifying first mortgage loans equal to 170% of the outstanding balance. At December 31, 1993, the Bank had approximately $48,800,000 additional borrowing capacity available to it under the above-mentioned borrowing arrangement. The Bank sells securities under agreements to repurchase the same securities at a later date. The agreements are accounted for as financing transactions and interest, which is paid at a specific rate during the terms of the agreements, is included in interest expense. Interest income on the securities involved in the transactions is recorded by the Bank during the terms of the agreements. Repurchase dates for such agreements generally are within one year. As of December 31, 1993, all of the outstanding agreements were fixed-coupon repurchase agreements and are summarized as follows:
1993 (DOLLARS IN THOUSANDS) Average balance during the year $8,230 Average interest rate during the year 3.50% Maximum month-end balance during the year 8,230 Investment securities underlying the agreements at year-end: Carrying value 8,415 Market value 8,696
The Treasury Department (the "Department") allows the Bank to maintain a treasury, tax and loan note option account up to $800,000. Daily, the Department draws down funds in excess of this level. The deposit is callable upon notification by the Department. Interest payments at 2.70%, 2.65% and 4.00% at December 31, 1993, 1992 and 1991, respectively, are due weekly. Investment securities with a carrying value of $1,210,000 and $1,558,000 at December 31, 1993 and 1992 were pledged as collateral for the deposit. 8. INCOME TAXES Income tax expense (benefit) consists of the following components for the years ended December 31:
1991 1993 1992 (UNAUDITED) (IN THOUSANDS) Current $948 $1,288 $728 Deferred 16 (263) (49) ---- ------ ---- Total $964 $1,025 $679 ==== ====== ====
F-34 120 Income tax expense differs from the amount determined by applying the statutory federal tax rate (34%) to income before income taxes as follows:
1993 1992 1991 (UNAUDITED) Computed tax at statutory rate $1,512 $1,169 $ 639 Increase (decrease) in income taxes resulting from: Tax-exempt interest income (355) (201) (115) Other - net (193) 57 155 ------ ------ ----- Total $ 964 $1,025 $ 679 ====== ====== =====
Significant timing differences used in the computation of the deferred tax benefit for the years ended December 31, 1992 and 1991 are as follows:
1992 1991 (UNAUDITED) (IN THOUSANDS) Shareholder bonus $(108) $ 75 Deferred compensation (106) - Provision for loan losses in excess of amounts deductible for income tax purposes (65) (127) Other 16 3 ----- ----- Total $(263) $ (49) ===== =====
The tax effect of temporary differences that give rise to deferred tax assets included in other assets in the accompanying financial statements (there are no deferred tax liabilities) at December 31, 1993, are presented below (in thousands): Deferred tax assets: Allowance for loan losses $183 Deferred compensation 125 Stock bonus plan 28 ---- Deferred tax assets $336 ====
The Bank had no valuation allowance for deferred tax assets as of January 1, 1993; therefore there was no change in the valuation allowance for deferred tax assets for the year ended December 31, 1993. 9. REGULATORY CAPITAL REQUIREMENTS Effective December 31, 1992, the fully phased-in regulatory capital requirements for banks categorized as "adequately capitalized" under the provisions of The Federal Deposit Insurance Corporation Improvement Act of 1991, are (1) a minimum leverage capital ratio of Tier 1 capital, as defined, to total adjusted assets of 3% for the highest rated institutions or 4% to 5% for all other institutions, and (2) a F-35 121 minimum ratio of total capital, as defined, to risk-weighted assets of 8% and the Tier 1 capital included in total capital is at least equal to 4% of risk-weighted assets. The Bank's minimum leverage capital ratio of Tier 1 capital to total adjusted assets was 8.93% and 8.95% at December 31, 1993 and 1992, respectively. Its minimum ratio of capital to risk- weighted assets was 21.27% and 23.52% of which Tier 1 capital comprised 20.02% and 22.03% of risk-weighted assets at December 31, 1993 and 1992, respectively. The payment of dividends by the Bank, which is state-chartered, is subject to regulation by the Federal Deposit Insurance Corporation and the State of Illinois. The Bank is not restricted as to the amount of dividends that can be paid, other than what prudent and sound banking principles permit and what must be retained to meet minimum legal capital requirements. Accordingly, $3,838,000 could be paid at December 31, 1993, without reducing the capital of the Bank below minimum standards. 10. BENEFIT PLANS The Bank sponsors a 401(k) savings plan. Eligible employees may contribute up to 18% of their compensation (as defined by the plan). The Bank matches up to 50% of each participant's contribution up to a maximum of 2%. The Bank's contribution pursuant to this plan was approximately $50,000, $47,000 and $45,000 in 1993, 1992 and 1991, respectively. An officer/stockholder of the Bank participates in a stock bonus plan whereby he receives shares of The Wedge Holding Company (the "Company") common stock based upon certain performance criteria. Because the criteria are based upon the activities of the Bank, the compensation expense is recorded by the Bank based upon the book value of shares issued. The offsetting credit is treated as a contribution of capital from the Company. In conjunction with this stock bonus plan, the Company awarded 470 shares of common stock for 1993 and 1992 performance. Shares awarded under the plan are issued in the first quarter of the subsequent year. Compensation expense of $400,000, $484,000 and $105,000 was recognized during 1993, 1992 and 1991, respectively, as a result of this bonus plan. 11. CONTINGENCIES The Bank is involved in certain legal actions arising from normal business activities. Management believes that the ultimate liability, if any, resulting from these actions will not materially affect the Bank's financial statements. 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, the Bank offers a variety of financial products to its customers to aid them in meeting their requirements for liquidity and credit enhancement. Generally accepted accounting principles recognize these transactions as contingent liabilities and, accordingly, they are not reflected in the accompanying financial statements. Following is a discussion of these transactions. STANDBY LETTERS OF CREDIT - These transactions are used by the Bank's customers as a means of improving their credit standing in transactions with unaffiliated third parties. Under these agreements, the Bank agrees to honor certain financial commitments in the event that its customers are unable to do so. At December 31, 1993 and 1992, the Bank had issued standby letters of credit amounting to $85,000 and $105,000, respectively. F-36 122 Management conducts regular reviews of these instruments on an individual customer basis, and the results are considered in assessing the adequacy of the Bank's allowance for loan losses. Management does not anticipate any material losses as a result of the letters of credit. LOAN COMMITMENTS - At December 31, 1993 and 1992, the Bank had commitments outstanding to extend credit totaling approximately $9,442,000 and $8,780,000, respectively. These commitments generally require the customers to maintain certain credit standards. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the counterparty. Management does not anticipate any material losses as a result of these commitments. 13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, Disclosures about Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Bank, using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Bank could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. F-37 123 The estimated fair values of the Bank's financial instruments are as follows:
1993 1992 ------------------------ ------------------------ APPROXIMATE APPROXIMATE CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE (IN THOUSANDS) (IN THOUSANDS) Financial assets: Cash and due from depository institutions, federal funds sold and interest-bearing deposits in other depository institutions $ 12,404 $ 12,404 $ 10,995 $ 10,995 Investment securities 80,334 81,798 70,535 71,511 Loans 112,071 115,858 119,689 123,735 Less: Allowance for loan losses 1,452 1,452 1,637 1,637 -------- -------- -------- -------- Loans - net of allowance 110,619 114,406 118,052 122,098 Financial liabilities: Deposits 169,811 171,305 174,544 175,979 Short-term borrowings 19,530 19,530 10,300 10,300
CASH AND DUE FROM DEPOSITORY INSTITUTIONS, FEDERAL FUNDS SOLD AND INTEREST-BEARING DEPOSITS IN OTHER DEPOSITORY INSTITUTIONS - For these instruments, the carrying amount is a reasonable estimate of fair value. INVESTMENT SECURITIES - Fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. LOANS - The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. DEPOSITS -The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. SHORT-TERM BORROWINGS - The carrying amounts are a reasonable estimate of fair value. STANDBY LETTERS OF CREDIT AND LOAN COMMITMENTS - The Bank does not have unrecognized financial instruments, other than those discussed in Note 12, which are subject to fair value disclosure. The difference between the fair value and the face value for the instruments disclosed in Note 12 are not considered material. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1993 and 1992. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since these dates, and current estimates of fair value may differ significantly from the amounts presented herein. F-38 124 14. PROSPECTIVE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115"). Adoption of SFAS 115 is required for fiscal years beginning after December 15, 1993. The provisions of SFAS 115 require the classification of all debt securities and equity securities that have readily determinable fair values into one of the following three categories: * Held-to-maturity - reported at amortized cost * Available for sale - reported at fair value with unrealized gains and losses reported as a separate component of stockholders' equity * Trading - reported at fair value with unrealized gains and losses reported in income Accordingly, when adopted effective January 1, 1994, the Bank will classify its debt securities into one of the three categories based upon the Bank's assessment of interest rate and prepayment risks and its overall asset/liability management strategy. At December 31, 1993, management tentatively plans on classifying their investment securities in obligations of states and political subdivisions as held for investment and their U.S. Government and Agency obligations and mortgage-backed securities as available-for-sale. Because available-for-sale securities are recorded at fair value with unrealized holding gains and losses, net of related income tax effect, excluded from income, but reported as a separate component of stockholders' equity, management expects the adoption of SFAS 115 to increase their stockholders' equity by approximately $470,000. In May 1993, FASB issued Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan ("SFAS 114"). The adoption of SFAS 114 is required for fiscal years beginning after December 15, 1994. It requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or the loan's market price, or the fair value of the collateral if the loan is collateral dependent. When adopted in 1995, SFAS 114 is not expected to have a material effect on the Bank's financial statements. In November 1992, FASB issued Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits ("SFAS 112"). Adoption of SFAS 112 is required for fiscal years beginning after December 15, 1993. In December 1990, FASB issued statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106"). Adoption of SFAS 106 is required for fiscal years beginning after December 15, 1994. As the Bank does not provide postemployment or postretirement benefits, SFAS 112 and 106 will not have any effect on the Bank's financial statements. * * * * * * F-39 125 ANNEX A ------- Following is the text of the statutory dissenters' rights as set forth in Section 5/29 of the Illinois Banking Act. Section 29. Dissenting stockholders. If a stockholder of a state bank which is a party to a merger other than a merger which is to result in a national bank, shall file with such bank prior to or at the meeting of stockholders at which the plan of merger is submitted to a vote, a written objection to such plan or merger, and shall not vote in favor thereof, and such stockholder, within 20 days after receiving written notice of the date the merger became effective, shall make written demand on the continuing bank for payment of the fair value of his shares as of the day prior to the date on which the vote was taken approving the merger, the continuing bank shall pay to such stockholder, upon surrender of his certificate or certificates representing said stock, the fair value thereof. Such demand shall state the number of the shares owned by such dissenting stockholder. The continuing bank shall provide written notice of the effective date of the merger to all shareholders who have filed written objections in order that such dissenting shareholders may know when they must file written demand if they choose to do so. Any stockholder failing to make demand within the 20-day period shall be conclusively presumed to have consented to the merger and shall be bound by the terms thereof. If within 30 days after the date on which such merger was effected the value of such shares is agreed upon between the dissenting stockholders and the continuing bank, payment therefor shall be made within 90 days after the date on which such merger was effected, upon the surrender of his certificate or certificates representing said shares. Upon payment of the agreed value the dissenting stockholder shall cease to have any interest in such shares or in the continuing bank. If within such period of 30 days the stockholder and the continuing bank do not so agree, then the dissenting stockholder may, within 60 days after the expiration of the 30-day period, file a complaint in the circuit court asking for a finding and determination of the fair value of such shares, and shall be entitled to judgment against the continuing bank for the amount of such fair value as of the day prior to the date on which such vote was taken approving such merger with interest thereon to the date of such judgment. The practice, procedure and judgment shall be governed by the Civil Practice Law of this State. The judgment shall be payable only upon and simultaneously with the surrender to the continuing bank of the certificate or certificates representing said shares. Upon the payment of the judgment, the dissenting stockholder shall cease to have any interest in such shares or in the continuing bank. Such shares of stock may be held and disposed of by the continuing bank. Unless the dissenting stockholder shall file such complaint within the time herein limited, such stockholder and all persons claiming under him shall be conclusively presumed to have approved and ratified the merger, and shall be bound by the terms thereof. The right of a dissenting stockholder to be paid the fair value of his shares of stock as herein provided shall cease if and when the continuing bank shall abandon the merger. - A-1 - 126 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ------------------------------------------ Item 20. Indemnification of Officers and Directors - --------------------------------------------------- Sections 351.355(1) and (2) of The General and Business Corporation Law of the State of Missouri provide that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, except that, in the case of an action or suit by or in the right of the corporation, the corporation may not indemnify such persons against judgments and fines and no person shall be indemnified as to any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation, unless and only to the extent that the court in which the action or suit was brought determines upon application that such person is fairly and reasonably entitled to indemnity for proper expenses. Section 351.355(3) provides that, to the extent that a director, officer, employee or agent of the corporation has been successful in the defense of any such action, suit or proceeding or any claim, issue or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred in connection with such action, suit or proceeding. Section 351.355(7) provides that a corporation may provide additional indemnification to any person indemnifiable under subsection (1) or (2), provided such additional indemnification is authorized by the corporation's articles of incorporation or an amendment thereto or by a shareholder-approved bylaw or agreement, and provided further that no person shall thereby be indemnified against conduct which was finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct or which involved an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934. Article 12 of the Restated Articles of Incorporation of the Registrant provides that the Registrant shall extend to its directors and executive officers the indemnification specified in subsections (1) and (2) and the additional indemnification authorized in subsection (7) and that it may extend to other officers, employees and agents such indemnification and additional indemnification. Pursuant to directors' and officers' liability insurance policies, with total annual limits of $30,000,000, the Registrant's directors and officers are insured, subject to the limits, retention, exceptions and other terms and conditions of such policy, against liability for any actual or alleged error, misstatement, misleading statement, act or omission, or neglect or breach of duty by the directors or officers of the Registrant, individually or collectively, or any matter claimed against them solely by reason of their being directors or officers of the Registrant. - II-1 - 127 Item 21. Exhibits and Financial Statement Schedules - ---------------------------------------------------- A. Exhibits. See Exhibit Index. --------- B. Financial Statement Schedules. Not Applicable. ------------------------------ Item 22. Undertakings - ---------------------- (1) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (2) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (4) The Registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415 (Section 230.415 of this chapter), will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in the documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. (6) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. - II-2 - 128 (7) The undersigned Registrant hereby undertakes: (a) To file during any period in which offers and sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof), which individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (b) That for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. - II-3 - 129 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri, on September 8, 1994. MERCANTILE BANCORPORATION INC. By/s/Thomas H. Jacobsen ---------------------------------------- Thomas H. Jacobsen Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/Thomas H. Jacobsen Chairman of the Board, September 8, 1994 - ------------------------------ President, Chief Executive Thomas H. Jacobsen Officer and Director Principal Executive Officer /s/W. Randolph Adams Executive Vice President and September 8, 1994 - ------------------------------ Chief Financial Officer W. Randolph Adams Principal Financial Officer /s/Michael T. Normile Senior Vice President and September 8, 1994 - ------------------------------ Treasurer Michael T. Normile Principal Accounting Officer * Director September 8, 1994 - ------------------------------ Richard P. Conerly * Director September 8, 1994 - ------------------------------ Harry M. Cornell, Jr. * Director September 8, 1994 - ------------------------------ Earl K. Dille * Director September 8, 1994 - ------------------------------ J. Cliff Eason - II-4 - 130 Signature Title Date --------- ----- ---- * Director September 8, 1994 - ------------------------------ Bernard A. Edison * Director September 8, 1994 - ------------------------------ William A. Hall * Director September 8, 1994 - ------------------------------ Thomas A. Hays * Director September 8, 1994 - ------------------------------ William G. Heckman * Director September 8, 1994 - ------------------------------ James B. Malloy * Director September 8, 1994 - ------------------------------ Charles H. Price II * Director September 8, 1994 - ------------------------------ Harvey Saligman * Director September 8, 1994 - ------------------------------ Craig D. Schnuck * Director September 8, 1994 - ------------------------------ Robert W. Staley * Director September 8, 1994 - ------------------------------ Robert L. Stark * Director September 8, 1994 - ------------------------------ Patrick T. Stokes * Director September 8, 1994 - ------------------------------ Francis A. Stroble * Director September 8, 1994 - ------------------------------ Joseph G. Werner - II-5 - 131 Signature Title Date --------- ----- ---- * Director September 8, 1994 - ------------------------------ John A. Wright
*By /s/Thomas H. Jacobsen --------------------------------------- Thomas H. Jacobsen, Attorney-in-fact Thomas H. Jacobsen, by signing his name hereto, does sign this document on behalf of the persons named above, pursuant to a power of attorney duly executed by such persons, filed herewith as Exhibit 25. - II-6 - 132 EXHIBIT INDEX
Exhibit Number Description Page - ------- ----------- ---- 2.1 Agreement and Plan of Reorganization, dated July 6, 1994, by and among MBI, Mercantile Illinois, Wedge Holding and Wedge Bank. 2.2 Plan of Merger, dated as of August 31, 1994, by and between Wedge Bank and Mercantile Bank of Alton. 2.3 Shareholders Agreement, dated July 6, 1994, by and between MBI and Melvin G. Hall. 2.4 Shareholders Agreement, dated July 6, 1994, by and between MBI and Robert Lynn Hall. 3.1 MBI's Restated Articles of Incorporation, as amended and currently in effect (filed as Exhibit 3(i) to MBI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 and incorporated herein by reference). 3.2 MBI's By-Laws, as amended and currently in effect (filed as Exhibit 3(ii) to MBI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 and incorporated herein by reference). 4.1 Form of Indenture between MBI and Bankers Trust Company, Trustee (filed January 17, 1974 as Exhibit 4-A to Registration No. 2-49855 and incorporated herein by reference). 4.2 Form of Indenture Regarding Subordinated Securities between MBI and The First National Bank of Chicago, Trustee (filed as Exhibit 4-1 to MBI's Report on Form 8-K dated September 24, 1992 and incorporated herein by reference). 4.3 Rights Agreement dated as of May 23, 1988 between MBI and Mercantile Bank, as Rights Agent (including as exhibits there to the form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock and the form of Right Certificate)(filed on May 24, 1988 as Exhibits 1 and 2 to MBI's Registration Statement on Form 8-A, and incorporated herein by reference). 4.4 Form of Indenture between Ameribanc, Inc. and First Trust Company, Inc., Trustee (filed as Exhibit 4.4 to MBI's Registration No. 33-63196 and incorporated herein by reference). 4.5 First Supplemental Indenture by and among Mercantile Bancorporation Inc., Mercantile Acquisition Corporation I and First Trust National Association (filed as Exhibit 4.5 to MBI's Registration No. 33-63196 and incorporated herein by reference). 5.1 Opinion of Thompson & Mitchell as to the legality of the securities being registered. - II-7 - 133 Exhibit Number Description Page - ------- ----------- ---- 8.1 Form of Opinion of Thompson & Mitchell regarding certain tax matters in the Acquisition. 10.1 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan, filed on April 28, 1994 as Appendix B to the Definitive Proxy Materials of MBI, is incorporated herein by reference. 10.2 The Mercantile Bancorporation Inc. 1994 Executive Incentive Compensation Plan, filed on April 28, 1994 as Appendix C to the Definitive Proxy Materials of MBI, is incorporated herein by reference. 10.3 The Mercantile Bancorporation Inc. 1994 Voluntary Deferred Compensation Plan, filed on April 28, 1994 as Appendix D to the Definitive Proxy Materials of MBI, is incorporated herein by reference. 10.4 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan for Non-Employee Directors, filed on April 28, 1994 as Appendix E to the Definitive Proxy Materials of MBI, is incorporated herein by reference. 23.1 Consent of KPMG Peat Marwick LLP with regard to use of its report on MBI's financial statements. 23.2 Consent of Deloitte & Touche LLP with regard to the use of its report on Wedge Holding's and Wedge Bank's financial statements. 23.4 Consent of Thompson & Mitchell (included in Exhibit 5.1 and Exhibit 8.1). 24.1 Power of Attorney. - II-8 -
EX-2.1 2 AGREEMENT AND PLAN OF REORGANIZATION 1 - ----------------------------------------------------------------------------- AGREEMENT AND PLAN OF REORGANIZATION AMONG MERCANTILE BANCORPORATION INC., A MISSOURI CORPORATION AND MERCANTILE BANCORPORATION OF ILLINOIS INC. A MISSOURI CORPORATION AND WEDGE BANK, AN ILLINOIS STATE BANK AND THE WEDGE HOLDING COMPANY, AN ILLINOIS CORPORATION - ----------------------------------------------------------------------------- 2 TABLE OF CONTENTS -----------------
Page ---- Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I --------- THE ACQUISITION TRANSACTIONS 1.01 The Acquisition Transactions. . . . . . . . . . 2 1.02 Closing . . . . . . . . . . . . . . . . . . . . 2 1.03 Method of Effecting Merger and Effective Time. . . . . . . . . . . . . . . . . 3 1.04 Charter and By-Laws . . . . . . . . . . . . . . 3 1.05 Board of Directors and Officers . . . . . . . . 3 1.06 Additional Actions. . . . . . . . . . . . . . . 3 1.07 Conversion of Securities. . . . . . . . . . . . 4 1.08 Exchange Procedures . . . . . . . . . . . . . . 4 1.09 Dissenting Shares . . . . . . . . . . . . . . . 6 1.10 No Fractional Shares. . . . . . . . . . . . . . 7 1.11 Transfer Restrictions; Closing of Stock Transfer Books. . . . . . . . . . . . . . 7 1.12 Anti-Dilution . . . . . . . . . . . . . . . . . 7 ARTICLE II ---------- REPRESENTATIONS AND WARRANTIES OF SELLERS 2.01 Organization and Authority. . . . . . . . . . . 8 2.02 Corporate Authorization; Records. . . . . . . . 8 2.03 Subsidiaries. . . . . . . . . . . . . . . . . . 10 2.04 Capitalization of Wedge Bank. . . . . . . . . . 10 2.05 Financial Statements. . . . . . . . . . . . . . 10 2.06 Reports . . . . . . . . . . . . . . . . . . . . 11 2.07 Title to and Condition of Assets. . . . . . . . 12 2.08 Real Property . . . . . . . . . . . . . . . . . 12 2.09 Contracts . . . . . . . . . . . . . . . . . . . 13 2.10 Absence of Defaults . . . . . . . . . . . . . . 15 2.11 Absence of Undisclosed Liabilities. . . . . . . 16 2.12 Allowance for Loan and Lease Losses; Non-performing Assets . . . . . . . . . . . . . 16 2.13 Taxes.. . . . . . . . . . . . . . . . . . . . . 17 2.14 Material Adverse Change . . . . . . . . . . . . 17 2.15 Litigation and Other Proceedings. . . . . . . . 17 2.16 Governmental Compliance . . . . . . . . . . . . 18 2.17 Labor . . . . . . . . . . . . . . . . . . . . . 19 2.18 Interests of Certain Persons. . . . . . . . . . 19 2.19 Employee Benefit Plans. . . . . . . . . . . . . 19 2.20 Conduct of Wedge Holding's and Wedge Bank's Businesses to Date . . . . . . . . . . . 20 2.21 Registration Statement, etc.. . . . . . . . . . 21 - i - 3 Page ---- 2.22 Brokers and Finders; Other Liabilities . . . . . . . . . . . . . . . . . . 21 ARTICLE III ----------- REPRESENTATIONS AND WARRANTIES OF THE MERCANTILE ENTITIES 3.01 Organization and Authority. . . . . . . . . . . 22 3.02 Authorization . . . . . . . . . . . . . . . . . 22 3.03 Capitalization of Mercantile. . . . . . . . . . 23 3.04 Mercantile Financial Statements . . . . . . . . 24 3.05 Reports . . . . . . . . . . . . . . . . . . . . 24 3.06 Material Adverse Change . . . . . . . . . . . . 25 3.07 Registration Statement, Proxy Statement etc.. . . . . . . . . . . . . . . . . 25 3.08 Brokers and Finders . . . . . . . . . . . . . . 25 3.09 Legal Proceedings or Other Adverse Facts . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE IV ---------- CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME 4.01 Conduct of Businesses Prior to the Effective Time. . . . . . . . . . . . . . . . . 26 4.02 Forbearances of Wedge Holding and Wedge Bank. . . . . . . . . . . . . . . . . . . 26 4.03 Forbearances of the Mercantile Entities. . . . . . . . . . . . . . . . . . . . 28 ARTICLE V --------- ADDITIONAL AGREEMENTS 5.01 Access and Information; Due Diligence . . . . . . . . . . . . . . . . . . . 28 5.02 Registration Statement; Regulatory Matters . . . . . . . . . . . . . . . . . . . . 30 5.03 Shareholder Approvals . . . . . . . . . . . . . 30 5.04 Current Information . . . . . . . . . . . . . . 30 5.05 Agreements of Affiliates. . . . . . . . . . . . 31 5.06 Expenses. . . . . . . . . . . . . . . . . . . . 31 5.07 Miscellaneous Agreements and Consents. . . . . . . . . . . . . . . . . . . . 31 5.08 Press Releases. . . . . . . . . . . . . . . . . 32 5.09 Indemnification of Wedge Bank's Directors, Officers and Employees . . . . . . . 32 5.10 Employee Benefit Plans. . . . . . . . . . . . . 32 5.11 Taxes of Wedge Holding. . . . . . . . . . . . . 32 - ii - 4 Page ---- ARTICLE VI ---------- CONDITIONS 6.01 Conditions to Each Party's Obligation To Effect the Acquisition . . . . . . . . . . . . . . . . . . 33 6.02 Conditions to Obligations of the Sellers . . . . . . . . . . . . . . . . . . . . 33 6.03 Conditions to Obligations of the Mercantile Entities . . . . . . . . . . . . . . 35 ARTICLE VII ----------- TERMINATION, AMENDMENT AND WAIVER 7.01 Termination . . . . . . . . . . . . . . . . . . 36 7.02 Effect of Termination . . . . . . . . . . . . . 37 7.03 Amendment . . . . . . . . . . . . . . . . . . . 37 7.04 Waiver. . . . . . . . . . . . . . . . . . . . . 37 ARTICLE VIII ------------ GENERAL PROVISIONS 8.01 Non-Survival of Representations; Warranties and Agreements . . . . . . . . . . . 38 8.02 Indemnification . . . . . . . . . . . . . . . . 38 8.03 No Assignment; Successors and Assigns . . . . . . . . . . . . . . . . . . . . 38 8.04 Severability. . . . . . . . . . . . . . . . . . 39 8.05 No Implied Waiver . . . . . . . . . . . . . . . 39 8.06 Headings. . . . . . . . . . . . . . . . . . . . 39 8.07 Entire Agreement. . . . . . . . . . . . . . . . 39 8.08 Counterparts. . . . . . . . . . . . . . . . . . 39 8.09 Notices . . . . . . . . . . . . . . . . . . . . 40 8.10 Governing Law . . . . . . . . . . . . . . . . . 40
- iii - 5 AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), made and entered into as of July 6, 1994 by and among MERCANTILE BANCORPORATION INC., a Missouri corporation ("Mercantile"), MERCANTILE BANCORPORATION OF ILLINOIS INC., a Missouri corporation ("Mercantile Illinois" and, collectively with Mercantile, the "Mercantile Entities"), WEDGE BANK, an Illinois state bank ("Wedge Bank"), and THE WEDGE HOLDING COMPANY, an Illinois corporation ("Wedge Holding" and, collectively with Wedge Bank, the "Sellers"), has reference to the following facts and circumstances: A. Mercantile Illinois desires to acquire one hundred percent (100%) ownership of the issued and outstanding shares of common stock of Wedge Bank; and B. Wedge Holding is the beneficial and record owner of eighty-two and sixteen one-hundredths percent (82.16%) of the issued and outstanding shares of the common stock of Wedge Bank; and C. Mercantile is the beneficial and record owner of one hundred percent (100%) of the issued and outstanding shares of the common stock of Mercantile Illinois which will be the beneficial owner of one hundred percent of the issued and outstanding shares of the common stock of Mercantile Acquisition Bank upon its formation as an Illinois state-chartered bank ("Acquisition Bank"); and D. Wedge Holding has agreed to exchange all shares of Wedge Bank owned beneficially and of record by Wedge Holding to Mercantile Illinois in consideration of the issuance of shares of Mercantile Common Stock by Mercantile to Wedge Holding as described in this Agreement; and E. The Executive Committee of the Board of Directors of Mercantile and the respective Boards of Directors of Mercantile Illinois, Acquisition Bank and Wedge Bank will approve the concurrent merger of Acquisition Bank with and into Wedge Bank pursuant to the terms of this Agreement as a result of which Mercantile Illinois will convert the seventeen and eighty-four one- hundredths percent (17.84%) of the issued and outstanding shares of Wedge Bank not owned by Wedge Holding; and F. The Mercantile Entities and the Sellers 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: 6 ARTICLE I --------- THE ACQUISITION TRANSACTIONS 1.01 The Acquisition Transactions. Subject to the ---------------------------- terms and conditions of this Agreement, Mercantile Illinois and Wedge Holding will consummate an exchange of all shares of Wedge Bank common stock, $10.00 par value (the "Wedge Bank Common Stock"), owned beneficially and of record by Wedge Holding (the "Exchange") for shares of common stock, $5.00 par value, of Mercantile with associated "Rights" under the "Rights Agreement" (as those terms are defined in Section 3.03 hereof) (collectively, the "Mercantile Common Stock") as set forth in this Agreement. Mercantile hereby undertakes to execute and deliver or cause to be delivered all shares of Mercantile Common Stock required to be delivered to Wedge Holding pursuant to this Agreement. Wedge Holding shall liquidate within six months after the Exchange (the "Liquidation") and effect a liquidating distribution to its shareholders of all shares of Mercantile Common Stock that are then owned beneficially and of record by Wedge Holding. Simultaneously with the Exchange and subject to the terms and conditions of this Agreement, Acquisition Bank will merge with and into Wedge Bank (the "Merger" and together with the Exchange will hereinafter be referred to as the "Acquisition") under the terms set forth in the related Plan of Merger (the "Plan of Merger") to be executed prior to the Closing Date by and between Wedge Bank and Acquisition Bank in substantially the form set forth in Appendix A to this Agreement, whereby the shareholders of Wedge ---------- Bank (other than Mercantile Illinois or Wedge Holding, as the case may be) will receive shares of Mercantile Common Stock as set forth in this Agreement. Mercantile hereby undertakes to execute and deliver or cause to be delivered all shares of Mercantile Common Stock required to be delivered to the shareholders of Wedge Bank pursuant to this Agreement. Wedge Holding will receive the number of shares of Mercantile Common Stock in the Exchange, and the shareholders of Wedge Bank (other than Mercantile Illinois or Wedge Holding, as the case may be) will receive the number of shares of Mercantile Common Stock in the Merger that will equal their respective percentage ownership interests in the outstanding shares of Wedge Bank Common Stock multiplied by the total number of shares of Mercantile Common Stock issuable in the Acquisition as set forth in Section 1.07 of this Agreement (the "Acquisition Consideration"). Upon consummation of the Merger, the separate corporate existence of Acquisition Bank will cease and Wedge Bank (sometimes hereinafter referred to as the "Surviving Bank") will be the surviving bank. The Surviving Bank will continue to do business under the Charter of Wedge Bank. 1.02 Closing. The closing (the "Closing") of the ------- Acquisition, unless the parties hereto shall otherwise mutually - 2 - 7 agree, shall take place at the offices of Mercantile in St. Louis, Missouri, at 10:00 a.m., local time, on the first Business Day (the "Closing Date") of the month immediately succeeding the month in which the last of the following events occurs: (a) the receipt of the requisite approval of the Exchange and the Agreement by the shareholders of Wedge Holding and the Merger, the Agreement and the Plan of Merger by the shareholders of Wedge Bank as set forth in Section 2.02 of this Agreement, (b) the thirtieth day after the approval of the Acquisition by the Federal Deposit Insurance Corporation (the "FDIC"), (c) the approval by the Illinois Commissioner of Banks and Trust Companies (the "Illinois Commissioner") and any other bank regulatory agency that may be necessary or appropriate. For purposes of this Agreement, "Business Day" shall mean any day that the offices of the Illinois Commissioner is open for the receipt of official filings. 1.03 Method of Effecting Merger and Effective Time. On --------------------------------------------- the Closing Date, the parties hereto will cause the Merger to be consummated by delivering to the Illinois Commissioner, for filing, copies of resolutions of the shareholders of Acquisition Bank and Wedge Bank approving the Plan of Merger in such form as required by, and executed and acknowledged in accordance with, the relevant provisions of the Illinois Banking Act, as amended (the "Illinois Banking Act"). The Merger shall be effective on the date and at the time (the "Effective Time") that the Illinois Commissioner issues a certificate of merger in accordance with the Illinois Banking Act. 1.04 Charter and By-Laws. The Charter and By-Laws of ------------------- Wedge Bank in effect immediately prior to the Effective Time shall be the Charter and By-Laws of the Surviving Bank, in each case until amended in accordance with their respective provisions and applicable law. 1.05 Board of Directors and Officers. ------------------------------- (a) At the Effective Time, the members of the Board of Directors of the Surviving Bank and the terms of these directors shall be as designated by Mercantile Illinois immediately prior to the Effective Time. (b) The officers of Surviving Bank shall be the persons designated by Mercantile Illinois immediately prior to the Effective Time and such persons will serve in their designated offices, thereafter, until their respective successors are duly elected and qualified. 1.06 Additional Actions. If, at any time after the ------------------ Effective Time, the Surviving Bank shall consider or be advised that any further deeds, assignments, or assurances in law or any other acts are necessary or desirable to (a) vest, perfect, or confirm, of record or otherwise, in the Surviving Bank its right, title, or interest in, to, or under any of the rights, properties, or assets of Wedge Bank, or (b) otherwise carry out the purposes of - 3 - 8 this Agreement or the Plan of Merger, Wedge Bank and its officers and directors shall be deemed to have granted to the Surviving Bank an irrevocable power of attorney to execute and deliver all such deeds, assignments, or assurances in law and to do all acts necessary or proper to vest, perfect, or confirm title to and possession of such rights, properties, or assets in the Surviving Bank and otherwise to carry out the purposes of this Agreement or the Plan of Merger, and the officers and directors of the Surviving Bank are authorized in the name of Wedge Bank or otherwise to take any and all such action. 1.07 Conversion of Securities. ------------------------ (a) At the Effective Time, Mercantile will issue 970,000 shares of Mercantile Common Stock as Acquisition Consideration in the Exchange and the Merger. Wedge Holding and each of the other shareholders of Wedge Bank at the Effective Time (other than Mercantile and Wedge Holding, as the case may be) will be entitled to receive the number of shares of Mercantile Common Stock issuable as the Acquisition Consideration that is determined by multiplying such Acquisition Consideration by such shareholders' respective percentage ownership interests in Wedge Bank. (b) At the Effective Time, Wedge Holding, by virtue of the Exchange and without any other action on the part of the Mercantile Entities or Wedge Holding, will be entitled to receive its percentage interest of the Acquisition Consideration as determined in Section 1.07(a) hereof, upon delivery at Closing of the certificates evidencing its shares of Wedge Bank Common Stock. Also, at the Effective Time, by virtue of the Merger and without any action on the part of the Mercantile Entities, Wedge Bank or any Wedge Bank shareholder, each share of Wedge Bank Common Stock issued and outstanding at the Effective Time (other than any shares held by Mercantile or Wedge Holding or any of their respective wholly owned subsidiaries, (in each case other than in a fiduciary capacity or as a result of debts previously contracted), which shall be cancelled, and other than any "Dissenting Shares" (as defined in Section 1.09 hereof)), shall cease to be outstanding and shall be converted into and become the right to receive his or her percentage interest of the Acquisition Consideration as determined in Section 1.07(a) hereof. 1.08 Exchange Procedures. ------------------- (a) Prior to the Closing Date, Mercantile shall appoint Society National Bank, or such other bank or trust company selected by Mercantile and reasonably acceptable to the Sellers as the exchange agent (the "Exchange Agent") to effect the exchange of certificates evidencing shares of Wedge Bank Common Stock for shares of Mercantile Common Stock issuable as Acquisition Consideration to each person entitled to receive such Acquisition Consideration. At the Effective Time, Mercantile shall have granted the Exchange Agent the requisite power and authority to effect for and on behalf of Mercantile the issuance of the number - 4 - 9 of shares of Mercantile Common Stock issuable as Acquisition Consideration. (b) The certificates evidencing shares of Wedge Bank Common Stock owned beneficially and of record by Wedge Holding on the Closing Date, and such other documentation as shall be reasonably required by Mercantile to effect the Exchange, shall be delivered by Wedge Holding at Closing to the Exchange Agent in exchange for the number of full shares of Mercantile Common Stock for which the shares of Wedge Bank Common Stock evidenced by the certificate or certificates surrendered have been exchanged pursuant to this Agreement. For all other shareholders of Wedge Bank, the Exchange Agent shall mail, within five (5) Business Days after the Effective Time, to each such holder of record of Wedge Bank as of the Closing Date a notice of consummation of the Merger and a form of letter of transmittal, pursuant to which each such shareholder shall transmit the certificate or certificates formerly representing shares of the Wedge Bank Common Stock. As soon as practicable after surrender of such certificate to the Exchange Agent with a properly completed letter of transmittal, the Exchange Agent will promptly mail by first-class mail to such shareholder a certificate or certificates representing the number of full shares of Mercantile Common Stock into which the shares of Wedge Bank Common Stock evidenced by the certificate or certificates surrendered shall have been converted pursuant to this Agreement. (c) The Exchange Agent shall accept such certificates upon compliance with such reasonable terms and conditions as the Exchange Agent may impose to effect an orderly exchange thereof in accordance with customary exchange practices. Each outstanding certificate that, prior to the Effective Time, represented Wedge Bank Common Stock shall, except as otherwise provided in this Agreement, until duly surrendered to the Exchange Agent be deemed to evidence ownership of the number of shares of Mercantile Common Stock into which such Wedge Bank Common Stock shall have been converted in the Merger. After the Effective Time, there shall be no further transfer on the records of Wedge Bank of certificates representing shares of capital stock of Wedge Bank, and if such certificates are presented to Wedge Bank for transfer, they shall be cancelled against delivery of the Acquisition Consideration provided therefor in this Agreement. If the record date for any dividend or other distribution in respect of Mercantile Common Stock, including any redemption by Mercantile of the Rights associated therewith, shall occur on or after the Closing Date, the former holders of Wedge Bank Common Stock shall be entitled thereto, but no dividends declared on or other distributions in respect of Mercantile Common Stock issuable as Acquisition Consideration will be remitted to any person entitled to receive Mercantile Common Stock under this Agreement until such person surrenders the certificate or certificates representing Wedge Bank Common Stock, at which time such dividends or other distributions shall be remitted to such person, without interest and less any amounts in respect of taxes that may have been imposed thereon and which are required to be withheld by the Exchange Agent - 5 - 10 or Mercantile. Neither the Exchange Agent, Mercantile nor Wedge Bank shall be liable to any holder of Wedge Bank Common Stock for any of the Acquisition Consideration paid to a public official pursuant to applicable abandoned property, escheat or similar laws. The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to shares of Mercantile Common Stock held by it as Acquisition Consideration from time to time hereunder. (d) No transfer taxes shall be payable by Wedge Holding or by any of the other shareholders of Wedge Bank in respect of the issuance of certificates for Mercantile Common Stock as Acquisition Consideration and no expenses shall be imposed on Wedge Holding or on any of the other shareholders of Wedge Bank in connection with the exchange or conversion at the Effective Time of shares of Wedge Bank Common Stock into shares of Mercantile Common Stock pursuant to the Acquisition as contemplated by this Agreement and the delivery of such shares to the former holder of Wedge Bank Common Stock entitled thereto, except that (i) if any certificate for shares of Mercantile Common Stock is to be issued in a name other than that in which a certificate or certificates for shares of Wedge Bank Common Stock surrendered shall have been registered, it shall be a condition to such issuance that the person requesting such issuance shall pay to Mercantile any transfer taxes payable by reason thereof or of any prior transfer of such surrendered certificate or certificates or establish to the satisfaction of Mercantile that such taxes have been paid or are not payable, and (ii) nothing herein shall relieve Wedge Holding or any of the other shareholders of Wedge Bank of any expenses associated with surrendering such holder's certificates evidencing Wedge Bank Common Stock to the Exchange Agent. 1.09 Dissenting Shares. ----------------- (a) "Dissenting Shares" means any shares of Wedge Holding Common Stock or of Wedge Bank Common Stock held by any holder who becomes entitled to payment of the fair value of such shares under Section 11.70 of the Illinois Business Corporation Act or Section 29 of the Illinois Banking Act, respectively. Any holders of Dissenting Shares shall be entitled to payment for such shares only to the extent permitted by and in accordance with the provisions of such law and Mercantile Illinois shall cause Wedge Holding or the Surviving Bank to pay such consideration solely with funds provided by Wedge Bank. (b) Each party hereto shall give the other prompt notice of any written objections of any shareholder of Wedge Holding or Wedge Bank to the Exchange or the Merger and written demands for the payment of the fair value of such shareholder's shares, withdrawals of such objections or demands, and any other instruments, served pursuant to Section 11.70 of the Illinois Business Corporation Act or Section 29 of the Illinois Banking Act received by such party and Wedge Holding and Wedge Bank shall give Mercantile the opportunity to direct all negotiations and - 6 - 11 proceedings with respect to such objections or demands. Wedge Holding and Wedge Bank shall not voluntarily make any payment with respect to any demands for payment of fair value and shall not, except with the prior written consent of Mercantile, settle or offer to settle any such demands. 1.10 No Fractional Shares. Notwithstanding any other -------------------- provision of this Agreement, neither certificates nor scrip for fractional shares of Mercantile Common Stock shall be issued as Acquisition Consideration. Each holder of shares of Wedge Bank Common Stock who otherwise would have been entitled to a fraction of a share of Mercantile Common Stock shall receive in lieu thereof and, at the time such holder receives the shares of Mercantile Common Stock to which the holder is entitled as Acquisition Consideration, cash (without interest) in an amount determined by multiplying the fractional share interest to which such holder would otherwise be entitled by the closing stock price of Mercantile Common Stock on the New York Stock Exchange (the "NYSE") Composite Tape as reported in The Wall Street Journal on the Closing Date. No such holder shall be entitled to dividends, voting rights or any other rights in respect of any fractional share. 1.11 Transfer Restrictions; Closing of Stock Transfer ------------------------------------------------ Books. Wedge Holding agrees that from and after the date of this - ----- Agreement, Wedge Holding will not sell, dispose of or otherwise transfer any shares of Wedge Bank Common Stock owned beneficially and of record by Wedge Holding. As to all other shares of Wedge Bank Common Stock, the stock transfer books of Wedge Bank shall be closed at the close of business on the Business Day immediately preceding the Closing Date. In the event of a transfer of ownership of Wedge Bank Common Stock which is not registered in the transfer records prior to the closing of such records, the Acquisition Consideration issuable in conversion of such stock pursuant to this Agreement may be delivered to a transferee, if the certificate representing such shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and all applicable stock transfer taxes are paid. Mercantile and the Exchange Agent shall be entitled to rely upon the stock transfer books of Wedge Bank to establish the identity of those persons entitled to receive the Acquisition Consideration specified in this Agreement for their shares of Wedge Bank Common Stock, which books shall be conclusive with respect to the ownership of such shares. In the event of a dispute with respect to the ownership of any such shares, Mercantile and the Exchange Agent shall be entitled to deposit any Acquisition Consideration represented thereby in escrow with an independent party and thereafter be relieved with respect to any claims to such consideration. 1.12 Anti-Dilution. If, between the date of this ------------- Agreement and the Effective Time, a share of Mercantile Common Stock shall be changed into a different number of shares of Mercantile Common Stock or a different class of shares by reason of - 7 - 12 reclassification, recapitalization, split-up, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then the number of shares of Mercantile Common Stock issuable as Acquisition Consideration pursuant to Section 1.07 of this Agreement will be appropriately and proportionately adjusted so that the Acquisition Consideration shall consist of that number of shares of Mercantile Common Stock or other securities as such shares would have been converted or changed into pursuant to such reclassification, recapitalization, split-up, exchange of shares or readjustment or as a result of such stock dividend had the record date therefor been immediately following the Effective Time. ARTICLE II ---------- REPRESENTATIONS AND WARRANTIES OF SELLERS As an inducement to the Mercantile Entities to enter into and perform their respective obligations under this Agreement, and notwithstanding any examinations, inspections, audits and other investigations made by the Mercantile Entities, the Sellers hereby jointly and severally represent and warrant to Mercantile Entities as to the following matters: 2.01 Organization and Authority. Wedge Holding is a -------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Illinois, 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 the corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. Wedge Holding is registered as a bank holding company with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). Wedge Bank is a commercial bank duly organized, validly existing in good standing under the laws of the State of Illinois. The deposits of Wedge Bank are insured by the FDIC under the Federal Deposit Insurance Act of 1950, as amended (the "FDI Act"). Wedge Bank is 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 the corporate power and authority to own and operate its properties and to carry out its business as and where the same is now being conducted. 2.02 Corporate Authorization; Records. Wedge Holding -------------------------------- has the corporate power and authority to enter into this Agreement and Wedge Bank has the corporate power and authority to enter into this Agreement and the Plan of Merger and, subject to the approval of the Exchange and this Agreement by the shareholders of Wedge Holding and to the approval of the Merger, this Agreement and the - 8 - 13 Plan of Merger by the shareholders of Wedge Bank and such approvals of governmental agencies and other governing boards having regulatory authority over Wedge Holding and/or Wedge Bank as may be required by applicable law, rule or regulation, to carry out their respective obligations thereunder. The only shareholder vote of Wedge Holding required to approve the Exchange and this Agreement is the affirmative vote of the holders of at least two-thirds of the outstanding shares of Wedge Holding Common Stock. The only shareholder vote of Wedge Bank required to approve the Merger, this Agreement and the Plan of Merger is the affirmative vote of the holders of at least two-thirds of the outstanding shares of Wedge Bank Common Stock. The execution, delivery and performance of this Agreement by Wedge Holding and the consummation of the Exchange have been duly authorized by the Board of Directors of Wedge Holding. The execution, delivery and performance of this Agreement and the Plan of Merger by Wedge Bank and the consummation of the Merger have been duly authorized by the Board of Directors of Wedge Bank. Subject to the approvals, as aforesaid, this Agreement is a valid and binding obligation of Wedge Holding, and this Agreement and the Plan of Merger are the valid and binding obligations of Wedge Bank, enforceable against each in accordance with their respective terms. Neither the execution, delivery and performance by Wedge Holding of this Agreement or by Wedge Bank of this Agreement or the Plan of Merger, nor the consummation of the transactions contemplated thereby, nor compliance by Wedge Holding or Wedge Bank with any of the provisions thereof will (a) 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, security interest, charge or encumbrance upon any of the properties or assets of Wedge Holding or Wedge Bank under any of the terms, conditions or provisions of (i) their respective Articles of Incorporation, Charter or By-laws, or (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Wedge Holding or Wedge Bank is a party or by which it may be bound, or to which Wedge Holding or Wedge Bank or any of their respective properties or assets may be subject, or (b) subject to compliance with the statutes and regulations referred to in the next paragraph, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Wedge Holding or Wedge Bank or any of their respective properties or assets. Other than in connection or in compliance with the provisions of the Illinois Banking Act, the Securities Act of 1933 and the rules and regulations thereunder (the "Securities Act"), the Securities Exchange Act of 1934 and the rules and regulations thereunder (the "Exchange Act"), the securities or blue sky laws of the various states or filings, consents, reviews, authorizations, approvals or exemptions required under the BHC Act, or any required - 9 - 14 approvals of the FDIC and the Illinois Commissioner, 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 Wedge Holding or Wedge Bank of the transactions contemplated by this Agreement or the Plan of Merger. The minute books and stock records of Wedge Holding and Wedge Bank are complete and correct in all respects and accurately reflect in all respects all meetings, consents and other actions of the organizers, incorporators, shareholders, Board of Directors and committees of the Board of Directors occurring since the organization of each. 2.03 Subsidiaries. Other than its equity interest in ------------ Wedge Bank, Wedge Holding has no subsidiaries and does not control, or have any equity ownership interest in, any other corporation, partnership, joint venture or other business association. Wedge Bank has no subsidiaries and does not control, or have any equity ownership interest in, any other corporation, partnership, joint venture or other business association, other than any interest pledged to Wedge Bank in the ordinary course of its business as security for the obligations of third parties to Wedge Bank or held by Wedge Bank as a consequence of its exercise of rights and remedies in respect of any interest pledged as security in respect of such obligations. 2.04 Capitalization of Wedge Bank. The authorized ---------------------------- capital stock of Wedge Bank consists of 144,300 shares of Common Stock, $10 par value, of which, as of March 31, 1994, 144,300 shares are issued and outstanding. Wedge Holding has and will have as of the Effective Time good and marketable title to 118,556 shares, or 82.16% of the then issued and outstanding shares of Wedge Bank Common Stock, free and clear of any liens, claims, charges, encumbrances and assessments of any kind or nature whatsoever. There are no other shares of capital stock or other equity securities of Wedge Bank outstanding and no outstanding 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 of Wedge Bank, or contracts, commitments, understandings or arrangements by which Wedge Bank is or may become bound to issue additional shares of capital stock or options, warrants or rights to purchase or acquire any additional shares of capital stock of Wedge Bank. All of the issued and outstanding shares of the Wedge Bank Common Stock are validly issued, fully paid, and nonassessable. 2.05 Financial Statements. -------------------- (a) Attached hereto as Schedule 2.05(a) are ---------------- copies of the following financial statements: (i) Audited consolidated balance sheets of Wedge Holding as of December 31, 1992 and 1993, related consolidated statements of income, - 10 - 15 changes in shareholders' equity and cash flows for the two (2) years ended December 31, 1993, together with the notes thereto certified by Deloitte & Touche, Wedge Holding's independent auditors; (ii) Unaudited consolidated balance sheets of Wedge Holding as of March 31, 1994 and 1993 and related consolidated statements of income, changes in shareholders' equity and cash flows for the three-month periods ended March 31, 1994 and 1993; (iii) Form F.R. Y-6 reports of Wedge Holding as of December 31, 1991, 1992 and 1993, and Form F.R. Y-9LP and Form F.R. Y-9C reports filed during such periods, as furnished by Wedge Holding to the Federal Reserve Board; and (iv) The Consolidated Reports of Condition and Income of Wedge Bank as of and for the years ended December 31, 1991, 1992 and 1993, and as of and for the three-month period ended March 31, 1994, as filed by Wedge Bank with the FDIC. (b) The financial statements referenced above are referred to collectively as the "Wedge Financial Statements." The Wedge Financial Statements have been prepared in accordance with the books and records of Wedge Holding and Wedge Bank in accordance with generally accepted accounting principles or, as to the financial statements referenced in subsection (a)(iii) and (a)(iv) above, regulatory accounting principles, consistently applied, and present fairly the consolidated financial positions of Wedge Holding and Wedge Bank, respectively, at the dates thereof and the consolidated results of their respective operations and cash flows. (c) Wedge Holding and Wedge Bank have each prepared, kept and maintained through the date hereof true, correct and complete financial and other books and records of their affairs which fairly reflect their respective financial conditions, results of operations, businesses, assets, prospects or operations. 2.06 Reports. Since January 1, 1991, Wedge Holding and ------- Wedge Bank have filed all reports, registrations and statements, together with any required amendments thereto, that were required to be filed with any federal and state regulatory body or authority having jurisdiction over the affairs of each. All such reports and statements filed with any such regulatory body or authority are collectively referred to herein as the "Wedge Reports". As of their respective dates, the Wedge Reports complied in all respects with all the rules and regulations promulgated by the applicable federal and/or state authorities, as the case may be, 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 - 11 - 16 to make the statements therein, in light of the circumstances under which they were made, not misleading. 2.07 Title to and Condition of Assets. -------------------------------- (a) Except as may be reflected in the Wedge Financial Statements or set forth on Schedule 2.07(a) and excepting ---------------- all real property (which is the subject of Section 2.08), Wedge Bank has, and at the Closing Date, will have, good and marketable title to its properties and assets, including, without limitation, those reflected on the Wedge Financial Statements, free and clear of any liens, charges, pledges, encumbrances, defects, claims or rights of third parties, except for liens for taxes, assessments or other governmental charges not yet delinquent. (b) No assets reflected on the Wedge Financial Statements in respect of Wedge Bank have been sold, leased, transferred, assigned or otherwise disposed of since March 31, 1994, except in the ordinary course of business or as set forth in Schedule 2.07(b) under the heading "Dispositions." - ---------------- (c) All furniture, fixtures, vehicles, machinery and equipment and computer software owned or used by Wedge Bank, including any of such items leased as a lessee and all facilities and improvements comprising part of any owned or leased real property, taken as a whole, with no single such item being deemed of importance, are fit for the purposes for which they were intended, are in good order and repair, free of defects and in good operating condition, subject only to normal wear and tear. The operation by Wedge Bank of such assets is in compliance in all respects with all applicable laws, ordinances and rules and regulations of any governmental authorities having jurisdiction. 2.08 Real Property. Except as set forth in Schedule ------------- -------- 2.08: - ---- (a) The legal description of each parcel of real property owned by Wedge Bank (other than real property acquired in foreclosures or in lieu of foreclosure in the course of collection of its loans and being held by Wedge Bank for disposition as required by law) is set forth in Schedule 2.08(a) attached hereto ---------------- under the heading "Owned Real Property" (such real property being herein referred to as the "Owned Real Property"). The legal description of each parcel of real property leased by Wedge Bank as lessee is also set forth in Schedule 2.08(a) under the heading ---------------- "Leased Real Property" (such real property being herein referred to as the "Leased Real Property"). Collectively, the Owned Real Property and the Leased Real Property is herein referred to as the "Real Property." (b) There is no pending dispute involving Wedge Bank as to the title of or the right to use any of its Real Properties. - 12 - 17 (c) Wedge Bank has no interest in any other real property except interests as a mortgagee, and except for real property acquired in foreclosures or in lieu of foreclosure and being held for disposition as required by law. (d) None of the buildings, structures or other improvements located on the Real Property encroaches upon or over any adjoining parcel or real estate or any easement or right-of-way or "setback" line and, to the best knowledge of the Sellers, all such buildings, structures and improvements are located and constructed in conformity with all applicable zoning ordinances and building codes. (e) None of the buildings, structures or improvements located on the Real Property are the subject of any official complaint or notice by any governmental authority of violation of any applicable zoning ordinance or building code, and there is no zoning ordinance, building code, use or occupancy restriction or condemnation action or proceeding pending, or, to the best knowledge of the Sellers, threatened, with respect to any such building, structure or improvement. The Real Property is in generally good condition, reasonable wear and tear excepted, and has been maintained in accordance with reasonable and prudent business practices applicable to like facilities. (f) Except as may be reflected on the Wedge Financial Statements or with respect to such easements, liens, defects or encumbrances as do not individually or in the aggregate adversely affect the use or value of the parcel of Real Property, Wedge Bank has, and at the Closing Date will have, good and marketable title to its Real Properties, free and clear of any liens, charges, pledges, encumbrances, defects, claims or rights of third parties. 2.09 Contracts. --------- (a) Schedule 2.09(a) contains a complete and ---------------- accurate listing of all contracts entered into with respect to deposits of $250,000 or more, by account or other identifying number, and all loan agreements and commitments, notes, security agreements, repurchase agreements, bankers' acceptances, outstanding letters of credit and commitments to issue letters of credit, participation agreements, and other documents relating to or involving extensions of credit or other commitments to extend credit by Wedge Bank with respect to any one entity or related group of entities in excess of $250,000, to which any of the foregoing is a party or by which it is bound, by account or other identifying number, and, where applicable, such other information as shall be necessary to identify any related group of entities. (b) Except for the contracts and agreements required to be listed on Schedule 2.09(a) and except as set forth ---------------- in Schedule 2.09(b) or any other Schedule hereto, Wedge Bank is not ---------------- a party to or bound by any: - 13 - 18 (i) agreement, contract, arrangement, understanding or commitment with any labor union; (ii) franchise or license agreement; (iii) written employment, severance or termination pay, agency, consulting or similar agreement, contract, arrangement, understanding or commitment in respect of personal services; (iv) loans or other obligations payable to or owing to any officer, director or employee thereof, except (A) salaries, wages and directors fees incurred and accrued in the ordinary course of business and/or (B) obligations due in respect of any depository accounts maintained by any of the foregoing at Wedge Bank in the ordinary course of business; (v) loans or debts payable by or owing by any executive officer or director of Wedge Holding or Wedge Bank or any other person or entity deemed an "executive officer" or a "related interest" of any of the foregoing, as such terms are defined in Regulation O of the Federal Reserve Board; or (vi) other agreement, contract, arrangement, understanding or commitment involving an obligation by any of the foregoing of more than $50,000 extending beyond six (6) months from the date hereof that cannot be cancelled without cost or penalty upon notice of thirty (30) days or less, other than contracts entered into in respect of deposits, loan agreements and commitments, notes, security agreements, repurchase agreements, bankers' acceptances, outstanding letters of credit and commitments to issue letters of credit, participation agreements and other documents relating to transactions entered into by Wedge Bank in the ordinary course of business and not involving extensions of credit with respect to any one entity or related group of entities in excess of $250,000. (c) Wedge Bank carries property, casualty, liability, products liability and other insurance coverages as set forth in Schedule 2.09(c) under the heading "Insurance." ---------------- (d) True, correct and complete copies of the agreements, contracts, leases, insurance policies and other documents referred to in Schedule 2.09(c) shall be furnished or ---------------- made available to the Mercantile Entities. - 14 - 19 (e) To the best knowledge of the Sellers, each of the agreements, contracts, leases, insurance policies and other documents referred to in Schedule 2.09(a), Schedule 2.09(b) and ---------------- ---------------- Schedule 2.09(c) is a valid, binding and enforceable obligation of - ---------------- the parties sought to be bound thereby, except as the enforceability thereof against the parties thereto (other than Wedge Bank) may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws now or hereafter in effect relating to the enforcement of creditors' rights generally, and except that equitable principles may limit the right to obtain specific performance or other equitable remedies. (f) Schedule 2.09(f) under the heading "Loans" ---------------- contains a true, correct and complete listing, as of the date of this Agreement, by account or other identifying number, of (i) all loans in excess of $100,000, of Wedge Bank which have been accelerated during the past twelve months, (ii) all loan commitments or lines of credit of Wedge Bank in excess of $100,000 which have been terminated by Wedge Bank during the past twelve months by reason of default or adverse developments in the condition of the borrower or other events or circumstances affecting the credit of the borrower, (iii) all loans, lines of credit and loan commitments in excess of $100,000 as to which Wedge Bank has given written notice to the borrower or customer of Wedge Bank's intent to terminate during the past twelve months, (iv) with respect to all loans in excess of $100,000, all notification letters and other written communications from Wedge Bank to any of its borrowers, customers or other parties during the past twelve months wherein Wedge Bank has requested or demanded that actions be taken to correct existing defaults or facts or circumstances which may become defaults, (v) each borrower, customer or other party which has notified Wedge Bank during the past twelve months of, or asserted against Wedge Bank, in writing, any "lender liability" or similar claim, and, to the best of Wedge Bank's knowledge, each borrower, customer or other party which has given Wedge Bank any oral notification of, or asserted against Wedge Bank, any such claim, and (vi) all loans in excess of $100,000 (1) that are contractually past due 90 days or more in the payment of principal and/or interest, (2) that are on non-accrual status, (3) where a reasonable doubt exists as to the timely future collectibility of future principal and interest, whether or not interest is still accruing or the loan is less than 90 days past due, (4) 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 (5) where a specific reserve allocation exists in connection therewith. 2.10 Absence of Defaults. Except as set forth in ------------------- Schedule 2.10 attached hereto under the heading "Defaults," there - ------------- are no pending disputes between Wedge Bank and the other parties to the agreements, contracts, leases, insurance policies and other documents referred to in Schedule 2.09, and to the best knowledge ------------- of the Sellers, all such agreements, contracts, leases, insurance - 15 - 20 policies and other documents are in full force and effect and not in default with respect to Wedge Bank or any other party thereto, and will continue in full force and effect immediately after the Closing Date. 2.11 Absence of Undisclosed Liabilities. Except as ---------------------------------- disclosed in Schedule 2.11 or in any other Schedule attached ------------- hereto: (a) As of the date hereof, Wedge Bank has no debts, liabilities or obligations, equal to or exceeding $10,000, individually, or $25,000, in the aggregate, whether accrued, absolute, contingent or otherwise and whether due or to become due, except (i) liabilities reflected in the Wedge Financial Statements, and (ii) debts, liabilities or obligations incurred since March 31, 1994, in the ordinary and usual course of its businesses, none of which are for breach of contract, breach of warranty, torts, infringements or lawsuits, and none of which adversely affect its financial positions or results of operations, businesses, assets, prospects or operations; and (b) to the best knowledge of the Sellers, Wedge Bank was not, as of March 31, 1994, and since such date has not become a party to, any contract or agreement which affected, affects, or may reasonably be expected to affect, materially and adversely, its financial position, results of operations, business, assets or operations. 2.12 Allowance for Loan and Lease Losses; Non- ----------------------------------------- performing Assets. - ----------------- (a) Except as set forth in Schedule 2.12 attached ------------- hereto: (i) all of the accounts, notes and other receivables which are reflected in the Wedge Financial Statements as of March 31, 1994 were acquired in the ordinary course of business and, to the best knowledge of the Sellers, are collectible in full in the ordinary course of business, except for possible loan and lease losses which are adequately provided for in the allowance for loan and lease losses in such Wedge Financial Statements and (ii) the collection experience of Wedge Bank since March 31, 1994 to the date hereof has not been materially adverse to the credit and collection experience of Wedge Bank in the three months ended March 31, 1994 and the year ended December 31, 1993. (b) Schedule 2.12(b) attached hereto sets forth ---------------- as of the date of this Agreement all assets classified as real estate acquired through foreclosure, including in-substance foreclosed real estate ("Non-Performing Assets"). - 16 - 21 (c) The aggregate amount of all loans described by Section 2.09(f)(vi) and all Non-Performing Assets pursuant to Section 2.12(b) shall not exceed one percent (1%) of (i) the gross amounts of all loans and leases on the books of Wedge Bank, plus (ii) the aggregate book value of all Non-Performing Assets. 2.13 Taxes. Wedge Bank has timely filed or will timely ----- file all tax returns required to be filed at or prior to the Closing Date. Wedge Bank has paid, or has set up adequate reserves on the Wedge 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 Wedge Financial Statements for the payment of all taxes anticipated to be payable in respect of the period subsequent to the last of said periods (treating for this purpose the Closing Date as the last day of an applicable period, whether or not it is in fact the last day of a taxable period). Wedge Bank will not have any liability for any such taxes in excess of the amounts so paid or reserves so established and no deficiencies for any tax, assessment or governmental charge have been proposed, asserted or assessed (tentatively or definitely) against Wedge Bank which would not be covered by existing reserves. Wedge Bank is not delinquent in the payment of any tax, assessment or governmental charge, nor has it requested any extension of time within which to file any tax returns in respect of any fiscal year which have not since been filed and no requests for waivers of the time to assess any tax are pending. The federal, state and foreign income tax returns of Wedge Bank have not been audited by the Internal Revenue Service (the "IRS") or the state or foreign taxing authority since prior to January 1, 1993. Neither Wedge Holding nor Wedge Bank has made any election under Income Tax Regulation Sections 1.1502-33(d)(3) or 1.1552-1(c), each of which relates to the allocation of the consolidated federal income tax liability, and neither Wedge Holding nor Wedge Bank is a party to or bound by any tax indemnity, tax sharing or tax allocation agreement, or any other contractual obligation to pay or contribute to the tax obligations of any other person. 2.14 Material Adverse Change. Except as otherwise ----------------------- disclosed in any of the Schedules referenced herein, since March 31, 1994, there has been no material adverse change in the financial condition, results of operations, business, assets, prospects or operations of Wedge Bank, other than changes in banking laws or regulations, or interpretations thereof, or other conditions that affect the banking industry generally, or changes in the general level of interest rates. 2.15 Litigation and Other Proceedings. Except as set -------------------------------- forth in Schedule 2.15, Wedge Bank is not a party to any pending ------------- or, to the best knowledge of the Sellers, 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 cannot reasonably be expected to have, an adverse effect on the business, financial condition, results of - 17 - 22 operations or prospects of Wedge Bank. Without limiting the generality of the foregoing, except as set forth in Schedule 2.15, ------------- there are no actions, suits, or proceedings pending or, to the best knowledge of the Sellers, threatened against Wedge Holding or Wedge Bank or any of their respective officers or directors by any shareholder of Wedge Holding or Wedge Bank (or any former shareholder) or involving claims under the Community Reinvestment Act of 1977, Bank Secrecy Act or any other laws applicable to Wedge Bank. 2.16 Governmental Compliance. Except as set forth in ----------------------- Schedule 2.16: - ------------- (a) To the best knowledge of the Sellers, Wedge Bank is in compliance with all laws, ordinances, rules, regulations and orders, licenses and permits that are applicable to it; (b) To the best knowledge of the Sellers, Wedge Holding and Wedge Bank hold all permits, business licenses, certificates, franchises and other similar items, which, if not held, would adversely affect the financial condition, results of operations, business, prospects or operations and/or ownership rights as to the assets and properties of any of the foregoing; (c) There is no legal action or governmental proceeding or investigation pending or, to the best knowledge of the Sellers, threatened against Wedge Holding or Wedge Bank that could prevent or adversely affect or seeks to prohibit the consummation of the transactions contemplated hereby, nor is Wedge Holding or Wedge Bank subject to any order of a court or governmental authority having any such effect; (d) Neither Wedge Holding nor Wedge Bank is subject to any cease and desist order, memorandum of understanding or any written agreement issued by, or entered into with, any federal or state governmental or regulatory agency, authority, entity or official having jurisdiction over the banking or other related activities of Wedge Holding or Wedge Bank, including, without limitation, the Federal Reserve Board, the Illinois Commissioner and/or the FDIC; and (e) Wedge Bank is not subject to or, to the best knowledge of the Sellers, reasonably likely to incur a material liability as a result of its ownership, operation, or use of any property (whether directly or, to the best knowledge of the Sellers, as a consequence of such property being part of its investment portfolio, including, without limitation, properties under foreclosure, property held by Wedge Bank in its capacity as a trustee, but excluding property held by such as collateral for the security of any loan due it) (the "Property") (i) 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 - 18 - 23 "Toxic Substance"), or (ii) on which any Toxic Substance has been stored, disposed of, placed or used in the construction thereof. No claim, action, suit or proceeding is pending against Wedge Bank relating to any Property before any court or other governmental 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 Wedge Bank with respect to the same. Except for statutory or regulatory restrictions of general application, no federal, state, municipal or other governmental authority has placed any restriction on the business of Wedge Bank which reasonably could be expected to have a material adverse effect on the financial condition, results of operations, business, assets, prospects or operations of Wedge Bank. 2.17 Labor. Except as set forth on Schedule 2.17, no ----- ------------- work stoppage involving Wedge Bank is pending or, to the best knowledge of Sellers, threatened. Wedge Bank is not involved in, or threatened with or affected by, any labor dispute, arbitration, lawsuit or administrative proceeding which could adversely affect the business of Wedge Bank. Employees of Wedge Bank are not represented by any labor union nor are any collective bargaining agreements otherwise in effect with respect to such employees. 2.18 Interests of Certain Persons. Except as set forth ---------------------------- on Schedule 2.18, to the best knowledge of the Sellers, no officer ------------- or director of Wedge Holding or Wedge Bank has any interest in any contract or property (real or personal), tangible or intangible, used in or pertaining to the business of Wedge Bank. 2.19 Employee Benefit Plans. Schedule 2.19 lists all ---------------------- ------------- written pension, retirement, stock option, stock purchase, stock ownership, savings, stock appreciation right, profit sharing, deferred compensation, consulting, bonus, group insurance, severance and other employee benefit, incentive and welfare policies, contracts, plans and arrangements, and all trust agreements related thereto, covering the present or former directors, officers or other employees of Wedge Bank (collectively, "Employee Plans or Policies"). To the best knowledge of the Sellers, all Employee Plans or Policies currently comply and have at all relevant times complied in all respects with all applicable laws, requirements and orders under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Internal Revenue Code of 1986, as amended (the "Code"), and state law. With respect to each Employee Plan or Policy which is a pension plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"), except as set forth in Schedule 2.19: (a) no Pension Plan is a "multiemployer ------------- plan" within the meaning of Section 3(37) of ERISA; (b) each Pension Plan, to the extent necessary and applicable, is "qualified" within the meaning of Section 401(a) of the Code, and each related trust, if any, is exempt from taxation under Section 501(a) of the Code; (c) the present value of all benefits vested and all benefits accrued under each Pension Plan which is subject to Title IV of ERISA did not, in each case, as of the last - 19 - 24 applicable annual valuation date (as indicated on Schedule 2.19), ------------- exceed the value of the assets of the Pension Plans allocable to such vested or accrued benefits; (d) no Pension Plan or any trust created thereunder, nor, to the best knowledge of the Sellers, any trustee, fiduciary or administrator thereof, has engaged in a "prohibited transaction," as such term is defined in Section 4975 of the Code, which could subject such plan or trust, or, to the best knowledge of the Sellers, any trustee, fiduciary or administrator thereof, or any party dealing with any such plan or trust, to the tax or penalty on prohibited transactions imposed by said Section 4975; (e) 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; and (f) 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), since the effective date of ERISA. With respect to each Employee Plan or Policy which provides for health care, neither Wedge Bank nor any of Wedge Bank's other affiliates has or will have any obligation or liability to pay any post- retirement health care costs, except as set forth in Schedule 2.19. ------------- 2.20 Conduct of Wedge Holding's and Wedge Bank's ------------------------------------------- Businesses to Date. Except for entering into this Agreement and - ------------------ matters related thereto and as disclosed in Schedule 2.20 from and ------------- after March 31, 1994: (a) Wedge Bank has carried on its business in the ordinary and usual course consistent with past practices, (b) neither Wedge Holding nor Wedge Bank has issued or sold any of its capital stock or any corporate debt securities which would be classified as long-term debt on its balance sheet, (c) neither Wedge Holding nor Wedge Bank has granted any option for the purchase of its capital stock, effected any stock split, or otherwise changed its capitalization, (d) Wedge Bank has not declared, set aside, or paid any dividend or other distribution in respect of its capital stock, or, directly or indirectly, redeemed or otherwise acquired any of its capital stock, (e) Wedge Bank has not incurred any obligation or liability (absolute or contingent), except normal trade or business obligations or liabilities incurred in the ordinary course of business, or mortgaged, pledged, or subjected to lien, claim, security interest, charge, encumbrance, or restriction any of its assets or properties, (f) Wedge Bank has not discharged or satisfied any lien, mortgage, pledge, claim, security interest, charge, encumbrance, or restriction or paid any obligation or liability (absolute or contingent), other than in the ordinary course of business, (g) Wedge Bank has not 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, (h) Wedge Bank has not 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, entered into any new, or amended or supplemented any existing, employment, management, consulting, deferred compensation, severance, or other similar contract, entered into, terminated, or substantially modified any - 20 - 25 Employee Plan or Policy in respect of any of its present or former directors, officers, or other employees, or agreed to do any of the foregoing, (i) Wedge Bank has not suffered any damage, destruction or loss, whether as the result of fire, explosion, earthquake, accident, casualty, labor trouble, requisition or taking of property by any government or any agency of any government, flood, windstorm, embargo, riot, act of God or the enemy or other similar or dissimilar casualty or event or otherwise, and whether or not covered by insurance, and (j) Wedge Bank has not entered into any transaction, contract, or commitment outside the ordinary course of its business. 2.21 Registration Statement, etc. None of the ---------------------------- information regarding Wedge Holding and/or Wedge Bank supplied or to be supplied by either of them for inclusion or included in (a) a Registration Statement on Form S-4 to be filed with the SEC by Mercantile for the purpose of registering the shares of Mercantile Common Stock to be issuable as Acquisition Consideration pursuant to the provisions of this Agreement (the "Registration Statement"), (b) the Proxy Statement to be mailed to shareholders of Wedge Holding and to shareholders of Wedge Bank in connection with the meetings to be called to consider the approval of the Exchange, the Merger, this Agreement and the Plan of Merger (the "Proxy Statement") and (c) any other documents to be filed with the SEC or any regulatory authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with the SEC or any regulatory authority and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the special meetings of Wedge Holding's shareholders and of Wedge Bank's shareholders referred to in Section 5.03, be false or misleading with respect to any fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meeting. All documents which Wedge Holding and/or Wedge Bank is responsible for filing with any regulatory authority in connection with the Acquisition will comply as to form with the provisions of applicable law. 2.22 Brokers and Finders; Other Liabilities. Except as -------------------------------------- set forth on Schedule 2.22, neither Wedge Holding nor Wedge Bank ------------- 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 Wedge Holding and/or Wedge Bank in connection with this Agreement or the Plan of Merger or the transactions contemplated hereby and thereby. Wedge Bank shall be liable in respect of all reasonable fees and expenses of counsel and accountants for Wedge Bank. - 21 - 26 ARTICLE III ----------- REPRESENTATIONS AND WARRANTIES OF THE MERCANTILE ENTITIES As an inducement to the Sellers to enter into and perform their respective obligations under this Agreement, and notwithstanding any examinations, inspections, audits or other investigations made by the Sellers, the Mercantile Entities hereby jointly and severally represent and warrant to the Sellers as to the following matters: 3.01 Organization and Authority. Mercantile and -------------------------- Mercantile Illinois are each corporations duly organized, validly existing and in good standing under the laws of the State of Missouri, each is duly qualified to do business and each 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 each has the corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. Mercantile and Mercantile Illinois are each registered as a bank holding company with the Federal Reserve Board under the BHC Act. Acquisition Bank will, prior to the Closing date, be chartered as an Illinois state bank by the Illinois Commissioner, will be duly organized, validly existing and in good standing under the laws of the State of Illinois, will be duly qualified to do business and will be 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 will have the corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. Acquisition Bank will be a bank insured by the FDIC under the FDI Act. 3.02 Authorization. Mercantile and Mercantile Illinois ------------- each have the corporate power and authority to enter into this Agreement and to carry out their respective obligations thereunder. The execution, delivery and performance of this Agreement by Mercantile and Mercantile Illinois and the consummation of the transactions contemplated thereby have been duly authorized by the Executive Committee of the Board of Directors of Mercantile and the Board of Directors of Mercantile Illinois, and no other approval of the respective Boards or shareholders or any committees thereof is required. Subject to such approvals of governmental agencies and other governing boards having regulatory authority over Mercantile and Mercantile Illinois as may be required by statute or regulation, this Agreement is valid and binding obligations of Mercantile and Mercantile Illinois, enforceable against each in accordance with their respective terms. Neither the execution, delivery and performance by Mercantile or Mercantile Illinois of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance by Mercantile or Mercantile Illinois with any of the provisions hereof, will (a) violate, conflict with, or result in a - 22 - 27 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, security interest, charge or encumbrance upon any of the properties or assets of Mercantile or Mercantile Illinois under any of the terms, conditions or provisions of (i) their respective Articles of Incorporation or By-laws or (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Mercantile or Mercantile Illinois is a party or by which it may be bound, or to which Mercantile or Mercantile Illinois or any of its properties or assets may be subject, or (b) subject to compliance with the statutes and regulations referred to in the next paragraph, to the best knowledge of the Mercantile Entities, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Mercantile or Mercantile Illinois or any of its properties or assets. Other than in connection with or in compliance with the provisions of the Illinois Banking 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 BHC Act, or any required approvals of the FDIC or the Illinois Commissioner, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Mercantile, Mercantile Illinois and Acquisition Bank of the transactions contemplated by this Agreement and the Plan of Merger. 3.03 Capitalization of Mercantile. The authorized ---------------------------- capital stock of Mercantile consists of (a) 100,000,000 shares of Mercantile Common Stock, of which, as of May 31, 1994, 43,066,486 shares were issued and outstanding and (b) 5,000,000 shares of preferred stock, no par value, issuable in series, none of which were issued and outstanding. A series of 1,000,000 shares of preferred stock have been designated as Series A Junior Participating Preferred Stock and are reserved for issuance upon exercise of Mercantile's preferred share purchase rights (the "Rights") issued pursuant to a Rights Agreement, dated May 23, 1988 (the "Rights Agreement"), between Mercantile and Mercantile Bank of St. Louis National Association, as Rights Agent. As of May 31, 1994, Mercantile had reserved (i) 4,611,470 shares of Mercantile Common Stock for issuance under various employee stock option and incentive plans ("Mercantile Employee Stock Options") and (ii) 460,172 shares of Mercantile Common Stock for issuance upon conversion of the 8% Subordinated Capital Convertible Notes due 1995, of Mercantile (the "Convertible Notes"). From May 31, 1994 through the date of this Agreement, no shares of Mercantile Common Stock have been issued excluding any such shares which may have been issued upon exercise of the Mercantile Employee Stock Options or the Convertible Notes. - 23 - 28 Mercantile continually evaluates possible acquisitions and may prior to the Effective Time enter into one or more agreements providing for, and may consummate, the acquisition by Mercantile of another bank, bank holding company or other company (or the assets and/or liabilities thereof) for consideration that may include equity securities. In addition, prior to the Effective Time, Mercantile may, depending on market conditions and other factors, otherwise determine to issue equity, equity-linked or other securities for financing purposes. Except in connection with any such acquisition transaction and except as set forth in this Section 3.03 or in Schedule 3.03 attached hereto, ------------- and except pursuant to the Rights Agreement, there are no other shares of capital stock or other equity securities of Mercantile outstanding and no other outstanding 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 of Mercantile, or contracts, commitments, understandings or arrangements by which Mercantile is or may become bound to issue additional shares of its capital stock or options, warrants or rights to purchase or acquire any additional shares of its capital stock. All of the issued and outstanding shares of Mercantile Common Stock are validly issued, fully paid and nonassessable, and have not been issued in violation of any preemptive right of any shareholder of Mercantile. At the Effective Time, the Mercantile Common Stock issued pursuant to this Agreement will be duly authorized, validly issued and in compliance with all applicable federal and state securities laws, fully paid and nonassessable and not subject to preemptive rights. 3.04 Mercantile Financial Statements. The supplemental ------------------------------- audited consolidated balance sheets of Mercantile and its subsidiaries (hereinafter sometimes referred to collectively as "Mercantile Subsidiaries") as of December 31, 1993, 1992 and 1991 and related supplemental audited consolidated statements of income, changes in shareholders' equity and cash flows for the three years ended December 31, 1993, together with the notes thereto, certified by KPMG Peat Marwick and incorporated by reference in Mercantile's Annual Report on Form 10-K for the year ended December 31, 1993 and the unaudited consolidated balance sheets of Mercantile and the Mercantile Subsidiaries as of March 31, 1994 and 1993 and related unaudited consolidated statements of income, cash flows and shareholders' equity for the three months ended March 31, 1994 and 1993 included in Mercantile's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, both as filed with the SEC (collectively, the "Mercantile Financial Statements"), have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, and present fairly the consolidated financial position of Mercantile and the Mercantile Subsidiaries at the dates and the consolidated results of operations and cash flows of Mercantile and the Mercantile Subsidiaries for the periods stated therein. 3.05 Reports. Since January 1, 1991, Mercantile and ------- each of the Mercantile Subsidiaries have filed all reports, - 24 - 29 registrations and statements, together with any required amendments thereto, that they were required to file with (i) the SEC, including, but not limited to, Annual Report on Form 10-K, Forms 10-Q, Forms 8-K and proxy statements, (ii) the Federal Reserve Board, (iii) the FDIC, (iv) the Office of the Comptroller of the Currency (the "OCC"), and (v) any applicable state securities or banking authorities. All such reports and statements filed with any such regulatory body or authority are collectively referred to herein as the "Mercantile Reports." As of their respective dates, the Mercantile Reports complied with all the rules and regulations promulgated by the SEC, the Federal Reserve Board, the FDIC, the OCC and any applicable state securities or banking authorities, as the case may be, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.06 Material Adverse Change. Except as set forth in ----------------------- Schedule 3.06, since March 31, 1994, there has been no material - ------------- adverse change in the financial condition, results of operations or prospects of Mercantile and the Mercantile Subsidiaries taken as a whole, other than changes in banking laws or regulations, or interpretations thereof, or other conditions that affect the banking industry generally, or changes in the general level of interest rates. 3.07 Registration Statement, Proxy Statement etc. None -------------------------------------------- of the information regarding Mercantile and the Mercantile Subsidiaries supplied or to be supplied by Mercantile for inclusion or included in (a) the Registration Statement, (b) the Proxy Statement, or (c) any other documents to be filed with the SEC or any regulatory authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with the SEC or any regulatory authority and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement, when mailed, to the best knowledge of the Mercantile Entities be false or misleading with respect to any 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 special meetings of shareholders of Wedge Holding and Wedge Bank referred to in Section 5.03, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for either such meeting. All documents which the Mercantile Entities are responsible for filing with the SEC and any regulatory authority in connection with the Acquisition will comply as to form in all respects with the provisions of applicable law. 3.08 Brokers and Finders. Neither Mercantile, ------------------- Mercantile Illinois nor any of their respective officers, directors or employees has employed any broker or finder or incurred any - 25 - 30 liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Mercantile or Mercantile Illinois in connection with this Agreement or the transactions contemplated hereby and thereby. 3.09 Legal Proceedings or Other Adverse Facts. There ---------------------------------------- is no legal action or governmental proceeding or investigation pending or to the best knowledge of the Mercantile Entities, threatened against Mercantile or Mercantile Illinois that could prevent or adversely affect or seeks to prohibit the consummation of the transactions contemplated hereby, nor is Mercantile or Mercantile Illinois subject to any order of a court or governmental authority having any such effect. Neither Mercantile nor Mercantile Illinois have knowledge of any other fact that could prevent or adversely affect the consummation of the transactions contemplated hereby. 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, Wedge Holding and Wedge Bank shall conduct their respective businesses according to the ordinary and usual course consistent with past and current practices and shall use their best efforts to maintain and preserve their respective business organization, employees and advantageous business relationships and retain the services of its officers and key employees. 4.02 Forbearances of Wedge Holding and Wedge Bank. -------------------------------------------- During the period from the date of this Agreement to the Closing Date, Wedge Holding or Wedge Bank shall not, without the prior written consent of the Mercantile Entities: (a) declare and/or pay any dividends on its outstanding shares of capital stock, except that from the date of this Agreement through the Closing Date, the Board of Directors of Wedge Bank shall be entitled to declare a dividend for each quarter in which the Mercantile Board of Directors shall declare a dividend on shares of Mercantile Common Stock that in the aggregate is not in excess of the aggregate quarterly dividend that would have been paid by Mercantile on the shares of Mercantile Common Stock issuable as Acquisition Consideration under this Agreement if the transactions contemplated in this Agreement had been consummated on or before the date of this Agreement, and except that the Board of Directors of Wedge Bank shall be entitled to declare a single dividend equal to $375,000 which Wedge Holding shall use for the repayment of indebtedness; (b) enter into or amend any employment, severance or similar agreements or arrangements with any director or officer - 26 - 31 of Wedge Bank, or amend, modify or terminate any Employee Plans or Policies of Wedge Bank; (c) propose or adopt any amendments to the Articles of Incorporation of Wedge Holding, the Charter of Wedge Bank or their respective By-laws; (d) issue any shares of capital stock or effect any stock split or otherwise change the capitalization of Wedge Bank as it existed as of the date hereof; (e) grant, confer or award any options, warrants, conversion rights or other rights not existing on the date hereof to acquire any shares of capital stock of Wedge Bank; (f) purchase or redeem any shares of the capital stock of either Wedge Holding or Wedge Bank; (g) enter into or increase any loan or credit commitment (including standby letters of credit) to, or invest or agree to invest in any person or entity (i) in an amount in excess of $100,000, without first consulting with the Mercantile Entities, and, in the case of persons or entities to which it has outstanding aggregate credit commitments and loans exceeding $100,000, subject to subparagraph (ii) below, increase or agree to increase the loan or credit commitment to, or invest or agree to invest in, such person or entity by more than twenty-five percent (25%) of such amount, without first consulting with the Mercantile Entities, and (ii) in an amount in excess of $250,000 without first obtaining the prior written consent of a Mercantile Entity, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, nothing in this paragraph shall prohibit Wedge Bank from honoring any contractual and legally binding obligation in existence on the date of this Agreement; (h) enter into, increase or renew any loan or credit commitment (including standby letters of credit) to any executive officer or director of Wedge Holding or Wedge Bank, any shareholder of Wedge Holding, or any entity controlled, directly or indirectly, by any of the foregoing or engage in any transaction with any of the foregoing of which is the type or nature sought to be regulated in 12 U.S.C. 371c and 12 U.S.C. 371c-1, without first obtaining the prior written consent of a Mercantile Entity, which consent shall not be unreasonably withheld. For purposes of this subsection (h), "control shall have the meaning associated with that term under 12 U.S.C. 371c; (i) 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 action which would make any of the representations and warranties in Article II of this Agreement untrue or incorrect in any respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other act; - 27 - 32 (j) take any action (i) that would (1) adversely affect or delay the ability to obtain any necessary approvals of any regulatory authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement or (2) prevent or impede the transactions contemplated hereby from qualifying for pooling-of-interests accounting treatment or as a reorganization within the meaning of Section 368 of the Code, or (ii) that is not in the ordinary course of business consistent with past practice; or (k) directly or indirectly, including through its officers, directors, employees or other representatives (i) initiate, solicit or encourage any discussions, inquiries or proposals with any party (other than the Mercantile Entities) relating to the disposition of any significant portion of the business or assets of Wedge Bank, or the acquisition of the capital stock (or rights or options exercisable for, or securities convertible or exchangeable into, capital stock) of Wedge Holding or Wedge Bank, or the merger of Wedge Holding or Wedge Bank with any person (each such transaction being referred to herein as an "Acquisition Transaction") which, in any such event, is not expressly subject to this Agreement, or (ii) authorize, recommend, propose or announce an intention to authorize, recommend, propose, or enter into an agreement or an agreement in principle with respect to any Acquisition Transaction. Wedge Holding or Wedge Bank shall promptly notify the Mercantile Entities orally of all the relevant details relating to all inquiries, indications of interest and proposals which Wedge Holding or Wedge Bank may receive with respect to any Acquisition Transaction. 4.03 Forbearances of the Mercantile Entities. During --------------------------------------- the period from the date of this Agreement to the Closing Date, the Mercantile Entities shall not, without the prior consent of the Sellers, agree in writing or otherwise to engage in any activity, enter into any transaction or take or omit to take any other action which would make any of the representations and warranties of Article III of this Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other action. ARTICLE V --------- ADDITIONAL AGREEMENTS 5.01 Access and Information; Due Diligence. ------------------------------------- (a) Wedge Holding and Wedge Bank shall afford to Mercantile Entities, and to the Mercantile Entities' accountants, counsel and other representatives, full access during normal business hours, during the period prior to the Closing Date, to all its properties, books, contracts, commitments and records and, during such period, shall furnish promptly to the Mercantile Entities (i) a copy of each report, schedule and other document - 28 - 33 filed or received by it during such period pursuant to the requirements of federal and state securities or banking laws and (ii) all other information concerning its business, properties and personnel as the Mercantile Entities may reasonably request. In the event of the termination of this Agreement the Mercantile Entities shall, and shall cause its advisors and representatives to, (1) hold confidential all information obtained in connection with any transaction contemplated hereby with respect to the other party which is not otherwise public knowledge, (2) return to Wedge Holding and Wedge Bank all documents (including copies thereof) obtained hereunder from Wedge Holding and Wedge Bank and (3) use its best efforts to cause all information obtained pursuant to this Agreement or in connection with the negotiation hereof 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) Mercantile, promptly following the date of this Agreement, shall commence its review of Wedge Holding and Wedge Bank and its operations, business affairs, prospects and financial conditions, including, without limitation, those matters which are the subject of Wedge Holding's and Wedge Bank's representations and warranties (the "Mercantile Due Diligence Review"). Mercantile shall conclude such review by not later than twenty-five (25) business days after the date of this Agreement (the "Mercantile Due Diligence Period"), but the pendency of such Mercantile Due Diligence Review shall not delay Mercantile'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. Mercantile shall advise Wedge Holding and Wedge Bank of any situation, event, circumstance or other matter which first came to the attention of Mercantile during the Mercantile Due Diligence Review which could result in the termination of this Agreement by Mercantile pursuant to Section 7.01(d) hereof, or, if applicable, of the absence of any situation, event, circumstance or other matter, it being the intention of Mercantile to provide notice to Wedge Holding and Wedge Bank, as promptly as possible, of any perceived impediment to the consummation of the Merger. Notwithstanding anything hereinabove contained or implied to the contrary, the Mercantile Due Diligence Review shall not limit, restrict or preclude, or be construed to limit, restrict or preclude, Mercantile, at any time or from time to time thereafter, from conducting further such reviews or from exercising any rights available to it hereunder as a result of the existence or occurrence prior to the Mercantile Due Diligence Period of any event or condition which was not detected in the Mercantile Due Diligence Review by Mercantile and which would constitute a breach of any representation, warranty or agreement of Wedge Holding or Wedge Bank under this Agreement. - 29 - 34 5.02 Registration Statement; Regulatory Matters. ------------------------------------------ (a) Mercantile shall prepare and file with the SEC as soon as is reasonably practicable after the date of this Agreement, but in any event within sixty (60) days after the date of this Agreement, the Registration Statement with respect to the shares of Mercantile Common Stock issuable as Acquisition Consideration and shall use its best efforts to cause the Registration Statement to become effective. Mercantile shall also take any action required to be taken under any applicable state blue sky or securities laws in connection with the issuance of such shares, and Wedge Holding and Wedge Bank shall furnish Mercantile all information concerning Wedge Holding and Wedge Bank as Mercantile may reasonably request in connection with any such action. (b) Each of the parties hereto shall cooperate and use their respective best efforts to prepare all documentation, to effect all filings and to obtain all permits, consents, approvals and authorizations of all third parties and governmental bodies necessary to consummate the transactions contemplated by this Agreement as soon as is reasonably practicable after the date of this Agreement, including, without limitation, in any event, Mercantile filing the necessary applications with the Federal Reserve Board, the FDIC and the Illinois Commissioner within sixty (60) days after the date of this Agreement. 5.03 Shareholder Approvals. Wedge Holding shall call --------------------- a special meeting of its shareholders to be held as soon as is reasonably possible for the purpose of voting upon the Exchange and this Agreement and related matters. Wedge Bank shall call a special meeting of its shareholders to be held as soon as is reasonably possible for the purpose of voting upon the Merger, this Agreement and the Plan of Merger and related matters. In connection with such meetings, Wedge Holding and Wedge Bank shall aid Mercantile in the preparation and filing of the Proxy Statement (which shall be a part of the Registration Statement to be filed with the SEC by Mercantile) and mail it to their respective shareholders. The respective Boards of Directors of Wedge Holding and of Wedge Bank shall submit and recommend for approval of their respective shareholders the matters to be voted upon at such meetings. The Boards of Directors of Wedge Holding and Wedge Bank will use their respective best efforts to obtain the votes and approvals of their respective shareholders necessary for the approval and adoption of the matter contemplated hereby. Wedge Holding agrees to vote all shares of Wedge Bank Common Stock that it owns beneficially and of record for the approval of the Merger, this Agreement and the Plan of Merger at the special meeting of shareholders of Wedge Bank. 5.04 Current Information. During the period from the ------------------- date of this Agreement to the Closing Date, each party will promptly furnish all other parties with copies of all monthly and other interim financial statements as the same become available and - 30 - 35 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 parties of the following events immediately upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken by the affected party with respect thereto: (a) the occurrence of any event which could cause any representation or warranty of such party or any schedule, statement, report, notice, certificate or other writing furnished by such party to be untrue or misleading in any respect; (b) any change in its business, financial condition, results of operations or prospects; (c) the issuance or commencement of any governmental and/or regulatory agency complaint, investigation or hearing or any communications indicating that the same may be contemplated and, as to any such matter which shall now or hereafter be in effect, any communications pertaining thereto; or (d) the institution or the threat of litigation involving such party. 5.05 Agreements of Affiliates. The Sellers shall ------------------------ deliver to Mercantile a letter identifying all persons whom the Sellers believe to be, at the time of the special meetings of the shareholders of the Sellers' "affiliates" of the Sellers for purposes of Rule 145 under the Securities Act and for pooling-of- interests accounting treatment. The Sellers shall use their best efforts to cause each person who is identified as an "affiliate" in the letter referred to above to deliver to Mercantile prior to the Effective Time a written agreement in substantially the form set forth as Appendix B to this Agreement providing that each such ---------- person will agree not to sell, pledge, transfer or otherwise dispose of the shares of Mercantile Common Stock to be received by such person in the Acquisition during the period designated in such letter and thereafter in compliance with the applicable provisions of the Securities Act. Prior to the Closing Date, the Sellers shall amend and supplement such letter and use its best efforts to cause each additional person who is identified as an "affiliate" to execute a written agreement as provided in this Section 5.05. 5.06 Expenses. Each party hereto shall bear its own -------- expenses incident to preparing, entering into and carrying out this Agreement and the Plan of Merger and consummating the Acquisition, except that Mercantile Illinois shall pay all printing expenses and filing fees incurred in connection with this Agreement, the Registration Statement and the Proxy Statement. 5.07 Miscellaneous Agreements and Consents. Subject to ------------------------------------- the terms and conditions herein provided, each of the parties hereto agrees to use their 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 and the Plan of Merger as expeditiously as possible, including, without limitation, using their respective best efforts to lift or rescind any injunction or restraining order or other order adversely affecting the ability of - 31 - 36 the parties to consummate the transactions contemplated thereby. The Sellers and the Mercantile Entities shall use their best efforts to obtain consents of all third parties and governmental bodies necessary or, in the opinion of any of the foregoing, desirable for the consummation of the transactions contemplated by this Agreement and the Plan of Merger. 5.08 Press Releases. The Sellers and the Mercantile -------------- Entities shall consult with each other as to the form and substance of any proposed press release or other proposed public disclosure of matters related to this Agreement or any of the transactions contemplated hereby. 5.09 Indemnification of Wedge Bank's Directors, ------------------------------------------ Officers and Employees. Mercantile agrees that the Merger shall - ---------------------- not affect or diminish any of Wedge Bank's duties and obligations of indemnification existing at the Effective Time of Merger in favor of employees, agents, directors or officers of Wedge Bank arising by virtue of its Charter or By-laws in the form in effect at the date hereof or arising by operation of law or arising by virtue of any contract, resolution, or other agreement or document existing at the date hereof, and such duties and obligations shall continue in full force and effect for so long as they would otherwise survive and continue in full force and effect. Mercantile represents that the directors and officers liability insurance policy maintained by it does provide for "prior acts" coverage for directors and officers of entities acquired by it. 5.10 Employee Benefit Plans. The Employee Benefit ---------------------- Plans of Wedge Bank shall not be terminated by reason of the Acquisition but shall continue thereafter as plans of the entity surviving by reason of the Acquisition until such time as such employees are integrated into the Mercantile employee benefit plans available to other employees of the Mercantile Subsidiaries, subject to the terms and conditions specified in such plans and to such changes therein as may be necessary to reflect the Acquisition. Mercantile shall take such steps as are necessary or required to integrate employees of Wedge Bank in the Mercantile employee benefit plans available to other employees of Mercantile Subsidiaries, as soon as practicable after the Acquisition. 5.11 Taxes of Wedge Holding. Any liability in respect ---------------------- of any consolidated, combined or unitary tax imposed upon Sellers (including any federal income tax liability shown to be due on the final return of Wedge Holding) (i) with respect to a taxable period ending on or before the Closing Date or (ii) with respect to a taxable period beginning on or before the Closing Date and ending after the Closing Date, but only with respect to the portion of such period up to and including the Closing Date, shall be allocated between Wedge Holding and Wedge Bank pursuant to (or in accordance with the principles of) Income Tax Regulation Section 1.1552-1(a)(1); any such liability (i) with respect to a taxable period beginning after the Closing Date or (ii) with respect to a period that begins on or before the Closing Date and ends - 32 - 37 thereafter, but only with respect to the portion of such period after the Closing Date, shall be allocated to Wedge Holding. Any refund in respect of any taxable period beginning on or before the Closing Date shall be allocated between Wedge Bank and Wedge Holding proportionately in accordance with the allocation of the tax liability for such period under the preceding sentence. Wedge Holding, with the assistance and review of the Mercantile Entities, shall prepare and timely file all tax declarations, information returns, returns, and statements required to be filed by it after the Closing Date. ARTICLE VI ---------- CONDITIONS 6.01 Conditions to Each Party's Obligation To Effect ----------------------------------------------- the Acquisition. The respective obligations of each party to effect - --------------- the Acquisition shall be subject to the fulfillment or waiver at or prior to the Closing Date of the following conditions: (a) The approval of the Exchange and this Agreement shall have received the requisite vote of shareholders of Wedge Holding at the special meeting of shareholders called pursuant to Section 5.03 hereof. (b) The approval of the Merger, this Agreement and the Plan of Merger shall have received the requisite vote of shareholders of Wedge Bank at the special meeting of shareholders called pursuant to Section 5.03 hereof. (c) This Agreement and the Plan of Merger and the transactions contemplated thereby shall have been approved by the FDIC, the Illinois Commissioner and any other federal and/or state regulatory agencies whose approval is required for consummation of the transactions contemplated hereby. (d) The Registration Statement shall have been declared effective and shall not be subject to a stop order or any threatened stop order. (e) Neither Wedge Holding, Wedge Bank, Mercantile, Mercantile Illinois nor Acquisition Bank 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 Acquisition. (f) The Mercantile Entitles and Wedge Holding shall have taken all such actions as are necessary to effect the Exchange simultaneously with the Merger. 6.02 Conditions to Obligations of the Sellers. The ---------------------------------------- obligations of the Sellers to effect the Acquisition shall be - 33 - 38 subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The ------------------------------ representations and warranties of the Mercantile Entities set forth in Article III hereof shall be true and correct in all material respects, except such as are not of a magnitude as to be materially adverse to the business, financial condition, results of operations or prospects of Mercantile and its subsidiaries, taken as a whole, as of the date of this Agreement and as of the Closing Date, (as though made on and as of the Closing Date except (i) to the extent such representations and warranties are by its express provisions made as of a specified date, and (ii) for the effect of transactions contemplated by this Agreement) and the Sellers shall have received a signed certificate which is to the best knowledge of the Vice Chairman of Mercantile, signing on behalf of the Mercantile Entities, and is to that effect. (b) Performance of Obligations. The Mercantile -------------------------- Entities shall have performed in all material respects all obligations required to be performed by each under this Agreement prior to the Effective Time, and the Sellers shall have received a signed certificate which is to the knowledge of the Vice Chairman of Mercantile and is to that effect. (c) Permits, Authorizations, etc. The Mercantile ----------------------------- Entities shall have obtained any and all material permits, authorizations, consents, waivers and approvals required for the lawful consummation by it of the Acquisition. (d) No Material Adverse Change. Since the date -------------------------- of this Agreement, there shall have been no material adverse change in the business, financial condition, results of operations or prospects of Mercantile and its subsidiaries, taken as a whole. (e) Opinion of Counsel. Mercantile shall have ------------------ delivered to the Sellers an opinion of counsel to Mercantile dated as of the Closing Date or a mutually agreeable earlier date in substantially the form set forth as Appendix C to this Agreement. ---------- (f) Tax Opinion. The Sellers shall have ----------- delivered to Mercantile an opinion of counsel to the Sellers dated as of the Closing Date or a mutually agreeable earlier date reasonably satisfactory in form and substance to the Sellers to the effect that the Acquisition will constitute a reorganization within the meaning of Section 368 of the Code and that no gain or loss will be recognized by Wedge Holding or the shareholders of Wedge Holding or Wedge Bank to the extent that each received shares of Mercantile Common Stock solely in exchange for shares of Wedge Bank Common Stock in the Acquisition or Wedge Holding Common Stock in the Liquidation based upon the certificates set forth as Appendix -------- D to this Agreement. - - - 34 - 39 6.03 Conditions to Obligations of the Mercantile ------------------------------------------- Entities. The obligations of the Mercantile Entities to effect the - -------- Acquisition shall be subject to the fulfillment at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The ------------------------------ representations and warranties of the Sellers set forth in Article II hereof shall be true and correct in all material respects, except such as are not of a magnitude as to be materially adverse to the business, financial condition, results of operations or prospects of Wedge Bank, as of the date of this Agreement and as of the Closing Date (as though made on and as of the Closing Date except (i) to the extent such representations and warranties are by their express provisions made as of a specific date and (ii) for the effect of transactions contemplated by this Agreement) and Mercantile shall have received a signed certificate which is to the best knowledge of the and the Chairman and Chief Executive Officer and President of each of Wedge Holding and Wedge Bank, signing on behalf of Wedge Holding and Wedge Bank, and is to that effect. (b) Performance of Obligations. The Sellers -------------------------- shall have performed in all material respects all obligations required to be performed by them under this Agreement prior to the Closing Date, and Mercantile shall have received a signed certificate which is to the knowledge of the Chairman and the Chief Executive Officer and President of each of Wedge Holding and Wedge Bank, signing on behalf of Wedge Holding and Wedge Bank, and is to that effect. (c) Permits, Authorizations, etc. The Sellers ----------------------------- shall have obtained any and all material consents or waivers from other parties to loan agreements, leases or other contracts material to the Wedge Bank's businesses required for the consummation of the Acquisition, and the Sellers shall have obtained any and all material permits, authorizations, consents, waivers and approvals required for the lawful consummation by it of the Acquisition. (d) No Material Adverse Change. Since the date -------------------------- of this Agreement, there shall have been no material adverse change in the business, financial condition, results of operations or prospects of Wedge Bank. (e) Election of Dissenting Shareholders. Unless ----------------------------------- otherwise waived by the Mercantile Entities in their sole discretion, the combined number of shares of Wedge Holding Common Stock and Wedge Bank Common Stock as to which written demand for the fair value of their shares pursuant applicable law has been delivered to Wedge Holding or Wedge Bank, as the case may be, by the holders thereof prior to the taking of the votes on the Acquisition shall not exceed eight percent (8%) of the total direct or indirect equity interests of Wedge Bank Common Stock outstanding at the time when such votes are taken. - 35 - 40 (f) Accounting Treatment. The Mercantile -------------------- Entities shall be satisfied that the Acquisition, in form and substance, will qualify for pooling-of-interests accounting treatment. (g) Opinion of Counsel. The Sellers shall have ------------------ delivered to Mercantile an opinion of counsel to the Sellers dated as of the Closing Date or a mutually agreeable earlier date in substantially the form set forth as Appendix E to this Agreement. ---------- (h) Delivery of Certificates. Wedge Holding ------------------------ shall have delivered to the Exchange Agent the certificates evidencing shares of Wedge Bank Common Stock owned beneficially or of record by Wedge Holding, and such other documentation as shall be reasonably required by Mercantile or the Exchange Agent to effect the Exchange. (i) Delivery of Terms of Engagement Letters. --------------------------------------- Each of Melvin G. Hall and Robert Lynn Hall shall have delivered to Mercantile letters as to the terms of their respective engagements by Mercantile in substantially the form set forth as Appendix F and ---------- Appendix G to this Agreement, respectively. - ---------- ARTICLE VII ----------- TERMINATION, AMENDMENT AND WAIVER 7.01 Termination. This Agreement may be terminated at ----------- any time prior to the Closing Date, whether before or after approval by the shareholders of Wedge Holding and Wedge Bank: (a) by mutual consent by the Executive Committee of the Board of Directors of Mercantile and the Board of Directors of each other party hereto; or (b) by the Executive Committee of the Board of Directors of Mercantile or the Board of Directors of each other party hereto at any time after March 31, 1995 if the Acquisition shall not theretofore have been consummated; or (c) by the Executive Committee of the Board of Directors of Mercantile or the Board of Directors of each other party hereto if the Federal Reserve Board, the FDIC, the Illinois Commissioner or any other federal and/or state regulatory agency whose approval is required for the consummation of the Acquisition shall have denied approval of such transaction; or (d) by the Executive Committee of the Board of Directors of Mercantile or the Board of Directors of Mercantile Illinois, at any time prior to the completion of the Mercantile Due Diligence Period, in the event any situation, event, circumstance or other matter shall come to the attention of Mercantile during the course of the Mercantile Due Diligence Review conducted - 36 - 41 pursuant to Section 5.01(b) hereof which Mercantile shall, in a good faith exercise of its reasonable discretion, determine to be of type or nature which is of such a magnitude as to be materially adverse to the business, financial condition, results of operations or prospects of Wedge Bank and is not capable of being expeditiously or effectively resolved or remedied in a manner acceptable to Mercantile; or (e) by the Executive Committee of the Board of Directors of Mercantile or the Boards of Directors of Mercantile Illinois, on the one hand or by the Boards of Directors of Wedge Holding and Wedge Bank, on the other hand, in the event of a breach by the other of any representation, warranty or agreement contained in this Agreement, which breach is of such a magnitude as to be materially adverse to the business, financial condition, results of operations or prospects of the breaching party and its subsidiaries taken as a whole and is not cured after 45 days' written notice thereof is given to the party committing such breach or waived by such other party(ies). 7.02 Effect of Termination. In the event of --------------------- termination of this Agreement as provided in Section 7.01 above, this Agreement shall forthwith become void and without further effect and there shall be no liability on the part of any party hereto or the respective officers and directors of each, except as set forth in the second sentence of Section 5.01 and in Sections 5.06 and 8.02, and, except that no termination of this Agreement pursuant to subsection (e) of Section 7.01 shall relieve the non- performing party of any liability to any other party hereto arising from the intentional, deliberate and willful non-performance of any covenant herein, after the giving of notice and the opportunity to cure. 7.03 Amendment. This Agreement and the Appendices and --------- Schedules hereto may be amended by the parties hereto, by action taken by or on behalf of the respective Executive Committees of the Board of Directors or the respective Boards of Directors, at any time before or after approval of this Agreement by the shareholders of Wedge Holding and Wedge Bank; provided, however, that after any such approval no such modification shall alter the amount or change the form of the Acquisition Consideration contemplated by this Agreement to be received by Wedge Holding or the other shareholders of Wedge Bank or alter or change any of the terms of this Agreement if such alteration or change would adversely affect the shareholders of Wedge Bank. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 7.04 Waiver. Any term, condition or provision of this ------ Agreement may be waived in writing at any time by the party which is, or whose shareholders are, entitled to the benefits thereof. - 37 - 42 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 the Mercantile Entities, the Sellers or in any instrument delivered by the Mercantile Entities or the Sellers pursuant to this Agreement shall expire at the Effective Time or upon termination of this Agreement in accordance with its terms. In the event of termination of this Agreement in accordance with its terms, the agreements contained in Sections 5.01 (second sentence), 5.06, 7.02 and 8.02 shall survive such termination. 8.02 Indemnification. The Sellers and the Mercantile --------------- Entities (hereinafter, in such capacity being referred to individually and/or collectively, as the "Indemnifying Party") agree to indemnify and hold harmless each other and their officers, directors and controlling persons (each such other party being hereinafter referred to, individually and/or collectively, as the "Indemnified Party") against any and all losses, claims, damages or liabilities, joint or several, to which the Indemnifying Party may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) (a) arise out of any information furnished to the Indemnified Party by the Indemnifying Party or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement as originally filed or in any amendment thereof, or in the Proxy Statement, or in any amendment thereof or supplement thereto, and provided for inclusion thereof by the Indemnifying Party, or (b) arise out of or are based upon the omission or alleged omission by the Indemnifying Party to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such Indemnified Party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action. The obligations of the Indemnifying Party under this Section 8.02 shall survive any termination of this Agreement. 8.03 No Assignment; Successors and Assigns. This ------------------------------------- Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, but neither this Agreement nor any right or obligation set forth in any provision hereof may be transferred or assigned by any party hereto without the prior written consent of all other parties, and any purported transfer or assignment in violation of this Section 8.03 - 38 - 43 shall be void and of no effect. There shall not be any third party beneficiaries of any provisions hereof except for Sections 1.08, 5.09, 5.10 and 8.02 which may be enforced against obligated party by the parties therein identified. 8.04 Severability. Whenever possible, each provision ------------ of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Agreement. 8.05 No Implied Waiver. No failure or delay on the ----------------- part of either party hereto to exercise any right, power or privilege hereunder or under any instrument executed pursuant hereto shall operate as a waiver nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 8.06 Headings. Article, section, subsection and -------- paragraph titles, captions and headings herein are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent or meaning of any provision hereof. 8.07 Entire Agreement. This Agreement and the ---------------- Appendices and Schedules hereto constitutes the entire agreement between the parties with respect to the subject matter hereof, supersedes all prior negotiations, representations, warranties, commitments, offers, letters of interest or intent, proposal letters, contracts, writings or other agreements or understandings with respect thereto. No waiver, and no modification or amendment of any provision of this Agreement shall be effective unless specifically made in writing and duly signed by all parties thereto. The parties hereto acknowledge that the Schedules referenced in Article II are not included with this Agreement as of the date of this Agreement. The Sellers shall provide such Schedules to the Mercantile Entities by not later than ten (10) business days from the date of this Agreement for review and consideration. The obligations on the part of the Mercantile Entities under this Agreement are expressly conditioned upon, and subject to, acceptance by the Mercantile Entities not later than the end of the fifth business day after the date of the actual delivery of the Schedules to Mercantile of the form and substance of the Schedules, in each case in the reasonable discretion of the Mercantile Entities. 8.08 Counterparts. This Agreement may be executed in ------------ one or more counterparts, and any party to this Agreement may execute and deliver this Agreement by executing and delivering any - 39 - 44 of such counterparts, each of which when executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. 8.09 Notices. All notices and other communications ------- hereunder shall be in writing and shall be deemed to be duly received (a) on the date given if delivered personally or by cable, telegram or telex or (b) on the date received if mailed by registered or certified mail (return receipt requested), to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to the Mercantile Entities: Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, MO 63166-0524 Attention: Ralph W. Babb, Jr. Vice Chairman Copy to: Jon W. Bilstrom, Esq. General Counsel Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, MO 63166-0524 (ii) if to the Sellers: Wedge Bank 620 E. Broadway Box 2393 Alton, Illinois 62002-9007 Attention: Melvin G. Hall Chairman and Chief Executive Officer and Robert Lynn Hall President Copy to: Ronald C. Mottaz, Esq. Thomas, Mottaz, Eastman & Sherwood 307 Henry Street P.O. Box 398 Alton, Illinois 62002 8.10 Governing Law. This Agreement shall be governed ------------- by and controlled as to validity, enforcement, interpretation, effect and in all other respects by the internal laws of the State of Illinois applicable to contracts made in that state. - 40 - 45 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective corporate seals to be affixed hereto, all as of the date first written above. "MERCANTILE ENTITIES" MERCANTILE BANCORPORATION INC. By: /s/ Ralph W. Babb, Jr. --------------------------------------- Ralph W. Babb, Jr. Vice Chairman MERCANTILE BANCORPORATION OF ILLINOIS INC. By: /s/ Ralph W. Babb, Jr. --------------------------------------- Ralph W. Babb, Jr. Chairman "SELLERS" THE WEDGE HOLDING COMPANY By: /s/ Melvin G. Hall --------------------------------------- Melvin G. Hall Chairman and Chief Executive Officer By: /s/ Robert Lynn Hall --------------------------------------- Robert Lynn Hall President - 41 - 46 WEDGE BANK By: /s/ Melvin G. Hall --------------------------------------- Melvin G. Hall Chairman and Chief Executive Officer By: /s/ Robert Lynn Hall --------------------------------------- Robert Lynn Hall President ao 941460039/16 - 42 - EX-2.2 3 PLAN OF MERGER 1 PLAN OF MERGER -------------- This Plan of Merger (the "Plan") dated as of August 31, 1994 by and between WEDGE BANK, an Illinois state bank having its principal place of business at 620 East Broadway, P.O. Box 2393, Alton, Illinois 62002-9057 ("Wedge Bank") and MERCANTILE BANK OF ALTON, an Illinois state bank having its principal place of business at 620 East Broadway, P.O. Box 2393, Alton, Illinois 62002-9057 ("Acquisition Bank"), such banks being hereinafter collectively referred to as the "Constituent Banks." W I T N E S S E T H: - - - - - - - - - - WHEREAS, Wedge Bank is chartered as an Illinois state bank by the Illinois Commissioner of Banks and Trust Companies, is duly authorized, validly existing and in good standing under the laws of the State of Illinois, having an authorized capital of 144,300 shares of common stock, $10.00 par value (the "Wedge Bank Common Stock"), of which 144,300 shares will be issued and outstanding as of the Effective Time, as herein defined; and WHEREAS, Acquisition Bank is chartered as an Illinois state bank by the Illinois Commissioner of Banks and Trust Companies, is duly authorized, validly existing and in good standing under the laws of the State of Illinois, having authorized capital of 3,500 shares of common stock, $10.00 par value (the "Acquisition Bank Common Stock"), of which 3,500 shares are issued and outstanding on the date hereof and which are owned beneficially and of record by Mercantile Bancorporation of Illinois Inc., a Missouri corporation ("Mercantile Illinois"); and WHEREAS, the respective Boards of Directors of Wedge Bank and Acquisition Bank each will have duly approved this Plan providing for the merger of Bank with and into Wedge Bank as the surviving bank as authorized by the statutes of the State of Illinois (the "Merger"), which approvals shall be in the form of the resolutions attached hereto as Addendum I; and WHEREAS, Wedge Bank, Wedge Holding Company, an Illinois corporation and holder of 82.1690% of the Wedge Bank Common Stock ("Wedge Holding"), Mercantile Illinois and Mercantile Bancorporation Inc., a Missouri corporation and holder of all of the issued and outstanding stock of Mercantile Illinois ("Mercantile"), have entered into an Agreement and Plan of Reorganization (the "Agreement"), pursuant to which Mercantile Illinois and Wedge Holding will consummate an exchange of all shares of Wedge Bank Common Stock owned beneficially and of record by Wedge Holding (the "Exchange") for shares of the common stock, $5.00 par value, of Mercantile ("Mercantile Common Stock"), and, simultaneously with the Exchange, Acquisition Bank will merge with and into Wedge Bank (the "Merger" and together with the Exchange, the "Acquisition"), and the shareholders of Wedge Bank (other than Mercantile Illinois and Wedge Holding) will receive shares of Mercantile Common Stock in conversion of their shares of Wedge Common Stock; and 2 WHEREAS, Mercantile Illinois owns all the outstanding shares of Acquisition Bank; NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for the purpose of setting forth the terms and conditions of the Merger, the manner and the basis of causing the shares of Wedge Bank Common Stock (other than shares owned by Mercantile Illinois or Wedge Holding) to be converted into Mercantile Common Stock, as herein provided, and such other details and provisions as are deemed necessary or proper, the parties hereto have agreed, subject to the approval and adoption of this Plan by the requisite vote of the shareholders of each Constituent Bank, and subject to the conditions hereinafter set forth, as follows: ARTICLE I Merger and Name of Surviving Bank --------------------------------- At the Effective Time (as defined herein), Acquisition Bank shall be merged with and into Wedge Bank, which is hereby designated as the "Surviving Bank", the name of which upon and after the Effective Time shall be Wedge Bank and the principal place of business of which upon and after the Effective Time shall be 620 East Broadway, P.O. Box 2393, Alton, Illinois, 62002-9007. ARTICLE II Terms and Conditions of Merger ------------------------------ The terms and conditions of the Merger are (in addition to those set forth elsewhere in this Plan) as follows: Section 1. At the Effective Time: (a) Acquisition Bank shall be merged with and into Wedge Bank, and Wedge Bank shall be, and is designated herein as, the Surviving Bank. (b) The separate existence of Acquisition Bank shall cease. (c) The Surviving Bank shall thereupon and thereafter possess all the rights, privileges, immunities, and franchises, of a public as well as of a private nature, of each of the Constituent Banks; and all property, real, personal, and mixed, and all debts due on whatever account, including subscriptions to shares, and all other choices in action, and all and every other interest, of or belonging to or due to each of the Constituent Banks, shall be taken and deemed to be transferred to and vested in the Surviving Bank without further act or deed; and the title - 2 - 3 to any real estate, or any interest therein, vested in either Constituent Bank shall not revert or be in any way impaired by reason of the Merger; the Surviving Bank shall thenceforth be responsible and liable for all the liabilities and obligations of each of the Constituent Banks; and any claim existing or action or proceeding pending by or against either of such Constituent Banks may be prosecuted to judgment as if the Merger had not taken place, or such Surviving Bank may be substituted in its place. Neither the rights of creditors nor any liens upon the property of either of the Constituent Banks shall be impaired by the Merger. Section 2. At the Effective Time, the Charter and Bylaws of the Surviving Bank shall be the Charter and Bylaws of Wedge Bank, respectively, until amended in accordance with their provisions and applicable law. Surviving Bank's capital account and surplus account shall equal the combined capital accounts and surplus accounts of Wedge Bank and Acquisition Bank. Section 3. At the Effective Time, the members of the Board of Directors and the terms of those directors of Surviving Bank shall be as designated by Mercantile Illinois immediately prior to the Effective Time. Section 4. At the Effective Time, the officers of Surviving Bank shall be the persons designated by Mercantile Illinois immediately prior to the Effective Time and such persons will serve in their designated offices, thereafter, until their respective successors are duly elected and qualified. Section 5. At the Effective Time, the Community Reinvestment Act statement, the market area, and the plan of operation of the Surviving Bank shall be those of Wedge Bank. A copy of the Community Reinvestment Act Statement is attached hereto as Addendum II. Copies of the maps of the market areas of Wedge Bank are attached hereto as Addendum III. Section 6. A detailed pro forma combined consolidated balance sheet of Surviving Bank and a pro forma statement of income and expenses of Surviving Bank as of one year from the Effective Date are attached hereto as Addenda IV and V, respectively. ARTICLE III Manner and Basis of Converting Shares ------------------------------------- The manner and basis of converting the shares of Wedge Bank into the right to receive Mercantile Common Stock and the mode of carrying the Merger into effect are as follows: - 3 - 4 Section 1. Conversion of Bank Common Stock ------------------------------- At the Effective Time, the 3,500 shares of Acquisition Bank Common Stock outstanding shall be converted into shares of Surviving Bank common stock. Section 2. Conversion of Wedge Bank Common Stock ------------------------------------- (a) At the Effective Time, Mercantile will issue 970,000 shares of Mercantile Common Stock in the Exchange and the Merger (hereinafter such shares shall be referred to in the aggregate as the "Acquisition Consideration"). Wedge Holding and each of the other shareholders of Wedge Bank (other than Mercantile Illinois and Wedge Holding, as the case may be) will be entitled to receive the number of shares of Mercantile Common Stock issuable as the Acquisition Consideration that is determined by multiplying such Acquisition Consideration by such shareholders' respective percentage ownership interests in Wedge Bank. A list of the shareholders of Wedge Bank is attached hereto as Addendum VI. (b) At the Effective Time, Wedge Holding, by virtue of the Exchange and without any other action on the part of the Mercantile Entities or Wedge Holding, will be entitled to receive its percentage interest of the Acquisition Consideration as determined in Section 2(a) hereof, upon delivery at the closing of the Acquisition of the certificates evidencing its shares of Wedge Bank Common Stock. Also, at the Effective Time, by virtue of the Merger and without any action on the part of the Mercantile, Mercantile Illinois, Acquisition Bank, Wedge Bank or any Wedge Bank shareholder, each share of Wedge Bank Common Stock issued and outstanding at the Effective Time (other than any shares held by Mercantile Illinois or Wedge Holding or any of their respective wholly owned subsidiaries, (in each case other than in a fiduciary capacity or as a result of debts previously contracted)), which shall be cancelled, and other than any shares held by any holder who becomes entitled to payment of the fair value of such shares under Section 29 of the Illinois Banking Act, shall cease to be outstanding and shall be converted into and become the right to receive his or her percentage interest of the Acquisition Consideration as determined in Section 2(a) hereof. (c) Neither certificates nor scrip for fractional shares of Mercantile Common Stock shall be issued as Acquisition Consideration. Each holder of shares of Wedge Bank Common Stock who otherwise would have been entitled to a fraction of a share of Mercantile Common Stock shall receive in lieu thereof and, at the time such holder receives the shares of Mercantile Common Stock to which the holder is entitled as Acquisition Consideration, cash (without interest) in an amount determined by multiplying the fractional share interest to which such holder would otherwise be entitled by the closing stock price of Mercantile Common Stock on the New York Stock Exchange Composite - 4 - 5 Tape as reported in The Wall Street Journal on the Closing Date. No such holder shall be entitled to dividends, voting rights or any other rights in respect of any fractional share. Section 3. Dissenting Wedge Bank Shareholders ---------------------------------- Any shareholder of Wedge Bank may (1) vote against the Merger at the shareholder meeting of Wedge Bank called to vote upon the Merger, or (2) give notice in writing at or prior to the meeting of his dissent from the Merger. Such shareholder is then entitled to receive the value of the shares held by him, valued as of the date on which the meeting was held, if and when the Merger is approved by the FDIC, if a request is made before thirty days after consummation of the Merger. Section 4. Wedge Bank Common Stock Certificates ------------------------------------ After the Effective Time, each holder of an outstanding certificate which prior thereto represented shares of Wedge Bank Common Stock shall be entitled, upon surrender thereof to Mercantile or its designee, to receive in exchange therefor the number of shares of Mercantile Common Stock into which it has been converted. Until so surrendered, each such outstanding certificate which, prior to the Effective Time, represented shares of Wedge Bank Common Stock shall for all purposes evidence the right to receive the Mercantile Common Stock into which such shares shall have been so converted; provided that dividends or other distributions which are payable in respect of shares of Mercantile Common Stock into which shares of Wedge Bank Common Stock shall have been so converted shall be set aside by Mercantile and shall not be paid to holders of certificates representing such shares of Wedge Bank Common Stock until such certificates shall have been so surrendered in exchange for certificates representing such Mercantile Common Stock. Upon such surrender the holders of such shares shall be entitled to receive such dividends without interest. The Mercantile Common Stock into which shares of the Wedge Bank Common Stock shall have been converted pursuant to this Article III shall be issued in full satisfaction of all rights pertaining to such converted shares. ARTICLE IV Other Provisions with Respect to Merger --------------------------------------- Section 1. This Plan shall be submitted to the shareholders of each Constituent Bank as provided by the Illinois Banking Act, as amended (the "Illinois Banking Act"). After the approval or adoption thereof by the shareholders of each Constituent Bank in accordance with the requirements of the laws of the Illinois Banking Act, all required documents, including the Articles of Merger, shall be executed, filed and recorded and all required - 5 - 6 acts shall be done in order to accomplish the Merger pursuant to the Illinois Banking Act subject to the terms and conditions of the Agreement. Section 2. Termination ----------- If the Agreement is terminated, then this Plan shall simultaneously terminate without further action by the Constituent Banks. In the event of such termination, the Board of Directors of each of the Constituent Banks shall direct its officers not to file this Plan as provided above notwithstanding favorable action on this Plan by the shareholders of Wedge Bank or Bank. Section 3. Approval of Commissioner ------------------------ The parties agree to submit this Plan to the Illinois Commissioner of Banks and Trust Companies (the "Illinois Commissioner") for approval, together with certified copies of the authorizing resolutions of the Boards of Directors of Acquisition Bank and Wedge Bank showing approval by a majority of the entire Board of each. Whether approved or disapproved by the Illinois Commissioner, Acquisition Bank and Wedge Bank shall pay all expenses incurred by the Commissioner in connection with the examination of this Plan. Section 4. Retention of Branches --------------------- Pursuant to the Illinois Banking Act and with the approval of the Illinois Commissioner, immediately following the Effective Time (as hereinafter defined) the Surviving Bank shall maintain and operate branches at each of the locations set forth in Exhibit A attached hereto and made a part hereof. This section shall not limit the Surviving Bank's right to future branching opportunities as set forth in the Illinois Banking Act. ARTICLE V Approval and Effective Time of Merger; Miscellaneous Matters ------------------------------------------------------------ Section 1. The Merger shall become effective when all the following actions have been taken: (i) this Plan shall be (a) authorized, adopted and approved on behalf of each Constituent Bank in accordance with the Illinois Statute, and (b) filed with the Illinois Commissioner and the Illinois Commissioner shall have granted his approval of the Merger; (ii) the approval necessary under the Federal Deposit Insurance Act shall have been received and all applicable waiting periods shall have expired; and (iii) copies of resolutions of the shareholders of each merging bank approving it, certified by the Acquisition Bank's president or vice-president or the cashier, shall be filed with the Illinois Commissioner. The time at which such actions are completed and the Commissioner issues a - 6 - 7 certificate of merger is herein referred to as the "Effective Time". Section 2. If at any time the Surviving Bank shall deem or be advised that any further grants, assignments, confirmations or assurances are necessary or desirable to vest, perfect or confirm, of record or otherwise, in the Surviving Bank the title to any property of Wedge Bank acquired or to be acquired by or as a result of the Merger, the officers or any of them and directors of the Surviving Bank shall be and they hereby are severally and fully authorized to execute and deliver any and all such deeds, assignments, confirmations and assurances and to do all things necessary or proper so as to best prove, confirm and ratify title to such property in the Surviving Bank and otherwise carry out the purposes of the Merger and the terms of this Plan. Section 3. For the convenience of the parties and to facilitate the filing and recording of this Plan, any number of counterparts hereof may be executed, and each such counterpart shall be deemed to be an original instrument and all such counterparts together shall be considered one instrument. Section 4. This Plan cannot be altered or amended except pursuant to an instrument in writing signed on behalf of the parties hereto. - 7 - 8 IN WITNESS WHEREOF, each Constituent Bank has caused this Plan to be executed, all as of the date first above written. WEDGE BANK [SEAL] By:------------------------------------ ATTEST: Title:--------------------------------- - ----------------------------- MERCANTILE BANK OF ALTON [SEAL] By:------------------------------------ ATTEST: Title:--------------------------------- - ----------------------------- 4076L.AP - 8 - 9 LIST OF ADDENDA Addendum I Resolutions of Board of Directors of Wedge Bank; Resolutions of Board of Directors of Mercantile Bank of Alton Addendum II Community Reinvestment Act Statement of Wedge Bank Addendum III Map of Market Areas of Wedge Bank Addendum IV Pro Forma Combined Consolidated Balance Sheet of Wedge Bank, as Surviving Bank Addendum V Pro Forma Statement of Income and Expenses of Wedge Bank, as Surviving Bank, as of One Year from Effective Date Addendum VI List of Shareholder of Wedge Bank - 9 - EX-2.3 4 SHAREHOLDER AGREEMENT 1 SHAREHOLDER AGREEMENT This SHAREHOLDER AGREEMENT dated as of July 6, 1994, is entered into between MERCANTILE BANCORPORATION INC. ("Mercantile"), and MELVIN G. HALL ("Shareholder"). WHEREAS, Shareholder is the beneficial and record owner of four and seventy-one one-hundredths percent (4.71%) of the issued and outstanding shares of the common stock of Wedge Bank, an Illinois state bank ("Wedge Bank"), and serves as the Chairman and Chief Executive Officer of Wedge Bank; and WHEREAS, Shareholder is the beneficial and record owner of seventy-two and thirty-five one-hundredths percent (72.35%) of the issued and outstanding shares of the preferred stock and fifty- three and eighty-eight one-hundredths percent (53.88%) of the issued and outstanding shares of the common stock of The Wedge Holding Company, an Illinois corporation ("Wedge Holding"), which is the beneficial and record owner of eighty-two and sixteen one- hundredths percent (82.16%) of the issued and outstanding shares of the common stock of Wedge Bank, and serves as Chairman and Chief Executive Officer of Wedge Holding; and WHEREAS, Wedge Holding, Wedge Bank, Mercantile and its wholly owned subsidiary, Mercantile Bancorporation of Illinois Inc. ("Mercantile Illinois"), have proposed to enter into an Agreement and Plan of Reorganization (the "Agreement"), dated as of today, which contemplates the acquisition by Mercantile of 100% of the common stock of Wedge Bank by means of (i) an exchange of all shares of common stock of Wedge Bank owned beneficially and of record by Wedge Holding for shares of Mercantile Common Stock (the "Exchange"); and (ii) simultaneously with the Exchange, the merger of a to-be-formed bank that will be wholly owned by Mercantile Illinois with and into Wedge Bank (the "Merger") whereby the holders of shares of Wedge Bank Common Stock (except Mercantile Illinois or Wedge Holding) will receive shares of Mercantile Common Stock as set forth in the Agreement; and WHEREAS, Mercantile is willing to expend the substantial time, effort and expense necessary to implement the Exchange and the Merger, only if Shareholder enters into this Shareholder Agreement; and WHEREAS, Shareholder believes that the Exchange and the Merger are in his best interest and the best interests of Wedge Holding and Wedge Bank. NOW, THEREFORE, in consideration of these premises, Shareholder hereby agrees as follows: 1. Voting Agreement. Shareholder will vote all of the ---------------- shares of Wedge Holding Common Stock he now owns or hereafter acquires in favor of the Exchange at the meeting of shareholders of Wedge Holding to be called for the purpose of approving the Exchange and all of the shares of Wedge Bank Common Stock he now 2 owns or hereafter acquires in favor of the Merger at the meeting of shareholders of Wedge Bank to be called for the purpose of approving the Merger (the "Wedge Bank Meeting" and, collectively, the "Meetings"), and will take any and all actions necessary and appropriate to cause all shares of Wedge Bank Common Stock now owned by Wedge Holding or hereafter acquired by Wedge Holding to be voted in favor of the Merger at the Wedge Bank Meeting. 2. No Competing Transaction. Shareholder will not, directly ------------------------ or indirectly, cause the initiation, solicitation or encouragement, or voting any of the shares of Wedge Holding Common Stock or by Wedge Bank Common Stock now or hereafter acquired by Shareholder or by Wedge Holding in favor of any other merger or sale of all or substantially all the assets of Wedge Holding or Wedge Bank to any person other than Mercantile or its affiliates until the earlier to occur of: (i) the closing of the Exchange and the Merger, (ii) the termination of the Agreement or (iii) the abandonment of the Exchange and the Merger by the mutual agreement of Wedge Holding, Wedge Bank and Mercantile. 3. Transfers Restricted. From and after the date of this -------------------- Shareholder Agreement, Shareholder will not sell, dispose of or otherwise transfer any shares of Wedge Holding Common Stock or Wedge Bank Common Stock owned beneficially or of record by him and further agrees that Shareholder will not take any action to cause Wedge Holding, from and after the date of this Shareholder Agreement, to dispose of or otherwise transfer any shares of Wedge Bank Common Stock owned by Wedge Holding. 4. Meeting. At Mercantile's request, Shareholder shall use ------- his best efforts to cause the Meetings to be held as soon as practicable. 5. Representations and Warranties True and Correct. ----------------------------------------------- Shareholder acknowledges that he has reviewed the representations and warranties of Wedge Holding and of Wedge Bank set forth in Article II of the Agreement and certifies that, to the best knowledge of Shareholder, such representations and warranties are true and correct in all material aspect. 6. No Ownership Interest. Nothing contained in this --------------------- Shareholder Agreement shall be deemed to vest in Mercantile any direct or indirect ownership or incidence of ownership of or with respect to any shares of Wedge Holding Common Stock or Wedge Bank Common Stock. All rights, ownership and economic benefits of and relating to the shares of Wedge Holding Common Stock and Wedge Bank Common Stock owned by Shareholder shall remain and belong to Shareholder and Mercantile shall have no authority to manage, direct, superintend, restrict, regulate, govern or administer any of the policies or operations of Wedge Holding or Wedge Bank or exercise any power or authority to direct Shareholder in the voting of any of his shares of Wedge Holding Common Stock or Wedge Bank Common Stock, except as otherwise expressly provided herein, or the - 2 - 3 performance of his duties or responsibilities as a shareholder of Wedge Holding or Wedge Bank. 7. Evaluation of Investment. Shareholder, by reason of his ------------------------ knowledge and experience in financial and business matters and in his capacity as a director and executive officer of Wedge Holding and Wedge Bank, believes himself capable of evaluating the merits and risks of the potential investment in Mercantile Common Stock contemplated by the Agreement. 8. Documents Delivered. Shareholder acknowledges having ------------------- reviewed the Agreement and its attachments and the related Plan of Merger and that reports, proxy statements and other information with respect to Mercantile filed with the Securities and Exchange Commission were, prior to his execution of this Shareholder Agreement, available for inspection and copying at the offices of Mercantile and that Mercantile delivered the following such documents to Wedge Holding and Wedge Bank: (a) Mercantile's Annual Report on Form 10-K for the year ended December 31, 1993; (b) Mercantile's Annual Report to Shareholders for the year ended December 31, 1993; and (c) Mercantile's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. 9. Amendment and Modification. This Shareholder Agreement -------------------------- may be amended, modified or supplemented at any time by the written approval of such amendment, modification or supplement by Shareholder and Mercantile. 10. Entire Agreement. This Shareholder Agreement evidences ---------------- the entire agreement among the parties hereto with respect to the matters provided for herein and there are no agreements, representations or warranties with respect to the matters provided for herein other than those set forth herein and in the Agreement. This Shareholder Agreement supersedes any agreements among Wedge Holding and/or Wedge Bank and Shareholder concerning the Exchange, the Merger, or the disposition or control of the capital stock of Wedge Holding or Wedge Bank. 11. Severability. The parties agree that if any provision of ------------ this Shareholder Agreement shall under any circumstances be deemed invalid or inoperative, this Shareholder Agreement shall be construed with the invalid or inoperative provisions deleted and the rights and obligations of the parties shall be construed and enforced accordingly. 12. Counterparts. This Shareholder Agreement may be executed ------------ in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. - 3 - 4 13. Governing Law. The validity, construction, enforcement ------------- and effect of this Shareholder Agreement shall be governed by the internal laws of the State of Illinois. 14. Headings. The headings for the paragraphs of this -------- Shareholder Agreement are inserted for convenience only and shall not constitute a part hereof or affect the meaning or interpretation of this Shareholder Agreement. 15. Successors. This Shareholder Agreement shall be binding ---------- upon and inure to the benefit of Mercantile and its successors, and Shareholder and Shareholder's spouse and their respective executors, personal representatives, administrators, heirs, legatees, guardians and other legal representatives. This Shareholder Agreement shall survive the death or incapacity of Shareholder. This agreement may be assigned by Mercantile only to an affiliate of Mercantile. IN WITNESS WHEREOF, the parties have caused this Shareholder Agreement to be executed as of the date first above written. MERCANTILE BANCORPORATION INC. /s/ Ralph W. Babb, Jr. By:------------------------------------ Ralph W. Babb, Jr. Vice Chairman SHAREHOLDER /s/ Melvin G. Hall --------------------------------------- Melvin G. Hall 941510020/6ao - 4 - EX-2.4 5 SHAREHOLDER AGREEMENT 1 SHAREHOLDER AGREEMENT This SHAREHOLDER AGREEMENT dated as of July 6, 1994, is entered into between MERCANTILE BANCORPORATION INC. ("Mercantile"), and ROBERT LYNN HALL ("Shareholder"). WHEREAS, Shareholder is the beneficial and record owner of one and sixty-three one-hundredths percent (1.63%) of the issued and outstanding shares of the common stock of Wedge Bank, an Illinois state bank ("Wedge Bank"), and serves as President of Wedge Bank; and WHEREAS, Shareholder is the beneficial and record owner of fifteen and seventy-two one-hundredths percent (15.72%) of the issued and outstanding shares of the preferred stock and thirty and ninety one-hundredths percent (30.90%) of the issued and outstanding shares of the common stock of The Wedge Holding Company, an Illinois corporation ("Wedge Holding"), which is the beneficial and record owner of eighty-two and sixteen one- hundredths percent (82.16%) of the issued and outstanding shares of the common stock of Wedge Bank, and serves as President of Wedge Holding; and WHEREAS, Wedge Holding, Wedge Bank, Mercantile and its wholly owned subsidiary, Mercantile Bancorporation of Illinois Inc. ("Mercantile Illinois"), have proposed to enter into an Agreement and Plan of Reorganization (the "Agreement"), dated as of today, which contemplates the acquisition by Mercantile of 100% of the common stock of Wedge Bank by means of (i) an exchange of all shares of common stock of Wedge Bank owned beneficially and of record by Wedge Holding for shares of Mercantile Common Stock (the "Exchange"); and (ii) simultaneously with the Exchange, the merger of a to-be-formed bank that will be wholly owned by Mercantile Illinois with and into Wedge Bank (the "Merger") whereby the holders of shares of Wedge Bank Common Stock (except Mercantile Illinois or Wedge Holding) will receive shares of Mercantile Common Stock as set forth in the Agreement; and WHEREAS, Mercantile is willing to expend the substantial time, effort and expense necessary to implement the Exchange and the Merger, only if Shareholder enters into this Shareholder Agreement; and WHEREAS, Shareholder believes that the Exchange and the Merger are in his best interest and the best interests of Wedge Holding and Wedge Bank. NOW, THEREFORE, in consideration of these premises, Shareholder hereby agrees as follows: 1. Voting Agreement. Shareholder will vote all of the ---------------- shares of Wedge Holding Common Stock he now owns or hereafter acquires in favor of the Exchange at the meeting of shareholders of Wedge Holding to be called for the purpose of approving the Exchange and all of the shares of Wedge Bank Common Stock he now 2 owns or hereafter acquires in favor of the Merger at the meeting of shareholders of Wedge Bank to be called for the purpose of approving the Merger (the "Wedge Bank Meeting" and, collectively, the "Meetings"), and will take any and all actions necessary and appropriate to cause all shares of Wedge Bank Common Stock now owned by Wedge Holding or hereafter acquired by Wedge Holding to be voted in favor of the Merger at the Wedge Bank Meeting. 2. No Competing Transaction. Shareholder will not, directly ------------------------ or indirectly, cause the initiation, solicitation or encouragement, or voting any of the shares of Wedge Holding Common Stock or by Wedge Bank Common Stock now or hereafter acquired by Shareholder or by Wedge Holding in favor of any other merger or sale of all or substantially all the assets of Wedge Holding or Wedge Bank to any person other than Mercantile or its affiliates until the earlier to occur of: (i) the closing of the Exchange and the Merger, (ii) the termination of the Agreement or (iii) the abandonment of the Exchange and the Merger by the mutual agreement of Wedge Holding, Wedge Bank and Mercantile. 3. Transfers Restricted. From and after the date of this -------------------- Shareholder Agreement, Shareholder will not sell, dispose of or otherwise transfer any shares of Wedge Holding Common Stock or Wedge Bank Common Stock owned beneficially or of record by him and further agrees that Shareholder will not take any action to cause Wedge Holding, from and after the date of this Shareholder Agreement, to dispose of or otherwise transfer any shares of Wedge Bank Common Stock owned by Wedge Holding. 4. Meeting. At Mercantile's request, Shareholder shall use ------- his best efforts to cause the Meetings to be held as soon as practicable. 5. Representations and Warranties True and Correct. ----------------------------------------------- Shareholder acknowledges that he has reviewed the representations and warranties of Wedge Holding and Wedge Bank set forth in Article II of the Agreement and certifies that to the best knowledge of Shareholder, such representations and warranties are true and correct in all material respects. 6. No Ownership Interest. Nothing contained in this --------------------- Shareholder Agreement shall be deemed to vest in Mercantile any direct or indirect ownership or incidence of ownership of or with respect to any shares of Wedge Holding Common Stock or Wedge Bank Common Stock. All rights, ownership and economic benefits of and relating to the shares of Wedge Holding Common Stock and Wedge Bank Common Stock owned by Shareholder shall remain and belong to Shareholder and Mercantile shall have no authority to manage, direct, superintend, restrict, regulate, govern or administer any of the policies or operations of Wedge Holding or Wedge Bank or exercise any power or authority to direct Shareholder in the voting of any of his shares of Wedge Holding Common Stock or Wedge Bank Common Stock, except as otherwise expressly provided herein, or the - 2 - 3 performance of his duties or responsibilities as a shareholder of Wedge Holding or Wedge Bank. 7. Evaluation of Investment. Shareholder, by reason of his ------------------------ knowledge and experience in financial and business matters and in his capacity as a director and executive officer of Wedge Holding and Wedge Bank, believes himself capable of evaluating the merits and risks of the potential investment in Mercantile Common Stock contemplated by the Agreement. 8. Documents Delivered. Shareholder acknowledges having ------------------- reviewed the Agreement and its attachments and the related Plan of Merger and that reports, proxy statements and other information with respect to Mercantile filed with the Securities and Exchange Commission were, prior to his execution of this Shareholder Agreement, available for inspection and copying at the offices of Mercantile and that Mercantile delivered the following such documents to Wedge Holding and Wedge Bank: (a) Mercantile's Annual Report on Form 10-K for the year ended December 31, 1993; (b) Mercantile's Annual Report to Shareholders for the year ended December 31, 1993; and (c) Mercantile's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. 9. Amendment and Modification. This Shareholder Agreement -------------------------- may be amended, modified or supplemented at any time by the written approval of such amendment, modification or supplement by Shareholder and Mercantile. 10. Entire Agreement. This Shareholder Agreement evidences ---------------- the entire agreement among the parties hereto with respect to the matters provided for herein and there are no agreements, representations or warranties with respect to the matters provided for herein other than those set forth herein and in the Agreement. This Shareholder Agreement supersedes any agreements among Wedge Holding and/or Wedge Bank and Shareholder concerning the Exchange, the Merger, or the disposition or control of the capital stock of Wedge Holding or Wedge Bank. 11. Severability. The parties agree that if any provision of ------------ this Shareholder Agreement shall under any circumstances be deemed invalid or inoperative, this Shareholder Agreement shall be construed with the invalid or inoperative provisions deleted and the rights and obligations of the parties shall be construed and enforced accordingly. 12. Counterparts. This Shareholder Agreement may be executed ------------ in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. - 3 - 4 13. Governing Law. The validity, construction, enforcement ------------- and effect of this Shareholder Agreement shall be governed by the internal laws of the State of Illinois. 14. Headings. The headings for the paragraphs of this -------- Shareholder Agreement are inserted for convenience only and shall not constitute a part hereof or affect the meaning or interpretation of this Shareholder Agreement. 15. Successors. This Shareholder Agreement shall be binding ---------- upon and inure to the benefit of Mercantile and its successors, and Shareholder and Shareholder's spouse and their respective executors, personal representatives, administrators, heirs, legatees, guardians and other legal representatives. This Shareholder Agreement shall survive the death or incapacity of Shareholder. This agreement may be assigned by Mercantile only to an affiliate of Mercantile. IN WITNESS WHEREOF, the parties have caused this Shareholder Agreement to be executed as of the date first above written. MERCANTILE BANCORPORATION INC. /s/ Ralph W. Babb, Jr. By:------------------------------------ Ralph W. Babb, Jr. Vice Chairman SHAREHOLDER /s/ Robert Lynn Hall --------------------------------------- Robert Lynn Hall 941460023/7ao - 4 - EX-5.1 6 OPINION RE LEGALITY 1 October 5, 1994 Mercantile Bancorporation Inc. P.O. Box 524 St. Louis, Missouri 63166-0524 Re: Registration Statement on Form S-4 Gentlemen: We refer you to the Registration Statement on Form S-4 filed by Mercantile Bancorporation Inc. (the "Company"), on October 5, 1994 (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended, pertaining to the proposed issuance by the Company of up to 970,000 shares of the Company's common stock, $5.00 par value (the "Shares"), in connection with the acquisition by the Company of substantially all of the assets of The Wedge Holding Company and the acquisition by merger by the Company of Wedge Bank, pursuant to the Agreement and Plan of Reorganization dated as of July 6, 1994 (the "Merger Agreement"), by and among the Company, Mercantile Bancorporation Incorporated of Illinois, The Wedge Holding Company and Wedge Bank, all as provided in the Registration Statement. In rendering the opinions set forth herein, we have examined such corporate records of the Company, such laws and such other information as we have deemed relevant, including the Company's Restated Articles of Incorporation and Bylaws, as amended and currently in effect, the resolutions adopted by the Executive Committee of the Company's Board of Directors relating to the merger transaction, certificates received from state officials and statements we have received from officers and representatives of the Company. In delivering this opinion, the undersigned assume the genuineness of all signatures; the authenticity of all documents submitted to us as originals; the conformity to the originals of all documents submitted to us as certified, photostatic or conformed copies; the authenticity of the originals of all such latter documents; and the correctness of statements submitted to us by officers and representatives of the Company. Based solely on the foregoing, the undersigned is of the opinion that: 1. The Company has been duly incorporated and is validly existing under the laws of the State of Missouri; and 2 Mercantile Bancorporation Inc. October 5, 1994 Page 2 2. The Shares to be sold by the Company, when issued as provided in the Merger Agreement, will be duly authorized, duly and validly issued and fully paid and nonassessable. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm in the section of the Proxy Statement/Prospectus entitled "Legal Matters." Very truly yours, /s/ Thompson & Mitchell EX-8.1 7 OPINION RE TAX MATTERS 1 October 5, 1994 Board of Directors The Wedge Holding Company 620 East Broadway Alton, Illinois 62002 Board of Directors Wedge Bank 620 East Broadway Alton, Illinois 62002 Gentlemen: You have requested our opinion with regard to certain federal income tax consequences of the proposed acquisition of all of the issued and outstanding stock of Wedge Bank, an Illinois state bank ("Bank"), by Mercantile Bancorporation Incorporated of Illinois, a Missouri corporation ("Mercantile Illinois"). Mercantile Illinois is a wholly owned subsidiary of Mercantile Bancorporation Inc., a Missouri corporation ("MBI"). The proposed acquisition will be accomplished in two simultaneous steps consisting of (i) an exchange by Mercantile Illinois of solely MBI common stock, par value $5.00 per share ("MBI Common Stock"), in return for all Bank common stock, par value $10.00 per share ("Bank Common Stock") owned by The Wedge Holding Company, a Delaware corporation ("Holding"), (the "Exchange"), and (ii) the merger of Mercantile Bank of Alton, a wholly owned subsidiary of Mercantile Illinois ("Acquisition Bank") with and into Bank (the "Merger") pursuant to which the stockholders of Bank (other than Mercantile Illinois) who do not dissent from the Merger will receive solely MBI Common Stock in exchange for their Bank Common Stock. In connection with the Exchange, Holding will distribute the MBI Common Stock received and all of its remaining properties in complete liquidation (the "Liquidation") and will dissolve in connection with the Liquidation. In connection with the preparation of our opinion, we have examined and have relied upon the following: (i) The Agreement and Plan of Reorganization by and among MBI, Mercantile Illinois, Bank and Holding, dated July 6, 1994, including the exhibits and schedules thereto, and the Plan of Merger by and between Bank and Acquisition Bank, dated as of August 31, 1994 (collectively, the "Plan"); 2 The Wedge Holding Company Wedge Bank October 5, 1994 Page 2 (ii) MBI's Registration Statement on Form S-4, including the Proxy Statement/Prospectus contained therein, filed with the Securities and Exchange Commission on October 5, 1994; (iii) The representations and undertakings of MBI and Mercantile Illinois substantially in the form of Exhibit A hereto; (iv) The representations and undertakings of Holding, Bank, certain holders of Holding common stock, par value $100.00 per share ("Holding Common Stock"), certain holders of Holding preferred stock, par value $50 per share ("Holding Preferred Stock"), substantially in the form of Exhibits B, C, D and E hereto; and (v) The Rights Plan between MBI and Mercantile Bank National Association, dated May 23, 1988. Our opinion is based solely upon applicable law and the factual information and undertakings contained in the above- mentioned documents. In rendering our opinion, we have assumed the accuracy of all information and the performance of all undertakings contained in each of such documents, with the exception of (i) the second sentence of Section 2.04 of the Plan (which erroneously describes the assets of Wedge Holding as unencumbered at the time the time the Plan was executed) and (ii) all references in the Plan that describe Wedge Holding as an Illinois corporation. We now assume that the Plan will be enforced in all respects as if Wedge Holding were correctly described therein as a Delaware corporation. We also have assumed the authenticity of all original documents, the conformity of all copies to the original documents, and the genuineness of all signatures. We have not attempted to verify independently the accuracy of any information in any such document, and we have assumed that such documents accurately and completely set forth all material facts relevant to this opinion. All of our assumptions were made with your consent. If any fact or assumption described herein or below is incorrect, any or all of the opinions expressed herein may be inapplicable. OPINIONS Subject to the foregoing, to the conditions and limitations expressed elsewhere herein, and assuming that the Exchange and the Merger are consummated in accordance with the Plan, we are of the opinion that for federal income tax purposes: 1. Each of the Exchange and the Merger will constitute a reorganization within the meaning of section 368(a)(1) of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"). 3 The Wedge Holding Company Wedge Bank October 5, 1994 Page 3 2. No gain or loss will be recognized by Holding on its transfer of Bank Common Stock solely in exchange for MBI Common Stock in the Exchange (Code sections 354(a)(1) and 361(a)); 3. No gain or loss will be recognized by Holding on its distribution of MBI Common Stock to its stockholders in the Liquidation (Code section 361(c)); 4. Each stockholder of Holding who exchanges, in the Liquidation, his or its shares of Holding Common Stock solely for shares of MBI Common Stock: a) will recognize no gain or loss (Code section 354(a)(1)); b) will have an aggregate adjusted basis for the shares of MBI Common Stock received equal to the aggregate basis of the shares of Holding Common Stock surrendered (Code section 358(a)(1)); and c) will have a holding period for the shares of MBI Common Stock received which includes the period during which the shares of Holding Common Stock surrendered were held, provided that the shares of Holding Common Stock surrendered were capital assets in the hands of such stockholder (Code section 1223(1)). 5. Each stockholder of Holding who exchanges, in the Liquidation, his or its shares of Holding Preferred Stock solely for shares of MBI Common Stock: a) will recognize no gain or loss (Code section 354(a)(1)); b) will have an aggregate adjusted basis for the shares of MBI Common Stock received equal to the aggregate basis of the shares of Holding Preferred Stock surrendered (Code section 358(a)(1)); and c) will have a holding period for the shares of MBI Common Stock received which includes the period during which the shares of Holding Preferred Stock surrendered were held, provided that the shares of Holding Preferred Stock surrendered were capital assets in the hands of such stockholder (Code section 1223(1)). 6. Each stockholder of Bank who exchanges, in the Merger, his or its shares of Bank Common Stock solely for shares of MBI Common Stock: 4 The Wedge Holding Company Wedge Bank October 5, 1994 Page 4 a) will recognize no gain or loss, except with regard to cash received in lieu of a fractional share, as discussed below (Code section 354(a)(1)); b) will have an aggregate adjusted basis for the shares of MBI Common Stock received (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 7, below) equal to the aggregate basis of the shares of Bank Common Stock surrendered (Code section 358(a)(1)); and c) will have a holding period for the shares of MBI Common Stock received (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 7, below) which includes the period during which the shares of Bank Common Stock surrendered were held, provided that the shares of Bank Common Stock surrendered were capital assets in the hands of such holder (Code section 1223(1)). 7. Each stockholder of Bank who receives cash in lieu of a fractional share of MBI Common Stock will be treated as if the fractional share had been received and then redeemed by MBI in return for the cash. Provided that the shares of Bank Common Stock surrendered were capital assets in the hands of such holder, the receipt of such cash will cause the recipient to recognize capital gain or loss, equal to the difference between the amount of cash received and the portion of such holder's adjusted tax basis in the shares of MBI Common Stock allocable to the fractional share interest (Code sections 1001 and 1222; Rev. Rul. 66-365, 1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2 C.B. 574). * * * * * * * * * * * * We express no opinion with regard to (1) the federal income tax consequences of the Exchange or the Merger not addressed expressly by the above opinions, including without limitation, (i) the tax consequences, if any, to those stockholders of Bank who acquired their shares of Bank Common Stock pursuant to the exercise of employee stock options or otherwise as compensation, (ii) the tax consequences, if any, to those stockholders of Holding who acquired their shares of Holding Common Stock or Holding Preferred Stock pursuant to the exercise of employee stock options or otherwise as compensation, (iii) the tax consequences, if any, to stockholders of Holding with respect to shares of Holding Common Stock or Holding Preferred Stock acquired after July 6, 1994, and (iv) the tax consequences to special classes of Bank stockholders or Holding stockholders, if any, including without limitation, foreign persons, insurance companies, tax-exempt entities, retirement plans, and dealers in securities; and (2) federal, state, local, or foreign taxes (or any other federal, state, local, or foreign laws) not specifically referred to and discussed herein. Further, our opinions are based upon the Code, Treasury Regulations proposed or promulgated thereunder, administrative interpretations and judicial precedents relating to the Code or Treasury Regulations as of the date hereof, all of which are subject to change at any time, possibly with retroactive effect, and we assume 5 The Wedge Holding Company Wedge Bank October 5, 1994 Page 5 no obligation to advise you of any subsequent change thereto. If there is any change in the applicable law or regulations, or if there is any new administrative or judicial interpretation of the applicable law or regulations, any or all of the opinions expressed herein may become inapplicable. The foregoing opinions reflect our legal judgment solely on the issues presented and discussed herein. These opinions have no official status or binding effect of any kind. Accordingly, we cannot assure you that the Internal Revenue Service will agree with the opinions expressed herein, nor can we assure you that any court of competent jurisdiction will agree with such opinions. We hereby consent to the filing of this letter as an exhibit to MBI's Registration Statement filed October 5, 1994 in connection with the proposed Merger and to all references made to this letter in such Registration Statement. Very truly yours, /s/ Thompson & Mitchell 6 Exhibit A CERTIFICATE ----------- The undersigned Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), through Ralph W. Babb, Jr., its Vice Chairman, and the undersigned Mercantile Bancorporation Incorporated of Illinois, a Missouri corporation ("Mercantile Illinois"), through Ralph W. Babb, Jr., its Chairman, EACH HEREBY CERTIFIES that (a) it is familiar with the terms and conditions of the Agreement and Plan of Reorganization by and among MBI, Mercantile Illinois, Wedge Bank, an Illinois state bank ("Bank"), and The Wedge Holding Company, a Delaware corporation ("Holding"), dated July 6, 1994, and the Plan of Merger by and between Bank and Mercantile Bank of Alton, a wholly owned subsidiary of Mercantile Illinois ("Acquisition Bank"), dated as of August 31, 1994 (collectively, the "Agreement"), and (b) it is aware that, pursuant to the Agreement, Mercantile Illinois will acquire all outstanding Bank common stock, par value $10.00 per share ("Bank Common Stock"), solely in exchange for MBI common stock, par value $5.00 per share ("MBI Common Stock"), in two simultaneous transactions consisting of (i) an exchange by Holding of its Bank Common Stock solely in return for MBI Common Stock to be issued on behalf of Mercantile Illinois (the "Exchange"), and (ii) the merger of Acquisition Bank with and into Bank (the "Merger") pursuant to which the stockholders of Bank (other than Mercantile Illinois) who do not dissent from the Merger will receive solely MBI Common Stock; and (c) it is aware that (i) this Certificate will be relied on by Thompson & Mitchell, counsel for MBI, in rendering its opinion to Bank that the Exchange and the Merger will each constitute a reorganization within the meaning of section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the representations and undertaking recited herein will survive the Exchange and the Merger. Each of the undersigned HEREBY FURTHER CERTIFIES that: (1) Before the effective time of the Exchange and the Merger (the "Effective Time"), Mercantile Illinois will own all of the issued and outstanding stock of Acquisition Bank. (2) Before the Effective Time, Acquisition Bank will have no assets or liabilities other than assets, if any, received from Mercantile Illinois to satisfy Acquisition Bank's capitalization requirements (the "Minimum Assets"). Mercantile Illinois will cause Bank to return the Minimum 7 Assets to Mercantile Illinois within thirty (30) days after the Effective Time by means of a dividend distribution or other payment. (3) Neither MBI nor any other member of the MBI's "affiliated group" (as the quoted term is defined in Code section 1504) (the "MBI Affiliated Group") has owned, directly or indirectly, any stock of Holding or any stock of Bank within the last five years. (4) No indebtedness between Holding or Bank, on the one hand, and MBI or any other member of the MBI Affiliated Group, on the other hand, exists or will exist prior to the Effective Time that (a) was issued or acquired at a discount, or (b) will be settled, as a result of the Exchange or the Merger, at a discount. No "installment obligation" (as the quoted term is defined for purposes of Code section 453B), between Bank on the one hand, and Mercantile Bank of Illinois National Association or Acquisition Bank, on the other hand, exists or will exist prior to the Effective Time that will be extinguished as a result of the Merger or as a result of the proposed merger of Mercantile Bank of Illinois National Association with and into Bank. (5) With regard to each of the Exchange and the Merger, the fair market value of the MBI Common Stock (including cash in lieu of a fractional share of MBI Common Stock, if any) to be received by each Bank stockholder will be approximately equal to the fair market value of the Bank Common Stock surrendered by each such stockholder. (6) The payment of cash in lieu of fractional shares of MBI Common Stock in each of the Exchange and the Merger will be solely for the purpose of avoiding the expense and inconvenience to MBI of issuing fractional shares and will not represent separately bargained-for consideration. (7) MBI, Mercantile Illinois, Acquisition Bank, Holding, the stockholders of Holding, Bank, and the stockholders of Bank will each pay their respective expenses, if any, incurred in connection with the Exchange or the Merger; provided, however, that Mercantile Illinois (but not MBI) may pay and assume those types of expenses of Bank that are solely and directly related to the Exchange or the Merger in accordance with the guidelines established in Rev. Rul. 73-54, 1973-1 C.B. 187, including those printing and filing fees described in Section 5.06 of the Agreement. 8 (8) Except with regard to MBI Common Stock (including cash in lieu of fractional shares of MBI Common Stock, if any) and those expenses payable or assumable by Mercantile Illinois in accordance with representation 7 above, neither Mercantile Illinois nor any other member of the MBI Affiliated Group will pay (or lend) any amount or incur any liability to or for the benefit of, or assume any liability of, Holding, any stockholder of Holding, Bank, or any stockholder of Bank in connection with the Exchange or the Merger, and no liability to which Bank Common Stock is subject will be extinguished as a result of the Exchange or the Merger. For purposes of this representation, any payment (or loan) to or for the benefit of a stockholder of Holding or a stockholder of Bank (including without limitation, any payment from Holding or Bank in the form of a dividend, distribution, or redemption, or any payment to a dissenter) with cash or other property furnished, directly or indirectly, by Mercantile Illinois or any other member of the MBI Affiliated Group will be treated as a payment by Mercantile Illinois to or for the benefit of that stockholder. For purposes of this representation, the term "liability" shall include any contingent or other undertaking to pay or to cause the reduction, release, or extinguishment of, any obligation, without regard to whether any such obligation or undertaking is legally enforceable (for example, and without limitation, the term "liability" includes an unenforceable agreement to cause the repayment of an obligation guaranteed by a Holding stockholder (or by a Bank stockholder) and an unenforceable agreement to cause the release of such guaranty). (9) All payments made to Bank stockholders who dissent from the Merger will be funded with Bank assets from an escrow to be established and funded before the Effective Time by Bank for that purpose. (10) Neither MBI nor any other member of the MBI Affiliated Group has any plan or intention to redeem or otherwise reacquire any of the MBI Common Stock issued to the stockholders of Bank in the Exchange or the Merger. (11) After the Effective Time, (a) Bank will not issue additional shares of its stock that would result in Mercantile Illinois losing control of Bank within the meaning of section 368(c) of the Code, and (b) Bank will not have outstanding any warrants, options, convertible securities, or any other type of right (including any preemptive right) pursuant to which any person other than Mercantile Illinois could acquire stock in Bank. 9 (12) Neither MBI nor any other member of the MBI Affiliated Group has any plan or intention (a) to liquidate Bank, (b) to merge Bank with and into another corporation, (c) except for transfers to controlled corporations (as described in section 368(a)(2)(C) of the Code), to sell or otherwise dispose (whether by dividend distribution or otherwise) of the stock of Bank, or (d) except for dispositions made in the ordinary course of business or dispositions approved by counsel for MBI, to cause, suffer, or permit Bank to sell or otherwise dispose (whether by dividend distribution or otherwise) of any assets held by Bank immediately after the Effective Time (excluding the Acquisition Bank's Minimum Assets acquired by Bank as a result of the Merger and any funds deposited in escrow that are paid to dissenters). The proposed merger of Mercantile Bank of Illinois National Association with and into Bank (the "MBINA Merger") after the Effective Time is not a plan or intention described in this representation 12. There will be no dissenters to the MBINA Merger, Bank will not dispose of any of its assets in connection with the MBINA Merger, and Bank (and its Illinois banking charter, as may be amended in connection with the MBINA Merger) will survive the MBINA Merger. (13) After the Effective Time, Bank will continue its historic businesses or will use a significant portion of its historic business assets in a business. (14) None of the compensation to be paid or accrued after the Effective Time to or for the benefit of any stockholder-employee of Holding or Bank will be separate consideration for, or allocable to, any of their shares of Holding stock or Bank Common Stock; none of the shares of MBI Common Stock received in either the Exchange or the Merger by any stockholder-employee of Bank or Holding will be separate consideration for, or allocable to, any employment agreement; and all compensation to be paid or accrued after the Effective Time to or for the benefit of any stockholder-employee of Holding or Bank will be for services actually rendered in the ordinary course of his or her employment and will be commensurate with amounts paid to third parties bargaining at arm's length for similar services. (15) With regard to the Rights Plan between MBI and Mercantile Bank National Association, dated May 23, 1988, (the "Rights Agreement"), no "Distribution Date" (as the quoted term is defined in the Rights Agreement) has occurred, and the Merger will not cause the occurrence of a Distribution Date. 10 The undersigned HEREBY AGREES to immediately communicate in writing to Thompson & Mitchell at One Mercantile Center, St. Louis, Missouri 63101, to the attention of Charles H. Binger, any information that could indicate (i) any of the foregoing representations was inaccurate when made, or (ii) any of the foregoing representations would be inaccurate if it were made immediately before the Effective Time. IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of MBI this 5th day of October, 1994. MERCANTILE BANCORPORATION INC. --------------------------------- Ralph W. Babb, Jr., Vice Chairman MERCANTILE BANCORPORATION INCORPORATED OF ILLINOIS ------------------------------ Ralph W. Babb, Jr., Chairman 11 Exhibit B CERTIFICATE ----------- The undersigned, Melvin G. Hall, Chairman and Chief Executive Officer of The Wedge Holding Company, a Delaware corporation ("Holding"), HEREBY CERTIFIES that (a) I am familiar with the terms and conditions of the Agreement and Plan of Reorganization by and among Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), Mercantile Bancorporation Incorporated of Illinois, a Missouri corporation ("Mercantile Illinois"), Wedge Bank, an Illinois state bank ("Bank"), and Holding dated July 6, 1994, and the Plan of Merger by and between Bank and Mercantile Bank of Alton, a wholly owned subsidiary of Mercantile Illinois ("Acquisition Bank"), dated as of August 31, 1994 (collectively, the "Agreement"), and (b) I am aware that, pursuant to the Agreement, Mercantile Illinois will acquire all outstanding Bank common stock, par value $10.00 per share ("Bank Common Stock"), solely in exchange for MBI common stock, par value $5.00 per share ("MBI Common Stock"), in two simultaneous transactions consisting of (i) an exchange by Holding of its Bank Common Stock solely in return for MBI Common Stock to be issued on behalf of Mercantile Illinois (the "Exchange"), and (ii) the merger of Acquisition Bank with and into Bank (the "Merger") pursuant to which the stockholders of Bank (other than Mercantile Illinois) who do not dissent from the Merger will receive solely MBI Common Stock; and (c) I am aware that (i) this Certificate will be relied on by Thompson & Mitchell, counsel for MBI, in rendering its opinion to Bank that the Exchange and the Merger will each constitute a reorganization within the meaning of section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the representations and undertaking recited herein will survive the Exchange and the Merger. The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF HOLDING, that: (1) No indebtedness between Holding or any other member of the Holding's "affiliated group" (as the quoted term is defined in Code section 1504) (the "Holding Affiliated Group"), on the one hand, and MBI or any other member of MBI's "affiliated group" (as the quoted term is defined in Code section 1504) (the "MBI Affiliated Group"), on the other hand, exists or will exist prior to the effective time of the Exchange and the Merger (the "Effective Time") that (a) was issued or acquired at a discount, (b) will be settled, in connection with the Exchange or the Merger, at a discount, or (c) will be extinguished as a result of the Exchange or the Merger. With regard to the indebtedness between Holding and Mercantile Bank of St. Louis National Association (the 12 "Loan"), all principal and accrued interest thereon will be paid in full on or before November 1, 1994, and the terms of such indebtedness have not been (and will not be) modified or waived. (2) At the Effective Time, the fair market value of the assets of Holding will exceed the sum of the amount of liabilities of Holding, plus the amount of liabilities, if any, to which Holding's assets are then subject. No liabilities of Holding will be assumed by MBI or any other member of the MBI Affiliated Group, and the Bank Common Stock to be acquired by Mercantile Illinois will not be subject to any liabilities at the Effective Time. (3) At the Effective Time, the Bank Common Stock acquired by Mercantile Illinois will represent at least 90 percent of the fair market value of the net assets and at least 70 percent of the fair market value of the gross assets, in each case, that were held by Holding immediately prior to the Effective Time. For purposes of this representation, assets used by Holding to pay dissenters or to pay stockholders who receive cash, and assets used by Holding to pay expenses of the Exchange or the Merger or to fund any redemption or distribution within 24 months before the Effective Time (except for regular, normal dividends) shall be included as assets of Holding held immediately prior to the Effective Time. For purposes of this representation, any asset of Holding or any other member of the Holding Affiliated Group that is disposed of within 24 months before the Effective Time other than in the ordinary course of business also shall be included as an asset of Holding held immediately prior to the Effective Time (including, for example and without limitation, any dividends described in Section 4.02(a) of the Agreement). (4) At the Effective Time and except with regard to Miscellaneous Amounts (as defined below), each liability of Holding or each liability to which an asset of Holding is subject will have been incurred by Holding in the ordinary course of business and no such liability will have been incurred in anticipation of the Merger. In addition, at the Effective Time and except with regard to Miscellaneous Amounts, Holding will not have paid (or loaned) any amount or incurred any liability, directly or indirectly, to or for the benefit of any Holding stockholder to induce such stockholder's assistance or acquiescence in, or vote in favor of, the Exchange or the Merger. For purposes of this representation, (a) the term "Holding" shall be deemed also to refer to each other member of Holding's "affiliated group" (as the quoted term is defined in Code section 1504) (the "Holding Affiliated Group"), (b) the term "liability" shall include any contingent obligation or any other undertaking to pay or to cause the reduction, release, or extinguishment of, any obligation, without regard to whether any such obligation or undertaking is legally enforceable (for example, and without 13 limitation, the term "liability" includes an unenforceable agreement to cause the repayment of an obligation guaranteed by a Holding stockholder (or by a Bank stockholder) and an unenforceable agreement to cause the release of such guaranty), and (c) the term "Miscellaneous Amounts" shall mean amounts paid or liabilities incurred in connection with the Exchange (i) for legal, accounting, and investment banking and/or advisor services rendered to Holding, if any, (ii) and (iii) in repayment of the Loan with Holding's portion of the $375,000 dividend described in Section 4.02(a) of the Agreement. (5) None of the compensation paid or accrued to or for the benefit of any Holding stockholder-employee will be separate consideration for, or allocable to, any of their shares of Holding Common Stock or Holding Preferred Stock; none of the shares of MBI Common Stock received in the Exchange or the Merger by any Holding stockholder-employee will be separate consideration for, or allocable to, any employment agreement; and all compensation paid or accrued to or for the benefit of any Holding stockholder-employee will be for services actually rendered in the ordinary course of his or her employment and will be commensurate with amounts paid to third parties bargaining at arm's length for similar services. With regard to the employment agreement between MBI and Melvin G. Hall dated July 6, 1994 (the "Employment Contract"), Holding or Bank shall have paid to Melvin G. Hall prior to the Effective Time a 1994 incentive bonus of at least $234,500.00, and as a result MBI shall have no liability to Melvin G. Hall under the third paragraph of the Employment Contract. (6) The fair market value of the MBI Common Stock to be received by each Holding stockholder in connection with the Exchange (pursuant to the subsequent liquidation of Holding) will be approximately equal to the fair market value of the Holding Common Stock and Holding Preferred Stock surrendered in connection with the Exchange (pursuant to the subsequent liquidation of Holding) by each such stockholder. (7) The payment of cash in lieu of fractional shares of MBI Common Stock will be solely for the purpose of avoiding the expense and inconvenience to MBI of issuing fractional shares and will not represent separately bargained-for consideration. The total cash consideration that will be paid in the Exchange to Holding in lieu of fractional shares of MBI Common Stock will not exceed the value of one full share of MBI Common Stock. 14 (8) Expenses, if any, that are incurred in connection with the Exchange or the Merger and are properly attributable to Holding's stockholders will be paid by those stockholders and not by Holding. Holding will pay its own expenses that are incurred in connection with the Exchange or the Merger. (9) Holding will distribute all of its assets (including all of the MBI Common Stock received in the Exchange) and liabilities (if any) to its stockholders no later than six months after the Exchange and will at that time be dissolved. With the exception of 470 shares of Holding Common Stock issued to Robert Lynn Hall in March 1994, no stock of Holding has been issued during 1994 and none will be issued prior to the dissolution of Holding. Holding will distribute all such assets (and liabilities, if any) to its stockholders pro rata in accordance with the percentage of the fair market value of the shares of Holding Common Stock and Holding Preferred Stock held by each. For purposes of this representation, Holding Preferred Stock shall be treated as having a fair market value of $50.00 per share. (10) There are no dividend arrearages on any series of Holding Preferred Stock; no redemption premium will be paid to holders of Holding Preferred Stock; and no share of Holding Preferred Stock constitutes "section 306 stock" (within the meaning of section 306(c) of the Code). The undersigned HEREBY AGREES to immediately communicate in writing to Thompson & Mitchell at One Mercantile Center, St. Louis, Missouri 63101, to the attention of Charles H. Binger, any information that could indicate (i) any of the foregoing representations was inaccurate when made, or (ii) any of the foregoing representations would be inaccurate if it were made immediately before the Merger. IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of Holding this 5th day of October, 1994. -------------------------------------- Melvin G. Hall Chairman and Chief Executive Officer 15 Exhibit C CERTIFICATE ----------- The undersigned, Robert Lynn Hall, President of Wedge Bank, an Illinois state Bank ("Bank"), HEREBY CERTIFIES that (a) I am familiar with the terms and conditions of the Agreement and Plan of Reorganization by and among Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), Mercantile Bancorporation Incorporated of Illinois, a Missouri corporation ("Mercantile Illinois"), Bank, and The Wedge Holding Company, a Delaware corporation ("Holding"), dated July 6, 1994, and the Plan of Merger by and between Bank and Mercantile Bank of Alton, a wholly owned subsidiary of Mercantile Illinois ("Acquisition Bank"), dated as of August 31, 1994 (collectively, the "Agreement"), and (b) I am aware that, pursuant to the Agreement, Mercantile Illinois will acquire all outstanding Bank common stock, par value $10.00 per share ("Bank Common Stock"), solely in exchange for MBI common stock, par value $5.00 per share ("MBI Common Stock"), in two simultaneous transactions consisting of (i) an exchange by Holding of its Bank Common Stock solely in return for MBI Common Stock to be issued on behalf of Mercantile Illinois (the "Exchange"), and (ii) the merger of Acquisition Bank with and into Bank (the "Merger") pursuant to which the stockholders of Bank (other than Mercantile Illinois) who do not dissent from the Merger will receive solely MBI Common Stock; and (c) I am aware that (i) this Certificate will be relied on by Thompson & Mitchell, counsel for MBI, in rendering its opinion to Bank that the Exchange and the Merger will each constitute a reorganization within the meaning of section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the representations and undertaking recited herein will survive the Exchange and the Merger. The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF BANK, that: (1) To the best knowledge of the undersigned, neither MBI nor any other member of the MBI's "affiliated group" (as the quoted term is defined in Code section 1504) (the "MBI Affiliated Group") has owned, directly or indirectly, any stock of Bank within the last five years. (2) No indebtedness between Bank or any other member of Bank's "affiliated group" (defined as above) (the "Bank Affiliated Group"), on the one hand, and MBI or any other member of the MBI Affiliated Group, on the other hand, exists or will exist prior to the effective time of the Exchange and the Merger (the "Effective Time") that (a) was issued or acquired at a discount, or (b) will be settled, as a result of the Merger, at a discount. No "installment obligation" (as the 16 quoted term is defined for purposes of Code section 453B), between Bank, on the one hand, and MBI or Acquisition Bank on the other hand, exists or will exist prior to the Effective Time that will be extinguished as a result of the Merger. (3) At the Effective Time and except with regard to Miscellaneous Amounts (as defined below), each liability of Bank or each liability to which an asset of Bank is subject will have been incurred by Bank in the ordinary course of business and no such liability will have been incurred in anticipation of the Merger. In addition, at the Effective Time and except with regard to Miscellaneous Amounts, Bank will not have paid (or loaned) any amount or incurred any liability, directly or indirectly, to or for the benefit of any Bank stockholder to induce such stockholder's assistance or acquiescence in, or vote in favor of, the Merger. For purposes of this representation, (a) the term "Bank" shall be deemed also to refer to each other member of Holding's "affiliated group" (as the quoted term is defined in Code section 1504) (the "Bank Affiliated Group"), (b) the term "liability" shall include any contingent obligation or any other undertaking to pay or to cause the reduction, release, or extinguishment of, any obligation, without regard to whether any such obligation or undertaking is legally enforceable (for example, and without limitation, the term "liability" includes an unenforceable agreement to cause the repayment of an obligation guaranteed by a Holding stockholder (or by a Bank stockholder) and an unenforceable agreement to cause the release of such guaranty), and (c) the term "Miscellaneous Amounts" shall mean amounts paid or liabilities incurred in connection with the Merger (i) to dissenters, if any, (ii) for legal, accounting, and investment banking and/or advisor services rendered to Bank, if any, (iii) as compensation to any Bank employee for services rendered in the ordinary course of his or her employment, and (iv) for the $375,000 dividend described in Section 4.02(a) of the Agreement (the "Dividend"). (4) At the Effective Time, Bank will not have outstanding any warrants, options, convertible securities, or any other type of right (including any preemptive right) pursuant to which any person could acquire stock in Bank that, if exercised or converted after the Effective Time would affect MBI's acquisition or retention of control of Bank (within the meaning of section 368(c) of the Code). (5) None of the compensation paid or accrued before the Effective Time to or for the benefit of any Bank stockholder-employee will be separate consideration for, or allocable to, any of their shares of Bank Common Stock; none of the shares of MBI Common Stock received in the Merger by any Bank stockholder-employee will be separate consideration for, or allocable to, any 17 employment agreement; and all compensation paid or accrued before the Effective Time to or for the benefit of any Bank stockholder-employee will be for services actually rendered in the ordinary course of his or her employment and will be commensurate with amounts paid to third parties bargaining at arm's length for similar services. With regard to the employment agreement between MBI and Melvin G. Hall dated July 6, 1994 (the "Employment Contract"), Holding or Bank shall have paid to Melvin G. Hall prior to the Effective Time a 1994 incentive bonus of at least $234,500.00, and as a result MBI shall have no liability to Melvin G. Hall under the third paragraph of the Employment Contract. (6) The fair market value of the MBI Common Stock to be received by each Bank stockholder in the Merger (including cash to be received in lieu of fractional shares of MBI Common Stock, if any) will be approximately equal to the fair market value of the Bank Common Stock surrendered in the Merger by each such stockholder. (7) There is no plan, intention or other arrangement (including any option or pledge) on the part of the holders of 1% or more of the Bank Common Stock and, to the best knowledge of the undersigned, there is no plan, intention or other arrangement (including any option or pledge) on the part of the other holders of Bank Common Stock to sell, exchange or otherwise dispose of a number of shares of MBI Common Stock received by such holders in the Merger that would reduce such holders' ownership of MBI Common Stock to a number of shares having a value, as of the Effective Time, of less than 50 percent of the value of all of the formerly outstanding Bank Common Stock as of the Effective Time. For purposes of this representation, shares of Bank Common Stock exchanged for cash or other property, surrendered by dissenters, or exchanged for cash in lieu of fractional shares of MBI Common Stock will be treated as outstanding on the Effective Time. Moreover, all shares of Bank Common Stock and/or shares of MBI Common Stock held by Bank stockholders and otherwise sold, redeemed, or disposed of before or after the Effective Time will be taken into account in making this representation. As with the other representations contained herein, the undersigned will undertake any and all actions necessary to ensure the accuracy of the foregoing representation. (8) The payment of cash in lieu of fractional shares of MBI Common Stock will be solely for the purpose of avoiding the expense and inconvenience to MBI of issuing fractional shares and will not represent separately bargained-for consideration. The total cash consideration that 18 will be paid in the Merger to the Bank stockholders in lieu of fractional shares of MBI Common Stock will not exceed one percent of the total consideration that will be issued in the transaction to the Bank stockholders in exchange for their shares of Bank Common Stock. The fractional share interests of each Bank stockholder will be aggregated, and no Bank stockholder will receive cash in lieu of fractional share interests in an amount equal to or greater than the value of one full share of MBI Common Stock. (9) Expenses, if any, that are incurred in connection with the Merger and are properly attributable to Bank's stockholders will be paid by those stockholders and not by Bank. Bank will pay its own expenses that are incurred in connection with the Merger. (10) All payments made to dissenters and all other payments made to holders of Bank Common Stock in connection with the Merger (including the Dividend, but excluding cash to be paid in lieu of fractional shares) will be funded by Bank. Bank has sufficient liquid assets to fund any such payments. All payments made to dissenters, if any, will be funded with Bank assets from an escrow to be established before the Effective Time by Bank for that purpose. (11) Immediately after the Effective Time, Bank will hold assets representing at least 90 percent of the fair market value of the net assets and at least 70 percent of the fair market value of the gross assets, in each case, that were held by Bank immediately prior to the Effective Time. For purposes of this representation, Bank assets used to pay dissenters or to pay stockholders who receive cash, and Bank assets used to pay expenses of the Merger or to fund any redemption or distribution within 24 months before the Effective Time (except for regular, normal dividends) shall be included as assets of Bank held immediately prior to the Effective Time. For purposes of this representation, any asset of Bank that is disposed of within 24 months before the Merger other than in the ordinary course of business also shall be included as an asset of Bank held immediately prior to the Merger (including, for example and without limitation, the Dividend). (12) Immediately after the Effective Time and determined without regard to any assets to be received from MBI or any other member of the MBI Affiliated Group (including those assets to be received as a result of the merger of Mercantile Bank of Illinois National Association with and into Bank), the assets held by Bank will be sufficient to enable Bank to continue its business and investment activities at historical levels and in accordance with past practice, without resort to additional capital or borrowed funds. 19 The undersigned HEREBY AGREES to immediately communicate in writing to Thompson & Mitchell at One Mercantile Center, St. Louis, Missouri 63101, to the attention of Charles H. Binger, any information that could indicate (i) any of the foregoing representations was inaccurate when made, or (ii) any of the foregoing representations would be inaccurate if it were made immediately before the Merger. IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of Bank this 5th day of October, 1994. ------------------------------ Robert Lynn Hall, President 20 Exhibit C CERTIFICATE ----------- The undersigned, Melvin G. Hall, Chairman and Chief Executive Officer of Wedge Bank, an Illinois state Bank ("Bank"), HEREBY CERTIFIES that (a) I am familiar with the terms and conditions of the Agreement and Plan of Reorganization by and among Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), Mercantile Bancorporation Incorporated of Illinois, a Missouri corporation ("Mercantile Illinois"), Bank, and The Wedge Holding Company, a Delaware corporation ("Holding"), dated July 6, 1994, and the Plan of Merger by and between Bank and Mercantile Bank of Alton, a wholly owned subsidiary of Mercantile Illinois ("Acquisition Bank"), dated as of August 31, 1994 (collectively, the "Agreement"), and (b) I am aware that, pursuant to the Agreement, Mercantile Illinois will acquire all outstanding Bank common stock, par value $10.00 per share ("Bank Common Stock"), solely in exchange for MBI common stock, par value $5.00 per share ("MBI Common Stock"), in two simultaneous transactions consisting of (i) an exchange by Holding of its Bank Common Stock solely in return for MBI Common Stock to be issued on behalf of Mercantile Illinois (the "Exchange"), and (ii) the merger of Acquisition Bank with and into Bank (the "Merger") pursuant to which the stockholders of Bank (other than Mercantile Illinois) who do not dissent from the Merger will receive solely MBI Common Stock; and (c) I am aware that (i) this Certificate will be relied on by Thompson & Mitchell, counsel for MBI, in rendering its opinion to Bank that the Exchange and the Merger will each constitute a reorganization within the meaning of section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the representations and undertaking recited herein will survive the Exchange and the Merger. The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF BANK, that: (1) To the best knowledge of the undersigned, neither MBI nor any other member of the MBI's "affiliated group" (as the quoted term is defined in Code section 1504) (the "MBI Affiliated Group") has owned, directly or indirectly, any stock of Bank within the last five years. (2) No indebtedness between Bank or any other member of Bank's "affiliated group" (defined as above) (the "Bank Affiliated Group"), on the one hand, and MBI or any other member of the MBI Affiliated Group, on the other hand, exists or will exist prior to the effective time of the Exchange and the Merger (the "Effective Time") that (a) was issued or acquired at a discount, or (b) will be settled, as a result of the Merger, at a discount. No "installment obligation" (as the 21 quoted term is defined for purposes of Code section 453B), between Bank, on the one hand, and MBI or Acquisition Bank on the other hand, exists or will exist prior to the Effective Time that will be extinguished as a result of the Merger. (3) At the Effective Time and except with regard to Miscellaneous Amounts (as defined below), each liability of Bank or each liability to which an asset of Bank is subject will have been incurred by Bank in the ordinary course of business and no such liability will have been incurred in anticipation of the Merger. In addition, at the Effective Time and except with regard to Miscellaneous Amounts, Bank will not have paid (or loaned) any amount or incurred any liability, directly or indirectly, to or for the benefit of any Bank stockholder to induce such stockholder's assistance or acquiescence in, or vote in favor of, the Merger. For purposes of this representation, (a) the term "Bank" shall be deemed also to refer to each other member of Holding's "affiliated group" (as the quoted term is defined in Code section 1504) (the "Bank Affiliated Group"), (b) the term "liability" shall include any contingent obligation or any other undertaking to pay or to cause the reduction, release, or extinguishment of, any obligation, without regard to whether any such obligation or undertaking is legally enforceable (for example, and without limitation, the term "liability" includes an unenforceable agreement to cause the repayment of an obligation guaranteed by a Holding stockholder (or by a Bank stockholder) and an unenforceable agreement to cause the release of such guaranty), and (c) the term "Miscellaneous Amounts" shall mean amounts paid or liabilities incurred in connection with the Merger (i) to dissenters, if any, (ii) for legal, accounting, and investment banking and/or advisor services rendered to Bank, if any, (iii) as compensation to any Bank employee for services rendered in the ordinary course of his or her employment, and (iv) for the $375,000 dividend described in Section 4.02(a) of the Agreement (the "Dividend"). (4) At the Effective Time, Bank will not have outstanding any warrants, options, convertible securities, or any other type of right (including any preemptive right) pursuant to which any person could acquire stock in Bank that, if exercised or converted after the Effective Time would affect MBI's acquisition or retention of control of Bank (within the meaning of section 368(c) of the Code). (5) None of the compensation paid or accrued before the Effective Time to or for the benefit of any Bank stockholder-employee will be separate consideration for, or allocable to, any of their shares of Bank Common Stock; none of the shares of MBI Common Stock received in the Merger by any Bank stockholder-employee will be separate consideration for, or allocable to, any 22 employment agreement; and all compensation paid or accrued before the Effective Time to or for the benefit of any Bank stockholder-employee will be for services actually rendered in the ordinary course of his or her employment and will be commensurate with amounts paid to third parties bargaining at arm's length for similar services. With regard to the employment agreement between MBI and Melvin G. Hall dated July 6, 1994 (the "Employment Contract"), Holding or Bank shall have paid to Melvin G. Hall prior to the Effective Time a 1994 incentive bonus of at least $234,500.00, and as a result MBI shall have no liability to Melvin G. Hall under the third paragraph of the Employment Contract. (6) The fair market value of the MBI Common Stock to be received by each Bank stockholder in the Merger (including cash to be received in lieu of fractional shares of MBI Common Stock, if any) will be approximately equal to the fair market value of the Bank Common Stock surrendered in the Merger by each such stockholder. (7) There is no plan, intention or other arrangement (including any option or pledge) on the part of the holders of 1% or more of the Bank Common Stock and, to the best knowledge of the undersigned, there is no plan, intention or other arrangement (including any option or pledge) on the part of the other holders of Bank Common Stock to sell, exchange or otherwise dispose of a number of shares of MBI Common Stock received by such holders in the Merger that would reduce such holders' ownership of MBI Common Stock to a number of shares having a value, as of the Effective Time, of less than 50 percent of the value of all of the formerly outstanding Bank Common Stock as of the Effective Time. For purposes of this representation, shares of Bank Common Stock exchanged for cash or other property, surrendered by dissenters, or exchanged for cash in lieu of fractional shares of MBI Common Stock will be treated as outstanding on the Effective Time. Moreover, all shares of Bank Common Stock and/or shares of MBI Common Stock held by Bank stockholders and otherwise sold, redeemed, or disposed of before or after the Effective Time will be taken into account in making this representation. As with the other representations contained herein, the undersigned will undertake any and all actions necessary to ensure the accuracy of the foregoing representation. (8) The payment of cash in lieu of fractional shares of MBI Common Stock will be solely for the purpose of avoiding the expense and inconvenience to MBI of issuing fractional shares and will not represent separately bargained-for consideration. The total cash consideration that 23 will be paid in the Merger to the Bank stockholders in lieu of fractional shares of MBI Common Stock will not exceed one percent of the total consideration that will be issued in the transaction to the Bank stockholders in exchange for their shares of Bank Common Stock. The fractional share interests of each Bank stockholder will be aggregated, and no Bank stockholder will receive cash in lieu of fractional share interests in an amount equal to or greater than the value of one full share of MBI Common Stock. (9) Expenses, if any, that are incurred in connection with the Merger and are properly attributable to Bank's stockholders will be paid by those stockholders and not by Bank. Bank will pay its own expenses that are incurred in connection with the Merger. (10) All payments made to dissenters and all other payments made to holders of Bank Common Stock in connection with the Merger (including the Dividend, but excluding cash to be paid in lieu of fractional shares) will be funded by Bank. Bank has sufficient liquid assets to fund any such payments. All payments made to dissenters, if any, will be funded with Bank assets from an escrow to be established before the Effective Time by Bank for that purpose. (11) Immediately after the Effective Time, Bank will hold assets representing at least 90 percent of the fair market value of the net assets and at least 70 percent of the fair market value of the gross assets, in each case, that were held by Bank immediately prior to the Effective Time. For purposes of this representation, Bank assets used to pay dissenters or to pay stockholders who receive cash, and Bank assets used to pay expenses of the Merger or to fund any redemption or distribution within 24 months before the Effective Time (except for regular, normal dividends) shall be included as assets of Bank held immediately prior to the Effective Time. For purposes of this representation, any asset of Bank that is disposed of within 24 months before the Merger other than in the ordinary course of business also shall be included as an asset of Bank held immediately prior to the Merger (including, for example and without limitation, the Dividend). (12) Immediately after the Effective Time and determined without regard to any assets to be received from MBI or any other member of the MBI Affiliated Group (including those assets to be received as a result of the merger of Mercantile Bank of Illinois National Association with and into Bank), the assets held by Bank will be sufficient to enable Bank to continue its business and investment activities at historical levels and in accordance with past practice, without resort to additional capital or borrowed funds. 24 The undersigned HEREBY AGREES to immediately communicate in writing to Thompson & Mitchell at One Mercantile Center, St. Louis, Missouri 63101, to the attention of Charles H. Binger, any information that could indicate (i) any of the foregoing representations was inaccurate when made, or (ii) any of the foregoing representations would be inaccurate if it were made immediately before the Merger. IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of Bank this 5th day of October, 1994. ------------------------------------- Melvin G. Hall Chairman and Chief Executive Officer 25 Exhibit D CERTIFICATE ----------- Robert Lynn Hall, a stockholder of The Wedge Holding Company, a Delaware corporation ("Holding"), who holds 4,734 shares (30.90%) of Holding common stock, par value $100.00 per share ("Holding Common Stock"), and 10,020 shares (15.72%) of Holding preferred stock, par value $50.00 per share ("Holding Preferred Stock"), HEREBY CERTIFIES that (a) I am familiar with the terms and conditions of the Agreement and Plan of Reorganization by and among Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), Mercantile Bancorporation Incorporated of Illinois, a Missouri corporation ("Mercantile Illinois"), Wedge Bank, an Illinois state bank, and Holding, dated July 6, 1994 (the "Agreement"), and (b) I am aware that (i) this Certificate will be relied on by Thompson & Mitchell, counsel for MBI, in rendering its opinion to Holding that the acquisition by Mercantile Illinois of all Bank common stock, par value $10.00 per share ("Bank Common Stock"), held by Holding solely in exchange for MBI common stock, par value $5.00 per share ("MBI Common Stock"), will constitute a reorganization within the meaning of section 368 of the Internal Revenue Code of 1986, as amended, and (ii) the representations and undertaking recited herein will survive the Acquisition. The undersigned HEREBY FURTHER CERTIFIES that (a) the undersigned will not sell, exchange or otherwise dispose of any of Holding Common Stock or Holding Preferred Stock, except in connection with the liquidation and dissolution of Holding, and (b) the undersigned has no plan, intention or arrangement (including any option or pledge) to sell, exchange or otherwise dispose of any of the MBI Common Stock to be received from Holding. The undersigned HEREBY AGREES to immediately communicate in writing to Thompson & Mitchell at One Mercantile Center, St. Louis, Missouri 63101, to the attention of Charles H. Binger, any information that could indicate (i) any of the foregoing representations was inaccurate when made, or (ii) any of the foregoing representations would be inaccurate if it were made immediately before the Acquisition. IN WITNESS WHEREOF, the undersigned has executed this Certificate, or caused this Certificate to be executed by its duly authorized representative, this 5th day of October, 1994. ------------------------------ Robert Lynn Hall 26 Exhibit E CERTIFICATE ----------- Melvin G. Hall, a stockholder of The Wedge Holding Company, a Delaware corporation ("Holding"), who holds 8,254 shares (53.88%) of Holding common stock, par value $100.00 per share ("Holding Common Stock"), and 46,112 shares (72.35%) of Holding preferred stock, par value $50.00 per share ("Holding Preferred Stock"), HEREBY CERTIFIES that (a) I am familiar with the terms and conditions of the Agreement and Plan of Reorganization by and among Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), Mercantile Bancorporation Incorporated of Illinois, a Missouri corporation ("Mercantile Illinois"), Wedge Bank, an Illinois state bank, and Holding, dated July 6, 1994 (the "Agreement"), and (b) I am aware that (i) this Certificate will be relied on by Thompson & Mitchell, counsel for MBI, in rendering its opinion to Holding that the acquisition by Mercantile Illinois of all Bank common stock, par value $10.00 per share ("Bank Common Stock"), held by Holding solely in exchange for MBI common stock, par value $5.00 per share ("MBI Common Stock"), will constitute a reorganization within the meaning of section 368 of the Internal Revenue Code of 1986, as amended, and (ii) the representations and undertaking recited herein will survive the Acquisition. The undersigned HEREBY FURTHER CERTIFIES that (a) the undersigned will not sell, exchange or otherwise dispose of any of Holding Common Stock or Holding Preferred Stock, except in connection with the liquidation and dissolution of Holding, and (b) the undersigned has no plan, intention or arrangement (including any option or pledge) to sell, exchange or otherwise dispose of any of the MBI Common Stock to be received from Holding. The undersigned HEREBY AGREES to immediately communicate in writing to Thompson & Mitchell at One Mercantile Center, St. Louis, Missouri 63101, to the attention of Charles H. Binger, any information that could indicate (i) any of the foregoing representations was inaccurate when made, or (ii) any of the foregoing representations would be inaccurate if it were made immediately before the Acquisition. IN WITNESS WHEREOF, the undersigned has executed this Certificate, or caused this Certificate to be executed by its duly authorized representative, this 5th day of October, 1994. ------------------------------ Melvin G. Hall, Individually and as Trustee UI dated 02/04/85, Melvin G. Hall, grantor EX-23.1 8 CONSENTS OF EXPERTS AND COUNSEL 1 Independent Auditors' Consent ----------------------------- The Board of Directors and Stockholders Mercantile Bancorporation Inc.: We consent to the use of our reports incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. Our reports dated January 13, 1994, except as to Note Q, which is as of February 10, 1994, contains an explanatory paragraph referring to the change in accounting for income taxes. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP St. Louis, Missouri October 5, 1994 - 1 - EX-23.2 9 CONSENTS OF EXPERTS AND COUNSEL 1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Mercantile Bancorporation Inc. on Form S-4 of our reports for The Wedge Holding Company and Subsidiary and The Wedge Bank dated March 25, 1994, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP /s/ Deloitte & Touche LLP St. Louis, Missouri October 5, 1994 EX-24.1 10 POWER OF ATTORNEY 1 POWER OF ATTORNEY Each of the undersigned does hereby appoint Thomas H. Jacobsen and Ralph W. Babb, Jr., and each of them, as his true and lawful attorney in fact, with full power and authority separately to execute in the name of the undersigned, and to file with the United States Securities and Exchange Commission, a registration statement on Form S-4, and any amendments or supplements thereto, registering the issuance by Mercantile Bancorporation Inc. of shares of its common stock, and the preferred share purchase rights which trade therewith, in connection with the acquisition of Wedge Bank, as well as such other filings as the above-named attorneys deem necessary or advisable to enable Mercantile Bancorporation Inc. to comply with the Securities Act of 1933, the Securities Exchange Act of 1934, and any rules, regulations and requirements of the Securities and Exchange Commission in connection with said acquisition, and does hereby ratify and confirm all acts that such attorneys in fact, or any of them separately, may lawfully do or cause to be done by virtue hereof. Name Signature Date - ------------------------- ------------------------- --------------- Richard P. Conerly /s/ RICHARD P. CONERLY 8/22/94 ------------------------- --------------- Harry M. Cornell, Jr. /s/ HARRY M. CORNELL, JR. 8/22/94 ------------------------- --------------- Earl K. Dille /s/ EARL K. DILLE 8/20/94 ------------------------- --------------- J. Cliff Eason /s/ J. CLIFF EASON 8/23/94 ------------------------- --------------- Bernard A. Edison /s/ BERNARD A. EDISON 8/22/94 ------------------------- --------------- William A. Hall /s/ WILLIAM A. HALL 9/29/94 ------------------------- --------------- Thomas A. Hays /s/ THOMAS A. HAYS 8/22/94 ------------------------- --------------- William G. Heckman /s/ WILLIAM G. HECKMAN 8/25/94 ------------------------- --------------- Thomas H. Jacobsen ------------------------- --------------- James B. Malloy /s/ JAMES B. MALLOY 8/22/94 ------------------------- --------------- Charles H. Price II /s/ CHARLES H. PRICE II 8/22/94 ------------------------- --------------- Harvey Saligman /s/ HARVEY SALIGMAN 8/24/94 ------------------------- --------------- Craig D. Schnuck /s/ CRAIG D. SCHNUCK 8/22/94 ------------------------- --------------- Robert W. Staley /s/ ROBERT W. STALEY 8/24/94 ------------------------- --------------- Robert L. Stark /s/ ROBERT L. STARK 8/27/94 ------------------------- --------------- Patrick T. Stokes /s/ PATRICK T. STOKES 8/22/94 ------------------------- --------------- Francis A. Stroble /s/ FRANCIS A. STROBLE 8/19/94 ------------------------- --------------- Joseph G. Werner /s/ JOSEPH G. WERNER 8/25/94 ------------------------- --------------- John A. Wright /s/ JOHN A. WRIGHT 8/22/94 ------------------------- --------------- -----END PRIVACY-ENHANCED MESSAGE-----