-----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, g/EGBbYWh9X6ahXQ3A65flTixqrqooMNL3a1Ixdu2gg5yuJ+t05/vxGobB/Cnoxg zoSkTJMVIaLk7o1WS02IKg== 0000950114-95-000114.txt : 19950613 0000950114-95-000114.hdr.sgml : 19950613 ACCESSION NUMBER: 0000950114-95-000114 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19950612 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCANTILE BANCORPORATION INC CENTRAL INDEX KEY: 0000064907 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 430951744 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 033-60155 FILM NUMBER: 95546446 BUSINESS ADDRESS: STREET 1: P O BOX 524 STREET 2: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 BUSINESS PHONE: 3144252525 MAIL ADDRESS: STREET 1: P O BOX 524 CITY: ST LOUIS STATE: MO ZIP: 63166-0524 FORMER COMPANY: FORMER CONFORMED NAME: MERCANTILE TRUST CO DATE OF NAME CHANGE: 19720229 S-4 1 REGISTRATION STATEMENT ON FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1995 Registration No. 33------ =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- FORM S-4 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 -------------------------- MERCANTILE BANCORPORATION INC. (Exact name of registrant as specified in its charter) MISSOURI 6712 43-0951744 (State or other jurisdiction (Primary Standard (I.R.S. Employer of incorporation or Industrial Classification Identification organization) Code Number) Number) P.O. Box 524 St. Louis, Missouri 63166-0524 (314) 425-2525 (Address, including ZIP code, and telephone number, including area code, of registrant's principal executive offices) -------------------------- W. RANDOLPH ADAMS Chief Financial Officer 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, ESQ. ROBERT M. LaROSE, ESQ. O.J. TAYLOR, ESQ. General Counsel Thompson & Mitchell Taylor, Stafford, Woody, and Secretary One Mercantile Center Clithero & Fitzgerald Mercantile Bancorporation St. Louis, Missouri 63101 Glenstone at Sunshine Inc. (314) 231-7676 Springfield, Missouri P.O. Box 524 65804 St. Louis, Missouri (417) 887-2020 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 675,000 N/A $15,500,000 $5,344.87 shares ==================================================================================================================================== 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), and based upon the $15,500,000 aggregate book value of 35,981 shares of Common Stock, $10.00 par value, of Southwest Bancshares, Inc. as of May 31, 1995.
-------------------------- 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 Facing Page; Cross Reference Sheet; Outside Statement and Outside Front Front Cover Page of Prospectus Cover Page 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 Merger; Certain Federal Income Tax Consequences of the Merger; 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 Merger 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 Southwest S-3 Companies D. Voting and Management Information 18. Information if Proxies, Consents Information Regarding Special Meeting; or Authorizations are to be Incorporation of Certain Information by Solicited Reference; Rights of Dissenting Shareholders of Southwest; Information Regarding Southwest 19. Information if Proxies, Consents Not Applicable or Authorizations are not to be Solicited in an Exchange Offer
- ii - 4 [SOUTHWEST BANCSHARES, INC.] --------------------, 1995 Dear Fellow Shareholder: The Board of Directors cordially invites you to attend a Special Meeting of Shareholders of Southwest Bancshares, Inc. ("Southwest") to be held at --:00 -.m. Central Time, on - ------------, ---------------, 1995, at ------------------------, - -------------------------, Bolivar, Missouri (the "Special Meeting"). At this important meeting, you will be asked to consider and vote upon the Agreement and Plan of Merger dated January 27, 1995 (the "Merger Agreement"), pursuant to which Southwest will be merged with and into a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"). I have enclosed the following items relating to the Special Meeting and the merger: 1. Proxy Statement/Prospectus; 2. Proxy card; and 3. A pre-addressed return envelope to Southwest for the proxy card. The Proxy Statement/Prospectus and related proxy materials set forth, or incorporate by reference, financial data and other important information relating to Southwest and MBI and describe the terms and conditions of the proposed merger. The Board of Directors requests that you carefully review these materials before completing the enclosed proxy card or attending the Special Meeting. THE BOARD OF DIRECTORS OF SOUTHWEST CAREFULLY CONSIDERED AND APPROVED THE TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST INTEREST OF SOUTHWEST AND ITS SHAREHOLDERS. THE SOUTHWEST BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT. APPROVAL OF THE MERGER AGREEMENT BY THE SOUTHWEST SHAREHOLDERS IS A CONDITION TO THE CONSUMMATION OF THE MERGER. Accordingly, it is important that your shares be represented at the Special Meeting, whether or not you plan to attend the Special Meeting in person. Please complete, date and sign the enclosed proxy card and return it to Southwest 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 Southwest a written notice of revocation or another proxy relating to the same shares bearing a later date than the proxy being revoked or by attending the Special Meeting and voting in person. Attendance at the Special Meeting will not in itself constitute a revocation of an earlier dated proxy. If you need assistance in completing your proxy card or if you have any questions about the Proxy Statement/Prospectus, please feel free to contact ---------------- at (---) --------. Sincerely, Joe F. Rayl Chairman 5 SOUTHWEST BANCSHARES, INC. 102 South Springfield Street Bolivar, Missouri 65613 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To Be Held -------------, 1995 TO THE SHAREHOLDERS OF SOUTHWEST BANCSHARES, INC.: Notice is hereby given that a Special Meeting of Shareholders of SOUTHWEST BANCSHARES, INC., a Missouri corporation ("Southwest"), will be held at ------------------------, - -----------------------------, Bolivar, Missouri on -----------, - --------------, 1995, at --:00 -.m. Central Time, for the following purposes: (1) To consider and vote upon the adoption and approval of the Agreement and Plan of Merger dated January 27, 1995, pursuant to which Southwest will be merged (the "Merger") with and into Ameribanc, Inc., a Missouri corporation and wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"), in a transaction which would result in the business and operations of Southwest being continued through such wholly owned subsidiary, and whereby, upon the consummation of the Merger, each share of Southwest common stock will be converted into the right to receive 18.7599 shares of MBI common stock, as set forth in detail in the attached Proxy Statement/Prospectus. (2) To transact such other business as may properly come before the Special Meeting or any adjournments or postponements thereof. The record date for determining the shareholders entitled to receive notice of, and to vote at, the Special Meeting or any adjournments or postponements thereof has been fixed as of the close of business on -----------------, 1995. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE ACCOMPANYING PROXY STATEMENT/ PROSPECTUS. BY ORDER OF THE BOARD OF DIRECTORS ----------------------------------- Secretary Bolivar, Missouri - -----------, 1995 6 MERCANTILE BANCORPORATION INC. PROSPECTUS -------------------------- SOUTHWEST BANCSHARES, INC. PROXY STATEMENT SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON ----------------, 1995 This Prospectus of Mercantile Bancorporation Inc. ("MBI") relates to up to 675,000 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 to the shareholders of Southwest Bancshares, Inc., a Missouri corporation ("Southwest"), upon consummation of the proposed merger (the "Merger") of Southwest with and into Ameribanc, Inc., a Missouri corporation ("ABNK") which is a wholly owned subsidiary of MBI. Upon receipt of the requisite shareholder and regulatory approvals, the Merger will be consummated pursuant to the terms of the Agreement and Plan of Merger dated January 27, 1995 (the "Merger Agreement"), by and among MBI, ABNK and Southwest. This Prospectus also serves as the Proxy Statement of Southwest for use in connection with the Special Meeting of Shareholders of Southwest (the "Special Meeting"), which will be held on ------------------, 1995, at the time and place and for the purposes stated in the Notice of Special Meeting of Shareholders accompanying this Proxy Statement/Prospectus. Pursuant to the Merger, MBI will issue up to an aggregate of 675,000 shares of MBI Common Stock. Upon consummation of the Merger, the business and operations of Southwest will be continued through ABNK and each share of Southwest common stock, $10.00 par value ("Southwest Common Stock"), will be converted into the right to receive 18.7599 shares of MBI Common Stock. The fair market value of MBI Common Stock to be received pursuant to the Merger may fluctuate and at the consummation of the Merger may be more or less than the current fair market value of such shares. See "TERMS OF THE PROPOSED MERGER - General Description of the Merger." No fractional shares of MBI Common Stock will be issued in the Merger, but cash will be paid in lieu of such fractional shares. See "TERMS OF THE PROPOSED MERGER - Fractional Shares." The transaction is intended to qualify as a reorganization under the Internal Revenue Code of 1986, as amended (the "Code"). The Merger generally is intended to achieve certain tax-deferral benefits for federal income tax purposes for Southwest shareholders. See "SUMMARY INFORMATION - Federal Income Tax Consequences in General" and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." MBI Common Stock is traded on the New York Stock Exchange (the "NYSE") under the symbol "MTL." On June 9, 1995 the closing sale price for MBI Common Stock as reported on the NYSE Composite Tape was $40.625. This Proxy Statement/Prospectus, the Notice of Special Meeting and the form of proxy were first mailed to the shareholders of Southwest on or about ----------------, 1995. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Proxy Statement/Prospectus is ----------------, 1995. 7 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 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 Proxy Statement/Prospectus does not contain all of the information set forth in the Registration Statement on Form S-4 and exhibits thereto (the "Registration Statement") covering the securities offered hereby which has been filed by MBI with the Commission. As permitted by the rules and regulations of the Commission, this Proxy Statement/Prospectus omits certain information contained or incorporated by reference in the Registration Statement. Statements contained in this Proxy Statement/Prospectus provide a summary of the contents of 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 PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS 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 - -----------------, 1995. 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, 1994. (b) MBI's Report on Form 10-Q for the quarter ended March 31, 1995. (c) MBI's Current Reports on Form 8-K dated May 12, 1995 and May 31, 1995. (d) The description of MBI's Common Stock set forth in Item 1 of MBI's Registration Statement on Form 8-A, dated March 5, 1993, and any amendment or report filed for the purpose of updating such description. (e) The description of MBI's Preferred Share Purchase Rights set forth in Item 1 of MBI's Registration Statement on Form 8-A, dated March 5, 1993, and any amendment or report filed for the purpose of updating such description. - 2 - 8 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 Meeting shall be deemed to be incorporated by reference herein and made a part hereof from the date any such document is filed. The information relating to MBI contained in this Proxy Statement/Prospectus does not purport to be complete and should be read together with the information in the documents incorporated by reference herein. Any statement contained herein or in a document incorporated herein by reference shall be deemed to be modified or superseded for purposes hereof to the extent that a subsequent statement contained herein or in any other subsequently filed document incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part hereof. Any statements contained in this Proxy Statement/Prospectus involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MBI OR SOUTHWEST. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF MBI COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES PURSUANT HERETO SHALL IMPLY OR CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MBI OR SOUTHWEST OR ANY OF THEIR SUBSIDIARIES OR IN THE INFORMATION SET FORTH HEREIN SUBSEQUENT TO THE DATE HEREOF. - 3 - 9 TABLE OF CONTENTS
Page ---- AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 2 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE. . . . . . . . . 2 SUMMARY INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 7 Business of MBI. . . . . . . . . . . . . . . . . . . . . . . 7 Business of ABNK . . . . . . . . . . . . . . . . . . . . . . 8 Business of Southwest. . . . . . . . . . . . . . . . . . . . 8 The Proposed Merger. . . . . . . . . . . . . . . . . . . . . 8 Other Agreements . . . . . . . . . . . . . . . . . . . . . . 9 Interests of Certain Persons in the Merger . . . . . . . . . 9 Special Meeting of Southwest Shareholders. . . . . . . . . . 10 Reasons for the Merger . . . . . . . . . . . . . . . . . . . 10 Fractional Shares. . . . . . . . . . . . . . . . . . . . . . 11 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . 11 Federal Income Tax Consequences in General . . . . . . . . . 11 Regulatory Approval. . . . . . . . . . . . . . . . . . . . . 11 Accounting Treatment . . . . . . . . . . . . . . . . . . . . 12 Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . 12 Markets and Market Prices. . . . . . . . . . . . . . . . . . 12 Comparative Unaudited Per Share Data . . . . . . . . . . . . 13 Summary Financial Data . . . . . . . . . . . . . . . . . . . 14 INFORMATION REGARDING SPECIAL MEETING. . . . . . . . . . . . . . . 17 General. . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Date, Time and Place . . . . . . . . . . . . . . . . . . . . 17 Record Date; Vote Required . . . . . . . . . . . . . . . . . 17 Voting and Revocation of Proxies . . . . . . . . . . . . . . 17 Solicitation of Proxies. . . . . . . . . . . . . . . . . . . 18 TERMS OF THE PROPOSED MERGER . . . . . . . . . . . . . . . . . . . 18 General Description of the Merger. . . . . . . . . . . . . . 19 Other Agreements . . . . . . . . . . . . . . . . . . . . . . 20 Interests of Certain Persons in the Merger . . . . . . . . . 20 Background of and Reasons for the Merger; Board Recommendations. . . . . . . . . . . . . . . . . . . . . . 20 Conditions of the Merger . . . . . . . . . . . . . . . . . . 22 Termination of the Merger Agreement. . . . . . . . . . . . . 23 Indemnification. . . . . . . . . . . . . . . . . . . . . . . 24 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . 24 Surrender of Southwest Stock Certificates and Receipt of MBI Common Stock . . . . . . . . . . . . . . . . . . . . . 24 Fractional Shares. . . . . . . . . . . . . . . . . . . . . . 25 Regulatory Approval. . . . . . . . . . . . . . . . . . . . . 25 Business Pending the Merger. . . . . . . . . . . . . . . . . 26 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . 28 Accounting Treatment . . . . . . . . . . . . . . . . . . . . 28 CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. . . . . . . 29 - 4 - 10 Page ---- RIGHTS OF DISSENTING SHAREHOLDERS OF SOUTHWEST . . . . . . . . . . 32 PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . 33 Comparative Unaudited Per Share Data . . . . . . . . . . . . 33 Pro Forma Combined Consolidated Financial Statements (Unaudited). . . . . . . . . . . . . . . . . . . . . . . . 34 INFORMATION REGARDING SOUTHWEST. . . . . . . . . . . . . . . . . . 44 Business . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Management's Discussion and Analysis of Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . 45 Results of Operation . . . . . . . . . . . . . . . . . . . . 45 Financial Condition, Capital Resources and Liquidity . . . . 48 Impact Of Future Accounting Pronouncements . . . . . . . . . 56 Results Of Operation (First Quarter Comparison). . . . . . . 57 Liquidity And Capital Resources (First Quarter Comparison). . . . . . . . . . . . . . . . . . . . . . . . 57 Properties . . . . . . . . . . . . . . . . . . . . . . . . . 58 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 58 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . 59 INFORMATION REGARDING MBI STOCK. . . . . . . . . . . . . . . . . . 60 Description of MBI Common Stock and Attached Preferred Share Purchase Rights. . . . . . . . . . . . . . . . . . . 60 Restrictions on Resale of MBI Stock by Affiliates. . . . . . 62 Comparison of the Rights of Shareholders of MBI and Southwest. . . . . . . . . . . . . . . . . . . . . . . . . 62 SUPERVISION AND REGULATION . . . . . . . . . . . . . . . . . . . . 65 General. . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Certain Transactions with Affiliates . . . . . . . . . . . . 65 Payment of Dividends . . . . . . . . . . . . . . . . . . . . 65 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . 66 FDIC Insurance Assessments . . . . . . . . . . . . . . . . . 67 Support of Subsidiary Banks. . . . . . . . . . . . . . . . . 67 FIRREA and FDICIA. . . . . . . . . . . . . . . . . . . . . . 68 Depositor Preference Statute . . . . . . . . . . . . . . . . 69 The Interstate Banking and Community Development Legislation. . . . . . . . . . . . . . . . . . . . . . . . 69 RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . 69 LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 70 EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 70 SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . 70 CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . 71 - 5 - 11 Page ---- ANNEXES Annex A -- Dissenters' Rights Provisions of The General and Business Corporation Law of Missouri. . . . . . . . . . . . . . . . A-1
- 6 - 12 SUMMARY INFORMATION ------------------- The following is a summary of the important terms of the proposed Merger and related information discussed elsewhere in this Proxy Statement/Prospectus but does not purport to be complete and is qualified in its entirety by reference to the more detailed information which appears elsewhere in this Proxy Statement/Prospectus and the documents incorporated by reference herein. Shareholders of Southwest are urged to read this Proxy Statement/Prospectus in its entirety. All MBI per share data reflect a three-for-two stock split distributed in the form of a dividend on April 11, 1994. 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 May 31, 1995, MBI owned, directly or indirectly, all of the capital stock of Mercantile Bank of St. Louis National Association ("Mercantile Bank") and 50 other commercial banks which operate from 324 banking offices and 309 Fingertip Banking automated teller machines located throughout Missouri, southern Illinois, eastern Kansas, Arkansas 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 March 31, 1995, MBI had 52,749,516 shares of its Common Stock outstanding. As of March 31, 1995, MBI reported, on a restated consolidated basis, total assets of $15.2 billion, total deposits of $11.3 billion, total loans of $10.1 billion and shareholders' equity of $1.3 billion. On January 3, 1995, MBI completed the acquisitions of (i) UNSL Financial Corp. ("UNSL"), a Delaware corporation and a savings and loan holding company under the Home Owners Loan Act ("HOLA"), located in Lebanon, Missouri, and (ii) Wedge Bank ("Wedge"), an Illinois state-chartered bank located in Alton, Illinois. These acquisitions were accounted for under the pooling-of-interests method of accounting. As of January 3, 1995, UNSL and Wedge reported total assets of $508 million and $196 million, respectively, and total deposits of $381 million and $153 million, respectively. On May 1, 1995, MBI completed the acquisitions of (i) Central Mortgage Bancshares, Inc. ("CMB"), a Missouri corporation and registered bank holding company under the BHCA, located in Kansas City, Missouri, and (ii) TCBankshares, Inc. ("TCB"), an Arkansas corporation and a registered bank holding company under the BHCA, located in North Little Rock, Arkansas. These acquisitions were accounted for under the pooling-of-interest method of accounting. As of March 31, 1995, CMB and TCB reported total assets of $655 million and $1.4 billion, respectively, and deposits of $570 million and $1.2 billion, respectively. In connection with the acquisitions of UNSL, CMB and TCB, MBI has restated its consolidated financial statements as of and for the years ended December 31, 1994, 1993 and 1992. MBI has filed supplemental financial statements as of and for the years ended December 31, 1994, 1993 and 1992 in a Current Report on Form 8-K, dated May 31, 1995, which has been incorporated by reference into this Proxy Statement/Prospectus. Due to the immateriality of the financial condition and results of operation of Wedge to that of MBI, the supplemental financial statements of MBI do not reflect the Wedge transaction. On December 23, 1994, MBI entered into an agreement to acquire Plains Spirit Financial Corporation ("Plains Spirit"), located in Davenport, Iowa. Plains Spirit, a Delaware - 7 - 13 corporation, is a registered savings and loan holding company under the HOLA which owns one federally-chartered stock savings bank. As of March 31, 1995, Plains Spirit reported total assets of $452 million, total deposits of $271 million, total loans of $261 million and stockholders' equity of $56 million. On February 16, 1995, MBI entered into an agreement to acquire AmeriFirst Bancorporation, Inc. ("AmeriFirst"), located in Sikeston, Missouri. AmeriFirst, a Missouri corporation, is a registered bank holding company under the BHCA which owns one commercial bank. As of March 31, 1995, AmeriFirst reported total assets of $157 million, total deposits of $131 million, total loans of $116 million and shareholders' equity of $15 million. 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 ABNK ABNK, a Missouri corporation, is a wholly owned subsidiary of MBI which was organized in 1991. ABNK is a registered bank holding company under the BHCA. ABNK currently owns all of the capital stock of 21 banks and 1 trust company which operate from 178 locations in Missouri. ABNK, which will continue to be a subsidiary of MBI, will be the surviving corporation upon consummation of the Merger with Southwest. BUSINESS OF SOUTHWEST Southwest, a Missouri corporation, commenced operations in 1962 and is a registered bank holding company under the BHCA. Southwest currently owns all of the issued and outstanding shares of capital stock of Southwest Bank, a Missouri state-chartered bank which operates from 11 locations in certain southwestern Missouri communities. As of January 27, 1995, 35,981 shares of Southwest Common Stock were issued and outstanding. As of March 31, 1995, Southwest reported, on a consolidated basis, total assets of $180.6 million, total deposits of $149.4 million, total loans of $126.8 million and shareholders' equity of $15.2 million. See "INFORMATION REGARDING SOUTHWEST." Southwest's principal executive offices are located at 102 South Springfield Street, Bolivar, Missouri and its telephone number is (417) 326-2265. THE PROPOSED MERGER Subject to the satisfaction of the terms and conditions set forth in the Merger Agreement described below, Southwest will be merged with and into ABNK. Upon consummation of the Merger, Southwest's corporate existence will terminate and ABNK will continue as the surviving entity. Simultaneously with the effectiveness of the Merger, each share of Southwest Common Stock will be converted into the right to receive 18.7599 shares of MBI Common Stock. Such consideration is subject to certain anti- dilution protections but is not adjustable based upon the operating results, financial condition or other factors affecting either MBI or Southwest prior to the consummation of the Merger. The fair market value of MBI Common Stock to be received pursuant to the Merger may fluctuate and at the consummation of the Merger may be more or less than the current fair market value of such shares. - 8 - 14 KeyCorp Shareholder Services, Inc., the transfer agent for MBI Common Stock, has been selected as the Exchange Agent (the "Exchange Agent") for purposes of effecting the conversion of Southwest Common Stock into MBI Common Stock upon consummation of the Merger. 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 at least two-thirds of the outstanding shares of Southwest Common Stock and receipt of the requisite regulatory approval 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 MERGER - Conditions of the Merger." The Merger 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 Missouri Secretary of State. Unless the parties otherwise agree, the date of the closing of the Merger (the "Closing Date") shall occur on such date as MBI shall notify Southwest in writing but (i) not earlier than (A) the approval of the Merger Agreement by the shareholders of Southwest and (B) the fifteenth day after the approval of the Merger by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and (ii) not later than the first business day of the first full calendar month commencing at least five days after the approval date of the Merger by the Federal Reserve Board, and the expiration of all required waiting periods. The Merger Agreement may be terminated at any time prior to the Closing Date by the mutual consent of the parties or, unilaterally, by either party upon the occurrence of certain events or if the Merger is not consummated by January 27, 1996. See "TERMS OF THE PROPOSED MERGER - - Conditions of the Merger" and "- Termination of the Merger Agreement." OTHER AGREEMENTS Concurrent with the execution of the Merger Agreement, MBI and each of the directors of Southwest executed separate Voting Agreements (the "Voting Agreements") by which each such director agreed that he or she will vote all of the shares of Southwest Common Stock then owned or subsequently acquired in favor of the approval of the Merger Agreement at the Special Meeting. In addition, until the earliest to occur of the Effective Time of the Merger, the termination of the Voting Agreement or the termination of the Merger Agreement, each director further agreed he or she will not vote any such shares in favor of the approval of any other competing acquisition proposal involving Southwest and a third party. Each director also agreed that he or she will not transfer shares of Southwest Common Stock unless, prior to such transfer, the transferee executes an agreement in substantially the same form as the Voting Agreement. As of the Record Date (as defined below), the directors of Southwest owned beneficially an aggregate of 27,334 shares of Southwest Common Stock, or approximately 75.96% of the issued and outstanding shares. INTERESTS OF CERTAIN PERSONS IN THE MERGER Joe F. Rayl, Chairman of Southwest, has entered into an agreement with MBI whereby Mr. Rayl will serve as Chairman of Mercantile Bank of Springfield for a period of two years commencing on the Closing Date. During such two year period, Mr. Rayl will receive a base salary of $60,000 per year (inclusive of director's fees) and be entitled to participate in MBI's welfare plans and executive incentive programs, to use a company-owned vehicle and to be reimbursed for country club dues. Alva R. Ellison, Vice Chairman of Southwest, has entered into an agreement with MBI whereby he will serve as a director of Mercantile Bank of Springfield for a period of one year commencing on the Closing Date. Mr. Ellison will receive the same fees as other members of - 9 - 15 the Board of Directors of Mercantile Bank of Springfield. See "TERMS OF THE PROPOSED MERGER - Interests of Certain Persons in the Merger." SPECIAL MEETING OF SOUTHWEST SHAREHOLDERS The Special Meeting will be held on --------------, 1995, at --:00 -.m. Central Time, at ------------------------------, - -------------------------, Bolivar, Missouri. Approval by the Southwest shareholders of the Merger Agreement requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of Southwest Common Stock. Only holders of record of Southwest Common Stock at the close of business on - ------------------, 1995 (the "Record Date") will be entitled to notice of, and to vote at, the Special Meeting. At such date, there were 35,981 shares of Southwest Common Stock outstanding. As of the Record Date, directors and officers of Southwest and their affiliates owned beneficially an aggregate of 27,334 shares of Southwest Common Stock, or approximately 75.96% of the shares entitled to vote at the Special Meeting. All of Southwest's directors and officers and their affiliates have indicated their intention to vote their shares for the approval of the Merger Agreement. Additionally, each of the directors of Southwest, pursuant to the terms of his or her respective Voting Agreement, has committed to vote his or her shares of Southwest Common Stock for the approval of the Merger Agreement. As of the Record Date, such directors owned beneficially an aggregate of 27,334 shares of Southwest Common Stock, or approximately 75.96% of the issued and outstanding shares. THE BOARD OF DIRECTORS OF SOUTHWEST CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AS BEING IN THE BEST INTEREST OF SOUTHWEST AND ITS SHAREHOLDERS. THE SOUTHWEST BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE --- PROPOSAL TO APPROVE THE MERGER AGREEMENT. REASONS FOR THE MERGER The Board of Directors of Southwest believes that the Merger is in the best interest of Southwest and its shareholders. In the course of reaching its determination to approve the Merger and recommend the approval of the Merger Agreement to the shareholders of Southwest, the Board of Directors, without assigning any relative or specific weights, considered a number of factors, including (i) the exchange ratio and other terms of the Merger Agreement, (ii) the tax-deferred nature of the Merger for the shareholders of Southwest, (iii) the benefits expected to result from the combination of Southwest and MBI, (iv) the financial condition, results of operations and prospects of Southwest and MBI on a combined basis, (v) the market prices of and dividend policies in respect of Southwest Common Stock, (vi) the results of due diligence investigations of MBI by Southwest and (vii) the recent federal and state legislative changes affecting the banking industry in general. See "TERMS OF THE PROPOSED MERGER - - Background of and Reasons for the Merger; Board Recommendations." MBI's Board of Directors believes that the Merger will enable MBI to (i) increase its presence in southwestern Missouri through the acquisition of an established banking organization and (ii) enhance MBI's ability to compete in the increasingly competitive banking and financial services industry. See "TERMS OF THE PROPOSED MERGER - Background of and Reasons for the Merger; Board Recommendations." - 10 - 16 FRACTIONAL SHARES No fractional shares of MBI Common Stock will be issued to the shareholders of Southwest in connection with the Merger. Each holder of Southwest 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 Southwest shareholders in lieu of fractional shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." WAIVER AND AMENDMENT Any provision of the Merger Agreement, including, without limitation, the conditions to the consummation of the Merger and the restrictions described under the caption "TERMS OF THE PROPOSED MERGER - Business Pending the Merger," may be (i) waived in writing at any time by the party that is, or whose shareholders are, entitled to the benefits thereof or (ii) amended at any time by written agreement of the parties approved by or on behalf of their respective Boards of Directors, whether before or after the Special Meeting; provided, however, that after approval of the Merger Agreement by the shareholders of Southwest at the Special Meeting no such modification may (i) alter or change the amount or kind of the consideration to be received by the Southwest shareholders in the Merger or (ii) adversely affect the tax treatment to the Southwest shareholders as a result of receiving shares of MBI Common Stock in the Merger. FEDERAL INCOME TAX CONSEQUENCES IN GENERAL Thompson & Mitchell, MBI's legal counsel, has delivered its opinion to the effect that, assuming the Merger occurs in accordance with the Merger Agreement and conditioned on the accuracy of certain representations made by MBI, Southwest and certain shareholders of Southwest, the Merger will constitute a "reorganization" for federal income tax purposes and that, accordingly, no gain or loss will be recognized by Southwest shareholders who exchange their shares of Southwest Common Stock solely for shares of MBI Common Stock in the Merger. However, cash received in lieu of fractional shares may give rise to taxable income. Southwest shareholders who dissent and receive cash in exchange for all of their Southwest Common Stock may recognize taxable income, but not in excess of the amount of cash received. EACH SOUTHWEST SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICABILITY OF VARIOUS STATE, LOCAL AND FOREIGN TAX LAWS. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." REGULATORY APPROVAL An application regarding the Merger has been filed with the Federal Reserve Board. The Merger cannot be consummated until receipt of approval from such agency. In reviewing the Merger, the Federal Reserve Board will consider various factors, including possible anticompetitive effects of the Merger, and will examine the financial and managerial resources and future prospects of the combined organization. The Merger may ordinarily not be consummated sooner than thirty (30) days after approval by the Federal Reserve Board; however, if the Antitrust Division of the United States Department of Justice (the "Department of Justice") does not oppose the Merger, then the Federal Reserve Board may prescribe an earlier date for consummation of the Merger, but in no event less than fifteen (15) days following such approval. There can be no assurance that the necessary regulatory approval will be received or as to the timing of such approval. See "TERMS OF THE PROPOSED MERGER - Regulatory Approval" and "SUPERVISION AND REGULATION." - 11 - 17 ACCOUNTING TREATMENT It is intended that the Merger will be accounted for under the pooling-of-interests method of accounting. See "TERMS OF THE PROPOSED MERGER - Accounting Treatment." DISSENTERS' RIGHTS Under Missouri law, a holder of Southwest Common Stock may dissent from the Merger and receive payment of the "fair value" of such shares in cash if the Merger is consummated by following certain procedures set forth in Section 351.455 of The General and Business Corporation Law of Missouri (the "Missouri Act"), the text of which is attached hereto as Annex A. Failure to follow such ------- procedures may result in the loss of dissenters' rights. Any Southwest shareholder returning an executed proxy card which does not provide instructions to vote against the approval of the Merger Agreement will be deemed to have approved the Merger Agreement, thereby waiving any such dissenters' rights. See "RIGHTS OF DISSENTING SHAREHOLDERS OF SOUTHWEST." 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 Nasdaq under the symbol "MTRC." The last sale price reported for MBI Common Stock on January 27, 1995, the last trading date preceding the public announcement of the Merger, was $34.00. There is no established public trading market for Southwest Common Stock. The following table sets forth for the periods indicated the high and low trading prices of Southwest Common Stock known to management of Southwest. Since 1989, Southwest has sold or traded to investors shares of Southwest Common Stock. In 1992, Southwest sold 975 shares to various investors and traded 667 shares to minority stockholders of a subsidiary bank. In 1993, Southwest sold 314 shares directly to an investor. The trade and the sales were all based on book value as shown on the most current financial statements of Southwest. Management of Southwest does not have knowledge of the prices paid in all transactions involving its shares. Because of the lack of an established public market for shares of Southwest Common Stock, the prices indicated may not reflect the prices which would be paid for such shares on an active market.
MBI Southwest ------------------------------ ------------------------------------ Sales Price Cash Sales Price Cash ------------------ Dividend ----------------------- Dividend High Low Declared High Low Declared ---- --- -------- ---- --- -------- 1993 - ---- First Quarter $35.625 $30.625 $ .2475 $ -- $ -- $ -- Second Quarter 37.625 29.375 .2475 318.47 318.47 -- Third Quarter 34.375 31.625 .2475 -- -- -- Fourth Quarter 34.625 29.125 .2475 -- -- -- 1994 - ---- First Quarter $34.125 $29.875 $ .28 $ -- $ -- $ -- Second Quarter 38.125 31.125 .28 -- -- -- Third Quarter 39.250 34.875 .28 -- -- -- Fourth Quarter 36.875 29.500 .28 -- -- -- 1995 - ---- First Quarter $37.250 $31.250 $ .33 $ -- $ -- $ -- Second Quarter (through June 9, 1995) 42.125 36.000 .33 -- -- -- - ----------------------- For a recent sale price of MBI Common Stock, see the cover of this Proxy Statement/Prospectus.
- 12 - 18 COMPARATIVE UNAUDITED PER SHARE DATA The following table sets forth for the periods indicated selected historical per share data of MBI and Southwest and the corresponding pro forma and pro forma equivalent per share amounts giving effect to the proposed Merger, the acquisitions of UNSL, CMB and TCB, the proposed acquisitions of Plains Spirit and AmeriFirst and the acquisition of ABNK, which was completed on April 30, 1992. The data presented is based upon the supplemental consolidated financial statements and related notes of MBI and the consolidated financial statements and related notes of Southwest, Plains Spirit and AmeriFirst included in this Proxy Statement/Prospectus or in documents incorporated herein by reference, and the pro forma combined consolidated balance sheet and income statements, including the notes thereto, appearing elsewhere herein. This information should be read in conjunction with such historical and pro forma financial statements and related notes thereto. The assumptions used in the preparation of this table appear in the notes to the pro forma financial information appearing elsewhere in this Proxy Statement/Prospectus. See "PRO FORMA FINANCIAL INFORMATION." These data are not necessarily indicative of the results of the future operations of the combined organization or the actual results that would have occurred if the Merger, the completed mergers of ABNK, UNSL, CMB and TCB or the proposed mergers of Plains Spirit and AmeriFirst had been consummated prior to the periods indicated.
MBI/ Southwest/ Southwest Southwest MBI/All Entities All Entities MBI Southwest Pro Forma Pro Forma Pro Forma Pro Forma Reported Reported Combined Equivalent Combined Equivalent -------- -------- ------------- --------------- ------------- --------------- Book Value per Share: March 31, 1995 $ 24.12 $ 422.78 $ 24.08 $451.74 $ 24.10 $ 452.11 December 31, 1994 23.70 401.26 23.66 443.86 23.69 444.42 Cash Dividends Declared per Share: Quarter ended March 31, 1995 $ 0.33 $ -- $ 0.33 $ 6.19 $ 0.33 $ 6.19 Year ended December 31, 1994 1.12 -- 1.12 21.01 1.12 21.01 Year ended December 31, 1993 0.99 -- 0.99 18.57 0.99 18.57 Year ended December 31, 1992 0.93 -- 0.93 17.45 0.93 17.45 Earnings per Share: Quarter ended March 31, 1995 $ 0.93 $ 19.30 $ 0.94 $ 17.63 $ 0.95 $ 17.82 Year ended December 31, 1994 3.22 63.19 3.22 60.41 3.27 61.34 Year ended December 31, 1993 2.79 42.92 2.78 52.15 2.83 53.09 Year ended December 31, 1992 2.42 35.82 2.38 44.65 2.41 45.21 Market Price per Share: At January 27, 1995 $ 34.00 $ 318.47 n/a n/a n/a n/a At June 9, 1995 40.63 318.47 n/a n/a n/a n/a - -------------------------- Includes the effect of pro forma adjustments for Southwest and ABNK, as appropriate. See "PRO FORMA FINANCIAL INFORMATION." Based on the pro forma combined per share amounts multiplied by 18.7599, the conversion ratio applicable to one share of Southwest Common Stock. Further explanation of the assumptions used in the preparation of the pro forma combined consolidated financial statements is included in the notes to pro forma financial statements. See "PRO FORMA FINANCIAL INFORMATION." Includes the effect of pro forma adjustments for Southwest, ABNK, Plains Spirit and AmeriFirst, 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 Proxy Statement/Prospectus, based on the last sale price as reported on the NYSE Composite Tape. There are no publicly available quotations of Southwest Common Stock. The market value disclosed is the price paid for Southwest Common Stock in a transaction occurring in May 1993, the last transaction in Southwest Common Stock for which a price is known to management of Southwest prior to the public announcement of the proposed acquisition.
- 13 - 19 SUMMARY FINANCIAL DATA The following table sets forth for the periods indicated certain summary historical consolidated financial information for MBI and Southwest. The balance sheet data and income statement data included in the summary financial data for the five years ended December 31, 1994 are taken from audited supplemental consolidated financial statements of MBI as of the end of and for each such year. The balance sheet data and income statement data included in the summary financial data for the four years ended December 31, 1994 are taken from the audited consolidated financial statements of Southwest as of the end of and for each such year. The balance sheet data and income statement data for the year ended December 31, 1990 are taken from the unaudited consolidated financial statements of Southwest as of the end of and for December 31, 1990. The balance sheet data and income statement data included in the summary financial data as of and for the three months ended March 31, 1995 and 1994 are taken from the unaudited supplemental consolidated financial statements of MBI and the unaudited consolidated financial statements of Southwest as of and for the three months ended March 31, 1995 and 1994. These data include all adjustments which are, in the opinion of the respective managements of MBI and Southwest, necessary to present a fair statement of these periods and are of a normal recurring nature. Results for the three months ended March 31, 1995 are not necessarily indicative of results for the entire year. The following information should be read in conjunction with the supplemental consolidated financial statements of MBI and the consolidated financial statements of Southwest, 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 Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL INFORMATION." - 14 - 20 MERCANTILE BANCORPORATION INC. SUMMARY FINANCIAL DATA
As of or for the Three Months Ended As of or for the March 31 Year Ended December 31 -------------------- ----------------------------------------------------------- 1995 1994 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- ---- ---- PER SHARE DATA Net income . . . . . . . . . . . $ .93 $ .88 $ 3.22 $ 2.79 $ 2.42 $ 2.25 $ 1.99 Dividends declared . . . . . . . . . .33 .28 1.12 .99 .93 .93 .93 Book value at period end . . . . . . 24.12 22.46 23.70 21.92 19.76 19.48 18.04 Average common shares outstanding (thousands) . . . . . . . . . . . . 52,920 51,724 51,957 50,965 47,276 39,391 37,847 EARNINGS (THOUSANDS) Interest income. . . . . . . . . . . $ 279,789 $ 236,106 $ 994,896 $ 971,482 $ 1,011,544 $ 1,018,688 $ 1,022,441 Interest expense . . . . . . . . . . 127,046 90,791 399,349 390,911 485,253 588,993 642,365 --------- --------- --------- --------- ----------- ----------- ----------- Net interest income. . . . . . . . . 152,743 145,315 595,547 580,571 526,291 429,695 380,076 Provision for possible loan losses . 13,975 8,879 43,201 63,513 77,874 62,360 56,196 Other income . . . . . . . . . . . . 56,803 55,094 209,758 219,703 201,965 170,770 150,508 Other expense. . . . . . . . . . . . 119,243 119,884 492,070 508,043 471,903 431,155 361,992 Income taxes . . . . . . . . . . . . 26,625 26,051 101,705 85,467 61,072 24,029 31,759 --------- --------- --------- --------- ----------- ----------- ----------- Net income . . . . . . . . . . . . . $ 49,703 $ 45,595 $ 168,329 $ 143,251 $ 117,407 $ 82,921 $ 80,637 ========= ========= ========= ========= =========== =========== =========== ENDING BALANCE SHEET (MILLIONS) Total assets . . . . . . . . . . . . $ 15,151 $ 14,180 $ 14,806 $ 14,423 $ 14,190 $ 12,377 $ 11,674 Earning assets . . . . . . . . . . . 14,095 13,145 13,671 13,259 12,989 11,331 10,447 Investment securities. . . . . . . . 3,851 4,152 3,844 4,180 4,106 2,949 2,286 Loans and leases, net of unearned income. . . . . . . 10,074 8,816 9,670 8,702 8,525 7,881 7,827 Deposits . . . . . . . . . . . . . . 11,333 11,283 11,189 11,599 11,629 10,211 9,660 Long-term debt . . . . . . . . . . . 290 307 299 288 310 216 247 Shareholders' equity . . . . . . . . 1,272 1,164 1,234 1,133 996 805 683 Reserve for possible loan losses . . 196 183 195 185 179 158 159 SELECTED RATIOS Return on average assets . . . . . . 1.32% 1.26% 1.16% 1.00% 0.86% 0.70% 0.73% Return on average equity . . . . . . 15.71 15.81 14.07 13.37 12.71 10.96 12.30 Net interest rate margin . . . . . . 4.47 4.49 4.55 4.55 4.34 4.12 3.95 Equity to assets . . . . . . . . . . 8.40 8.21 8.34 7.85 7.02 6.50 5.85 Reserve for possible loan losses to: Outstanding loans . . . . . . . . . 1.94 2.07 2.01 2.12 2.10 2.00 2.04 Non-performing loans. . . . . . . . 546.22 377.76 579.62 278.23 147.60 105.33 108.49 Based on weighted average common shares outstanding.
- 15 - 21 SOUTHWEST BANCSHARES, INC. SUMMARY FINANCIAL DATA
As of or for the Three Months Ended As of or for the March 31 Year Ended December 31 -------------------- ----------------------------------------------------------- 1995 1994 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- ---- ---- PER SHARE DATA Net income . . . . . . . . . . . . . $ 19.30 $ 10.45 $ 63.19 $ 42.92 $ 35.82 $ 36.02 $ 30.01 Dividends declared . . . . . . . . . -- -- -- -- -- -- -- Book value at period end . . . . . . 422.78 360.52 401.26 348.13 305.25 269.62 233.60 Average common shares outstanding. . 35,981 35,981 35,981 35,856 34,542 34,025 34,025 EARNINGS (THOUSANDS) Interest income. . . . . . . . . . . $ 3,317 $ 2,529 $ 11,318 $ 10,047 $ 11,362 $ 13,537 $ 13,674 Interest expense . . . . . . . . . . 1,564 1,216 5,205 4,900 6,353 8,499 9,113 --------- --------- --------- --------- ----------- ----------- ----------- Net interest income. . . . . . . . . 1,753 1,313 6,113 5,147 5,009 5,038 4,561 Provision for possible loan losses . -- -- -- -- 155 111 182 Other income . . . . . . . . . . . . 183 174 795 712 791 822 724 Other expense. . . . . . . . . . . . 880 896 3,570 3,534 3,719 3,711 3,421 Minority interest in net income of consolidated subsidiary. . . . . -- -- -- -- 18 25 24 Income taxes . . . . . . . . . . . . 362 215 1,064 786 671 787 637 --------- --------- --------- --------- ----------- ----------- ----------- Net income . . . . . . . . . . . . . $ 694 $ 376 $ 2,274 $ 1,539 $ 1,237 $ 1,226 $ 1,021 ========= ========= ========= ========= =========== =========== =========== ENDING BALANCE SHEET (THOUSANDS) Total assets . . . . . . . . . . . . $ 180,584 $ 174,134 $ 175,576 $ 172,670 $ 166,461 $ 163,858 $ 150,753 Earning assets . . . . . . . . . . . 170,967 160,002 167,625 163,994 158,537 156,542 141,955 Investment securities. . . . . . . . 35,666 32,809 35,751 32,558 36,810 49,638 53,074 Loans and leases, net of unearned income. . . . . . . . . . 126,796 120,793 126,482 118,987 102,072 91,106 84,349 Deposits . . . . . . . . . . . . . . 149,448 143,834 146,045 143,425 141,123 142,210 134,777 Long-term debt . . . . . . . . . . . 6,010 6,669 6,551 7,207 3,650 2,677 2,884 Shareholders' equity . . . . . . . . 15,212 12,972 14,438 12,526 10,887 9,174 7,948 Reserve for possible loan losses . . 1,093 1,102 1,093 1,103 1,118 1,063 982 SELECTED RATIOS Return on average assets . . . . . . 1.56% .88% 1.30% .93% .75% .78% .70% Return on average equity . . . . . . 18.76 11.60 16.75 13.08 12.13 14.07 13.49 Net interest rate margin . . . . . . 4.16 3.16 3.68 3.27 3.20 3.35 3.29 Average equity to average assets . . 8.29 7.42 7.78 7.14 6.21 5.54 5.20 Reserve for possible loan losses to: Outstanding loans . . . . . . . . . .86 .91 .86 .93 1.10 1.17 1.16 Non-performing loans. . . . . . . . 144.96 163.26 179.77 155.79 187.27 109.81 101.55
- 16 - 22 INFORMATION REGARDING SPECIAL MEETING ------------------------------------- GENERAL This Proxy Statement/Prospectus is being furnished to holders of Southwest Common Stock in connection with the solicitation of proxies by the Board of Directors of Southwest for use at the Special Meeting and any adjournments or postponements thereof at which the shareholders of Southwest 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 Meeting or any adjournments or postponements thereof. Each copy of this Proxy Statement/Prospectus is accompanied by the Notice of Special Meeting of Shareholders of Southwest, a proxy card and related instructions and a self- addressed return envelope to Southwest for the proxy card. This Proxy Statement/Prospectus is also furnished by MBI to each holder of Southwest Common Stock as a prospectus in connection with the issuance by MBI of shares of MBI Common Stock upon the consummation of the Merger. This Proxy Statement/Prospectus and the Notice of Special Meeting, proxy card and related materials are being first mailed to shareholders of Southwest on ----------, 1995. DATE, TIME AND PLACE The Special Meeting will be held at --------------------, - --------------------, Bolivar, Missouri, on ----------, - ---------------, 1995, at ---:--- --.m. Central Time. RECORD DATE; VOTE REQUIRED On the Record Date, there were 35,981 shares of Southwest Common Stock outstanding and entitled to vote at the Special Meeting. Each such share is entitled to one vote on each matter properly brought before the Special Meeting. The affirmative vote of the holders of at least two-thirds of the outstanding shares of Southwest Common Stock is required to approve the Merger Agreement. As of the Record Date, directors and officers of Southwest and their affiliates owned beneficially an aggregate of 27,334 shares of Southwest Common Stock, or approximately 75.96% of the outstanding shares of Southwest Common Stock entitled to vote at the Special Meeting. All directors and officers of Southwest and their affiliates have indicated their intention to vote their shares for the approval of the Merger Agreement at the Special Meeting. Additionally, each director of Southwest, pursuant to the terms of his or her respective Voting Agreement, has committed to vote his or her shares of Southwest Common Stock for approval of the Merger Agreement. As of the Record Date, directors of Southwest owned beneficially an aggregate of 27,334 shares of Southwest Common Stock, or approximately 75.96% of the issued and outstanding shares. VOTING AND REVOCATION OF PROXIES Shares of Southwest Common Stock which are represented by a properly executed proxy received prior to the vote at the Special Meeting will be voted at such Special Meeting in the manner directed on the proxy card, unless such proxy is revoked in the manner set forth herein in advance of such vote. ANY SOUTHWEST SHAREHOLDER RETURNING AN EXECUTED PROXY CARD WHICH DOES NOT PROVIDE INSTRUCTIONS TO VOTE AGAINST THE APPROVAL OF THE MERGER AGREEMENT 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 Meeting will have the practical effect of a vote against the approval of the Merger Agreement. - 17 - 23 Shares subject to abstentions will be treated as shares that are present and voting at the Special Meeting for purposes of determining the presence of a quorum. Such votes will have the effect of votes against the approval of the Merger Agreement. Broker "non-votes" (i.e., proxies from brokers or nominees indicating that such persons have not received instructions from the beneficial owners or other persons entitled to vote shares with respect to which the brokers or nominees do not have discretionary power to vote without such instructions) will be considered as present for the purposes of determining the presence of a quorum but will not be considered as voting at the Special Meeting. Broker non-votes will have the effect of votes against the approval of the Merger Agreement. Any shareholder of Southwest giving a proxy may revoke it at any time prior to the vote at the Special Meeting. Shareholders of Southwest wishing to revoke a proxy prior to the vote may do so by delivering to the Secretary of Southwest at 102 South Springfield Street, Bolivar, Missouri 65613 a written notice of revocation bearing a later date than the proxy or a later dated proxy relating to the same shares, or by attending the Special Meeting and voting such shares in person. Attendance at the Special Meeting will not in itself constitute the revocation of a proxy. The Board of Directors of Southwest is not currently aware of any business to be brought before the Special Meeting other than that described herein. If, however, other matters are properly brought before such Special Meeting, or any adjournments or postponements thereof, the persons appointed as proxies will have discretionary authority to vote the shares represented by duly executed proxies in accordance with their discretion and judgment as to the best interest of Southwest. SOLICITATION OF PROXIES Southwest will bear its own costs of soliciting proxies, except that MBI will pay printing and mailing expenses and registration fees incurred in connection with preparing this Proxy Statement/Prospectus. Proxies will initially be solicited by mail, but directors, officers and selected other employees of Southwest may also solicit proxies in person or by telephone. Directors, executive officers and any other employees of Southwest who solicit proxies will not be specially compensated for such services. Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward proxy materials to beneficial owners and will be reimbursed for their reasonable expenses incurred in sending proxy materials to beneficial owners. HOLDERS OF SOUTHWEST COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. TERMS OF THE PROPOSED MERGER ---------------------------- The following is a summary of the material terms and conditions of the Merger Agreement, which document is incorporated by reference herein. This summary is qualified in its entirety by the full text of the Merger Agreement. MBI, upon written or oral request, will furnish a copy of the Merger Agreement, without charge, to any person who receives a copy of this Proxy Statement/Prospectus. Such requests should be directed to Jon W. Bilstrom, General Counsel and Secretary, Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524, telephone (314) 425-2525. - 18 - 24 GENERAL DESCRIPTION OF THE MERGER Pursuant to the Merger Agreement, Southwest, a Missouri corporation, will be merged on the Closing Date with and into ABNK, a Missouri corporation which is a wholly owned subsidiary of MBI. Upon consummation of the Merger, Southwest's corporate existence will terminate and ABNK will continue as the surviving entity. Simultaneously with the effectiveness of the Merger, each share of Southwest Common Stock will be converted into the right to receive 18.7599 shares of MBI Common Stock. Such consideration is subject to certain anti-dilution protections but is not adjustable based upon the operating results, financial condition or other factors affecting either MBI or Southwest prior to the consummation of the Merger. The fair market value of MBI Common Stock received pursuant to the Merger may fluctuate and at the consummation of the Merger may be more or less than the current fair market value of such shares. The amount and nature of the consideration was established through arm's-length negotiations between MBI and Southwest, and reflects the balancing of a number of countervailing factors. The total amount of the consideration reflects a price both parties concluded was appropriate. See "- Background of and Reasons for the Merger; Board Recommendations." The fact that the consideration is payable in shares of MBI Common Stock reflects the potential for change in the value of the MBI Common Stock and the desire to have the favorable tax attributes of a "reorganization" for federal income tax purposes. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET VALUE OF MBI COMMON STOCK ON THE DATE SUCH STOCK IS RECEIVED BY A SOUTHWEST SHAREHOLDER OR AT ANY OTHER TIME. THE FAIR MARKET VALUE OF MBI COMMON STOCK RECEIVED BY A SOUTHWEST SHAREHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK DUE TO NUMEROUS MARKET FACTORS. Following the Closing Date, each shareholder of Southwest will be required to submit to the Exchange Agent a properly executed letter of transmittal and surrender to the Exchange Agent the stock certificate(s) formerly representing the shares of Southwest Common Stock in order to receive a new stock certificate evidencing the shares of MBI Common Stock to which such shareholder is entitled. Following the Closing Date, the Exchange Agent will mail to each Southwest shareholder a notice of consummation of the Merger and a form of letter of transmittal, together with instructions and a return envelope to facilitate the exchange of such holder's certificate(s) formerly representing Southwest Common Stock for certificate(s) evidencing MBI Common Stock. No dividends or other distributions will be paid to a former Southwest shareholder with respect to shares of MBI Common Stock until such shareholder's letter of transmittal and stock certificates formerly representing Southwest Common Stock, or documentation reasonably acceptable to the Exchange Agent in lieu of lost or destroyed certificates, is delivered to the Exchange Agent. See "TERMS OF THE PROPOSED MERGER - Surrender of Southwest Stock Certificates and Receipt of MBI Common Stock." No fractional shares of MBI Common Stock will be issued in the Merger, but cash will be paid in lieu of such fractional shares, such cash being calculated by multiplying the holder's fractional share interest by the closing stock price of MBI Common Stock on the NYSE Composite Tape as reported in The Wall Street Journal on the Closing Date of the Merger. See "- Fractional Shares." The shares of MBI Common Stock to be issued pursuant to the Merger will be freely transferable except by certain shareholders of Southwest who are deemed to be "affiliates" of Southwest. 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." - 19 - 25 OTHER AGREEMENTS Concurrent with the execution of the Merger Agreement, MBI and each of the directors of Southwest executed separate Voting Agreements by which each such director agreed that he or she will vote all of the shares of Southwest Common Stock that he or she then owned or subsequently acquires in favor of the approval of the Merger Agreement at the Special Meeting. In addition, until the earliest to occur of the Effective Time of the Merger, the termination of the Voting Agreements or the abandonment of the Merger, each such director further agreed that he or she will not vote any such shares in favor of the approval of any other competing acquisition proposal involving Southwest and a third party. Each director also agreed that he or she will not transfer shares of Southwest Common Stock owned by him or her unless, prior to such transfer, the transferee executes an agreement in substantially the same form as the Voting Agreement. As of the Record Date, the directors of Southwest owned beneficially an aggregate of 27,334 shares of Southwest Common Stock, or approximately 75.96% of the issued and outstanding shares. INTERESTS OF CERTAIN PERSONS IN THE MERGER Joe F. Rayl, Chairman of Southwest, has entered into an agreement with MBI whereby Mr. Rayl will serve as Chairman of Mercantile Bank of Springfield for a period of two years commencing on the Closing Date. During such two year period, Mr. Rayl will receive a base salary of $60,000 per year (inclusive of director's fees) and be entitled to participate in MBI's welfare plans and executive incentive programs, to use a company-owned vehicle and to be reimbursed for country club dues. Alva R. Ellison, Vice Chairman of Southwest, has entered into an agreement with MBI whereby he will serve as a director of Mercantile Bank of Springfield for a period of one year commencing on the Closing Date. Mr. Ellison will receive the same fees as other members of the Board of Directors of Mercantile Bank of Springfield. BACKGROUND OF AND REASONS FOR THE MERGER; BOARD RECOMMENDATIONS SOUTHWEST'S REASONS AND BOARD RECOMMENDATION. The Board of Directors of Southwest has periodically evaluated Southwest's corporate strategy based upon general conditions in the banking industry, legislative changes and other developments affecting the industry in general and Southwest specifically. These developments have included the ongoing consolidation of the banking industry, and recent state and federal legislative changes that will facilitate nationwide consolidation of the banking industry. With the rapid changes occurring in the banking industry in the past two decades, it has been the sound philosophy of the Board of Directors of Southwest, to be receptive to all possibilities which would successfully address those changes, and to have a strategic plan of action in place for the future. As early as 1989, the Board of Directors of Southwest was taking important steps to minimize costs while maximizing efficiency and return on assets and equity. In December of 1989, Southwest merged its four independently chartered affiliate banks into one bank, with eleven locations throughout southwest Missouri. That merger laid a strong foundation for future growth, stability and earnings through the consolidation of management and expenses. In the past five years, pressures in the banking industry have continued to increase. To remain in full compliance with all regulations now requires full-time specialists in their respective departments. The training, education and compensation for those skilled individuals is costly. Also, competition from larger banks and from financial firms outside the banking industry continues to increase. Matching the full range of products and services which are offered by larger banks, and meeting the needs - 20 - 26 of a public which is becoming more sophisticated in its financial needs (such as ATM's, brokerage service, trust departments, title insurance, etc.), cannot be done as profitably by a small bank. Further, the Chief Executive Officer and principal shareholder of Southwest, is nearing the age of retirement, and has expressed his desire to explore avenues which will insure the continued stability and good reputation of Southwest after his departure. It is for those reasons that the Board of Directors of Southwest, made the decision to give consideration to those financial institutions who had approached Southwest and made inquiries as to the interest of Southwest in being acquired. The Board considered various offers and, after careful review, determined that a merger with MBI would be in the best interest of the shareholders, employees and customers of Southwest. The banking philosophy of MBI is compatible with that of Southwest. MBI is a strong lender, is customer service oriented and emphasizes community banking and has a relationship in southwest Missouri which spans over 50 years. In addition, MBI has quality training programs, and in-house legal and accounting departments. Further, MBI's data processing capabilities and product availability should greatly enhance what can be offered to the customers of Southwest. The Board of Directors of Southwest considered the depth and management strength of MBI and the significant market presence the combined organization would have within the market served by Southwest. Further, growth prospects, historical dividend and market performance, and the fact that MBI Common Stock is traded on the NYSE were factors considered. During the latter part of 1994, and during January of 1995, representatives of MBI and Southwest, and their respective counsels negotiated the form of the Merger Agreement, and on January 26, 1995, the Board of Directors of Southwest met to consider the Merger Agreement. After careful study and evaluation of economic, financial, legal and market factors, the Board of Directors of Southwest unanimously approved the Merger Agreement. The Merger Agreement was executed on January 27, 1995 by representatives of Southwest and MBI, and MBI publicly announced the execution of the Merger Agreement as of the close of business on January 27, 1995. The Board of Directors of Southwest recommends approval of the Merger Agreement. It is the conclusion of the Board of Directors that the terms of the Merger Agreement are fair and that the Exchange Ratio and the Merger are in the best interest of Southwest and its shareholders. The members of the Board of Directors have unanimously indicated that they intend to vote their shares of Southwest Common Stock in favor of the Merger Agreement. THE BOARD OF DIRECTORS OF SOUTHWEST UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF SOUTHWEST VOTE FOR THE PROPOSAL TO --- APPROVE THE MERGER AGREEMENT. MBI'S REASONS AND BOARD RECOMMENDATIONS. The Executive Committee of the Board of Directors of MBI considered a number of factors, including, among other things, the financial condition of Southwest and projected synergies which are anticipated to result from the Merger. The Executive Committee concluded that the Merger presents an unique opportunity for MBI to increase its presence in southwestern Missouri through the acquisition of an established banking organization having operations in the targeted area. MBI's decision to pursue discussions with Southwest was primarily a result of MBI's assessment of the value of Southwest's banking franchise, its substantial asset base within that area and the compatibility of the businesses of the two banking organizations. - 21 - 27 CONDITIONS OF THE MERGER The respective obligations of MBI and Southwest to consummate the Merger are subject to the satisfaction of certain mutual conditions, including the following: (1) The Merger Agreement shall be approved by the holders of at least two-thirds of the outstanding shares of Southwest Common Stock at the Special Meeting. (2) The Merger Agreement and the transactions contemplated therein shall have been approved by the Federal Reserve Board and any other federal and/or state regulatory agency whose approval is required for the consummation of the transactions contemplated therein, and all waiting periods after such approvals required by law or regulation have been satisfied. (3) The Registration Statement of which this Proxy Statement/Prospectus is a part, registering shares of MBI Common Stock to be issued in the Merger, shall have been declared effective and not be subject to a stop order or any threatened stop order. (4) Neither Southwest, MBI nor ABNK shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger. The obligation of MBI and ABNK to consummate the Merger is subject to the satisfaction, unless waived, of certain other conditions, including the following: (1) The representations and warranties of Southwest made in the Merger Agreement shall be true and correct in all material respects, except for inaccuracies therein that are not of a magnitude as to have a material adverse effect on Southwest and its subsidiaries, taken as a whole, as of January 27, 1995 and as of the Effective Time, and all obligations required to be performed by Southwest prior to or at the Closing Date shall have been performed in all material respects, and MBI shall have received an officers' certificate from Southwest to that effect. (2) Southwest shall have obtained any and all material permits, authorizations, consents, waivers and approvals required of Southwest for the lawful consummation of the Merger. (3) Since January 27, 1995, there shall have been no material adverse change in the business, financial condition or results of operations of Southwest or its subsidiaries, taken as a whole, except as may have resulted from changes to laws and regulations, generally accepted or regulatory accounting principles, or interpretations thereof, or changes in economic conditions, including interest rates, applicable to commercial banking institutions generally. (4) MBI and ABNK shall have received an opinion of KPMG Peat Marwick LLP, satisfactory to MBI, that the Merger will qualify for pooling-of-interests accounting treatment, which opinion shall not have been withdrawn at or prior to the Effective Time. (5) Taylor, Stafford, Woody, Clithero & Fitzgerald, counsel to Southwest, shall have delivered to MBI an opinion regarding certain legal matters. - 22 - 28 Southwest's obligation to consummate the Merger is subject to the satisfaction, unless waived, of certain other conditions, including the following: (1) The representations and warranties of MBI and ABNK made in the Merger Agreement shall be true and correct in all material respects, except for inaccuracies therein that are not of a magnitude as to have a material adverse effect on MBI and its subsidiaries, taken as a whole, as of January 27, 1995 and as of the Effective Time, and all obligations required to be performed by MBI and ABNK prior to or at the Effective Time shall have been performed in all material respects, and Southwest shall have received an officers' certificate from MBI to that effect. (2) MBI and ABNK shall have obtained any and all material permits, authorizations, consents, waivers and approvals required of MBI or ABNK for the lawful consummation of the Merger. (3) Since January 27, 1995, there shall have been no material adverse change in the business, financial condition or results of operations of MBI and its subsidiaries on a consolidated basis, taken as a whole, except as may have resulted from changes to laws and regulations, generally accepted or regulatory accounting principles, or interpretations thereof, or changes in economic conditions, including interest rates, applicable to commercial banking institutions generally. (4) Thompson & Mitchell, counsel to MBI, shall have delivered to Southwest an opinion regarding certain legal matters. (5) Southwest shall have received from Thompson & Mitchell an opinion (which opinion shall not have been withdrawn at or prior to the Effective Time) reasonably satisfactory in form and substance to it to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Code and to the effect that, as a result of the Merger, except with respect cash received in lieu of fractional share interests, holders of Southwest Common Stock who receive MBI Common Stock in the Merger will not recognize gain or loss for federal income tax purposes, the basis of such MBI Common Stock will equal the basis of the Southwest Common Stock for which it is exchanged and the holding period of such MBI Common Stock will include the holding period of the Southwest Common Stock for which it is exchanged, assuming that such Southwest Common Stock is a capital asset in the hands of the holder thereof as of the Effective Time. 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 shareholders of Southwest, by mutual consent of the Executive Committee of the Board of Directors of MBI and the Boards of Directors of Southwest and ABNK, or unilaterally by the Executive Committee of the Board of Directors of MBI or the Boards of Directors of Southwest or ABNK: (i) at any time after January 27, 1996, if the Merger has not been consummated by such date (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the Merger Agreement); (ii) if the Federal Reserve Board or any other federal and/or state regulatory authority whose approval is required for consummation of the Merger shall have issued a final nonappealable denial of such approval; (iii) if the shareholders of Southwest shall not have approved the Merger Agreement at the Special Meeting; or (iv) in the event of a breach by the - 23 - 29 other party of any representation, warranty or agreement contained in the Merger Agreement, which breach is not cured within 30 days after written notice thereof is given to the party committing such breach or is not waived by such other party. No assurance can be given that the Merger will be consummated on or before January 27, 1996 or that MBI, ABNK or Southwest will not elect to terminate the Merger Agreement if the Merger has not been consummated on or before such date. In the event of the termination of the Merger Agreement, it shall become void and there shall be no liability on the part of any party except, that (i) confidentiality and indemnification obligations shall survive termination, (ii) MBI shall pay all printing, mailing and filing expenses with respect to the Registration Statement and this Proxy Statement/Prospectus and (iii) in the case of termination due to continued material breach after notice and opportunity to cure, the breaching party shall not be relieved of liability to the nonbreaching party arising from the willful nonperformance of any covenant in the Merger Agreement. INDEMNIFICATION Southwest, MBI and ABNK have agreed to indemnify each other against any claims or liabilities to which any 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 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 Missouri Secretary of State. Under the Merger Agreement, unless the parties otherwise agree, the Closing Date shall be the first business day of the month beginning at least five business days after the month in which the later of the following events occurs: (i) the receipt of the requisite approval of the Merger Agreement by the shareholders of Southwest; and (ii) the approval of the Merger by the Federal Reserve Board and any other federal and/or state regulatory agency whose approval is required, and all waiting periods for such approvals have been satisfied. SURRENDER OF SOUTHWEST STOCK CERTIFICATES AND RECEIPT OF MBI COMMON STOCK At the Effective Time of the Merger, each outstanding share of Southwest Common Stock will be converted into the right to receive 18.7599 shares of MBI Common Stock. See "- General Description of the Merger." Each holder of Southwest 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 Southwest Common Stock, will be entitled to receive a stock certificate evidencing the shares of MBI Common Stock to which such shareholder is entitled. Following the Effective Time of the Merger, the Exchange Agent will mail to each Southwest shareholder of record as of the Effective Time notification of the consummation of the Merger. 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 Southwest Common Stock and the receipt of shares of MBI Common Stock. It will be the responsibility of each holder of Southwest shares to submit all certificates formerly evidencing such holder's shares of Southwest Common Stock to the Exchange Agent. No dividends or other distribution will be paid to a former Southwest shareholder with respect to shares of MBI Common Stock until such shareholder's properly completed letter of transmittal and stock certificates formerly representing Southwest Common Stock, or, in lieu thereof, such evidence of a lost, - 24 - 30 stolen or destroyed certificate and/or such insurance bond as the Exchange Agent may reasonably require in accordance with customary exchange practices, are delivered to the Exchange Agent. All dividends or other distributions on the MBI Common Stock declared between the Closing Date of the Merger and the date of the surrender of a Southwest stock certificate will be held for the benefit of the shareholder and will be paid to the shareholder, without interest thereon, upon the surrender of such stock certificate or documentation and/or insurance bond in lieu thereof. FRACTIONAL SHARES No fractional shares of MBI Common Stock will be issued to the former shareholders of Southwest in connection with the Merger. Each holder of Southwest 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 Southwest shareholders in lieu of fractional shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." REGULATORY APPROVAL In addition to the approval of the Merger Agreement by the shareholders of Southwest, the obligations of the parties to effect the Merger are subject to prior approval of the Federal Reserve Board. As a bank holding company, MBI is subject to regulation under the BHCA. The Merger is subject to prior approval by the Federal Reserve Board under Section 3 of the BHCA. Under the BHCA, the Federal Reserve Board may withhold approval of the Merger if, among other things, it determines that the effect of the Merger would be to substantially lessen competition in the relevant markets. 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 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. An application for such approval has been filed with the Federal Reserve Board. The Merger may ordinarily not be consummated sooner than thirty (30) days after approval by the Federal Reserve Board; however, if the Department of Justice does not oppose the Merger, then the Federal Reserve Board may prescribe an earlier date, but in no event less than fifteen (15) days following approval. MBI and Southwest are not aware of any governmental approvals or actions that may be required for consummation of the Merger other than as described above. Should any other approval or action be required, it is presently contemplated that such approval or action would be sought. There can be no assurance that any necessary regulatory approvals or actions will be timely received or taken, that no action will be brought challenging such approval or action or, if such a challenge is brought, as to the result thereof, or that any such approval or action will not be conditioned in a manner that would cause the parties to abandon the Merger. See "SUPERVISION AND REGULATION." - 25 - 31 BUSINESS PENDING THE MERGER The Merger Agreement provides that, during the period from January 27, 1995 to the Effective Time, Southwest will conduct its business according to the ordinary and usual course consistent with past and current practices and use its best efforts to maintain and preserve its business organization, employees and advantageous business relationships and retain the services of its officers and key employees. Furthermore, from the date of the Merger Agreement to the Closing Date, except as provided in the Merger Agreement, Southwest will not, and will not permit any of its subsidiaries to, without the prior written consent of MBI: (1) declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock (other than dividends from any of the Southwest subsidiaries to Southwest); (2) enter into or amend any employment, severance or similar agreement or arrangement with any director, officer or employee, or materially modify any of the Southwest employee plans or policies or grant any salary or wage increase or materially increase any employee benefit (including incentive or bonus payments), except normal individual increases in compensation to employees consistent with past practice, or as required by law or contract, and except for such increases of which Southwest notifies MBI in writing and which MBI does not disapprove within ten days of the receipt of such notice; (3) authorize, recommend, propose or announce an intention to authorize, recommend or propose, or enter into an agreement in principle with respect to, any merger, consolidation or business combination (other than the Merger), any acquisition of a material amount of assets or securities, any disposition of a material amount of assets or securities or any release or relinquishment of any material contract rights; (4) propose or adopt any amendments to the Articles of Incorporation or the Articles of Association of Southwest or any subsidiary of Southwest, as the case may be, or its respective by-laws or charter; (5) issue, sell, grant, confer or award any options, warrants, conversion rights or other rights or effect any stock split or adjust, combine, reclassify or otherwise change its capitalization as it existed on January 27, 1995; (6) purchase, redeem, retire, repurchase or exchange, or otherwise acquire or dispose of, directly or indirectly, any capital stock, options, warrants, conversion rights or other rights, whether pursuant to the terms of such capital stock, options, warrants, conversion rights or other rights or otherwise; (7) (i) without first consulting with MBI, enter into, renew or increase any loan or credit commitment (including stand-by letters of credit) to, or invest or agree to invest in any person or entity or modify any of the material provisions or renew or otherwise extend the maturity date of any existing loan or credit commitment (collectively, "Lend to") in an amount in excess of $200,000, or in any amount which, when aggregated with any and all loans or credit commitments of Southwest and its - 26 - 32 subsidiaries to such person or entity, would be in excess of $200,000; (ii) without first obtaining the written consent of MBI, Lend to any person or entity in an amount in excess of $1,000,000 or in any amount which, or when aggregated with any and all loans or credit commitments of Southwest and its subsidiaries to such person or entity, would be in excess of $1,000,000; (iii) Lend to any person other than in accordance with lending policies as in effect on January 27, 1995, except that in the case of clauses (i) and (iii) hereof, Southwest or any of its subsidiaries may make any such loan in the event (A) Southwest or any of its subsidiaries has delivered to MBI or ABNK or their designated representative a notice of its intention to make such loan and such information as MBI or ABNK or their designated representative may reasonably require in respect thereof and (B) MBI or ABNK or their designated representative shall not have reasonably objected to such loan by giving written or facsimile notice of such objection within two business days following the delivery to MBI or ABNK or their designated representative of the notice of intention and information as aforesaid; or (iv) Lend to any person or entity any of the loans or other extensions of credit to which or investments in which are on a "watch list" or similar internal report of Southwest or any subsidiary of Southwest (except those denoted "pass" thereon), in an amount in excess of $50,000; provided, however, that Southwest and any Southwest subsidiary shall not be prohibited from honoring any contractual obligation in existence on January 27, 1995 or, with respect to loans described in clause (i) above, making such loans after consulting with MBI. Notwithstanding clauses (i) and (ii), Southwest shall be authorized, without first consulting with MBI or obtaining MBI's prior written consent, to increase the aggregate amount of the credit facilities theretofore established in favor of any person or entity (the "Pre- Existing Facilities"), provided that the aggregate amount of any and all such increases shall not be in excess of five percent (5%) of such Pre-Existing Facilities or $25,000, whichever is greater; (8) directly or indirectly, including through its officers, directors, employees or other representatives: (i) initiate, solicit or encourage any discussions, inquiries or proposals with any third party (other than MBI or ABNK) relating to the disposition of any significant portion of the business or assets of Southwest or any of its subsidiaries or the acquisition of the capital stock (or rights or options exercisable for, or securities convertible or exchangeable into, capital stock) of Southwest or any of its subsidiaries or the merger of Southwest or any of its subsidiaries with any person (other than MBI or ABNK) or any similar transaction (each such transaction being referred to herein as an "Acquisition Transaction"), or (ii) provide any third party with information or assistance or negotiate with any third party with respect to an Acquisition Transaction, and Southwest shall promptly notify MBI orally of all the relevant details relating to all inquiries, indications of interest and proposals which it or any of its subsidiaries may receive with respect to any Acquisition Transaction. (9) take any action that would (i) materially impede or delay the consummation of the transactions contemplated by the Merger Agreement or the ability of MBI or Southwest to obtain any approval of any regulatory authority required for the transactions contemplated by the Merger Agreement or to perform its covenants and - 27 - 33 agreements under the Merger Agreement, or (ii) prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368 of the Code; (10) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity; (11) materially restructure or change its investment securities portfolio, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported, or execute individual investment transactions of greater than $500,000 for U.S. Treasury Securities and $250,000 for all other investment instruments; (12) agree in writing or otherwise to take any of the foregoing actions or engage in any activity, enter into any transaction or intentionally take or omit to take any other act which would make any of the representations and warranties in the Merger Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other act; or (13) enter into, increase or renew any loan or credit commitment (including standby letters of credit) to any executive officer or director of Southwest or any subsidiary of Southwest, any shareholder of Southwest, or any entity controlled, directly or indirectly, by any of the foregoing or engage in any transaction with any of the foregoing which is of the type or nature sought to be regulated in 12 U.S.C. Section 371c and 12 U.S.C. Section 371c-1, without first obtaining the prior written consent of MBI, which consent shall not be unreasonably withheld. WAIVER AND AMENDMENT Any provision of the Merger Agreement, including, without limitation, the conditions to the consummation of the Merger and the restrictions described under "- Business Pending the Merger," may be (i) waived in writing at any time by the party that is, or whose shareholders are, entitled to the benefits thereof, or (ii) amended at any time by written agreement of the parties approved by or on behalf of their respective Boards of Directors or Executive Committees, whether before or after the Special Meeting; provided, however, that after approval of the Merger Agreement by the shareholders of Southwest at the Special Meeting no such modification may (i) alter or change the amount or kind of consideration to be received by the Southwest shareholders in the Merger, or (ii) adversely affect the tax treatment to Southwest shareholders as a result of receiving the shares of MBI Common Stock in the Merger. ACCOUNTING TREATMENT The Merger is intended to be accounted for under the pooling-of-interests method of accounting. Data regarding the financial condition and results of operations of Southwest will be included in MBI's consolidated financial statements for all periods presented by MBI as if the Merger had occurred on the first day of the earliest period presented. It is a condition to MBI's and ABNK's consummation of the Merger, unless otherwise waived, that KPMG Peat Marwick LLP, MBI's independent accountants, deliver to MBI and ABNK an opinion that the Merger will qualify for pooling-of-interests accounting treatment. - 28 - 34 CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER ----------------------------------------------------- The following discussion has been prepared by Thompson & Mitchell, counsel to MBI ("Counsel"), and, except as otherwise indicated, reflects Counsel's opinion. The discussion is a general summary of the material federal income tax consequences of the Merger to certain Southwest shareholders and does not purport to be a complete analysis or listing of all potential tax effects relevant to a decision whether to vote for the approval of the Merger. The discussion does not address all aspects of federal income taxation that may be applicable to Southwest shareholders subject to special federal income tax treatment including (without limitation) foreign persons, insurance companies, tax-exempt entities, retirement plans, dealers in securities and persons who acquired their Southwest Common Stock pursuant to the exercise of employee stock options or otherwise as compensation. 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 federal income taxes. IN VIEW OF THE INDIVIDUAL NATURE OF FEDERAL INCOME TAX CONSEQUENCES, EACH SOUTHWEST SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. The discussion 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 of the Merger, including certain representations of MBI, Southwest and certain shareholders of Southwest. If any of these factual assumptions is inaccurate, the tax consequences of the Merger could differ from those described herein. The discussion assumes that shares of Southwest Common Stock are held as capital assets (within the meaning of Section 1221 of the Code) at the Effective Time. Assuming the Merger occurs in accordance with the Merger Agreement, the Merger will constitute a "reorganization" for federal income tax purposes under Section 368(a)(1)(A) of the Code, by reason of the application of Section 368(a)(2)(D) of the Code, with the following federal income tax consequences: (1) Southwest shareholders will recognize no gain or loss as a result of the exchange of their Southwest Common Stock solely for shares of MBI Common Stock pursuant to the Merger, except with respect to cash received in lieu of fractional shares, if any, as discussed below. (2) The aggregate adjusted tax basis of the shares of MBI Common Stock received by each Southwest shareholder in the Merger (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph (4) below) will be equal to the aggregate adjusted tax basis of the shares of Southwest Common Stock surrendered. (3) The holding period of the shares of MBI Common Stock received by each Southwest shareholder in the Merger (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 4 below) will include the holding period of the shares of Southwest Common Stock exchanged therefor. (4) A Southwest shareholder who receives cash in the Merger in lieu of a fractional share of MBI Common Stock will be treated as if the fractional share had been received by the shareholder in the Merger and then redeemed by MBI in return for the - 29 - 35 cash. The receipt of such cash will cause the recipient to recognize capital gain or loss equal to the difference between the amount of cash received and the portion of such holder's adjusted tax basis in the shares of MBI Common Stock allocable to the fractional share interest. (5) A Southwest shareholder who receives only cash as a result of the exercise of dissenters' rights will realize gain or loss for federal income tax purposes (determined separately as to each block of Southwest Common Stock exchanged) in an amount equal to the difference between (x) the amount of cash received by such shareholder, and (y) such shareholder's tax basis for the shares of Southwest Common Stock surrendered in exchange therefor, provided that the cash payment does not have the effect of the distribution of a dividend. Any such gain or loss will be recognized for federal income tax purposes and will be treated as capital gain or loss. However, if the cash payment does have the effect of the distribution of a dividend, the amount of taxable income recognized generally will equal the amount of cash received; such income generally will be taxable as a dividend; and no loss (or other recovery of such shareholder's tax basis for the shares of Southwest Common Stock surrendered in the exchange) generally will be recognized by such shareholder. The determination of whether a cash payment has the effect of the distribution of a dividend will be made pursuant to the provisions and limitations of Section 302 of the Code, taking into account the constructive stock ownership rules of Section 318 of the Code. See "Impact of Section 302 of the Code," below. IMPACT OF SECTION 302 OF THE CODE. With regard to dissenters, the determination of whether a cash payment has the effect of the distribution of a dividend generally will be made pursuant to the provisions of Section 302 of the Code. A cash payment to a Southwest shareholder will be considered not to have the effect of the distribution of a dividend under Section 302 of the Code and such shareholder will recognize capital gain or loss only if the cash payment (i) results in a "complete redemption" of such shareholder's actual and constructive stock interest, (ii) results in a "substantially disproportionate" reduction in such shareholder's actual and constructive stock interest or (iii) is "not essentially equivalent to a dividend." A cash payment will result in a "complete redemption" of a shareholder's stock interest and such shareholder will recognize capital gain or loss if such shareholder does not actually or constructively own any stock after the receipt of the cash payment. A reduction in a shareholder's stock interest will be "substantially disproportionate" and such shareholder will recognize capital gain or loss if (i) the percentage of outstanding shares actually and constructively owned by such shareholder after the receipt of the cash payment is less than four-fifths (i.e., ---- 80%) of the percentage of outstanding shares actually and constructively owned by such shareholder immediately prior to the receipt of the cash payment and (ii) such shareholder actually and constructively owns less than 50% of the number of shares outstanding after the receipt of the cash payment. A cash payment will qualify as "not essentially equivalent to a dividend" and a shareholder will recognize capital gain or loss if it results in a meaningful reduction in the percentage of outstanding shares actually and constructively owned by such shareholder. No specific tests apply to determine whether a reduction in a shareholder's ownership interest is meaningful; rather, such determination will be made based on all the facts and circumstances applicable to such Southwest shareholder. No general guidelines dictating the appropriate interpretation of facts and circumstances have been announced by the courts or issued by the Internal Revenue Service (the "Service"). However, the Service has indicated in Revenue Ruling 76-385 that a minority shareholder (i.e., a holder who ---- exercises no control over corporate affairs and whose proportionate stock interest is minimal in relation to the number of shares outstanding) generally is treated as having had a "meaningful - 30 - 36 reduction" in interest if a cash payment reduces such holder's actual and constructive stock ownership to any extent. Under the traditional analysis (which apparently continues to be used by the Service), Section 302 of the Code will apply as though the cash payment were made by Southwest in a hypothetical redemption of Southwest Common Stock immediately prior to, and in a transaction separate from, the Merger (a "deemed Southwest redemption"). Thus, under the traditional analysis, the determination of whether a cash payment results in a complete redemption of interest, qualifies as a substantially disproportionate reduction of interest, or is not essentially equivalent to a dividend will be made by comparing (x) the shareholder's actual and constructive stock interest in Southwest before the deemed Southwest redemption, with (y) such shareholder's actual and constructive stock interest in Southwest after the deemed Southwest redemption (but before the Merger). However, the law is unclear regarding whether the deemed redemption approach of the Service is correct, and Counsel has rendered no opinion on the correctness of the Service's approach. Counsel has noted in its opinion that some tax practitioners believe that the determination of whether a cash payment has the effect of a distribution of a dividend should be made as if the Southwest Common Stock exchanged for cash in the Merger had instead been exchanged in the Merger for shares of MBI Common Stock followed immediately by a redemption of such shares by MBI for the cash payment (a "deemed MBI redemption"). Under this analysis, the determination of whether a cash payment satisfies any of the foregoing tests would be made by comparing (i) the shareholder's actual and constructive stock interest in MBI before the deemed MBI redemption (determined as if such shareholder had received solely MBI Common Stock in the Merger) with (ii) such shareholder's actual and constructive stock interest in MBI after the deemed MBI redemption. Because this analysis is more likely to result in capital gain treatment than the traditional analysis, each Southwest shareholder who receives solely cash in exchange for all of the Southwest Common Stock he or she actually owns should consult his or her own tax advisor with regard to the proper treatment of such cash. The determination of ownership for purposes of the three foregoing tests will be made by taking into account both shares owned actually by such shareholder and shares owned constructively by such shareholder pursuant to Section 318 of the Code. Under Section 318 of the Code, a shareholder will be deemed to own stock that is actually or constructively owned by certain members of his or her family (spouse, children, grandchildren and parents) and other related parties including, for example, certain entities in which such shareholder has a direct or indirect interest (including partnerships, estates, trusts and corporations), as well as shares of stock that such shareholder (or a related person) has the right to acquire upon exercise of an option or conversion right. Section 302(c)(2) of the Code provides certain exceptions to the family attribution rules for the purpose of determining whether a complete redemption of a shareholder's interest has occurred for purposes of Section 302 of the Code. Because the determination of whether a payment will be treated as having the effect of the distribution of a dividend will generally depend upon the facts and circumstances of each Southwest shareholder, Southwest shareholders are strongly advised to consult their own tax advisors regarding the tax treatment of cash received in the Merger. Southwest has received from Counsel an opinion to the effect that the Merger will be a "reorganization" for federal income tax purposes under Section 368(a)(1)(A) of the Code, by reason of Section 368(a)(2)(D) of the Code, and that the federal income tax consequences of the Merger are in all material respects as described in this section. The opinion is available without charge upon written request to Jon W. Bilstrom, General Counsel and Secretary, Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524. Such opinion is subject to the conditions and assumptions stated therein and relies on various representations made by MBI, Southwest and certain shareholders of Southwest. An opinion of counsel, unlike a private letter ruling from 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, - 31 - 37 a court may reach a decision contrary to the opinion. The Service is not expected to issue a ruling on the tax effects of the Merger, and no such ruling has been requested. THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SOUTHWEST SHAREHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH SOUTHWEST SHAREHOLDER. IN VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX CONSEQUENCES, EACH SOUTHWEST SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS. RIGHTS OF DISSENTING SHAREHOLDERS OF SOUTHWEST ---------------------------------------------- Each holder of Southwest Common Stock has the right to dissent from the Merger and receive the fair value of such shares of Southwest in cash if the shareholder follows the procedures set forth under Section 351.455 of the Missouri Act set forth as Annex A hereto and the material provisions of which are summarized below. Under Section 351.455 of the Missouri Act, a holder of Southwest Common Stock may dissent and ABNK, as the surviving corporation, will pay to such shareholder the fair value of such shareholder's shares of Southwest Common Stock as of the day prior to the Special Meeting if such shareholder (1) files with Southwest prior to or at the Special Meeting a written objection to the Merger; (2) does not vote in favor of the approval of the Merger Agreement; and (3) within 20 days after the Closing Date of the Merger makes written demand on ABNK for payment of the fair value of the shares held by such shareholder as of the day prior to the date of the Special Meeting. MBI will include notice of the Closing Date of the Merger in its letter to all shareholders of Southwest notifying them of the procedures to exchange their shares for those of MBI. Such letter will be sent promptly following the Closing Date of the Merger. Such demand by a dissenting shareholder shall state the number of shares owned by such dissenting shareholder. Any shareholder 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. A PROXY OR VOTE AGAINST THE APPROVAL OF THE MERGER AGREEMENT WILL NOT, BY ITSELF, BE REGARDED AS A WRITTEN OBJECTION FOR PURPOSES OF ASSERTING DISSENTERS' RIGHTS. If within 30 days after the Closing Date of the Merger, the value of such shares is agreed upon between the dissenting shareholder and ABNK, payment therefor shall be made within 90 days after the Closing Date of the Merger, upon the surrender by such shareholder of the certificate or certificates representing said shares. Upon payment of the agreed value, the dissenting shareholder shall cease to have any interest in such shares or in ABNK or MBI. If within 30 days after the Closing Date of the Merger, the shareholder and ABNK do not agree as to value, then the dissenting shareholder may, within 60 days after the expiration of the 30-day period, file a petition in any court of competent jurisdiction asking for a finding and determination of the fair value of such shares, and shall be entitled to judgment against ABNK for the amount of such fair value as of the day prior to the date of the Special Meeting with interest thereon to the date of such judgment. The "fair value" determined by the court may be more or less than the amount offered to Southwest shareholders under the Merger Agreement. The judgment shall be payable only upon and - 32 - 38 simultaneously with the surrender to ABNK of the certificate or certificates representing said shares. Upon the payment of the judgment, the dissenting shareholder shall cease to have any interest in such shares or in ABNK or MBI. Unless a dissenting shareholder shall file such petition within such 60-day period, such shareholder and all persons claiming under such shareholder shall be conclusively presumed to have approved and ratified the Merger Agreement, and shall be bound by the terms thereof. THE ABOVE SUMMARY OF THE PROVISIONS REGARDING DISSENTERS' RIGHTS UNDER THE MISSOURI ACT IS QUALIFIED IN ITS ENTIRETY BY THE TEXT OF SECTION 351.455 OF THE MISSOURI ACT WHICH IS ATTACHED HERETO AS ANNEX A. ------- Southwest shareholders who are interested in perfecting dissenters' rights pursuant to Section 351.455 of the Missouri Act in connection with the Merger should 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 Southwest and the corresponding pro forma and pro forma equivalent per share amounts giving effect to the proposed Merger, the acquisitions of UNSL, CMB and TCB, the proposed acquisitions of Plains Spirit and AmeriFirst and the acquisition of Ameribanc, Inc. by merger with and into a wholly owned subsidiary of MBI, which was completed on April 30, 1992 (ABNK is the surviving entity from that merger). The data presented is based upon the supplemental consolidated financial statements and related notes of MBI and the consolidated financial statements and related notes of Southwest, Plains Spirit and AmeriFirst included in this Proxy Statement/Prospectus or in documents incorporated herein by reference, and the pro forma combined consolidated balance sheet and income statements, including the notes thereto, appearing elsewhere herein. This information should be read in conjunction with such historical and pro forma financial statements and related notes thereto. The assumptions used in the preparation of this table appear in the notes to the pro forma financial information appearing elsewhere in this Proxy Statement/Prospectus. See "PRO FORMA FINANCIAL INFORMATION." This data is not necessarily indicative of the results of the future operations of the combined organization or the actual results that would have occurred if the Merger, the completed mergers of ABNK, UNSL, CMB or TCB or the proposed mergers of Plains Spirit and AmeriFirst had been consummated prior to the periods indicated. - 33 - 39
MBI/ MBI/ALL Southwest/ Southwest Southwest Entities All Entities MBI Southwest Pro Forma Pro Forma Pro Forma Pro Forma Reported Reported Combined Equivalent Combined Equivalent -------- --------- ------------ -------------- ------------ -------------- Book Value per Share: March 31, 1995 $ 24.12 $ 422.78 $ 24.08 $ 451.74 $ 24.10 $ 452.11 December 31, 1994 23.70 401.26 23.66 443.86 23.69 444.42 Cash Dividends Declared per Share: Quarter ended March 31, 1995 $ 0.33 $ -- $ 0.33 $ 6.19 $ 0.33 $ 6.19 Year ended December 31, 1994 1.12 -- 1.12 21.01 1.12 21.01 Year ended December 31, 1993 0.99 -- 0.99 18.57 0.99 18.57 Year ended December 31, 1992 0.93 -- 0.93 17.45 0.93 17.45 Earnings per Share: Quarter ended March 31, 1995 $ 0.93 $ 19.30 $ 0.94 $ 17.63 $ 0.95 $ 17.82 Year ended December 31, 1994 3.22 63.19 3.22 60.41 3.27 61.34 Year ended December 31, 1993 2.79 42.92 2.78 52.15 2.83 53.09 Year ended December 31, 1992 2.42 35.82 2.38 44.65 2.41 45.21 Market Price per Share: At January 27, 1995 $ 34.00 $ 318.47 n/a n/a n/a n/a At June 7, 1995 41.50 318.47 n/a n/a n/a n/a - ------------------------------------ Includes the effect of pro forma adjustments for Southwest and ABNK, as appropriate. See "PRO FORMA FINANCIAL INFORMATION." Based on the pro forma combined per share amounts multiplied by 18.7599, the conversion ratio applicable to one share of Southwest Common Stock. Further explanation of the assumptions used in the preparation of the pro forma combined consolidated financial statements is included in the notes to pro forma financial statements. See "PRO FORMA FINANCIAL INFORMATION." Includes the effect of pro forma adjustments for Southwest, ABNK, Plains Spirit and AmeriFirst 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 Proxy Statement/Prospectus, based on the last sale price as reported on the NYSE Composite Tape. There are no publicly available quotations of Southwest Common Stock. The market value disclosed is the price paid for Southwest Common Stock in a transaction occurring in May 1993, the last transaction in Southwest Common Stock for which a price is known to management of Southwest 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 Merger, the acquisitions of UNSL, CMB and TCB and the proposed acquisitions of Plains Spirit and AmeriFirst as if each of the mergers were consummated on December 31, 1994. MBI acquired ABNK on April 30, 1992, which acquisition was accounted for under the purchase method of accounting. Accordingly, the historical results of operations of MBI include the results of operations of ABNK from May 1, 1992 forward. The following pro forma combined consolidated income statements include the results of operations of ABNK from January 1, 1992 through the date of acquisition. The following pro forma combined consolidated income statements for the three months ended March 31, 1995 and 1994 and for the years ended December 31, 1994, 1993 and 1992 set forth the results of operations of MBI combined with the results of operations of Southwest, UNSL, CMB, Plains Spirit, TCB and AmeriFirst as if the Merger, the acquisitions of UNSL, CMB and TCB and the proposed acquisitions of Plains Spirit and AmeriFirst had occurred as of the first day of the period presented. As - 34 - 40 stated above, the pro forma combined consolidated income statements for the year ended December 31, 1992 include the results of operations of ABNK from January 1, 1992 through the date of acquisition. The unaudited pro forma combined consolidated financial statements should be read in conjunction with the accompanying Notes to the Pro Forma Combined Consolidated Financial Statements and with the historical financial statements of MBI, Southwest, UNSL, CMB, Plains Spirit, TCB, AmeriFirst and ABNK. The historical interim financial information for the three months ended March 31, 1995 and 1994, used as a basis for the pro forma combined consolidated financial statements, include all necessary adjustments, which, in management's opinion, are necessary to present the data fairly. These pro forma combined consolidated financial statements may not be indicative of the results of operations that actually would have occurred if the completed and proposed mergers had been consummated on the dates assumed above or of the results of operations that may be achieved in the future. - 35 - 41 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET MARCH 31, 1995 (THOUSANDS) (UNAUDITED)
MBI, Southwest Pro Forma Southwest Combined MBI Southwest Adjustments Consolidated ------- --------- --------------- ------------ ASSETS Cash and due from banks. . . . . . . . . . . . $ 680,581 $ 7,113 $ (2,278) $ 685,416 Due from banks-interest bearing. . . . . . . . 23,441 3,080 26,521 Federal funds sold and repurchase agreements . 146,389 5,425 151,814 Investments in debt and equity securities. . . Trading. . . . . . . . . . . . . . . . . . 11,542 -- 11,542 Available-for-sale . . . . . . . . . . . . 439,061 35,666 474,727 Held-to-maturity . . . . . . . . . . . . . 3,400,420 -- 3,400,420 ----------- ---------- --------- ----------- Total. . . . . . . . . . . . . . . . . 3,851,023 35,666 -- 3,886,689 Loans and leases . . . . . . . . . . . . . . . 10,074,377 126,796 10,201,173 Reserve for possible loan losses . . . . . . . (195,683) (1,093) (196,776) ----------- ---------- --------- ----------- Net Loans and Leases . . . . . . . . . . . 9,878,694 125,703 -- 10,004,397 Other assets . . . . . . . . . . . . . . . . . 570,443 3,597 15,212 574,040 (15,212) ----------- ---------- --------- ----------- Total Assets . . . . . . . . . . . . . . . . $15,150,571 $ 180,584 $ (2,278) $15,328,877 =========== ========== ========= =========== All Entities Plains Spirit Pro Forma AmeriFirst Combined Plains Spirit AmeriFirst Adjustments Consolidated ------------- ---------- ------------------- ------------ ASSETS Cash and due from banks. . . . . . . . . . . . $ 2,731 $ 6,356 $ (19,725) $ 640,797 Due from banks-interest bearing. . . . . . . . 4,050 -- (33,981) 30,571 Federal funds sold and repurchase agreements . -- 3,150 154,964 Investments in debt and equity securities. . . Trading. . . . . . . . . . . . . . . . . . -- -- 11,542 Available-for-sale . . . . . . . . . . . . 93,385 9,663 577,775 Held-to-maturity . . . . . . . . . . . . . 79,107 17,424 3,496,951 ----------- ---------- --------- ------------- Total. . . . . . . . . . . . . . . . . 172,492 27,087 -- 4,086,268 Loans and leases . . . . . . . . . . . . . . . 261,101 116,297 10,578,571 Reserve for possible loan losses . . . . . . . (2,001) (972) (199,749) ----------- ---------- --------- ------------- Net Loans and Leases . . . . . . . . . . . 259,100 115,325 -- 10,378,822 Other assets . . . . . . . . . . . . . . . . . 13,258 4,650 56,376 599,572 7,624 (56,376) 14,789 (14,789) ----------- ---------- --------- ------------- Total Assets . . . . . . . . . . . . . . . . $ 451,631 $ 156,568 $ (46,082) $ 15,890,994 =========== ========== ========= =============
- 36 - 42 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET MARCH 31, 1995 (THOUSANDS) (UNAUDITED)
MBI, Southwest Pro Forma Southwest Combined MBI Southwest Adjustments Consolidated ------- --------- --------------- ------------ LIABILITIES Deposits Non-interest bearing . . . . . . . . . . . . $ 1,610,841 $ 18,020 $ -- $ 1,628,861 Interest bearing . . . . . . . . . . . . . . 9,482,958 131,428 9,614,386 Foreign. . . . . . . . . . . . . . . . . . . 239,499 -- 239,499 ------------- ------------ -------- -------------- Total Deposits . . . . . . . . . . . . . . 11,333,298 149,448 -- 11,482,746 Federal funds purchased and repurchase agreements. . . . . . . . . . . . . . . . . . 1,608,407 8,768 1,617,175 Other borrowings . . . . . . . . . . . . . . . 730,271 6,010 736,281 Other liabilities. . . . . . . . . . . . . . . 206,422 1,146 207,568 ------------- ------------ -------- -------------- Total Liabilities . . . . . . . . . . . . . 13,878,398 165,372 -- 14,043,770 SHAREHOLDERS' EQUITY Preferred stock. . . . . . . . . . . . . . . . 12,153 -- -- 12,153 Common stock . . . . . . . . . . . . . . . . . 267,573 360 3,375 270,948 (360) Capital surplus. . . . . . . . . . . . . . . . 176,011 3,641 626 176,637 (3,641) Retained earnings. . . . . . . . . . . . . . . 843,710 11,211 11,211 854,921 (11,211) Treasury stock . . . . . . . . . . . . . . . . (27,274) -- (2,278) (29,552) ------------- ------------ -------- -------------- Total Shareholders' Equity . . . . . . . . . 1,272,173 15,212 (2,278) 1,285,107 ------------- ------------ -------- -------------- Total Liabilities and Shareholders' Equity . $ 15,150,571 $ 180,584 $ (2,278) $ 15,328,877 ============= ============ ======== ============== All Entities Plains Spirit Pro Forma AmeriFirst Combined Plains Spirit AmeriFirst Adjustments Consolidated ------------- ---------- ------------------- ------------ LIABILITIES Deposits Non-interest bearing . . . . . . . . . . . . $ 6,039 $ 19,186 $ -- $ 1,654,086 Interest bearing . . . . . . . . . . . . . . 265,420 111,471 9,991,277 Foreign. . . . . . . . . . . . . . . . . . . -- -- 239,499 ------------- ------------ -------- ------------- Total Deposits . . . . . . . . . . . . . . 271,459 130,657 -- 11,884,862 Federal funds purchased and repurchase agreements. . . . . . . . . . . . . . . . . . -- 9,100 1,626,275 Other borrowings . . . . . . . . . . . . . . . 114,000 728 851,009 Other liabilities. . . . . . . . . . . . . . . 9,796 1,294 218,658 ------------- ------------ -------- ------------- Total Liabilities . . . . . . . . . . . . . 395,255 141,779 -- 14,580,804 SHAREHOLDERS' EQUITY Preferred stock. . . . . . . . . . . . . . . . -- -- -- 12,153 Common stock . . . . . . . . . . . . . . . . . 20 1,522 7,000 281,255 (20) 3,307 (1,522) Capital surplus. . . . . . . . . . . . . . . . 23,323 7,128 37,275 219,255 (23,323) 5,343 (7,128) Retained earnings. . . . . . . . . . . . . . . 33,033 6,139 (33,033) 861,060 6,139 (6,139) Treasury stock . . . . . . . . . . . . . . . . -- -- (33,981) (63,533) ------------- ------------ -------- ------------- Total Shareholders' Equity . . . . . . . . . 56,376 14,789 (46,082) 1,310,190 ------------- ------------ -------- ------------- Total Liabilities and Shareholders' Equity . $ 451,631 $ 156,568 $(46,082) $ 15,890,994 ============= ============ ======== ============= See notes to pro forma combined consolidated financial statements.
- 37 - 43 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE THREE MONTHS ENDED MARCH 31, 1995 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
MBI, Southwest All Entities Pro Forma Pro Forma Combined Plains Combined MBI Southwest Consolidated Spirit AmeriFirst Consolidated ------- --------- ------------ ----------- ---------- ------------ Interest Income. . . . . . . . . . . . $ 279,789 $ 3,318 $ 283,107 $ 7,655 $ 2,903 $ 293,665 Interest Expense . . . . . . . . . . . 127,046 1,564 128,610 4,324 1,381 134,315 -------------- -------- ------------ -------- -------- ----------- Net Interest Income . . . . . . . . . 152,743 1,754 154,497 3,331 1,522 159,350 Provision for Possible Loan Losses . . 13,975 -- 13,975 60 22 14,057 -------------- -------- ------------ -------- -------- ----------- Net Interest Income after Provision for Possible Loan Losses. . . . . . 138,768 1,754 140,522 3,271 1,500 145,293 Other Income Trust . . . . . . . . . . . . . . . . 15,398 -- 15,398 -- -- 15,398 Service charges . . . . . . . . . . . 16,500 123 16,623 362 159 17,144 Credit card fees. . . . . . . . . . . 6,576 -- 6,576 -- -- 6,576 Securities gains (losses) . . . . . . (43) -- (43) -- -- (43) Other . . . . . . . . . . . . . . . . 18,372 60 18,432 190 42 18,664 -------------- -------- ------------ -------- -------- ----------- Total Other Income. . . . . . . . . 56,803 183 56,986 552 201 57,739 Other Expense Salaries and employee benefits. . . . 64,758 447 65,205 1,233 623 67,061 Net occupancy and equipment . . . . . 17,129 126 17,255 337 104 17,696 Other . . . . . . . . . . . . . . . . 37,356 307 37,663 563 364 38,590 -------------- -------- ------------ -------- -------- ----------- Total Other Expense . . . . . . . . 119,243 880 120,123 2,133 1,091 123,347 -------------- -------- ------------ -------- -------- ----------- Income Before Income Taxes. . . . . 76,328 1,057 77,385 1,690 610 79,685 Income Taxes . . . . . . . . . . . . . 26,625 363 26,988 580 201 27,769 -------------- -------- ------------ -------- -------- ----------- Net Income. . . . . . . . . . . . . $ 49,703 $ 694 $ 50,397 $ 1,110 $ 409 $ 51,916 ============== ======== ============ ======== ======== =========== Per Share Data Average Common Shares Outstanding . . 52,919,978 53,527,978 54,524,363 Net Income. . . . . . . . . . . . . . $ 0.93 $ 0.94 $ 0.95 See notes to pro forma combined consolidated financial statements.
- 38 - 44 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE THREE MONTHS ENDED MARCH 31, 1994 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
MBI, Southwest All Entities Pro Forma Pro Forma Combined Plains Combined MBI Southwest Consolidated Spirit AmeriFirst Consolidated ------- --------- ------------ ----------- ---------- ------------ Interest Income. . . . . . . . . . . $ 236,106 $ 2,529 $ 238,635 $ 5,628 $ 2,382 $ 246,645 Interest Expense . . . . . . . . . . 90,791 1,217 92,008 2,635 1,090 95,733 -------------- -------- ------------ -------- -------- ----------- Net Interest Income . . . . . . . . 145,315 1,312 146,627 2,993 1,292 150,912 Provision for Possible Loan Losses 8,879 -- 8,879 40 43 8,962 -------------- -------- ------------ -------- -------- ----------- Net Interest Income after Provision for Possible Loan Losses. . . . . 136,436 1,312 137,748 2,953 1,249 141,950 Other Income Trust . . . . . . . . . . . . . . . 15,877 -- 15,877 -- -- 15,877 Service charges . . . . . . . . . . 17,034 121 17,155 730 144 18,029 Credit card fees. . . . . . . . . . 5,858 -- 5,858 -- -- 5,858 Securities gains. . . . . . . . . . 1,418 -- 1,418 654 6 2,078 Other . . . . . . . . . . . . . . . 14,907 54 14,961 109 54 15,124 -------------- -------- ------------ -------- -------- ----------- Total Other Income. . . . . . . . 55,094 175 55,269 1,493 204 56,966 Other Expense Salaries and employee benefits. . . 63,777 439 64,216 1,302 648 66,166 Net occupancy and equipment . . . . 17,526 125 17,651 323 106 18,080 Other . . . . . . . . . . . . . . . 38,581 332 38,913 683 381 39,977 -------------- -------- ------------ -------- -------- ----------- Total Other Expense . . . . . . . 119,884 896 120,780 2,308 1,135 124,223 -------------- -------- ------------ -------- -------- ----------- Income Before Income Taxes. . . . 71,646 591 72,237 2,138 318 74,693 Income Taxes . . . . . . . . . . . . 26,051 215 26,266 742 104 27,112 -------------- -------- ------------ -------- -------- ----------- Net Income. . . . . . . . . . . . $ 45,595 $ 376 $ 45,971 $ 1,396 $ 214 $ 47,581 ============== ======== ============ ======== ======== =========== Per Share Data Average Common Shares Outstanding 51,723,559 52,331,559 53,327,944 Net Income. . . . . . . . . . . . . $ 0.88 $ 0.87 $ 0.89 See notes to pro forma combined consolidated financial statements.
- 39 - 45 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1994 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
MBI, Southwest All Entities Pro Forma Pro Forma Combined Plains Combined MBI Southwest Consolidated Spirit AmeriFirst Consolidated ------- --------- ------------ ----------- ---------- ------------ Interest Income. . . . . . . . . . . $ 994,896 $ 11,318 $ 1,006,214 $ 24,807 $ 10,482 $ 1,041,503 Interest Expense . . . . . . . . . . 399,349 5,205 404,554 12,271 4,916 421,741 -------------- -------- ------------ -------- -------- ----------- Net Interest Income . . . . . . . . 595,547 6,113 601,660 12,536 5,566 619,762 Provision for Possible Loan Losses 43,201 -- 43,201 200 (123) 43,278 -------------- -------- ------------ -------- -------- ----------- Net Interest Income after Provision for Possible Loan Losses. . . . . 552,346 6,113 558,459 12,336 5,689 576,484 Other Income Trust . . . . . . . . . . . . . . . 60,769 -- 60,769 -- -- 60,769 Service charges . . . . . . . . . . 68,783 494 69,277 2,191 626 72,094 Credit card fees. . . . . . . . . . 24,895 -- 24,895 -- -- 24,895 Securities gains. . . . . . . . . . 1,727 36 1,763 734 7 2,504 Other . . . . . . . . . . . . . . . 53,584 265 53,849 322 143 54,314 -------------- -------- ------------ -------- -------- ----------- Total Other Income. . . . . . . . 209,758 795 210,553 3,247 776 214,576 Other Expense Salaries and employee benefits. . . 258,546 1,746 260,292 4,869 2,645 267,806 Net occupancy and equipment . . . . 69,784 541 70,325 1,341 454 72,120 Other . . . . . . . . . . . . . . . 163,740 1,283 165,023 2,542 1,443 169,008 -------------- -------- ------------ -------- -------- ----------- Total Other Expense . . . . . . . 492,070 3,570 495,640 8,752 4,542 508,934 -------------- -------- ------------ -------- -------- ----------- Income Before Income Taxes. . . . 270,034 3,338 273,372 6,831 1,923 282,126 Income Taxes . . . . . . . . . . . . 101,705 1,064 102,769 2,359 680 105,808 -------------- -------- ------------ -------- -------- ----------- Net Income. . . . . . . . . . . . $ 168,329 $ 2,274 $ 170,603 $ 4,472 $ 1,243 $ 176,318 ============== ======== ============ ======== ======== =========== Per Share Data Average Common Shares Outstanding 51,957,002 52,565,002 53,561,387 Net Income. . . . . . . . . . . . . $ 3.22 $ 3.22 $ 3.27 See notes to pro forma combined consolidated financial statements.
- 40 - 46 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
MBI, Southwest All Entities Pro Forma Pro Forma Combined Plains Combined MBI Southwest Consolidated Spirit AmeriFirst Consolidated --------- ---------- ------------ ----------- ---------- ------------ Interest Income. . . . . . . . . . . . . . $ 971,482 $ 10,047 $ 981,529 $ 23,774 $ 9,661 $ 1,014,964 Interest Expense . . . . . . . . . . . . . 390,911 4,900 395,811 11,569 4,341 411,721 ----------- --------- ----------- --------- --------- ----------- Net Interest Income . . . . . . . . . . . 580,571 5,147 585,718 12,205 5,320 603,243 Provision for Possible Loan Losses . . . . 63,513 -- 63,513 706 124 64,343 ----------- --------- ----------- --------- --------- ----------- Net Interest Income after Provision for Possible Loan Losses. . . . . . . . 517,058 5,147 522,205 11,499 5,196 538,900 Other Income Trust . . . . . . . . . . . . . . . . . . 61,996 -- 61,996 -- -- 61,996 Service charges . . . . . . . . . . . . . 67,144 511 67,655 1,921 551 70,127 Credit card fees. . . . . . . . . . . . . 24,312 -- 24,312 -- -- 24,312 Securities gains. . . . . . . . . . . . . 5,121 -- 5,121 1,477 -- 6,598 Other . . . . . . . . . . . . . . . . . . 61,130 201 61,331 360 160 61,851 ----------- --------- ----------- --------- --------- ----------- Total Other Income. . . . . . . . . . . 219,703 712 220,415 3,758 711 224,884 Other Expense Salaries and employee benefits. . . . . . 245,469 1,692 247,161 4,656 2,437 254,254 Net occupancy and equipment . . . . . . . 70,911 496 71,407 1,248 419 73,074 Other . . . . . . . . . . . . . . . . . . 191,663 1,346 193,009 2,626 1,430 197,065 ----------- --------- ----------- --------- --------- ----------- Total Other Expense . . . . . . . . . . 508,043 3,534 511,577 8,530 4,286 524,393 ----------- --------- ----------- --------- --------- ----------- Income Before Income Taxes. . . . . . . 228,718 2,325 231,043 6,727 1,621 239,391 Income Taxes . . . . . . . . . . . . . . . 85,467 786 86,253 2,459 557 89,269 ----------- --------- ----------- --------- --------- ----------- Net Income Before Change in Accounting Principle. . . . . . . . . $ 143,251 $ 1,539 $ 144,790 $ 4,268 $ 1,064 $ 150,122 =========== ========= =========== ========= ========= =========== Per Share Data Average Common Shares Outstanding . . . . 50,965,103 51,573,103 52,569,488 Net Income Before Change in Accounting Principle . . . . . . . . . . . . . . . $ 2.79 $ 2.78 $ 2.83 See notes to pro forma combined consolidated financial statements.
- 41 - 47 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1992 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
MBI, ABNK MBI, ABNK Southwest All Entities Pro Forma Pro Forma Pro Forma Combined Combined Plains Combined MBI Consolidated Southwest Consolidated Spirit AmeriFirst Consolidated --------- ----------------- --------- ------------ ----------- ---------- ------------ Interest Income. . . . . . . . . . . . $ 1,011,544 $ 1,040,492 $ 11,363 $ 1,051,855 $ 26,962 $ 9,844 $ 1,088,661 Interest Expense . . . . . . . . . . . 485,253 501,802 6,354 508,156 16,385 4,905 529,446 ----------- ----------- --------- ----------- -------- ------- ----------- Net Interest Income . . . . . . . . . 526,291 538,690 5,009 543,699 10,577 4,939 559,215 Provision for Possible Loan Losses . . 77,874 79,787 155 79,942 583 154 80,679 ----------- ----------- --------- ----------- -------- ------- ----------- Net Interest Income after Provision for Possible Loan Losses. . . . . . 448,417 458,903 4,854 463,757 9,994 4,785 478,536 Other Income Trust . . . . . . . . . . . . . . . . 58,222 58,835 -- 58,835 -- -- 58,835 Service charges . . . . . . . . . . . 62,670 64,813 492 65,305 1,280 533 67,118 Credit card fees. . . . . . . . . . . 21,658 21,745 -- 21,745 -- -- 21,745 Securities gains. . . . . . . . . . . 5,590 5,590 10 5,600 477 -- 6,077 Other . . . . . . . . . . . . . . . . 53,825 55,091 289 55,380 139 122 55,641 ----------- ----------- --------- ----------- -------- ------- ----------- Total Other Income. . . . . . . . . 201,965 206,074 791 206,865 1,896 655 209,416 Other Expense Salaries and employee benefits. . . . 217,749 224,948 1,733 226,681 3,880 2,169 232,730 Net occupancy and equipment . . . . . 62,470 64,466 508 64,974 927 394 66,295 Other . . . . . . . . . . . . . . . . 191,684 196,930 1,496 198,426 2,604 1,432 202,462 ----------- ----------- --------- ----------- -------- ------- ----------- Total Other Expense . . . . . . . . 471,903 486,344 3,737 490,081 7,411 3,995 501,487 ----------- ----------- --------- ----------- -------- ------- ----------- Income Before Income Taxes. . . . . 178,479 178,633 1908 180,541 4,479 1,445 186,465 Income Taxes . . . . . . . . . . . . . 61,072 60,990 671 61,661 1,718 494 63,873 ----------- ----------- --------- ----------- -------- ------- ----------- Net Income Before Change in Accounting Principle. . . . . . . $ 117,407 $ 117,643 $ 1,237 $ 118,880 $ 2,761 $ 951 $ 122,592 =========== =========== ========= =========== ======== ======= =========== Per Share Data Average Common Shares Outstanding . . 47,275,834 47,972,446 48,580,446 49,576,831 Net Income Before Change in Accounting Principle . . . . . . . . . . . . . $ 2.42 $ 2.39 $ 2.38 $ 2.41 See notes to pro forma combined consolidated financial statements.
- 42 - 48 MERCANTILE BANCORPORATION INC. NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) [FN] Represents MBI restated historical consolidated financial statements reflecting the acquisition of UNSL effective January 3, 1995 and the acquisitions of CMB and TCB effective May 1, 1995, each of which was accounted for as a pooling-of- interests. The acquisitions of Southwest and AmeriFirst will be accounted for as poolings-of-interests. As part of an ongoing stock repurchase program, MBI will repurchase 1,132,000 shares of its own common stock in the open market. Acquisition of Southwest with 675,000 shares of MBI Common Stock. Elimination of MBI's investment in Southwest. The acquisition of Plains Spirit will be accounted for as a purchase transaction. Purchase accounting adjustments are considered immaterial to the income statements of the pro forma combined entity. Purchase entry of Plains Spirit with consideration of $64 million consisting of cash and 1,400,000 shares of MBI Common Stock at $31.625 per share, which was the closing price on December 22, 1994, the day preceding the execution of the definitive merger agreement. The pro forma excess of cost over fair value of net assets acquired ("goodwill") was $7,624,000 as of March 31, 1995. This amount may vary depending on final purchase price adjustments and adjustment to equity of Plains Spirit for income, dividends and FAS 115 prior to the closing date of the acquisition. See footnote (6) above. Elimination of MBI's investment in Plains Spirit. Acquisition of AmeriFirst with 661,385 shares of MBI Common Stock. Elimination of MBI's investment in AmeriFirst. Plains Spirit's fiscal year end is September 30, so those amounts are used for the December 31, 1994, 1993 and 1992 pro forma income statements. Plains Spirit's fiscal year end is September 30, so the three months ending December 31 amounts are used for the March 31, 1995 and 1994 pro forma income statements. 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, 1992. - 43 - 49 INFORMATION REGARDING SOUTHWEST ------------------------------- BUSINESS GENERAL. Southwest, a registered bank holding company under the BHCA and headquartered in Bolivar, Missouri, is engaged primarily in the banking business in several southwestern Missouri communities. As of March 31, 1995, Southwest had consolidated total assets of $181 million. For the three month period ended March 31, 1995, Southwest reported consolidated net income of $694,000, or $19.30 per share. BANK, FACILITIES AND MARKET AREA. Southwest Bank is a community bank operating facilities in several communities in southwest Missouri and has historically emphasized single family real estate loans, both for the construction and purchase of new residences and for the refinancing of existing residences. Also, commercial and installment loans to local businesses and consumers are emphasized. Southwest Bank, with its various locations, includes rural, small community and large city markets. These areas range from the growing and prosperous town of Bolivar, to the ever expanding city of Springfield, to the lake resort area of Hermitage and to the rural communities of Humansville, Buffalo and surrounding areas. The main banking office is located in Bolivar, Missouri, with facilities located in Springfield, Republic, Buffalo, Hermitage, Weaubleau, Cross Timbers, Humansville, Fair Grove and Fair Play, Missouri. Southwest Bank offers a full range of financial services to individual and commercial customers, including short and medium term loans, real estate loans, agricultural loans, installment and consumer loans, and equipment financing. In addition, each location offers safe deposit box rental, interest and non-interest bearing checking accounts along with savings accounts and certificates of deposit. Upon request, credit cards are issued through Mercantile Bank of Illinois National Association. Southwest Bank also has trust powers and offers trust services to all customers. Southwest also owns and operates an insurance agency. Southwest receives dividends from Southwest Bank. These dividends are declared periodically and are only in the amount needed by Southwest to pay its expenses and retire its debt. No charges for services supplied by Southwest are made. COMPETITION. The activities in which Southwest Bank engages are highly competitive. Those activities in the geographic markets served involve primarily competition with other banks, most of which are affiliated with larger bank holding companies. Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans and other credit and service charges, the quality of services rendered, the convenience of banking facilities and, in the case of loans to large commercial borrowers, relative lending limits. In addition to competition with other banks within its primary service areas, Southwest Bank also competes with other financial institutions, such as savings and loan associations, credit unions, industrial loan associations, securities firms, insurance companies, small loan companies, finance companies, mortgage companies, real estate investment trusts, certain governmental agencies, credit organizations and other enterprises. Additional competition for depositors' funds comes from United States Government securities, private issuers of debt obligations, mutual funds and suppliers of other investment alternatives for depositors. Many of Southwest Bank's non-bank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally insured banks - 44 - 50 and state regulations governing state chartered banks. As a result, such non-bank competitors may have certain advantages over Southwest Bank in providing some services. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION This section presents an analysis of the consolidated financial condition of Southwest and its subsidiary at December 31, 1994 and 1993 and the consolidated results of operations for the years ended December 31, 1994, 1993 and 1992. This review should be read in conjunction with the consolidated financial statements, notes to consolidated financial statements and other financial data presented elsewhere in this Proxy Statement/Prospectus. DECEMBER 31, 1994, 1993 AND 1992 RESULTS OF OPERATION NET INCOME. Net income for the year ended December 31, 1994, was $2.3 million, or $63.19 per share, which represents an increase of 47.7% over the prior year's respective figures of $1.5 million and $42.92 per share. The improvement in net income was primarily due to a $1.0 million increase in net interest income and tight operating expense controls. Total operating expenses for the year ended December 31, 1994 increased by approximately $36,000 over 1993, which represents an increase of one percent. Net income for the year ended December 31, 1993 was $1.5 million, or $42.92 per share, which represents an increase of 24.4% over the prior year's figures of $1.2 million and $35.82 per share, respectively. The primary reason for this increase was a $185,000 decrease in operating expenses and a $293,000 increase in net interest income after provision for loan losses. NET INTEREST INCOME. The $1.0 million improvement in net interest income for the year ended December 31, 1994, as compared to the year ended December 31, 1993, was primarily due to a 6.3% increase in net loans during 1994 and an improved net interest margin. The increase in net loans allowed Southwest Bank to have a better mix of earning assets which resulted in interest income on loans increasing by $1.4 million for the year ended December 31, 1994. Net interest income increased during the year ended December 31, 1993 by $138,000, or 2.8%, as compared to 1992. This improvement resulted from a higher level and a more profitable mix of earning assets. The following table sets forth certain information relating to Southwest's average consolidated statements of financial condition and reflects the yield on average assets and cost of average liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities. - 45 - 51 AVERAGE BALANCES, YIELDS AND RATES
YEAR ENDED DECEMBER 31 ------------------------------------------------------------ 1994 1993 ------------------------------ ----------------------------- AVERAGE AVERAGE INTEREST YIELD/ INTEREST YIELD/ AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE BALANCE EXPENSE PAID BALANCE EXPENSE PAID ----------- -------- ------- ----------- -------- ------- (dollars in thousands) ASSETS Loans (net of unearned interest) (1) . . . . $ 123,474 $ 9,438 7.64% $110,138 $ 8,026 7.29% Investment securities: (3) Taxable . . . . . . . . . . . . . . . . . . 30,798 1,344 4.36 34,279 1,567 4.57 Tax exempt (4). . . . . . . . . . . . . . . 1,200 69 5.75 1,173 69 5.88 Equity investments. . . . . . . . . . . . . 1,185 64 5.40 999 64 6.41 Interest-bearing deposits. . . . . . . . . . 5,388 189 3.51 5,802 140 2.41 Federal funds sold . . . . . . . . . . . . . 4,008 214 5.34 4,935 181 3.67 --------- ------- -------- ------- Total interest earning assets/ interest income/overall yield . . . . . . . 166,053 11,318 6.82 157,326 10,047 6.39 Allowance for loan losses. . . . . . . . . . (1,090) (1,125) Noninterest-bearing deposits and cash. . . . 6,079 5,748 Other assets . . . . . . . . . . . . . . . . 3,380 2,867 --------- -------- Total assets. . . . . . . . . . . . . . . . $ 174,422 $164,816 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing demand deposits . . . . . . $ 49,306 $ 1,646 3.34% $ 42,926 $ 1,396 3.25% Savings deposits . . . . . . . . . . . . . . 12,005 330 2.75 11,063 304 2.75 Time deposits. . . . . . . . . . . . . . . . 62,474 2,469 3.95 64,148 2,592 4.04 Repurchase agreements. . . . . . . . . . . . 9,058 366 4.04 10,116 324 3.20 Long-term debt . . . . . . . . . . . . . . . 6,623 394 5.95 4,892 284 5.81 --------- ------- -------- ------- Total interest-bearing liabilities/ interest expense/overall rate . . . . . . 139,466 5,205 3.73 133,145 4,900 3.68 Demand deposits. . . . . . . . . . . . . . . 20,392 19,067 Other liabilities. . . . . . . . . . . . . . 988 835 Total liabilities . . . . . . . . . . . . . 160,846 153,047 Shareholders' equity . . . . . . . . . . . . 13,576 11,769 --------- -------- Total liabilities and shareholders' equity. . . . . . . . . . . $ 174,422 $164,816 ========= ======== Net interest income/ interest rate spread. . . . . . . . . . . . $ 6,113 3.09% $ 5,147 2.71% ======= ===== ======= ===== Net earning assets/net yield on average interest-earning assets . . . . . . . . . . $ 26,587 3.68% $ 24,181 3.27% ========= ===== ======== ===== - -------------------- Average balances include nonaccrual loans and loans 90 days or more past due. Average balances for a period have been calculated using the average of month-end balances during such period. Investments for 1993 stated at amortized costs. Investments for 1994 stated at fair market value under SFAS 115. Interest and yields are presented based upon actual amounts earned.
- 46 - 52 The following table sets forth changes in net interest income attributable to changes in the volume of interest-earning assets and interest-bearing liabilities compared to changes in interest rates for the periods indicated. VOLUME AND RATE VARIANCE
INCREASE (DECREASE) ATTRIBUTABLE TO CHANGE IN -------------------------------------------------------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1993 COMPARED TO COMPARED TO DECEMBER 31, 1993 DECEMBER 31, 1992 -------------------------------- -------------------------------------- RATE/ RATE/ RATE VOLUME VOLUME NET RATE VOLUME VOLUME NET ---- ------ ------ --- ---- ------ ------ --- (dollars in thousands) INTEREST INCOME Interest-earning assets: Loans . . . . . . . . . . . . .$ 393 $ 971 $ 48 $ 1,412 $ (885) $ 1,076 $ (119) $ 72 Investment securities: Taxable. . . . . . . . . . . . . . (71) (159) 7 (223) (896) (359) 119 (1,136) Tax exempt . . . . . . . . . . (2) 2 -- -- -- (11) -- (11) Equity investments . . . . . . . . (10) 12 (2) -- 9 6 2 17 Interest-bearing deposits. . . . . . 64 (10) (5) 49 (112) (222) 60 (274) Federal funds sold . . . . . . . . . 82 (34) (15) 33 22 (5) (1) 16 ----- ----- ------ -------- -------- -------- -------- -------- Total interest income. . . . . . . 456 782 33 1,271 (1,862) 485 61 (1,316) INTEREST EXPENSE Interest-bearing demand deposits . . 37 207 6 250 (321) 255 (54) (120) Savings deposits . . . . . . . . . . -- 26 -- 26 (11) (1) -- (12) Time deposits. . . . . . . . . . . . (57) (68) 2 (123) (887) (633) 141 (1,379) Repurchase agreements. . . . . . . . 85 (34) (9) 42 (70) 78 (16) (8) Long-term debt . . . . . . . . . . . 7 101 2 110 16 46 4 66 ----- ----- ------ -------- -------- -------- -------- -------- Total interest expense . . . . . . 72 232 1 305 (1,273) (255) 75 (1,453) ----- ----- ------ -------- -------- -------- -------- -------- Net interest income. . . . . . . .$ 384 $ 550 $ 32 $ 966 $ (589) $ 740 $ (14) $ 137 ===== ===== ====== ======== ======== ======== ======== ======== - -------------------- Average balances include nonaccrual loans and loans 90 days or more past due. Presented on actual amounts earned.
NONINTEREST INCOME. The following table sets forth Southwest's noninterest income for the periods indicated. NONINTEREST INCOME
YEAR ENDED DECEMBER 31 -------------------------- 1994 1993 1992 -------------------------- (dollars in thousands) Service charges on deposit accounts. . . . $494 $512 $492 Investment securities gains. . . . . . . . 36 -- 10 Other operating income . . . . . . . . . . 265 200 289 ---- ---- ---- Total noninterest income . . . . . . . . $795 $712 $791 ==== ==== ==== Noninterest income as a percent of average total assets . . . . . . . . . . . .46% .43% .48%
- 47 - 53 Noninterest income for the year ended December 31, 1994 increased by $83,000 as compared to the year ended December 31, 1993. There has been no significant change in noninterest income over the last three years. NONINTEREST EXPENSE. The following table sets forth Southwest's noninterest expenses for the periods indicated. NONINTEREST EXPENSE
YEAR ENDED DECEMBER 31 ---------------------------- 1994 1993 1992 ---------------------------- (dollars in thousands) Salaries and employee benefits . . . $1,746 $1,692 $1,733 Occupancy and equipment expense. . . 541 496 508 FDIC and state assessments . . . . . 342 295 376 Data processing. . . . . . . . . . . 229 236 241 Other operating expense. . . . . . . 712 815 861 ------ ------ ------ Total noninterest expense. . . . . $3,570 $3,534 $3,719 ====== ====== ======
Noninterest expenses have shown no significant changes over the past three years. There has been a $149,000 decrease between the years ended December 31, 1994 and December 31, 1992. This decrease represents management's ongoing efforts to control expenses through consolidation of duties and constant review of expenses. FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY LENDING ACTIVITIES. Southwest's major source of income is interest on loans. The increase in Southwest's loan portfolio largely reflects Southwest Bank's continued emphasis on mortgage lending. The following table presents the composition of Southwest's loan portfolio net of unearned interest at the end of each of the periods indicated. LOAN PORTFOLIO
DECEMBER 31 ------------------------------------ 1994 1993 --------------- ----------------- AMOUNT PERCENT AMOUNT PERCENT --------------- ----------------- (dollars in thousands) Commercial, financial and other. . . . . . $10,965 8.7% $14,572 12.2% Agricultural . . . . . . . . . . . . . . . 2,893 2.3 3,228 2.7 Real Estate: Mortgage-residential (1-4 family). . . . 41,624 32.9 37,020 31.1 Mortgage-commercial and multi-family . . 48,983 38.7 41,747 35.1 Construction . . . . . . . . . . . . . . 6,305 5.0 6,589 5.5 Agricultural real estate . . . . . . . . 9,349 7.4 8,973 7.6 Consumer . . . . . . . . . . . . . . . . . 6,403 5.0 6,894 5.8 -------- ------ --------- ------ Total loans. . . . . . . . . . . . . . . 126,522 100.0% 119,023 100.0% ======= ======= Less: Unearned interest. . . . . . . . . . . . 40 36 -------- --------- Total loans receivable, net. . . . . . . $126,482 $118,987 ======== =========
- 48 - 54 The following table sets forth the remaining maturities, based on contractual maturity dates, for certain loan categories at December 31, 1994. MATURITIES OF LOANS
ONE YEAR ONE TO OVER OR LESS FIVE YEARS FIVE YEARS TOTAL ------- ---------- ---------- ----- (dollars in thousands) Commercial, financial and other. . . . . . $6,721 $3,381 $863 $10,965 Agricultural . . . . . . . . . . . . . . . 2,153 158 582 2,893 Real estate construction . . . . . . . . . 4,433 203 1,669 6,305
The following table indicates loans with fixed and adjustable rates which mature in greater than one year.
FLOATING OR ADJUSTING FIXED RATES RATES ----------- ----------- (dollars in thousands) Commercial, financial and other . . . $ 882 $ 3,362 Agricultural. . . . . . . . . . . . . 146 594 Real estate construction. . . . . . . 15 1,857 -------- -------- Total loans . . . . . . . . . . . . $ 1,043 $ 5,813 ======== ========
Southwest makes substantially all its loans to customers located within Southwest Bank's service areas. Southwest has no foreign loans or highly leveraged transaction loans as defined by the Federal Reserve Board. DISCUSSION OF LENDING ACTIVITIES. Net loans at December 31, 1994, were $126 million, an increase of $7 million from December 31, 1993, which was primarily due to Southwest Bank's ongoing business development program. The quality of the loan portfolio continues to be preserved by close adherence to prudent underwriting standards. Loan committees and lending authorities have been appropriately established in order to ensure compliance with Southwest Bank's loan policy and documentation procedures. As testimony to the quality of the loan portfolio, net loan charge offs to average loans outstanding for the years ended December 31, 1994 and 1993 were 0.01%. Commercial, financial and other lending activities are directed primarily towards small- to medium-sized businesses. Commercial, financial and other loans decreased $3.6 million due to tighter underwriting standards and a concerted effort to increase the real estate loan portfolio. Agricultural loans, including agricultural real estate, remained steady in 1994 at a level of $12.2 million. These loans were made primarily to family farms for the purpose of livestock operations and crop production. Real estate loans increased by $11.6 million in 1994 to $96.9 million which is 76.6% of the total loan portfolio. Residential real estate loans increased by $4.6 million in 1994 to $41.6 million while construction loans experienced a nominal decrease of $284,000 to $6.3 million in 1994. The single largest growth category was commercial and multi-family real estate loans which increased $7.2 million in 1994 - 49 - 55 to $49 million. The increases in the respective real estate loan categories were a direct result of an on-going business development/marketing program. Consumer loans are primarily loans to individuals for the purchase of automobiles, boats, recreational vehicles and other personal and household items. Consumer loans decreased by $491,000 in 1994. NONPERFORMING LOANS. Loans that are on a nonaccrual basis and loans which are contractually past due 90 days or more totaled $478,000 at December 31, 1994. This represents 0.38% of the total loan portfolio which is consistent to the 1993 respective figure of 0.37%. Loans that are nonperforming and loans that require frequent attention are reviewed by management monthly or more frequently whenever it is warranted. If the collection of interest is doubtful, the loans are placed on nonaccrual status and the recognition of interest income is stopped. Whenever management believes that a loan will not be collected in its entirety, the loan will be charged off at the time the determination of uncollectability is made. The following table sets forth the amounts of such loans at the end of the periods indicated. NONPERFORMING ASSETS
DECEMBER 31 ------------------- 1994 1993 ---- ---- (dollars in thousands) Nonaccrual loans . . . . . . . . . . . . . . . . . . $ 130 $ 263 Loans contractually past due 90 days or more . . . . 348 182 -------- -------- Total nonperforming loans. . . . . . . . . . . . . 478 445 Foreclosed assets held for sale. . . . . . . . . . . 29 8 -------- -------- Total nonperforming assets . . . . . . . . . . . . $ 507 $ 453 ======== ======== Nonperforming loans to total loans . . . . . . . . . 0.38% 0.37% Nonperforming assets to total loans plus foreclosed assets held for sale . . . . . . . 0.40 0.38 Nonperforming assets to total assets . . . . . . . . 0.29 0.26
In 1994, Southwest would have reported an additional $13,000 in interest income if the nonaccrual loans at December 31, 1994 had been current. Southwest actually reported $2,000 in interest income for nonaccrual loans at December 31, 1994. Nonperforming assets increased by $54,000 in 1994. It should be noted that net loan chargeoffs for 1994 and 1993 were 10,000 and 15,000, respectively. Management considers the nonperforming loans to be at a reasonable level. In comparison to peer group banks the percentages are extremely low. ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is based on factors that include the overall composition of the loan portfolio, class of loans, past due and chargeoff experience, potential substandard and doubtful credits and other factors that need to be evaluated in estimating potential loan losses. The adequacy of the allowance for loan losses is calculated quarterly, using chargeoff history and any anticipated losses with respect to specific loans during the systematic review of the loan portfolio. The results of these reviews are reported to the management and board of directors. - 50 - 56 While there can be no assurance that the allowance for loan losses will be adequate to cover all losses, management believes that the allowance is adequate. In addition, various regulatory agencies periodically review the allowance for loan losses, as an integral part of their examination process. The following table summarizes, for the period indicated, activity in the allowance for loan losses, including amounts of loans charged-off, amounts of recoveries and additions to the allowance charged to operating expenses, and the ratio of net charge-offs to the average loans outstanding. ALLOWANCE FOR LOAN LOSSES
DECEMBER 31 ------------------- 1994 1993 ---- ---- (dollars in thousands) Allowance at beginning of period . . . . . $ 1,103 $ 1,118 Loans charged-off: Commercial, financial, agricultural and other. . . . . . . . . . . . . . . 54 20 Real estate: Construction . . . . . . . . . . . . . -- -- Mortgage . . . . . . . . . . . . . . . 1 25 Consumer . . . . . . . . . . . . . . . . -- -- -------- -------- Total. . . . . . . . . . . . . . . . . . 55 45 -------- -------- Recoveries: Commercial, financial, agricultural and other. . . . . . . . . . . . . . . 35 20 Real estate: Construction . . . . . . . . . . . . . -- -- Mortgage . . . . . . . . . . . . . . . 10 10 Consumer . . . . . . . . . . . . . . . . -- -- -------- -------- Total. . . . . . . . . . . . . . . . . . 45 30 -------- -------- Net loans charged-off. . . . . . . . . . 10 15 Additions to allowance charged to operating expense. . . . . . . . . . . . -- -- -------- -------- Allowance at end of period . . . . . . . . $ 1,093 $ 1,103 ======== ======== Ratio of net loan charge-offs during period to average loans outstanding. . . 0.01% 0.01%
Net loan charge-offs were immaterial, less than $20,000, during 1994 and 1993. Management feels that these small charge- offs are a further reflection of the adequacy of the allowance for loan losses, the quality of the loan portfolio and the overall credit granting procedures. - 51 - 57 The following table summarizes Southwest's allocation of the allowance for loan losses to the various loan categories at the dates indicated. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
DECEMBER 31 --------------------------------------------- 1994 1993 --------------------- --------------------- PERCENT PERCENT OF LOANS OF LOANS IN EACH IN EACH CATEGORY CATEGORY TO TOTAL TO TOTAL ALLOWANCE LOANS ALLOWANCE LOANS --------- -------- --------- -------- (dollars in thousands) Commercial, financial agricultural and other . . . . . . . . . . . . . . $ 119 10.6% $ 166 14.6% Real estate: Construction. . . . . . . . . . . . . 52 5.0 58 5.5 Mortgage. . . . . . . . . . . . . . . 868 79.4 816 74.1 Consumer. . . . . . . . . . . . . . . . 54 5.0 63 5.8 -------- ------ -------- ------ Total . . . . . . . . . . . . . . . . $ 1,093 100.0% $ 1,103 100.0% ======== ====== ======== ======
INVESTMENT SECURITIES. The objectives of the investment portfolio are to provide Southwest with a source of liquidity through maturities and earnings. The following table sets forth Southwest's investment securities portfolio at carrying value at the dates indicated. INVESTMENT PORTFOLIO COMPOSITION
AT DECEMBER 31 -------------------------------------------- 1994 1993 --------------------- --------------------- BOOK PERCENT OF BOOK PERCENT OF VALUE PORTFOLIO VALUE PORTFOLIO -------------------- -------------------- (dollars in thousands) U.S. Government and agency securities. . . $ 33,345 93.27% $ 30,433 93.47% State and municipal securities . . . . . . 1,241 3.47 1,116 3.43 Other securities . . . . . . . . . . . . . 1,165 3.26 1,009 3.10 -------- ------- -------- ------- Total. . . . . . . . . . . . . . . . . . $ 35,751 100.00% $ 32,558 100.00% ======== ======= ======== ======= - -------------------- During 1994, Southwest adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. The investment security portfolio at December 31, 1994 was recorded at its market value. The amortized cost was $36.3 million. The market value of Southwest's investment portfolio was $33.0 million at December 31, 1993.
- 52 - 58 The following table sets forth the maturities and weighted average yields of the debt securities portfolio at December 31, 1994.
OVER ONE OVER FIVE ONE YEAR THROUGH THROUGH AFTER OR LESS FIVE YEARS TEN YEARS TEN YEARS ------------------------- ------------------------- ----------------------- ----------------------- AMORT. MARKET AMORT. MARKET AMORT. MARKET AMORT. MARKET COST VALUE YIELD COST VALUE YIELD COST VALUE YIELD COST VALUE YIELD ---- ----- --------- ---- ----- --------- ---- ----- --------- ---- ----- --------- (dollars in thousands) U.S. Government and agency securities . $13,553 $13,361 3.60% $20,255 $19,733 5.56% $ 250 $ 233 6.50% $ 18 $ 18 6.09% State and municipal securities. . . . . 616 616 5.45 299 308 6.99 325 317 6.06 -- -- -- ------- ------- ------- ------- ----- ----- ---- ---- Total. . . . . . . $14,169 $13,977 3.67% $20,554 $20,041 5.58% $ 575 $ 550 6.25% $ 18 $ 18 6.09% ======= ======= ======= ======= ===== ===== ==== ==== - -------------------- Rates on obligations of state and municipal securities are based upon actual amounts earned.
Investment securities increased by $3.2 million at December 31, 1994 as compared to December 31, 1993. Investments are selected by management based upon quality, rate of return and the liquidity needs of Southwest Bank. DEPOSITS. Southwest has a stable core deposit base from within its market areas. Southwest has no brokered deposits and it is management's decision not to accept any such deposits. Deposits have shown a normal increase over the past two years. The following table sets forth the distribution of Southwest's deposit accounts at the dates indicated and the weighted average nominal interest rates on each category of deposit. DEPOSITS
DECEMBER 31 ----------------------------------------------------- 1994 1993 ------------------------- ------------------------- PERCENT PERCENT OF OF AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE ------ -------- ---- ------ -------- ---- (dollars in thousands) Demand deposits. . . . . . $ 20,238 13.86% --% $ 19,519 13.61% --% Savings accounts . . . . . 12,004 8.22 2.75 12,308 8.58 2.75 NOW and MMDA accounts. . . 49,353 33.79 3.34 49,285 34.36 3.25 Time deposits. . . . . . . 64,450 44.13 3.95 62,312 43.45 4.04 -------- ------- -------- ------- Total deposits . . . . . $146,045 100.00% $143,424 100.00% ======== ======= ======== =======
- 53 - 59 The following table indicates, as of December 31, 1994, the amount of Southwest's jumbo certificates of deposit by time remaining until maturity. Jumbo certificates of deposit require minimum deposits of $100,000 and rates paid on such accounts are negotiable. AMOUNT AND MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
CERTIFICATES MATURITY PERIOD OF DEPOSITS (dollars in thousands) Three months or less. . . . . . . . . . . . $2,656 Over three months through six months. . . . 3,727 Over six months through twelve months . . . 4,136 Over twelve months. . . . . . . . . . . . . 1,426 ------- Total . . . . . . . . . . . . . . . . . . . $11,945 =======
CAPITAL RESOURCES. Financial institutions are required to maintain capital ratios in accordance with guidelines adopted by the Federal Reserve Board. These guidelines are commonly known as "Risk Based Guidelines" as they define the capital level requirements of a financial institution based upon the level of risk associated with holding various categories of assets. On December 31, 1994, Southwest exceeded all capital requirements. At December 31, 1994 and 1993, Southwest and the Southwest Bank's capital ratios were as follows. CAPITAL RATIOS
RISK-BASED ---------------------------------- TOTAL CAPITAL TIER 1 LEVERAGE ------------- ------ -------- DECEMBER 31 DECEMBER 31 DECEMBER 31 ----------- ----------- ----------- 1994 1993 1994 1993 1994 1993 ---- ---- ---- ---- ---- ---- Southwest Bancshares, Inc. . . 13.76% 12.52% 12.80% 11.51% 8.22% 7.25% Southwest Bank . . . . . . . . 14.82 13.61 13.86 12.61 9.01 8.05
LIQUIDITY. Liquidity is measured by a financial institution's ability to raise funds through deposits, borrowed funds or additional capital. Additional sources of liquidity, including cash flow from both the repayment of loans and the securitization of assets, are also considered in determining whether liquidity is satisfactory. Liquidity is also achieved through growth of core deposits and liquid assets, and access to the money and capital markets. The funds are used to meet deposit withdrawals, maintain reserve requirements, fund loans and operate the organization. The ratio of temporary investments (those maturing within one year) to volatile liabilities (time deposits over $100,000) was 117.0% at December 31, 1994. Core deposits, defined as demand deposits, NOW accounts, and total savings and certificates of deposit less than $100,000 were 91.8% and 91.9% of total deposits at December 31, 1994 and 1993, respectively. - 54 - 60 The following table sets forth certain information regarding short-term borrowings for the periods indicated. SHORT-TERM BORROWINGS
DECEMBER 31 ----------- 1994 1993 ---- ---- (dollars in thousands) Securities sold under agreement to repurchase: End of period balance . . . . . . . . . . . . . . . . . . $7,752 $8,781 Maximum amount outstanding at any month-end . . . . . . . 10,720 11,176 Average balance outstanding during the period . . . . . . 9,058 10,116 Average rate at the end of the period . . . . . . . . . . 5.40% 3.14% Average rate for the period . . . . . . . . . . . . . . . 4.04 3.20
ASSET-LIABILITY MANAGEMENT. Southwest actively manages its assets and liabilities through coordinating the levels of interest rate sensitive assets and liabilities to minimize changes in net interest income despite changes in market interest rates. Southwest defines interest rate sensitive assets and liabilities as any instrument that can be repriced within 180 days, either because the instrument will mature during the period or because it carries a variable interest rate. Changes in net interest income occur when interest rates on loans and investments change in a different time period from that of changes in interest rates on liabilities, or when the mix and volume of interest-earning assets and interest-bearing liabilities change. The interest rate sensitivity gap represents the dollar amount of difference between rate sensitive assets and rate sensitive liabilities within a given time period (GAP). A GAP ratio is determined by dividing rate sensitive assets by rate sensitive liabilities. A ratio of 100% indicates a matched position, in which the effect on net interest income due to interest rate movements would be minimized. Southwest's strategy with respect to asset-liability management is to maximize net interest income while limiting Southwest's exposure to risks associated with volatile interest rates. Southwest Bank's Funds Management Committee is responsible for monitoring its GAP position. - 55 - 61 The following table sets forth Southwest's interest rate sensitivity at December 31, 1994. INTEREST SENSITIVITY ANALYSIS
OVER THREE OVER ONE THREE THROUGH THROUGH OVER MONTHS TWELVE FIVE FIVE OR LESS MONTHS YEARS YEARS TOTAL ------- ------- -------- ----- ----- (dollars in thousands) Interest-earning assets: Interest-bearing deposits . . . . . . . . $ 3,641 $ -- $ -- $ -- $ 3,641 Taxable investment securities . . . . . . 16,599 3,378 11,144 3,389 34,510 Tax-exempt investment securities. . . . . 70 546 308 317 1,241 Federal funds sold. . . . . . . . . . . . 1,750 -- -- -- 1,750 Loans . . . . . . . . . . . . . . . . 49,070 41,614 25,626 9,965 126,275 ------- ------- ------- ------- -------- Total interest rate sensitive assets . . $71,130 $45,538 $37,078 $13,671 $167,417 ======= ======= ======= ======= ======== Interest-bearing liabilities: Interest-bearing demand deposits. . . . . $49,353 $ -- $ -- $ -- $ 49,353 Savings deposits. . . . . . . . . . . . . 12,004 -- -- -- 12,004 Time deposits . . . . . . . . . . . . . . 19,466 33,569 11,380 35 64,450 Repurchase agreements . . . . . . . . . . 4,509 2,500 702 41 7,752 Long-term debt. . . . . . . . . . . . . . 500 1,667 3,676 708 6,551 ------- ------- ------- ------- -------- Total rate sensitive liabilities . . . . $85,832 $37,736 $15,758 $ 784 $140,110 ======= ======= ======= ======= ======== Interest Sensitivity GAP: Periodic. . . . . . . . . . . . . . . . . $(14,702) $ 7,802 $21,320 $12,887 $ 27,307 Cumulative. . . . . . . . . . . . . . . . (14,702) (6,900) 14,420 27,307 ======= ======= ======= ======= Cumulative GAP to total assets . . . . . . (8.37)% (3.93)% 8.21% 15.55% Ratio of Interest-Sensitive Assets to Interest Sensitive Liabilities: Periodic . . . . . . . . . . . . . . . . 82.87 120.68 235.30 n/a Cumulative . . . . . . . . . . . . . . . 82.87 94.42 110.35 119.49 - -------------------- Loans exclude overdrafts and nonaccrual loans.
EFFECTS OF INFLATION. The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with generally accepted accounting principles and practices within the banking industry which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation. IMPACT OF FUTURE ACCOUNTING PRONOUNCEMENTS In October 1994, the Financial Accounting Standards Board issued SFAS 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments." The adoption of SFAS 119 was required for fiscal years ending after December 15, 1994. The statement requires disclosures about derivative financial instruments and other financial instruments with similar characteristics that are not subject to SFAS 105, "Disclosure of Information About Financial Instruments with Off-Balance Sheet - 56 - 62 Risk and Financial Instruments with Concentrations of Credit Risk." Southwest does not hold any derivative financial instruments for which disclosure would be required under SFAS 119. In May 1993, the Financial Accounting Standards Board issued SFAS 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS 118, which was issued in October 1994. The Statement requires impaired loans to be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. The adoption of SFAS 114, required in 1995, is not expected to have a material impact on Southwest's financial condition or results of operations. RESULTS OF OPERATION (FIRST QUARTER COMPARISON) NET INCOME. Net income for the first quarter ended March 31, 1995, increased 84.6% to $694,000, or $19.30 per share, compared to net income for the first quarter in 1994 of $376,000, or $10.45 per share. The increase in net income was due primarily to an increase in net interest income of $440,000 coupled with tight operating expense controls. NET INTEREST INCOME. Net interest income increased by $440,000, or 33.5%, for the first quarter of 1995 as compared to the first quarter of 1994. The improvement in net interest income was the result of an increase in average earning assets and a higher yielding earning asset mix. NONINTEREST INCOME. Noninterest income increased by 5.2% to $183,000 for the first quarter of 1995 compared to the first quarter of 1994. NONINTEREST EXPENSE. Noninterest expense decreased 1.8% to $880,000 for the first quarter of 1995 as compared to the first quarter of 1994. Tight expense control was the contributing factor to this decrease. TOTAL ASSETS. Total assets were $180.6 million at March 31, 1995 as compared to $175.6 million at December 31, 1994. The increase in total assets was due primarily to Southwest Bank's business development/marketing program. LOANS. Loans, net of unearned interest, were $126.8 million at March 31, 1995, a 0.2% increase as compared to $126.5 million at December 31, 1994. DEPOSITS. Total deposits were $149.4 million at March 31, 1995, a 2.3% increase as compared to $146.0 million at December 31, 1994. Much of this deposit growth occurred in Time Deposits. LIQUIDITY AND CAPITAL RESOURCES (FIRST QUARTER COMPARISON) Liquid assets of Southwest, at March 31, 1995, consisted of total cash and cash equivalents and investment securities maturing in one year or less. These liquid assets totaled $30.5 million at March 31, 1995, or 20.4% of total deposits. - 57 - 63 Shareholders' equity at March 31, 1995 was $15.2 million, which is an increase of $774,000 compared to December 31, 1994. Southwest currently exceeds all regulatory capital requirements as shown in the following table. CAPITAL RATIOS
RISK-BASED --------------------------------- TOTAL CAPITAL TIER 1 LEVERAGE ------------- ------ -------- MARCH 31 MARCH 31 MARCH 31 -------- -------- -------- 1995 1994 1995 1994 1995 1994 ---- ---- ---- ---- ---- ---- 14.27% 13.05% 13.31% 12.04% 8.42% 7.52%
PROPERTIES All of the real estate and buildings are owned by Southwest Bank or Southwest, except for the banking facilities located in Republic, Missouri and Springfield, Missouri, which are leased. None of the properties owned are subject to any mortgages or material encumbrances. Southwest believes that the facilities are adequate for its operations. LEGAL PROCEEDINGS There were no known material legal proceedings pending against Southwest as of March 31, 1995. - 58 - 64 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of the Record Date the number of shares of Southwest Common Stock beneficially owned and the percentage of ownership of outstanding shares of Southwest Common Stock by (a) each director of Southwest, (b) each person who is known by Southwest to own beneficially 5% or more of such stock and (c) all directors and executive officers of Southwest as a group:
BENEFICIALLY PERCENT OF NAME OF BENEFICIAL OWNER ADDRESS OWNED CLASS - ------------------------ ------- ------------ ---------- Joe F. Rayl P.O. Box 197 24,547 68.22% Bolivar, MO 65613 Alva R. Ellison P.O. Box 10969 2,771 7.70% Springfield, MO 65808 Gary E. Metzger 1947 E. Norshire 4 .01% Springfield, MO 65804 Morris G. Lawson Route 3, Box 630 4 .01% Bolivar, MO 65613 Alan Murray P.O. Box 281 4 .01% Hermitage, MO 65668 Debra G. McCaslin Route 2, Box 251A 4 .01% Halfway, MO 65663 Directors and Executive Officers as a group (6 persons) 27,334 75.96% - -------------------- Includes 105 shares of Southwest Common Stock held by Joe F. Rayl, and 24,442 shares of Southwest Common Stock held by Joe F. and Jane Rayl, Tenancy by the Entirety. Includes 70 shares of Southwest Common Stock held by Alva R. Ellison, and 2,701 shares of Southwest Common Stock held by Alva Ray Ellison and Patrician Alverta Ellison, Joint Revocable Living Trust, U/T/A, dated November 8, 1993.
For purposes of the above table, a person is deemed to be a beneficial owner of shares of Southwest Common Stock if the person has or shares the power to vote or to dispose of such shares. Unless otherwise indicated in the footnotes, each person has sole voting and investment power with respect to shares shown in the table as beneficially owned by such person and disclaims beneficial ownership in shares described in the footnotes as being "held by" other persons. - 59 - 65 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 March 31, 1995, on a restated basis, MBI had 14,806 shares of MBI Preferred Stock issued and outstanding and 52,749,516 shares of MBI Common Stock 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, and, in connection with the acquisition of TCB on May 1, 1995, the designation and issuance of (i) 5,306 shares of Series B-1 Preferred Stock and (ii) 9,500 shares of Series B-2 Preferred Stock, 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 cumulative dividends have been paid or declared, and funds sufficient for the payment thereof set apart, on all series of MBI Preferred Stock ranking superior as to dividends to MBI Common Stock. The Board of Directors of MBI intends to maintain its present policy of paying quarterly cash dividends on MBI Common Stock, when justified by the financial condition of MBI and its subsidiaries. The declaration and amount of future dividends will depend on circumstances existing at the time, including MBI's earnings, financial condition and capital requirements as well as regulatory limitations, note and indenture provisions and such other factors as the Board of Directors may deem relevant. The payment of dividends to MBI by subsidiary banks is subject to extensive regulation by various state and federal regulatory agencies. See "SUPERVISION AND REGULATION." VOTING RIGHTS. Each holder of MBI Common Stock has one vote for each share held on matters presented for consideration by the shareholders, except that, in the election of directors, each shareholder has cumulative voting rights which entitle 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 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 - 60 - 66 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 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 Restated Articles of Incorporation and By- Laws also contain provisions which: (i) require the affirmative vote of holders of at least 75% of the voting power of all of the shares of outstanding capital stock of MBI entitled to vote in the election of directors to remove a director or directors without cause; (ii) require the affirmative vote of the holders of at least 75% of the voting power of all shares of the outstanding capital stock of MBI to approve certain "business combinations" with "interested parties" unless at least two-thirds of the Board of Directors first approves such business combinations; and (iii) require an affirmative vote of at least 75% of the voting power of all shares of the outstanding capital stock of MBI for the amendment, alteration, change or repeal of any 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. - 61 - 67 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 Merger and who are deemed to be "affiliates" of Southwest 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 Southwest at the time the Merger is submitted to a vote of the shareholders of Southwest. Each affiliate of Southwest (generally any director or executive officer or shareholder of Southwest who beneficially owns a substantial number of outstanding shares of Southwest Common Stock) who desires to resell the MBI Common Stock received in the Merger must sell such stock either pursuant to an effective Registration Statement or in accordance with an applicable exemption, such as the applicable provisions of Rule 145(d) under the Securities Act. Rule 145(d) provides that persons deemed to be affiliates may resell their stock received in the Merger pursuant to certain of the requirements of Rule 144 under the Securities Act if such stock is sold within the first 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 Southwest may freely resell the stock received in the Merger without limitation. After three years from the issuance of the stock, if such person is not an affiliate of MBI at the time of sale and for at least three months prior to such sale, such person may freely resell such stock, without limitation, regardless of the status of MBI's required public filings. The shares of MBI Common Stock to be received by affiliates of Southwest in the Merger will be legended as to the restrictions imposed upon resale of such stock. COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF MBI AND SOUTHWEST Both MBI and Southwest are incorporated under the laws of the State of Missouri and the rights of the shareholders of each of MBI and Southwest are governed by their respective Articles of Incorporation and By-Laws and the Missouri Act. The rights of Southwest shareholders who receive shares of MBI Common Stock in the Merger will thereafter be governed by MBI's Restated Articles of Incorporation and By-Laws and by the Missouri Act. The material rights of such shareholders, and, where applicable, the differences between the rights of MBI shareholders and Southwest shareholders, are summarized below. PREFERRED SHARE PURCHASE RIGHTS PLAN. As described above under "- Preferred Share Purchase Rights Plan," MBI Common Stock has attached Rights, which may deter certain takeover proposals. Southwest does not have a rights plan. SUPERMAJORITY PROVISIONS. MBI's Restated Articles of Incorporation and MBI's By-Laws contain provisions requiring a supermajority vote of the 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 shares of capital stock entitled to vote, voting together as a single class, unless such amendment has previously been expressly approved by at least two-thirds of the Board of Directors. The Restated Articles of 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 - 62 - 68 a single class (the "Voting Stock"), shall be required for the approval of any Business Combination. A "Business Combination" is defined generally to include sales, exchanges, leases, transfers or other dispositions of assets, mergers or consolidations, issuances of securities, liquidations or dissolutions of MBI, reclassifications of securities or recapitalizations of MBI, involving MBI on the one hand, and an Interested Shareholder or an affiliate of an Interested Shareholder on the other hand. An "Interested Shareholder" is defined generally to include any person, firm, corporation or other entity which is the beneficial owner of 5% or more of the voting power of the outstanding Voting Stock. If, however, at least two-thirds of the Board of Directors of MBI approve the Business Combination, such Business Combination shall require only the vote of shareholders as provided by Missouri law or otherwise. The amendment of the provisions of MBI's Restated Articles relating to the approval of Business Combinations requires the affirmative vote of the holders of at least 75% of the Voting Stock unless such amendment has previously been approved by at least two-thirds of the Board of Directors. To the extent that a potential acquiror's strategy depends on the passage of proposals which require a supermajority vote of MBI's shareholders, such provisions requiring a supermajority vote may have the effect of discouraging takeover attempts that do not have Board approval by making passage of such proposals more difficult. Neither Southwest's Articles of Incorporation nor Southwest's By-Laws require a supermajority vote of shareholders with respect to any item. 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. Southwest's By-Laws also provide for cumulative voting. CLASSIFIED BOARD. As described under "- Classification of Board of Directors," the Board of Directors of MBI is divided into three classes of directors, with each class being elected to a staggered three-year term. By reducing the number of directors to be elected in any given year, the existence of a classified Board diminishes the benefits of the cumulative voting rights to minority shareholders. Southwest does not have a classified Board of Directors. ANTI-TAKEOVER STATUTES. The Missouri Act contains certain provisions applicable to Missouri corporations such as MBI and Southwest which may be deemed to have an anti-takeover effect. Such provisions include Missouri's business combination statute and the control share acquisition statute. The Missouri business combination statute protects domestic corporations after hostile takeovers by prohibiting certain transactions once an acquiror has gained control. The statute restricts certain "Business Combinations" between a corporation and an "Interested Shareholder" or affiliates of the Interested Shareholder for a period of five years unless certain conditions are met. A "Business Combination" includes a merger or consolidation, certain sales, leases, exchanges, pledges and similar dispositions of corporate assets or stock and certain reclassifications and recapitalizations. An "Interested Shareholder" includes any person or entity which beneficially owns or controls 20% or more of the outstanding voting shares of the corporation. During the initial five-year restricted period, no Business Combination may occur unless such Business Combination or the transaction in which an Interested Shareholder becomes "interested" 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 an Interested Shareholder or approves -63 - 69 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. Neither MBI's Restated Articles of Incorporation and By-Laws nor Southwest's Articles of Incorporation and By-Laws "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%, (ii) 33% or more but less than a majority or (iii) a majority, of the voting power of outstanding stock of such corporation, must obtain shareholder approval for the purchase of the "Control Shares." If approval is not given, the Acquiring Person's shares lose the right to vote. The statute prohibits an Acquiring Person from voting its shares unless certain disclosure requirements are met and the retention or restoration of voting rights is approved by both: (i) a majority of the outstanding voting stock, and (ii) a majority of the outstanding voting stock after exclusion of "Interested Shares." Interested Shares are defined as shares owned by the Acquiring Person, by directors who are also employees, and by officers of the corporation. Shareholders are given dissenters' rights with respect to the vote on Control Share Acquisitions and may demand payment of the fair value of their shares. A number of acquisitions of shares are deemed not to constitute Control Share Acquisitions, including good faith gifts, transfers pursuant to wills, purchases pursuant to an issuance by the corporation, mergers involving the corporation which satisfy the other requirements of the Missouri Act, transactions with a person who owned a majority of the voting power of the corporation within the prior year, or purchases from a person who has previously satisfied the provisions of the Control Share Acquisition Statute so long as the transaction does not result in the purchasing party having voting power after the purchase in a percentage range (such ranges are as set forth in the immediately preceding paragraph) beyond the range for which the selling party previously satisfied the provisions of the statute. Additionally, a corporation may exempt itself from application of the statute by inserting a provision in its articles of incorporation or bylaws expressly electing not to be covered by the statute. Neither MBI's Restated Articles of Incorporation and By-Laws nor Southwest's Articles of Incorporation and By-Laws "opt out" of the Control Share Acquisition Statute. DISSENTERS' RIGHTS. Under Section 351.455 of the Missouri Act, a shareholder of any corporation which is a party to a merger or consolidation, or which sells all or substantially all of its assets, has the right to dissent from such corporate action and to demand payment of the value of such shares. In the circumstances set forth in the statute, dissenters' rights provisions of the Missouri Act are applicable to the shareholders of both MBI and Southwest. SHAREHOLDERS' RIGHT TO INSPECT. Under Section 351.215 of the Missouri Act, any shareholder may inspect the corporation's books and records for any reasonable and proper purpose. Such inspection may be made at all proper times, subject to regulations as may be prescribed by the by- laws of the corporation. - 64 - 70 SIZE OF BOARD OF DIRECTORS. As permitted under the Missouri Act, the number of directors on the Board of Directors of MBI is set forth in MBI's By-Laws which provide that the number of directors may be fixed from time to time at not less than 12 nor more than 24 by an amendment of the By-Laws or by a resolution of the Board of Directors, in either case, adopted by the vote or consent of at least two-thirds of the number of directors then authorized under the By-Laws. MBI's Board of Directors currently has 17 members. Southwest's By-Laws provide that the number of directors of the Board of Directors shall be designated in Southwest's Articles of Incorporation. Currently, Southwest's Articles of Incorporation fix the number of directors at six. 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, the FDIC 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 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 - 65 - 71 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. Bank holding companies are 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. The federal bank regulatory agencies have issued various proposals to amend the risk-based capital guidelines for banks and bank holding companies. Under one proposal, banks would be required to give explicit consideration to interest rate risk as an element of capital adequacy by maintaining capital to compensate for such risk in an amount measured by the bank's exposure to interest rate risk in excess of a regulatory threshold. Another proposal would revise the treatment given to (i) low-level recourse arrangements to reduce the amount of capital required and (ii) certain direct credit substitutes provided by banking organizations to require that capital be maintained against the value of the assets enhanced or the loans protected. A proposal recently issued by the Federal Reserve Board and expected to be joined in by the other bank regulatory agencies increases the amount of capital required to be carried against certain long-term derivative contracts; in addition, the proposal recognizes the effect of certain bilateral netting arrangements in reducing potential future exposure under these contracts. MBI believes that these changes will not, if adopted, have a material effect on its compliance with capital adequacy requirements. - 66 - 72 FDIC INSURANCE ASSESSMENTS The subsidiary banks of MBI are subject to FDIC deposit insurance assessments. The FDIC has adopted a risk-based premium schedule. Under this schedule, the annual premiums initially range from $.23 to $.31 for every $100 of deposits. Each financial institution is assigned to one of three capital groups--well capitalized, adequately capitalized or undercapitalized--and further assigned to one of three subgroups within a capital group, on the basis of supervisory evaluations by the institution's primary federal and, if applicable, state supervisors and on the basis of other information relevant to the institution's financial condition and the risk posed to the applicable insurance fund. The actual assessment rate applicable to a particular institution will, therefore, depend in part upon the risk assessment classification so assigned to the institution by the FDIC. See "- FIRREA and FDICIA." The legislation adopted in August 1989 to provide for the resolution of insolvent savings associations also required the FDIC to establish separate deposit insurance funds -- the Bank Insurance Fund ("BIF") for banks and the Savings Association Insurance Fund ("SAIF") for savings associations. The law also requires the FDIC to set deposit insurance assessments at such levels as will cause BIF and SAIF to reach their "designated reserve ratios" of 1.25 percent of the deposits insured by them within a reasonable period of time. Due to low costs of resolving bank insolvencies in the last few years, BIF is expected to reach its designated reserve ratio in 1995. As a result, FDIC recently proposed to lower deposit insurance assessment rates on banks by revising the range to $.04 to $.31 for every $100 of deposits. However, the balance in SAIF is not expected to reach the designated reserve ratio until about the year 2002, as the law provides that a significant portion of the costs of resolving past insolvencies of savings associations must be paid from this source. Accordingly, it is likely that SAIF rates will be significantly higher than BIF rates in the future. Since MBI has acquired substantial amounts of SAIF-insured deposits during the years from 1989 to the present which cannot be converted from SAIF to BIF under present law, it will be required to pay insurance assessments on these acquired deposits at rates significantly higher than the rates charged by BIF until such time that the rates are equalized or the deposits are converted from the SAIF to the BIF. The latter cannot occur until the SAIF reaches the designated reserve ratio. MBI does not expect that such additional deposit insurance costs will have a significant, adverse effect on its earnings. SUPPORT OF SUBSIDIARY BANKS Under Federal Reserve Board policy, MBI is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each of the subsidiaries in circumstances where it might not choose to do so absent such a policy. This support may be required at times when MBI may not find itself able to provide it. In addition, any capital loans by MBI to any of its subsidiaries would also be subordinate in right of payment to deposits and certain other indebtedness of such subsidiary. Consistent with this policy regarding bank holding companies serving as a source of financial strength for their subsidiary banks, the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the bank holding company's capital needs, asset quality and overall financial condition. - 67 - 73 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. FDICIA contains various other provisions that may affect the operations of banks and savings institutions. The prompt corrective action provision of FDICIA requires the federal banking regulators to assign each insured institution to one of five capital categories ("well capitalized," "adequately capitalized" or one of three "undercapitalized" categories) and to take progressively more restrictive actions based on the capital categorization, as specified below. Under FDICIA, capital requirements would include a leverage limit, a risk-based capital requirement and any other measure of capital deemed appropriate by the federal banking regulators for measuring the capital adequacy of an insured depository institution. All institutions, regardless of their capital levels, are restricted from making any capital distribution or paying any management fees that would cause the institution to fail to satisfy the minimum levels for any relevant capital measure. An institution that fails to meet the minimum level for any relevant capital measure (an "undercapitalized institution") 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, 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). 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. - 68 - 74 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 Southwest's and MBI's insured bank subsidiaries, in the liquidation or other resolution of such an institution by any receiver. Such obligations would be afforded priority over other general unsecured claims against such an institution, including federal funds and letters of credit, as well as any obligation to shareholders of such an institution in their capacity as such. THE INTERSTATE BANKING AND COMMUNITY DEVELOPMENT LEGISLATION In September 1994, legislation was enacted that is expected to have a significant effect in restructuring the banking industry in the United States. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 facilitates the interstate expansion and consolidation of banking organizations by permitting (i) bank holding companies that are adequately capitalized and managed, one year after enactment of the legislation, to acquire banks located in states outside their home states regardless of whether such acquisitions are authorized under the law of the host state, (ii) the interstate merger of banks after June 1, 1997, subject to the right of individual states to "opt in" or to "opt out" of this authority before that date, (iii) banks to establish new branches on an interstate basis provided that such action is specifically authorized by the law of the host state, (iv) foreign banks to establish, with approval of the regulators in the United States, branches outside their home states to the same extent that national or state banks located in the home state would be authorized to do so, and (v) beginning September 29, 1995, banks to receive deposits, renew time deposits, close loans, service loans and receive payments on loans and other obligations as agent for any bank or thrift affiliate, whether the affiliate is located in the same state or a different state. One effect of this legislation will be to permit MBI to acquire banks located in any state and to permit bank holding companies located in any state to acquire banks and bank holding companies in Missouri. Overall, this legislation is likely to have the effects of increasing competition and promoting geographic diversification in the banking industry. The Riegle Community Development and Regulatory Improvement Act of 1994, also enacted in September 1994, is intended to (i) increase the flow of loans to businesses in distressed communities by providing incentives to lenders to provide credit within those communities, (ii) remove impediments to the securitization of small business loans, (iii) provide for a reduction in paperwork and to streamline bank regulation through, for example, the coordination of examinations in a bank holding company context, a reduction in the number of currency transaction reports required and improvements to the National Flood Insurance Program that include enabling lenders to force place flood insurance and (iv) increase the level of consumer protection provided to customers in banking transactions. MBI believes that these provisions of the new law will not have a material effect on its operation. RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS ----------------------------------------- KPMG Peat Marwick LLP served as MBI's independent accountants for the year ended December 31, 1994 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. Kirkpatrick, Phillips and Miller served as Southwest's independent accountants for the year ended December 31, 1994 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 - 69 - 75 consultation regarding regulatory authorities and consultation on financial accounting and reporting matters. Kirkpatrick, Phillips and Miller intends to have a representative present at the Special Meeting to answer relevant questions regarding the Merger. LEGAL MATTERS ------------- Certain legal matters will be passed upon for MBI by Thompson & Mitchell, St. Louis, Missouri and for Southwest by Taylor, Stafford, Woody, Clithero & Fitzgerald, Springfield, Missouri. EXPERTS ------- The consolidated financial statements of Mercantile Bancorporation Inc. as of December 31, 1994, 1993 and 1992, and for each of the years in the three-year period ended December 31, 1994, incorporated by reference in MBI's Annual Report on Form 10-K, and the supplemental consolidated financial statements of Mercantile Bancorporation Inc. as of December 31, 1994, 1993 and 1992, and for each of the years in the three- year period ended December 31, 1994, contained in MBI's Current Report on Form 8-K dated May 31, 1995, have been incorporated by reference herein in reliance upon the 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 consolidated financial statements of Southwest Bancshares, Inc. as of December 31, 1994 and 1993 and for each of the years in the three-year period ended December 31, 1994 have been included herein in reliance upon the report of Kirkpatrick, Phillips and Miller, independent certified public accountants, whose report is included herein, and upon the authority of such firm as experts in accounting and auditing. OTHER MATTERS ------------- The Board of Directors of Southwest, at the date hereof, is not aware of any business to be presented at the Special Meeting other than that referred to in the Notice of Special Meeting and discussed herein. If any other matter should properly come before the Special Meeting, the persons named as proxies will have discretionary authority to vote the shares represented by proxies in accordance with their discretion and judgment as to the best interests of Southwest. SHAREHOLDER PROPOSALS --------------------- If the Merger is approved, the other conditions to the Merger are satisfied and the Merger is consummated, shareholders of Southwest will become shareholders of MBI at the Effective Time. MBI shareholders may submit to MBI proposals for formal consideration at the 1996 annual meeting of MBI's shareholders and inclusion in MBI's proxy statement for such meeting. All such proposals must have been received in writing by the Corporate Secretary at Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524 by November 25, 1995. - 70 - 76 CONSOLIDATED FINANCIAL STATEMENTS INDEX
Page ---- INDEPENDENT ACCOUNTANTS' REPORT. . . . . . . . . . . . . . . .F-1 CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1995 (UNAUDITED) AND DECEMBER 31, 1994 AND 1993 . . . . . . . . . . . . . . .F-2 CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 . . . . . . . .F-3 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1995 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 . . . . . . . . . . . . . .F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 . . . .F-5 to F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . .F-7 to F-19
- 71 - 77 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders Southwest Bancshares, Inc. and Subsidiary Springfield, Missouri We have audited the accompanying consolidated balance sheets of Southwest Bancshares, Inc. and Subsidiary as of December 31, 1994 and 1993, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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 audit. 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Southwest Bancshares, Inc. and Subsidiary as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. /S/ KIRKPATRICK, PHILLIPS & MILLER February 3, 1995 Springfield, Missouri F - 1 78 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31, -------------------------- 1995 1994 1993 --------- ---- ---- ASSETS (Unaudited) - ------ Cash and cash equivalents $ 7,113,332 $ 5,561,099 $ 7,146,321 Interest-bearing deposit accounts 3,079,771 3,641,346 6,598,696 Federal funds sold 5,425,000 1,750,000 5,850,000 Investment securities held-for-investment (Notes 1 and 2) - - 32,557,823 Investment securities available-for-sale (Notes 1 and 2) 35,666,178 35,751,485 - Loans (Notes 1 and 4) 126,795,842 126,481,924 118,987,337 Less allowance for credit losses (1,093,067) (1,092,785) (1,103,048) ------------ ------------ ------------ Net loans 125,702,775 125,389,139 117,884,289 ------------ ------------ ------------ Accrued interest receivable - investments 228,305 263,021 228,515 Accrued interest receivable - loans 925,308 818,582 640,451 Prepaid expenses 129,072 48,880 55,771 Property and equipment, net of accumulated depreciation (Notes 1 and 3) 1,958,366 1,962,148 1,648,412 Deferred tax benefit (Notes 1 and 6) 293,720 340,779 - Other real estate 22,127 22,127 8,000 Goodwill, net of amortization (Note 1) 15,755 18,049 27,225 Other assets 24,495 9,768 24,323 ------------ ------------ ------------ TOTAL ASSETS $180,584,204 $175,576,423 $172,669,826 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Liabilities: Deposits: Demand $ 18,019,988 $ 20,238,317 $ 19,519,452 Savings and NOW 64,190,930 61,356,733 61,592,737 Time (Note 5) 67,237,031 64,449,553 62,312,463 ------------ ------------ ------------ Total deposits 149,447,949 146,044,603 143,424,652 Securities sold under repurchase agreements (Note 13) 8,768,377 7,751,740 8,781,084 Accounts payable and accrued expenses 69,963 72,244 148,790 Accrued interest payable 692,058 571,730 491,840 Income taxes payable (Notes 1 and 6) 382,975 146,890 90,204 Debt maturing within one year (Note 7) 1,670,600 2,167,400 355,700 Long-term debt (Note 7) 4,339,734 4,383,663 6,851,058 Other liabilities - directors' stock 500 500 500 ------------ ------------ ------------ Total liabilities 165,372,156 161,138,770 160,143,828 ------------ ------------ ------------ Stockholders' equity: Common stock; par value $10; authorized 100,000 shares; issued and outstanding 35,981 shares 359,810 359,810 359,810 Additional paid-in capital 3,641,242 3,641,242 3,641,242 Retained earnings 11,492,765 10,798,502 8,524,946 Unrealized loss on securities available-for-sale, net of applicable deferred income taxes of $165,484 and $212,542, respectively (Note 1) (281,769) (361,901) - ------------ ------------ ------------ Total stockholders' equity 15,212,048 14,437,653 12,525,998 ------------ ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $180,584,204 $175,576,423 $172,669,826 ============ ============ ============ The accompanying notes are an integral part of these consolidated financial statements
F - 2 79 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------------ ------------------------------------ 1995 1994 1994 1993 1992 ---- ---- ---- ---- ---- (UNAUDITED) INTEREST INCOME: Interest and fees on loans $ 2,768,014 $ 2,087,185 $ 9,438,159 $ 8,026,148 $ 7,953,683 Interest on investment securities: Taxable interest income 427,860 313,468 1,344,022 1,566,950 2,702,927 Tax-exempt interest income 17,675 16,123 69,311 69,188 80,433 Dividends 16,463 12,344 63,386 64,187 47,082 Interest on federal funds sold 45,036 50,057 188,837 180,447 164,760 Interest on deposits in banks 42,600 50,181 214,079 139,875 413,828 ----------- ----------- ----------- ----------- ----------- Total interest income 3,317,648 2,529,358 11,317,794 10,046,795 11,362,713 ----------- ----------- ----------- ----------- ----------- INTEREST EXPENSE: Interest on deposits: Savings and NOW 591,570 465,161 1,976,444 1,700,066 1,831,636 Time 755,453 583,139 2,469,126 2,591,580 3,970,924 Interest on securities sold under repurchase agreements 120,578 72,682 365,632 324,328 331,961 Interest on borrowed funds 96,707 95,549 393,574 283,592 218,888 ----------- ----------- ----------- ----------- ----------- Total interest expense 1,564,308 1,216,531 5,204,776 4,899,566 6,353,409 ----------- ----------- ----------- ----------- ----------- Net interest income 1,753,340 1,312,827 6,113,018 5,147,229 5,009,304 Provision for credit losses (Notes 1 and 4) - - - - 155,000 ----------- ----------- ----------- ----------- ----------- Net interest income after provision for credit losses 1,753,340 1,312,827 6,113,018 5,147,229 4,854,304 ----------- ----------- ----------- ----------- ----------- OTHER INCOME: Service charges on deposit accounts 122,703 120,465 494,439 511,576 491,450 Investment securities gains - - 35,584 - 10,101 Other operating income 60,232 53,688 264,807 200,486 289,028 ----------- ----------- ----------- ----------- ----------- Total other income 182,935 174,153 794,830 712,062 790,579 ----------- ----------- ----------- ----------- ----------- OTHER EXPENSES: Salaries and employee benefits 447,776 439,398 1,746,249 1,692,145 1,733,237 Occupancy and equipment expense 125,919 125,237 540,799 496,363 508,045 FDIC and state assessments 88,212 84,086 341,582 294,820 375,500 Data processing 56,940 59,567 229,415 235,544 241,319 Other operating expense 160,739 187,648 712,164 815,498 860,948 ----------- ----------- ----------- ----------- ----------- Total other expenses 879,586 895,936 3,570,209 3,534,370 3,719,049 ----------- ----------- ----------- ----------- ----------- MINORITY INTERESTS IN NET INCOME OF CONSOLIDATED SUBSIDIARY - - - - 17,676 ----------- ----------- ----------- ----------- ----------- Income before taxes 1,056,689 591,044 3,337,639 2,324,921 1,908,158 Income tax expense (Note 6) 362,426 215,118 1,064,083 786,096 670,761 ----------- ----------- ----------- ----------- ----------- NET INCOME $ 694,263 $ 375,926 $ 2,273,556 $ 1,538,825 $ 1,237,397 =========== =========== =========== =========== =========== NET INCOME PER SHARE OF COMMON STOCK $ 19.30 $ 10.45 $ 63.19 $ 42.92 $ 35.82 =========== =========== =========== =========== =========== AVERAGE SHARES OUTSTANDING 35,981 35,981 35,981 35,856 34,542 =========== =========== =========== =========== =========== The accompanying notes are an integral part of these consolidated financial statements
F - 3 80 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 AND THREE MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
NET UNREALIZED APPRECIATION COMMON STOCK (LOSSES) ON ----------------- ADDITIONAL AVAILABLE- TOTAL PAID-IN RETAINED FOR-SALE STOCKHOLDERS' SHARES PAR VALUE CAPITAL EARNINGS SECURITIES EQUITY ------ --------- ---------- -------- ------------ ------------- Balances, December 31, 1991 34,025 $340,250 $3,084,844 $ 5,748,724 $ - $ 9,173,818 Issuance of stock - 975 shares 975 9,750 272,854 - - 282,604 Acquired 6.05% minority interest in subsidiary, at book value, by issuing 667 shares of the Company in exchange 667 6,670 186,684 - - 193,354 Net income, year ended December 31, 1992 - - - 1,237,397 - 1,237,397 ------ -------- ---------- ----------- ---------- ----------- Balances, December 31, 1992 35,667 356,670 3,544,382 6,986,121 - 10,887,173 Issuance of stock - 314 shares 314 3,140 96,860 - - 100,000 Net income, year ended December 31, 1993 - - - 1,538,825 - 1,538,825 ------ -------- ---------- ----------- ---------- ----------- Balances, December 31, 1993 35,981 359,810 3,641,242 8,524,946 - 12,525,998 Net unrealized appreciation at January 1, 1994 on securities available-for-sale, net of taxes - - - - 255,031 255,031 Net income, year ended December 31, 1994 - - - 2,273,556 - 2,273,556 Net change in unrealized appre- ciation (losses) on securities available-for-sale, net of taxes - - - - (616,932) (616,932) ------ -------- ---------- ----------- ---------- ----------- Balances, December 31, 1994 35,981 359,810 3,641,242 10,798,502 (361,901) 14,437,653 Net income, period ended March 31, 1995 (unaudited) - - - 694,263 - 694,263 Net change in unrealized appreciation on securities available-for-sale, net of taxes - - - - 80,132 80,132 ------ -------- ---------- ----------- ---------- ----------- Balances, March 31, 1995 (unaudited) 35,981 $359,810 $3,641,242 $11,492,765 $ (281,769) $15,212,048 ====== ======== ========== =========== ========== =========== The accompanying notes are an integral part of these consolidated financial statements
F - 4 81 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------------ ------------------------------------ 1995 1994 1994 1993 1992 ---- ---- ---- ---- ---- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 694,263 $ 375,926 $ 2,273,556 $ 1,538,825 $ 1,237,397 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 35,473 39,825 186,272 165,088 159,650 Amortization 2,294 2,294 9,176 9,176 9,176 Donation of property - - 17,696 - - Provision for loan losses - - - - 155,000 Premiums and discounts on investment securities (2,070) 5,493 7,856 225,779 353,974 Minority interests in net income of consolidated subsidiaries - - - - 17,676 Gain on sale of equipment - (142) (142) (1,557) - Gain on sale of repossessions (150) - (327) (286) (555) Gain on sale of other real estate - - (31,555) (1,611) (3,927) Gain on sale of investment securities - - (35,584) - (10,101) Write down of other real estate - - - 13,222 - Net change in operating accounts: Accrued interest receivable - investments 34,716 90,642 (34,506) 144,277 398,679 Accrued interest receivable - loans (106,726) (49,000) (178,131) (19,241) 116,644 Prepaid expenses (80,192) (68,886) 6,891 (9,383) 7,365 Other assets (1,168) 1,367 21,901 (9,401) (1,437) Unearned interest on loans (5,435) 4,599 3,959 898 (16,776) Accounts payable and accrued expenses (2,281) 17,513 (76,546) 76,610 36,800 Accrued interest payable 120,328 (23,640) 79,890 (101,837) (433,713) Income taxes payable 236,085 121,214 56,686 693 (29,765) Deferred income taxes - - (128,235) - - ---------- ---------- ----------- ----------- ----------- Net cash provided by operating activities 925,137 517,205 2,178,857 2,031,252 1,996,087 ---------- ---------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net decrease (increase) in interest-bearing deposits with banks 561,575 (159,973) 2,957,350 (918,736) 10,117,260 Purchases of property and equipment (31,691) (15,271) (517,362) (119,187) (147,194) Proceeds from sale of property & equipment - 2,800 2,800 4,000 - Purchases of investment securities held-for-investment - - - (20,690,101) (23,850,080) Purchases of investment securities available-for-sale (450,000) (2,872,812) (11,062,023) - - Proceeds from sales of investment securities held-for-investment - - - - 784,213 Proceeds from sales of investment securities available-for-sale - - 1,741,944 - - Proceeds from maturities of investment securities held-for-investment - - - 24,716,912 35,549,909 Proceeds from maturities of investment securities available-for-sale 664,568 2,726,621 5,579,700 - - Net decrease (increase) in federal funds sold (3,675,000) (300,000) 4,100,000 8,125,000 (13,975,000) Net increase in loans (347,485) (1,814,868) (7,576,201) (16,973,104) (11,268,353) Proceeds from sales of other real estate 22,700 1,203 69,331 61,896 206,065 Proceeds from sales of repossessions 3,175 3,800 5,470 15,047 9,411 ---------- ---------- ----------- ----------- ----------- Net cash used for investing activities (3,252,158) (2,428,500) (4,698,991) (5,778,273) (2,573,769) ---------- ---------- ----------- ----------- ----------- F - 5 82 THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------------ ------------------------------------ 1995 1994 1994 1993 1992 ---- ---- ---- ---- ---- (UNAUDITED) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand deposits and savings accounts $ 615,868 $1,398,991 $ 482,861 $ 9,200,093 $ 14,998,398 Net increase (decrease) in time deposits 2,787,478 (989,492) 2,137,090 (6,898,458) (16,085,532) Net increase (decrease) in securities sold under repurchase agreements 1,016,637 990,599 (1,029,344) (664,201) 1,020,094 Repayment of long-term debt (540,729) (537,866) (655,695) (443,242) (277,000) Repayment of short-term debt - - - (600,000) - Proceeds from borrowings - - - 4,000,000 1,850,000 Proceeds from issuance of common stock - - - 100,000 282,604 Redemption of common stock - - - - (1,971) Dividends paid to minority interests - - - - (11,380) ---------- ---------- ---------- ----------- ------------ Net cash provided from financing activities 3,879,254 862,232 934,912 4,694,192 1,775,213 ---------- ---------- ---------- ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,552,233 (1,049,063) (1,585,222) 947,171 1,197,531 Cash and cash equivalents - beginning of period 5,561,099 7,146,321 7,146,321 6,199,150 5,001,619 ---------- ---------- ---------- ----------- ------------ CASH AND CASH EQUIVALENTS - END OF PERIOD $7,113,332 $6,097,258 $5,561,099 $ 7,146,321 $ 6,199,150 ========== ========== ========== =========== ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $1,443,980 $1,240,171 $5,124,886 $ 5,001,403 $ 6,787,122 Income taxes 126,341 93,904 1,135,464 778,269 705,314 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Loans, other real estate and repossessions charged off to reserve $ 3,000 $ 3,595 $ 55,315 $ 45,240 $ 137,611 Loans transferred to other real estate and repossessions 41,663 4,268 67,792 42,607 234,496 Repossessions and other real estate transferred to fixed assets - 1,797 3,000 5,823 6,500 Company stock issued for 6.05% interest in subsidiary - - - - 193,354 The accompanying notes are an integral part of these consolidated financial statements
F - 6 83 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES -------------------------------------------------------- NATURE OF BUSINESS - Southwest Bancshares, Inc. (the Company) is the parent company for Southwest Bank, a wholly-owned subsidiary of the Company. The subsidiary's principal operation is commercial banking. The Company is also engaged in the sale of insurance. PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of the Company and its subsidiary as described above. All significant inter-company transactions and balances have been eliminated in consolidation. CONSOLIDATED STATEMENTS OF CASH FLOWS - For purposes of the consolidated statements of cash flows, cash consists of cash on hand and deposits with other financial institutions which are unrestricted as to withdrawal or use. Cash equivalents include highly-liquid instruments with an original maturity of three months or less. MERGER - The assets, liabilities and equity for four subsidiaries, formerly Southwest Bank of Polk County, Southwest Bank of Hickory County, Southwest Bank of Buffalo and Southwest Bank, NA, were merged on December 23, 1992, to form Southwest Bank. INVESTMENT SECURITIES - During the year ended December 31, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, which established three classifications of investment securities: held-to-maturity, trading and available-for- sale. Trading securities are acquired principally for the purpose of near term sales. Such securities are reported at fair value and unrealized gains and losses are included in income. Securities which are designated as held-to- maturity are designated as such because the investor has the ability and intent to hold these securities to maturity. Such securities are reported at amortized cost. All other securities are designated as available-for-sale, a designation which provides the investor with certain flexibility in managing its investment portfolio. Such securities are reported at fair value; net unrealized gains and losses are excluded from income and reported net of applicable income taxes as a separate component of stockholders' equity. Gains or losses on sales of securities are recognized in operations at the time of sale and are determined by the difference between the net sales proceeds and the cost of the securities using the specific identification method, adjusted for any unamortized premiums or discounts. Premiums or discounts are amortized or accreted to income using the interest method over the period to maturity. In adopting SFAS No. 115, the Company modified its accounting policies and designated its securities in accordance with the three classifications. The net unrealized losses have been reported as a separate component of stockholders' equity. At December 31, 1994, the Company had no securities designated as trading or held-to-maturity securities. For the years ended December 31, 1993 and 1992, the Company has presented all investment securities as being held-for-investment in the consolidated statements of financial condition and cash flows. F - 7 84 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED) -------------------------------------------------------------------- LOANS AND ALLOWANCE FOR CREDIT LOSSES - Loans are stated at the amount of unpaid principal, reduced by unearned discounts and an allowance for credit losses. Unearned discounts on installment loans are recognized as income over the terms of the loans by the interest method. Interest on other loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. The allowance for credit losses is established through a provision for credit losses charged to expense. Loans are charged against the allowance for credit losses when management believes that the collectability of principal is unlikely. The allowance is an amount that management believes will be adequate to absorb possible losses, based on evaluations of the collectability of credits and prior loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the credits, overall portfolio quality, review of specific problem credits, and current economic conditions that may affect the borrowers' ability to pay. Accrual of interest is discontinued on loans when management believes, after considering economic and business conditions and collection efforts, that the borrowers' financial condition is such that collection of interest is doubtful. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS - Real estate acquired in settlement of loans is carried at the lower of the balance of the related loan at the time of foreclosure or net realizable value. LOAN ORIGINATION FEES - The subsidiary credits fees for originating loans to income at the time a loan is closed, and charges direct loan origination costs to expense in the period they are incurred. The amortization of loan origination fees charged by the subsidiary would approximate the amortized direct costs of underwriting and closing loans. As a result, the items to which SFAS No. 91, Accounting for Nonrefundable Fees and Costs Associated With Originating or Acquiring Loans and Initial Direct Costs of Leases apply are immaterial to the Company's financial statements, and the provisions of SFAS No. 91 have not been adopted. NET INCOME PER SHARE OF COMMON STOCK - Net income per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. PROPERTY AND EQUIPMENT AND RELATED DEPRECIATION - Property and equipment has been stated at cost. Depreciation has been principally computed by applying the following methods and estimated lives:
CATEGORY ESTIMATED LIFE METHOD ------------------------------------ -------------- ----------------- Automobiles 5 years Straight-line and declining-balance Furniture, fixtures and equipment 5-10 years Straight-line and declining-balance Buildings and leasehold improvements 15-40 years Straight-line and declining-balance
GOODWILL - Goodwill represents the excess cost of an acquired financial institution over the fair value of its net assets at date of acquisition, and is being amortized on the straight-line method over ten years. Amortization expense charged to operations for 1994, 1993 and 1992 was $9,176 per year; accumulated amortization at December 31, 1994 and 1993 was $73,408 and $64,232, respectively. F - 8 85 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED) -------------------------------------------------------------------- INCOME TAXES - The Company files a consolidated federal income tax return with its wholly-owned subsidiary. The income tax effect of timing differences in reporting transactions for financial reporting and income tax purposes is reflected in the financial statements as deferred income taxes. During the year ended December 31, 1992, the Company adopted SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, income taxes are accounted for under the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. OFF BALANCE SHEET FINANCIAL INSTRUMENTS - In the ordinary course of business the subsidiary has entered into off balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. FAIR VALUES 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: Cash and short-term investments - The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets' fair values. Investment securities - Fair values for investment securities are based on quoted market prices. Loans receivable - For variable-rate mortgage loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair value for all other loans is estimated using discounted cash flow analyses, utilizing interest rates currently being offered for loans with similar terms. The carrying amount of accrued interest approximates its fair value. Off balance sheet financial instruments - The fair values of commitments to extend credit and standby letters of credit could not be reasonably estimated. Adequate information about effective interest rates and maturity periods was not available. Deposit liabilities - The fair value of demand deposits, savings accounts, and 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. F - 9 86 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED) -------------------------------------------------------------------- Short-term borrowings - The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Long-term borrowings - The fair values of the Company's long-term debt at December 31, 1994, are estimated using discounted cash flow analyses based on the Company's borrowing arrangements. At December 31, 1993, the carrying amount approximates its fair values. UNAUDITED FINANCIAL STATEMENTS - Information at March 31, 1995, and for the three months ended March 31, 1995 and 1994, is unaudited. In the opinion of management, the unaudited consolidated financial statements contain all adjustments (none of which were other than normal recurring entries) necessary for a fair presentation of the results of operations for the interim periods. NEW ACCOUNTING STANDARDS - In October 1994, FASB issued SFAS 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments." The adoption of SFAS 119 is required for fiscal years ending after December 15, 1994. The statement requires disclosures about derivative financial instruments and other financial instruments with similar characteristics that are not subject to SFAS 105, "Disclosure of Information About Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk." The Company does not hold any derivative financial instruments for which disclosure would be required under SFAS 119. In May 1993, the FASB issued SFAS 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS 118, which was issued in October 1994. The Statement requires impaired loans to be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. The adoption of SFAS 114, required in 1995, is not expected to have a material impact on Southwest's financial condition or results of operations. RECLASSIFICATION - Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. F - 10 87 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (2) INVESTMENT SECURITIES --------------------- Investment securities as shown in the consolidated balance sheets at December 31 were as follows:
Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------ ----------- ----------- ------------ Securities Available-for-Sale December 31, 1994: U.S. government & agency securities $ 34,076,627 $ 2,500 $ 734,170 $ 33,344,957 State and municipal securities 1,240,001 16,231 14,879 1,241,353 Other securities 1,009,300 155,875 -- 1,165,175 ------------ ---------- ---------- ------------ Total $ 36,325,928 $ 174,606 $ 749,049 $ 35,751,485 ============ ========== ========== ============ Securities Held-for-Investment December 31, 1993: U.S. government & agency securities $ 30,432,923 $ 178,457 $ 25,931 $ 30,585,449 State and municipal securities 1,115,600 38,575 788 1,153,387 Other securities 1,009,300 214,498 -- 1,223,798 ------------ ---------- ---------- ------------ Total $ 32,557,823 $ 431,530 $ 26,719 $ 32,962,634 ============ ========== ========== ============
Investment securities with original costs of $29,323,808 and $28,038,526 and market values of $28,693,240 and $28,092,018 for 1994 and 1993, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. Other securities consist of marketable equity securities with original costs of $1,009,300 and $1,009,300 and market values of $1,165,175 and $1,223,798 at December 31, 1994 and 1993, respectively. Gross realized gains on sales of U. S. Government and agency securities totaled $35,584 for 1994 and $10,101 for 1992. Income taxes relating to these gains totaled $13,200 for 1994 and $3,700 for 1992. The maturities of investment securities at December 31, 1994, were as follows:
AMORTIZED MARKET COST VALUE ------------ ------------ Due in one year or less $ 14,169,073 $ 13,976,703 Due from one to five years 20,554,167 20,041,254 Due from five to ten years 575,000 550,666 Due after ten years 18,388 17,687 Marketable equity securities 1,009,300 1,165,175 ------------ ------------ $ 36,325,928 $ 35,751,485 ============ ============
F - 11 88 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994 1993 AND 1992 (3) PROPERTY AND EQUIPMENT ----------------------
1994 1993 ----------------------------------- ---------------------------------- Accum. Accum. Category Cost Deprec. Net Cost Deprec. Net ------------- ---------- ---------- ---------- ---------- ---------- ---------- Land $ 656,340 $ -- $ 656,340 $ 234,893 $ -- $ 234,893 Buildings and improvements 1,990,723 927,988 1,062,735 1,938,847 855,682 1,083,165 Equipment 1,572,654 1,329,581 243,073 1,549,382 1,219,028 330,354 ---------- ---------- ---------- ---------- ---------- ---------- $4,219,717 $2,257,569 $1,962,148 $3,723,122 $2,074,710 $1,648,412 ========== ========== ========== ========== ========== ==========
Depreciation expense amounted to $186,272, $165,088 and $159,650 for the years ended December 31, 1994, 1993 and 1992, respectively. (4) LOANS ----- The components of loans in the consolidated balance sheets were as follows:
1994 1993 --------------- --------------- Commercial, financial and other $ 10,965,614 $ 14,571,746 Agricultural 2,893,052 3,227,785 Real estate: Mortgage - residential (1-4 family) 41,624,671 37,020,464 Mortgage - commercial and multi-family 48,982,593 41,747,323 Construction 6,304,613 6,589,243 Agricultural - real estate 9,348,841 8,972,934 Consumer 6,362,540 6,857,842 --------------- --------------- Total loans $ 126,481,924 $ 118,987,337 =============== ===============
Changes in the reserve for credit losses were as follows:
1994 1993 1992 ------------- ------------- ------------- Balances, beginning of year $ 1,103,048 $ 1,117,599 $ 1,062,775 Provision charged to operations -- -- 155,000 Loans charged off (55,315) (45,240) (137,611) Recoveries 45,052 30,689 37,435 ------------- ------------- ------------- Balances, end of year $ 1,092,785 $ 1,103,048 $ 1,117,599 ============= ============= =============
The estimated market value of loans was $124,892,393 and $118,022,802 at December 31, 1994 and 1993, respectively. The Company's subsidiary primarily grants real estate and commercial loans to customers throughout southwest Missouri. The loans are typically secured by real estate or personal property. (5) TIME DEPOSITS ------------- The aggregate amount of jumbo certificates of deposit with a minimum denomination of $100,000 was $11,945,000 and $11,651,115 at December 31, 1994 and 1993, respectively. F - 12 89 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994 1993 AND 1992 (5) TIME DEPOSITS (CONTINUED) ------------------------- The estimated market value of time deposits was $64,064,632 and $62,606,321 at December 31, 1994 and 1993, respectively. (6) INCOME TAXES ------------ The provision for income tax expense for the years ended December 31 are as follows:
1994 1993 1992 ------------- ------------ ------------ Currently payable: Federal $ 1,045,986 $ 711,635 $ 606,708 State 146,334 74,461 64,053 ------------- ------------ ------------ 1,192,320 786,096 670,761 Deferred (128,237) -- -- ------------- ------------ ------------ $ 1,064,083 $ 786,096 $ 670,761 ============= ============ ============
The provision for income taxes differs from that computed by applying the federal statutory rate of 34% in 1994, 1993 and 1992, as indicated in the following analysis:
1994 1993 1992 ------------ ---------- ---------- Tax based on statutory rate $ 1,134,797 $ 790,473 $ 648,774 Effect of: Tax-exempt income (34,995) (40,076) (51,725) Credit loss provisions -- (4,947) 38,671 Dividends received deduction (3,157) (3,079) (3,010) Interest and other nondeductible expenses 17,702 26,263 13,910 Other (net) (1,589) (22,955) (18,938) Recognition of net deferred tax benefits related to prior years timing differences (133,235) -- -- Provision for state taxes - net of federal tax benefit 84,560 40,417 43,079 ------------ ---------- ---------- $ 1,064,083 $ 786,096 $ 670,761 ============ ========== ==========
The components of deferred tax assets and liabilities as of December 31, 1994, consisted of: Deferred tax assets: Reserve for loan losses $ 404,330 Unrealized losses on securities available-for-sale 270,218 ----------- Total gross deferred tax benefits 674,548 ----------- Deferred tax liabilities: Bad debt reserve for tax purposes 200,870 Federal Home Loan Bank stock dividends 34,040 Unrealized gains on securities available-for-sale 57,674 Tax depreciation in excess of book depreciation 24,811 Deferred loan fees 4,098 Deferred accretion on investment securities 3,314 Other 8,962 ----------- Total gross deferred tax liabilities 333,769 ----------- Net deferred tax benefits $ 340,779 ===========
F - 13 90 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994 1993 AND 1992 (7) LONG-TERM DEBT -------------- Long-term debt consists of the following:
1994 1993 ----------- ------------ Advances from the Federal Home Loan Bank of Des Moines, secured by Federal Home Loan Bank stock, loans, invest- ment securities and deposit accounts of the subsidiary, with the following interest rates, repayment terms and maturity dates: 5.8%, interest payable monthly, matures January 1995 $ 500,000 $ 500,000 6.75%, interest payable monthly, matures January 1997 500,000 500,000 6.08%, interest payable monthly, matures August 1997 250,000 250,000 5.495%, principal and interest payable monthly, matures July 1998 946,009 984,709 5.00%, principal and interest payable monthly, matures September 1998 1,903,370 1,981,366 5.356%, principal and interest payable monthly, matures September 2000 951,684 990,683 Prime (floating) note to Mercantile Bank of St. Louis National Association, interest payable quarterly, principal payable in annual installments, matures January 1995, secured by the common stock of the subsidiary 1,500,000 2,000,000 Less debt maturing within one year (2,167,400) (355,700) ------------ ------------ Noncurrent portion of long-term debt $ 4,383,663 $ 6,851,058 ------------ ------------
Under terms of the loan agreement with Mercantile Bank of St. Louis, the Company and subsidiary are required to maintain certain ratios and capital levels, the more important of which are as follows: - Maintain, on a consolidated basis, an equity capital base of at least 5 percent of total assets. - Maintain total equity capital, on a consolidated basis, of not less than $8,800,000. - Cause the subsidiary to maintain a ratio of net income to average total assets for each calendar year of at least .6 percent. F - 14 91 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994 1993 AND 1992 (7) LONG-TERM DEBT (CONTINUED) -------------------------- Additional provisions restrict expenditures for the purchase of the Company's stock, the creation of liens on certain property, and the creation, incurrence or assumption of debt. Maturities of long-term debt are as follows: 1995 $2,167,400 1996 180,100 1997 943,700 1998 2,495,700 1999 56,000 Later years 708,163 ---------- $6,551,063 ==========
The estimated market value of debt was $6,138,896 at December 31, 1994. (8) LEASES ------ The subsidiary of the Company leases space for two main branch facilities from two entities which are related to the Company through common control and ownership. One branch is leased under a ten-year operating lease, expiring October 14, 2004, with a monthly rental of $5,035. A second branch is leased under a five-year operating lease expiring October 1, 1995, with renewal terms of three and five years, and monthly rental of $3,413. Rent expense, inclusive of the above amounts paid to related parties, was $101,397, $101,517 and $101,816 for the years ended December 31, 1994, 1993 and 1992, respectively. The future minimum lease payments under noncancelable operating leases at December 31, 1994, are as follows: 1995 $ 91,130 1996 60,417 1997 60,417 1998 60,417 1999 60,417 -------- $332,798 ========
(9) DEFERRED COMPENSATION PLAN -------------------------- The Company has established a deferred compensation plan under Section 401(k) of the Internal Revenue Code. The Plan covers all employees that meet minimum age requirements at the start of employment. The Company matches fifty cents for each dollar of eligible employee contributions, up to a maximum of three percent of an employee's total salary. Employee contributions may not exceed eight percent of their salary. Additional contributions can be made by the Company at the discretion of the Board of Directors. Contributions by the Company to the Plan for the years ended December 31, 1994, 1993 and 1992, amounted to $123,394, $68,511 and $28,430, respectively. F - 15 92 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994 1993 AND 1992 (10) RELATED-PARTY TRANSACTIONS -------------------------- In the ordinary course of business, the subsidiary makes loans to its directors and policy-making officers on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other customers. Loans outstanding, both direct and indirect, to directors and policy-making officers of the subsidiary was as follows:
YEAR ENDED DECEMBER 31, 1994 ---------------------------- Beginning balance $ 847,568 Originations and advances 649,650 Principal payments 811,222 ---------- Ending Balance $ 685,996 ==========
(11) CONTINGENT LIABILITIES AND COMMITMENTS -------------------------------------- The consolidated financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk and liquidity risk. These commitments and contingent liabilities are standby letters of credit. A summary of the Bank's commitments and contingent liabilities at December 31, 1994, is as follows: Standby letters of credit $1,088,975 ==========
Commitments for standby letters of credit include exposure to some credit loss in the event of nonperformance of the customer. The subsidiary's credit policies and procedures for credit commitment and financial guarantees are the same as those for extension of credit that are recorded on the consolidated statements of condition. Because these instruments have fixed maturity dates, and because many of them expire without being drawn upon, they do not generally present any significant liquidity risk. (12) REGULATORY MATTERS ------------------ The subsidiary is required to maintain minimum amounts of capital to total "risk weighted" assets, as defined by the banking regulators. At December 31, 1994, the subsidiary is required to have minimum Tier 1 and total capital ratios of 4.00% and 8.00%, respectively. The actual ratios are as follows:
TIER 1 TOTAL CAPITAL LEVERAGE ------ ------------- -------- Southwest Bank 13.86% 14.82% 9.01% Southwest Bancshares, Inc. 12.80 13.76 8.22
F - 16 93 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994 1993 AND 1992 (13) SHORT-TERM BORROWINGS --------------------- Securities sold under agreements to repurchase will mature during 1995. Other borrowed funds consist of treasury tax and loan deposits which generally mature within 1 to 120 days from the transaction date. (14) ACQUISITION ----------- On September 18, 1992, the Company issued 667 shares of common stock in exchange for 6,049 shares of common stock of Southwest Bank of Hickory County. This transaction made Southwest Bank of Hickory County a wholly-owned subsidiary of the Company. The book value of the subsidiary's stock acquired by the Company was $193,354. (15) CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY ----------------------------------------------------- Following is condensed financial information of the Company as of December 31, 1994 and 1993, and for the years ended December 31, 1994, 1993 and 1992: CONDENSED BALANCE SHEETS PARENT COMPANY ONLY DECEMBER 31, 1994 AND 1993
1994 1993 ------------ ------------ ASSETS ------ Cash and cash equivalents $ 98,985 $ 216,722 Due from subsidiary 135,860 21,709 Investment in subsidiary 15,306,116 13,870,510 Property and equipment 63,444 74,939 Other assets 576,348 431,548 ------------ ------------ Total assets $ 16,180,753 $ 14,615,428 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Notes payable $ 1,500,000 $ 2,000,000 Other liabilities 243,100 89,430 ------------ ------------ Total liabilities 1,743,100 2,089,430 Stockholders' equity 14,437,653 12,525,998 ------------ ------------ Total liabilities and stockholders' equity $ 16,180,753 $ 14,615,428 ============ ============
F - 17 94 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994 1993 AND 1992 (15) CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED) ----------------------------------------------------------------- CONDENSED STATEMENTS OF INCOME PARENT COMPANY ONLY YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 ----------- ----------- ------------ INCOME: Commissions and premiums (net of refunds) $ 101,586 $ 107,366 $ 101,662 Other 56,351 56,476 62,382 ----------- ----------- ------------ Total income 157,937 163,842 164,044 ----------- ----------- ------------ EXPENSES: Salaries and employee benefits 243,755 231,706 202,117 Net occupancy and equipment expense 21,118 19,310 45,684 Interest 109,176 123,461 151,423 Premiums 54,281 64,847 64,027 Professional fees -- 36,285 55,340 Commissions 19,364 34,339 7,464 Other 60,860 60,301 48,177 ----------- ----------- ------------ Total expenses 508,554 570,249 574,232 ----------- ----------- ------------ EQUITY IN EARNINGS OF SUBSIDIARY 2,495,708 1,793,857 1,510,073 ----------- ----------- ------------ Net income before income taxes 2,145,091 1,387,450 1,099,885 Income tax benefits 128,465 151,375 137,512 ----------- ----------- ------------ NET INCOME $ 2,273,556 $ 1,538,825 $ 1,237,397 =========== =========== ============
F - 18 95 SOUTHWEST BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994 1993 AND 1992 (15) CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED) ----------------------------------------------------------------- CONDENSED STATEMENTS OF CASH FLOWS PARENT COMPANY ONLY YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 CASH FLOWS FROM OPERATING ACTIVITIES: Net income 2,273,556 1,538,825 1,237,397 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 20,671 20,648 12,717 Equity in earnings of subsidiary (2,495,708) (1,793,857) (1,510,073) Due from/to subsidiary (114,151) (31,843) 57,717 Other 97,895 38,096 (15,696) ----------- ----------- ----------- Net cash used for operating activities (217,737) (228,131) (217,938) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment -- (3,885) (76,279) Dividends received from subsidiary 600,000 400,000 476,620 Purchase of subsidiary stock -- -- (371) ----------- ----------- ----------- Net cash provided from investing activities 600,000 396,115 399,970 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock - 100,000 282,604 Repayment of long-term debt (500,000) (400,000) (277,000) Repurchase of directors' stock -- -- (1,600) ----------- ----------- ----------- Net cash provided from (used for) financing activities (500,000) (300,000) 4,004 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (117,737) (132,016) 186,036 Cash and cash equivalents - beginning of year 216,722 348,738 162,702 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 98,985 $ 216,722 $ 348,738 =========== =========== ===========
(16) AGREEMENT AND PLAN OF REORGANIZATION ------------------------------------ On January 27, 1995, the Company signed a definitive agreement to merge with Ameribanc, Inc., a wholly owned subsidiary of Mercantile Bancorporation Inc. Terms of the agreement call for the exchange of 18.7599 shares of Mercantile Bancorporation Inc. common stock for each share of the Company's common stock. The transaction is expected to be accounted for as a pooling of interests. The merger is subject to approval of the appropriate regulatory authorities and the stockholders of the Company. F - 19 96 ANNEX A ------- Following is the text of the statutory appraisal right as set forth at Section 351.455 of The General and Business Corporation Law of Missouri: 351.455 SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE OF SHARES, WHEN.--1. If a shareholder of a corporation which is a party to a merger or consolidation shall file with such corporation, prior to or at the meeting of shareholders at which the plan of merger or consolidation is submitted to a vote, a written objection to such plan of merger or consolidation, and shall not vote in favor thereof, and such shareholder, within twenty days after the merger or consolidation is effected, shall make written demand on the surviving or new corporation 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 or consolidation, the surviving or new corporation shall pay to such shareholder, upon surrender of his certificate or certificates representing said shares, the fair value thereof. Such demand shall state the number and class of the shares owned by such dissenting shareholder. Any shareholder failing to make demand within the twenty day period shall be conclusively presumed to have consented to the merger or consolidation and shall be bound by the terms thereof. 2. If within thirty days after the date on which such merger or consolidation was effected the value of such shares is agreed upon between the dissenting shareholder and the surviving or new corporation, payment therefor shall be made within ninety days after the date on which such merger or consolidation was effected, upon the surrender of his certificate or certificates representing said shares. Upon payment of the agreed value the dissenting shareholder shall cease to have any interest in such shares or in the corporation. 3. If within such period of thirty days the shareholder and the surviving or new corporation do not so agree, then the dissenting shareholder may, within sixty days after the expiration of the thirty day period, file a petition in any court of competent jurisdiction within the county in which the registered office of the surviving or new corporation is situated, asking for a finding and determination of the fair value of such shares, and shall be entitled to judgment against the surviving or new corporation for the amount of such fair value as of the day prior to the date on which such vote was taken approving such merger or consolidation, together with interest thereon to the date of such judgment. The judgment shall be payable only upon and simultaneously with the surrender to the surviving or new corporation of the certificate or certificates representing said shares. Upon the payment of the judgment, the dissenting shareholder shall cease to have any interest in such shares, or in the surviving or new corporation. Such shares may be held and disposed of by the surviving or new corporation as it may see fit. Unless the dissenting shareholder shall file such petition within the time herein limited, such shareholder and all persons claiming under him shall be conclusively presumed to have approved and ratified the merger or consolidation, and shall be bound by the terms thereof. 4. The right of a dissenting shareholder to be paid the fair value of his shares as herein provided shall cease if and when the corporation shall abandon the merger or consolidation. A - 1 97 PROXY SOUTHWEST BANCSHARES, INC. 102 SOUTH SPRINGFIELD STREET BOLIVAR, MISSOURI 65613 FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD -----------------, 1995 THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS The undersigned shareholder(s) of SOUTHWEST BANCSHARES, INC. ("Southwest"), does hereby nominate, constitute and appoint - ----------------------- and -----------------------, or each of them (with full power to act alone), true and lawful attorney(s), with full power of substitution, for the undersigned and in the name, place and stead of the undersigned to vote all of the shares of Common Stock, $10.00 par value, of Southwest standing in the name of the undersigned on its books at the close of business on ------------------, 1995 at the Special Meeting of Shareholders to be held at ------------------------, - ---------------------------, Bolivar, Missouri, on -----------------, 1995, at --:00 -.m. Central Time, and at any adjournments or postponements thereof, with all the powers the undersigned would possess if personally present, as follows: 1. To consider and vote upon the adoption and approval of the Agreement and Plan of Merger dated January 27, 1995 (the "Merger Agreement"), pursuant to which Southwest will be merged with and into a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI") and whereby, upon consummation of the merger, all shares of Southwest Common Stock will be converted into an aggregate of up to 675,000 shares of MBI Common Stock, as set forth in detail in the Merger Agreement. / / for / / against / / abstain 2. To transact such other business as may properly come before the Special Meeting or any adjournments or postponements thereof. (Continued on Reverse Side) THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN HEREIN, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL LISTED ABOVE. Dated: --------------- -------------------------------------------- Signature of Shareholder -------------------------------------------- Signature of Shareholder When signing as an attorney, executor, administrator, trustee or guardian, please give full title. If more than one person holds the power to vote the same shares, all must sign. All joint owners must sign. PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE. 98 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ------------------------------------------ Item 20. Indemnification of Officers and Directors - --------------------------------------------------- Sections 351.355(1) and (2) of The General and Business Corporation Law of the State of Missouri provide that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, except that, in the case of an action or suit by or in the right of the corporation, the corporation may not indemnify such persons against judgments and fines and no person shall be indemnified as to any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation, unless and only to the extent that the court in which the action or suit was brought determines upon application that such person is fairly and reasonably entitled to indemnity for proper expenses. Section 351.355(3) provides that, to the extent that a director, officer, employee or agent of the corporation has been successful in the defense of any such action, suit or proceeding or any claim, issue or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred in connection with such action, suit or proceeding. Section 351.355(7) provides that a corporation may provide additional indemnification to any person indemnifiable under subsection (1) or (2), provided such additional indemnification is authorized by the corporation's articles of incorporation or an amendment thereto or by a shareholder-approved bylaw or agreement, and provided further that no person shall thereby be indemnified against conduct which was finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct or which involved an accounting for profits pursuant to Section 16(b) of the Securities Exchange Act of 1934. Article 12 of the Restated Articles of Incorporation of MBI provides that MBI shall extend to its directors and executive officers the indemnification specified in subsections (1) and (2) and the additional indemnification authorized in subsection (7) and that it may extend to other officers, employees and agents such indemnification and additional indemnification. Pursuant to directors' and officers' liability insurance policies, with total annual limits of $30,000,000, MBI's directors and officers are insured, subject to the limits, retention, exceptions and other terms and conditions of such policy, against liability for any actual or alleged error, misstatement, misleading statement, act or omission, or neglect or breach of duty by the directors or officers of MBI, individually or collectively, or any matter claimed against them solely by reason of their being directors or officers of MBI. II-1 99 Item 21. Exhibits and Financial Statement Schedules - ---------------------------------------------------- A. Exhibits. See Exhibit Index. --------- B. Financial Statement Schedules. Not Applicable. ------------------------------ Item 22. Undertakings - ---------------------- (1) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of MBI pursuant to the foregoing provisions, or otherwise, MBI has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by MBI of expenses incurred or paid by a director, officer or controlling person of MBI in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, MBI will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (2) MBI hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of MBI's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) MBI hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (4) MBI undertakes that every prospectus (i) that is filed pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415 (Section 230.415 of this chapter), will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) MBI hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within one 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. II-2 100 (6) MBI hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. (7) MBI hereby undertakes: (a) To file during any period in which offers and sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof), which individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (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-3 101 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, MBI has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri, on June 8, 1995. MERCANTILE BANCORPORATION INC. /s/ Thomas H. Jacobsen By -------------------------------------------- Thomas H. Jacobsen Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY We, the undersigned officers and directors of Mercantile Bancorporation Inc., hereby severally and individually constitute and appoint Thomas H. Jacobsen and W. Randolph Adams, and each of them, the true and lawful attorneys and agents of each of us to execute in the name, place and stead of each of us (individually and in any capacity stated below) any and all amendments to this Registration Statement on Form S-4 and all instruments necessary or advisable in connection therewith and to file the same with the Securities and Exchange Commission, each of said attorneys and agents to have the power to act with or without the others and to have full power and authority to do and perform in the name and on behalf of each of the undersigned every act whatsoever necessary or advisable to be done in the premises as fully and to all intents and purposes as any of the undersigned might or could do in person, and we hereby ratify and confirm our signatures as they may be signed by our said attorneys and agents or each of them to any and all such amendments and instruments. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/ Thomas H. Jacobsen - ------------------------------ Chairman of the Board, June 8, 1995 Thomas H. Jacobsen President, Chief Executive Principal Executive Officer Officer and Director /s/ W. Randolph Adams - ----------------------------- Senior Executive Vice President June 8, 1995 W. Randolph Adams and Chief Financial Officer Principal Financial Officer /s/ Michael T. Normile - ------------------------------ Senior Vice President - Finance June 8, 1995 Michael T. Normile and Control Principal Accounting Officer II-4 102 Signature Title Date --------- ----- ---- /s/ Richard P. Conerly - ------------------------------ Director June 8, 1995 Richard P. Conerly - ------------------------------ Director June __, 1995 Harry M. Cornell, Jr. /s/ Earl K. Dille - ------------------------------ Director June 1, 1995 Earl K. Dille /s/ J. Cliff Eason - ------------------------------ Director June 8, 1995 J. Cliff Eason /s/ Bernard A. Edison - ------------------------------ Director June 5, 1995 Bernard A. Edison /s/ William A. Hall - ------------------------------ Director June 8, 1995 William A. Hall /s/ Thomas A. Hays - ------------------------------ Director June 1, 1995 Thomas A. Hays /s/ William G. Heckman - ------------------------------ Director June 8, 1995 William G. Heckman - ------------------------------ Director June __, 1995 Frank Lyon, Jr. /s/ Charles H. Price II - ------------------------------ Director June 8, 1995 Charles H. Price II II-5 103 Signature Title Date --------- ----- ---- /s/ Harvey Saligman - ------------------------------ Director June 6, 1995 Harvey Saligman /s/ Craig D. Schnuck - ------------------------------ Director June 5, 1995 Craig D. Schnuck - ------------------------------ Director June __, 1995 Robert L. Stark /s/ Patrick T. Stokes - ------------------------------ Director June 2, 1995 Patrick T. Stokes /s/ Francis A. Stroble - ------------------------------ Director June 8, 1995 Francis A. Stroble /s/ John A. Wright - ------------------------------ Director June 2, 1995 John A. Wright II-6 104
EXHIBIT INDEX
Exhibit Number Description Page - ------- ----------- ---- 2.1 Agreement and Plan of Merger dated as of January 27, 1995 by and among MBI, Ameribanc, Inc. and Southwest. 2.2 Form of Voting Agreement dated as of January 27, 1995 by and between MBI and each of the directors of Southwest. 3.1 MBI's Restated Articles of Incorporation, as amended and currently in effect, filed as Exhibit 3.1 to MBI's Registration Statement No. 33-63196, are incorporated herein by reference. 3.2 MBI's By-Laws, as amended and currently in effect, filed as Exhibit 3.2 to MBI's Registration Statement No. 33-57489, are incorporated herein by reference. 4.1 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, is incorporated herein by reference. 4.2 Rights Agreement dated as of May 23, 1988 between MBI and Mercantile Bank, as Rights Agent (including as exhibits thereto the form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock and the form of Right Certificate), filed as Exhibits 1 and 2 to MBI's Registration Statement No. 0-6045 on Form 8-A, dated May 24, 1988, is incorporated herein by reference. 4.3 Certificate of Designation, Preferences, and Relative Rights, Qualifications, Limitations and Restrictions of the Series B-1 Preferred Stock of MBI, filed as Exhibit 4-1 to MBI's Report on Form 10-Q for the quarter ended March 31, 1995 (File No. 1-11792), is incorporated herein by reference. 4.4 Certificate of Designation, Preferences, and Relative Rights, Qualifications, Limitations and Restrictions of the Series B-2 Preferred Stock of MBI, filed as Exhibit 4-2 to MBI's Report on Form 10-Q for the quarter ended March 31, 1995 (File No. 1-11792), is incorporated herein by reference. 5.1 Opinion of Thompson & Mitchell as to the legality of the securities being registered. 8.1 Opinion of Thompson & Mitchell regarding certain tax matters in the Merger. 10.1 The Mercantile Bancorporation Inc. 1987 Stock Option Plan, as amended, filed as Exhibit 10-3 to MBI's Report on Form 10-K for the year ended December 31, 1989 (File No. 1-11792), is incorporated herein by reference. II-7 105 Exhibit Number Description Page - ------- ----------- ---- 10.2 Mercantile Bancorporation Inc. Amended and Restated Retirement Plan for Directors filed as Exhibit 10 to MBI's Report on Form 10-Q for the quarter ended March 31, 1995 (File No. 1-11792), is incorporated herein by reference. 10.3 The Mercantile Bancorporation Inc. Executive Incentive Compensation Plan, filed as Appendix C to MBI's definitive Proxy Statement for the 1994 Annual Meeting of Shareholders is incorporated herein by reference. 10.4 The Mercantile Bancorporation Inc. Employee Stock Purchase Plan, filed as Exhibit 10-7 to MBI's Report on Form 10-K for the year ended December 31, 1989 (File No. 1-11792), is incorporated herein by reference. 10.5 The Mercantile Bancorporation Inc. 1991 Employee Incentive Plan, filed as Exhibit 10-7 to MBI's Report on Form 10-K for the year ended December 31, 1990 (File No. 1-11792), is incorporated herein by reference. 10.6 Amendment Number One to the Mercantile Bancorporation Inc. 1991 Employee Incentive Plan, filed as Exhibit 10-6 to MBI's Report on Form 10-K for the year ended December 31, 1994, is incorporated herein by reference. 10.7 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan, filed as Appendix B to MBI's definitive Proxy Statement for the 1994 Annual Meeting of Shareholders, is incorporated herein by reference. 10.8 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan for Non-Employee Directors, filed as Appendix E to MBI's definitive Proxy Statement for the 1994 Annual Meeting of Shareholders, is incorporated herein by reference. 10.9 The Mercantile Bancorporation Inc. Voluntary Deferred Compensation Plan, filed as Appendix D to MBI's definitive Proxy Statement for the 1994 Annual Meeting of Shareholders, is incorporated herein by reference. 10.10 Form of Employment Agreement for Thomas H. Jacobsen, as amended, filed as Exhibit 10-8 to MBI's Report on Form 10-K for the year ended December 31, 1989 (File No. 1-11792), is incorporated herein by reference. 10.11 Form of Employment Agreement for John W. McClure, W. Randolph Adams, John Q. Arnold and Certain Other Executive Officers, as amended, filed as Exhibit 10-9 to MBI's Report on Form 10-K for the year ended December 31, 1989 (File No. 1-11792), is incorporated herein by reference. 10.12 Form of Change of Control Employment Agreement for John W. McClure, W. Randolph Adams, John Q. Arnold and Certain Other Executive Officers, filed as Exhibit 10-10 to MBI's Report on Form 10-K for the year ended December 31, 1989 (File No. 1-11792), is incorporated herein by reference. II-8 106 Exhibit Number Description Page - ------- ----------- ---- 10.13 Agreement and Plan of Reorganization dated August 17, 1993, by and among MBI and United Postal Bancorp, Inc., filed as Exhibit 2.1 to MBI's Registration Statement No. 33-50981, is incorporated herein by reference. 10.14 Amended and Restated Agreement and Plan of Reorganization dated as of December 2, 1994 by and among MBI and TCBankshares, Inc., filed as Exhibit 2.1 to MBI's Report on Form 8-K dated December 21, 1994, is incorporated herein by reference. 10.15 The Mercantile Bancorporation Inc. Supplemental Retirement Plan, filed as Exhibit 10-12 to MBI's Report on Form 10-K for the year ended December 31, 1992 (File No. 1-11792), is incorporated herein by reference. 23.1 Consent of KPMG Peat Marwick LLP with regard to use of its reports on MBI's financial statements. 23.2 Consent of Kirkpatrick, Phillips & Miller with regard to the use of its report on Southwest's financial statements. 23.3 Consent of Thompson & Mitchell (included in Exhibit 5.1). 24.1 Power of Attorney (included on signature page hereto).
II-9 EX-2.1 2 AGREEMENT AND PLAN OF MERGER 1 Exhibit 2.1 ====================================================================== AGREEMENT AND PLAN OF MERGER between MERCANTILE BANCORPORATION INC. and AMERIBANC, INC. as Buyers, and SOUTHWEST BANCSHARES, INC. as Seller ------------------------------ Dated January 27, 1995 ====================================================================== 2
TABLE OF CONTENTS Page ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . 2 1.01. The Merger . . . . . . . . . . . . . . . . . . . . 2 1.02. Closing. . . . . . . . . . . . . . . . . . . . . . 2 1.03. Effective Time . . . . . . . . . . . . . . . . . . 2 1.04. Additional Actions . . . . . . . . . . . . . . . . 3 1.05. Articles of Incorporation and Bylaws . . . . . . . 3 1.06. Boards of Directors and Officers . . . . . . . . . 3 1.07. Conversion of Securities . . . . . . . . . . . . . 4 1.08. Exchange Procedures. . . . . . . . . . . . . . . . 5 1.09. Dissenting Shares. . . . . . . . . . . . . . . . . 7 1.10. No Fractional Shares . . . . . . . . . . . . . . . 8 1.11. Closing of Stock Transfer Books. . . . . . . . . . 8 1.12. Anti-Dilution Adjustments. . . . . . . . . . . . . 8 1.13. Reservation of Right to Revise Transaction . . . . 9 ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER . . . . . . . . . . . . . . . . . . . . . . 10 2.01. Organization and Authority . . . . . . . . . . . . 10 2.02. Subsidiaries . . . . . . . . . . . . . . . . . . . 10 2.03. Capitalization . . . . . . . . . . . . . . . . . . 12 2.04. Authorization. . . . . . . . . . . . . . . . . . . 13 2.05. Seller Financial Statements. . . . . . . . . . . . 15 2.06. Seller Reports . . . . . . . . . . . . . . . . . . 16 2.07. Title to and Condition of Assets . . . . . . . . . 17 2.08. Real Property. . . . . . . . . . . . . . . . . . . 18 2.09. Taxes. . . . . . . . . . . . . . . . . . . . . . . 20 2.10. Material Adverse Change. . . . . . . . . . . . . . 21 2.11. Loans, Commitments and Contracts . . . . . . . . . 21 2.12. Absence of Defaults. . . . . . . . . . . . . . . . 27 2.13. Litigation and Other Proceedings . . . . . . . . . 27 2.14. Directors' and Officers' Insurance . . . . . . . . 28 2.15. Compliance with Laws . . . . . . . . . . . . . . . 28 2.16. Labor. . . . . . . . . . . . . . . . . . . . . . . 32 2.17. Material Interests of Certain Persons. . . . . . . 33 2.18. Allowance for Loan and Lease Losses; Non- Performing Assets. . . . . . . . . . . . . . . . . 33 2.19. Employee Benefit Plans . . . . . . . . . . . . . . 34 2.20. Conduct of Seller to Date. . . . . . . . . . . . . 37 2.21. Absence of Undisclosed Liabilities . . . . . . . . 39 2.22. Proxy Statement, etc.. . . . . . . . . . . . . . . 40 2.23. Registration Obligations . . . . . . . . . . . . . 41 2.24. Tax and Regulatory Matters . . . . . . . . . . . . 41 2.25. Brokers and Finders. . . . . . . . . . . . . . . . 41 2.26. Interest Rate Risk Management Instruments. . . . . 42 2.27. Accuracy of Information. . . . . . . . . . . . . . 42 3 Page ---- ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS . . . . . . . . . . . . . . . . . . . . . . 42 3.01. Organization and Authority . . . . . . . . . . . . 42 3.02. Capitalization of Mercantile . . . . . . . . . . . 43 3.03. Authorization. . . . . . . . . . . . . . . . . . . 46 3.04. Mercantile Financial Statements. . . . . . . . . . 47 3.05. Mercantile Reports . . . . . . . . . . . . . . . . 48 3.06. Material Adverse Change. . . . . . . . . . . . . . 49 3.07. Legal Proceedings or Other Adverse Facts . . . . . 49 3.08. Registration Statement, etc. . . . . . . . . . . . 50 3.09. Brokers and Finders. . . . . . . . . . . . . . . . 50 3.10. Accuracy of Information. . . . . . . . . . . . . . 51 ARTICLE IV CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . 51 4.01. Conduct of Businesses Prior to the Effective Time . . . . . . . . . . . . . . . . . . . . . . . 51 4.02. Forbearances of Seller . . . . . . . . . . . . . . 51 4.03. Forbearances of Buyers . . . . . . . . . . . . . . 56 ARTICLE V ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . 57 5.01. Access and Information . . . . . . . . . . . . . . 57 5.02. Registration Statement; Regulatory Matters . . . . 59 5.03. Shareholder Approval . . . . . . . . . . . . . . . 60 5.04. Current Information. . . . . . . . . . . . . . . . 61 5.05. Agreements of Affiliates . . . . . . . . . . . . . 61 5.06. Expenses . . . . . . . . . . . . . . . . . . . . . 62 5.07. Miscellaneous Agreements and Consents. . . . . . . 62 5.08. Employee Agreements and Benefits . . . . . . . . . 63 5.09. Press Releases . . . . . . . . . . . . . . . . . . 64 5.10. State Takeover Statutes. . . . . . . . . . . . . . 64 5.11. Directors' and Officers' Indemnification . . . . . 64 5.12. Tax Opinion Certificates . . . . . . . . . . . . . 65 5.13. Best Efforts to Insure Pooling . . . . . . . . . . 65 ARTICLE VI CONDITIONS . . . . . . . . . . . . . . . . . . . . 66 6.01. Conditions to Each Party's Obligation To Effect the Merger . . . . . . . . . . . . . . . . . . . . 66 6.02. Conditions to Obligations of Seller To Effect the Merger . . . . . . . . . . . . . . . . . . . . 67 6.03. Conditions to Obligations of Buyers To Effect the Merger . . . . . . . . . . . . . . . . . . . . 69 - ii - 4 Page ---- ARTICLE VII TERMINATION, AMENDMENT AND WAIVER. . . . . . . . . 71 7.01. Termination. . . . . . . . . . . . . . . . . . . . 71 7.02. Effect of Termination. . . . . . . . . . . . . . . 72 7.03. Amendment. . . . . . . . . . . . . . . . . . . . . 73 7.04. Waiver . . . . . . . . . . . . . . . . . . . . . . 73 ARTICLE VIII GENERAL PROVISIONS . . . . . . . . . . . . . . . . 74 8.01. Non-Survival of Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . . . . 74 8.02. Indemnification. . . . . . . . . . . . . . . . . . 74 8.03. No Assignment; Successors and Assigns. . . . . . . 75 8.04. No Implied Waiver. . . . . . . . . . . . . . . . . 76 8.05. Headings . . . . . . . . . . . . . . . . . . . . . 76 8.06. Entire Agreement . . . . . . . . . . . . . . . . . 76 8.07. Counterparts . . . . . . . . . . . . . . . . . . . 76 8.08. Notices. . . . . . . . . . . . . . . . . . . . . . 77 8.09. Severability . . . . . . . . . . . . . . . . . . . 78 8.10. Governing Law. . . . . . . . . . . . . . . . . . . 78 Exhibit A Form of Affiliate Agreement Exhibit B Officer/Director Tax Certificate Exhibit C Shareholder Tax Certificate Exhibit D Form of Opinion of Counsel at Mercantile Exhibit E Form of Opinion of Counsel of Seller
- iii - 5 AGREEMENT AND PLAN OF MERGER ---------------------------- This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered into on January 27, 1995 by and among MERCANTILE BANCORPORATION INC., a Missouri corporation ("Mercantile"), AMERIBANC, INC., a Missouri corporation ("Merger Sub" and, collectively with Mercantile, the "Buyers") and SOUTHWEST BANCSHARES, INC., a Missouri corporation ("Seller"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Merger Sub is a wholly owned subsidiary of Mercantile, and each of Mercantile and Merger Sub is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHCA"); and WHEREAS, Seller is registered as a bank holding company under the BHCA; and WHEREAS, the respective Boards of Directors of Seller and Merger Sub and the Executive Committee of the Board of Directors of Mercantile have approved the merger (the "Merger") of Seller with and into Merger Sub pursuant to the terms and subject to the conditions of this Agreement; and WHEREAS, the parties desire to provide for certain undertakings, conditions, representations, warranties and covenants in connection with the transactions contemplated by this Agreement. NOW THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties agree as follows: 6 ARTICLE I --------- THE MERGER 1.01. The Merger. (a) Subject to the terms and ---------- conditions of this Agreement, Seller shall be merged with and into Merger Sub in accordance with Chapter 351 of the Missouri Revised Statutes (the "Missouri Statute"), and the separate corporate existence of Seller shall cease. Merger Sub shall be the surviving corporation of the Merger (sometimes referred to herein as the "Surviving Corporation") and shall continue to be governed by the laws of the State of Missouri. 1.02. Closing. The closing (the "Closing") of the ------- Merger shall take place at 10:00 a.m., local time, on the date that the Effective Time (as defined in Section 1.03) occurs (the "Closing Date"), or at such other time, and at such place, as Buyers and Seller shall agree. 1.03. Effective Time. The Merger shall become -------------- effective (the "Effective Time") upon the issuance of the certifi- cate of merger by the Secretary of State of the State of Missouri. Unless otherwise mutually agreed in writing by Buyers and Seller, subject to the terms and conditions of this Agreement, the Effective Time shall occur on such date as Buyers shall notify Seller in writing (such notice to be at least five business days in advance of the Effective Time) but (i) not earlier than the satisfaction of all conditions set forth in Section 6.01(a) and 6.01(b) (the "Approval Date") and (ii) not later than the first business day of the first full calendar month commencing at least five business days after the Approval Date. - 2 - 7 1.04. Additional Actions. If, at any time after the ------------------ Effective Time, Buyers or the Surviving Corporation shall consider or be advised that any further deeds, assignments or assurances or any other acts are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of Seller or Merger Sub or (b) otherwise carry out the purposes of this Agreement, Seller and Merger Sub and each of their respective officers and directors, shall be deemed to have granted to the Surviving Corporation an irrevocable power of attorney to execute and deliver all such deeds, assignments or assurances and to do all acts necessary or desirable to vest, perfect or confirm title and possession to such rights, properties or assets in the Surviving Corporation and otherwise to carry out the purposes of this Agreement, and the officers and directors of the Surviving Corporation are authorized in the name of Seller or otherwise to take any and all such action. 1.05. Articles of Incorporation and Bylaws. The ------------------------------------ Articles of Incorporation and Bylaws of Merger Sub in effect immediately prior to the Effective Time shall be the Articles of Incorporation and Bylaws of the Surviving Corporation following the Merger until otherwise amended or repealed. 1.06. Boards of Directors and Officers. At the -------------------------------- Effective Time, the directors and officers of Merger Sub immediately prior to the Effective Time shall be directors and officers, respectively, of the Surviving Corporation following the Merger and such directors and officers shall hold office in - 3 - 8 accordance with the Surviving Corporation's Bylaws and applicable law. 1.07. Conversion of Securities. At the Effective Time, ------------------------ by virtue of the Merger and without any action on the part of Buyers, Seller or the holder of any of the following securities: (a) Each share of the common stock, $1.00 par value, of Merger Sub that is issued and outstanding immediately prior to the Effective Time shall remain outstanding and shall be unchanged after the Merger and shall thereafter constitute all of the issued and outstanding capital stock of the Surviving Corpora- tion; and (b) Each share of common stock, $10.00 par value, of Seller ("Seller Common Stock") issued and outstanding at the Effective Time (other than any shares held by Seller, Mercantile 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)), shall cease to be outstanding and shall be converted into and become the right to receive 18.7599 shares (the "Exchange Ratio") of common stock, $5.00 par value, of Mercantile and the associated "Rights" under the "Rights Agreement", as those terms are defined in Section 3.03 hereof ("Mercantile Common Stock"); provided, however, in no -------- ------- event shall the aggregate number of shares of Mercantile Common Stock issued in the Merger exceed 675,000. The Exchange Ratio was computed by aggregating the total number of shares of Seller Common Stock that were issued and outstanding on the date of this - 4 - 9 Agreement with the total number of shares of Seller Common Stock that are reserved for issuance pursuant to options, warrants, scrip, rights to subscribe to, calls or commitments relating to, or securities or rights convertible into, Seller Common Stock. 1.08. Exchange Procedures. ------------------- (a) At the Effective Time, holders of record of certificates formerly representing shares of Seller Common Stock (the "Certificates") shall be instructed to tender such Certificates to Buyers pursuant to a letter of transmittal that Mercantile shall deliver or cause to be delivered to such holders. Such letters of transmittal shall specify that risk of loss and title to Certificates shall pass only upon delivery of such Certificates to Buyers. (b) Subject to Section 1.11, after the Effective Time, each previous holder of a Certificate that surrenders such Certificate to the Buyers will, upon acceptance thereof by Buyers, be entitled to a certificate or certificates representing the number of full shares of Mercantile Common Stock, into which the Certificate so surrendered shall have been converted pursuant to this Agreement and any distribution theretofore declared and not yet paid with respect to such shares of Mercantile Common Stock, without interest. (c) Buyers shall accept Certificates upon compliance with such reasonable terms and conditions as Buyers may impose to effect an orderly exchange thereof in accordance with customary exchange practices. Certificates shall be appropriately endorsed or accompanied by such instruments of transfer as Buyers may require. - 5 - 10 (d) Each outstanding Certificate shall until duly surrendered to Buyers be deemed to evidence ownership of the consideration into which the stock previously represented by such Certificate shall have been converted pursuant to this Agreement. (e) After the Effective Time, holders of Certificates shall cease to have rights with respect to the stock previously represented by such Certificates, and their sole rights shall be to exchange such Certificates for the consideration provided for in this Agreement. After the Effective Time, there shall be no further transfer on the records of Seller of Certificates, and if such Certificates are presented to Seller for transfer, they shall be cancelled against delivery of the consideration provided therefor in this Agreement. Buyers shall not be obligated to deliver the consideration to which any former holder of Seller Common Stock is entitled as a result of the Merger until such holder surrenders the Certificates as provided herein. No dividends declared will be remitted to any person entitled to receive Mercantile Common Stock under this Agreement until such person surrenders the Certificate representing the right to receive such Mercantile Common Stock, at which time such dividends shall be remitted to such person, without interest and less any taxes that may have been imposed thereon. Certificates surrendered for exchange by an affiliate shall not be exchanged until Buyers have received a written agreement from such affiliate in the form attached as Exhibit A. No party to this Agreement nor any --------- affiliate thereof shall be liable to any holder of stock represented by any Certificate for any consideration paid to a - 6 - 11 public official pursuant to applicable abandoned property, escheat or similar laws. Buyers shall be entitled to rely upon the stock transfer books of Seller to establish the identity of those persons entitled to receive consideration specified in this Agreement, which books shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Certificate, Buyers shall be entitled to deposit any consideration represented thereby in escrow with an independent third party and thereafter be relieved with respect to any claims thereto. 1.09. Dissenting Shares. ----------------- (a) "Dissenting Shares" means any shares held by any holder who becomes entitled to payment of the fair value of such shares under Section 351.455 of the Missouri Statute. 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 shall cause the Surviving Corporation to pay such consideration with funds provided by Mercantile. (b) Each party hereto shall give the other prompt notice of any written demands for the payment of the fair value of any shares, withdrawals of such demands, and any other instruments, served pursuant to the Missouri Statute received by such party and Seller shall give Mercantile the opportunity to participate in all negotiations and proceedings with respect to such demands. Seller shall not voluntarily make any payment with respect to any demands for payment of fair value and shall not, except with the prior written consent of Mercantile, which consent - 7 - 12 shall not be unreasonably withheld, 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 in the Merger. Each holder who otherwise would have been entitled to a fraction of a share of Mercantile Common Stock shall receive in lieu thereof cash (without interest) in an amount determined by multiplying the fractional share interest to which such holder would otherwise be entitled by the closing stock price of Mercantile Common Stock on 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. Closing of Stock Transfer Books. The stock ------------------------------- transfer books of Seller shall be closed at the end of business on the Business Day immediately preceding the Closing Date. In the event of a transfer of ownership of Seller Common Stock which is not registered in the transfer records prior to the closing of such record books, the shares of Mercantile Common Stock issuable with respect to such stock may be delivered to the transferee, if the Certificate or Certificates representing such stock is presented to the Exchange Agent accompanied by all documents required to evidence and effect such transfer and all applicable stock transfer taxes are paid. 1.12. Anti-Dilution Adjustments. If between the date ------------------------- of this Agreement and the Effective Time a share of Mercantile - 8 - 13 Common Stock shall be changed into a different number of shares of Mercantile Common Stock or a different class of shares by reason of reclassification, recapitalization, split-up, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then appropriate and proportion- ate adjustment or adjustments will be made to the Exchange Ratio such that each shareholder of Seller shall be entitled to receive such number of shares of Mercantile Common Stock or other securi- ties as such shareholder would have received 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. 1.13. Reservation of Right to Revise Transaction. ------------------------------------------ Buyers may at any time change the method of effecting the acquisition of Seller by Buyers (including without limitation the provisions of this Article I) if and to the extent Buyers deem such change to be desirable, including without limitation to provide for (i) a merger of Merger Sub with and into Seller, in which Seller is the surviving corporation or (ii) a merger of Seller directly into Mercantile, in which Mercantile is the surviving corporation, provided, however, that no such change shall (A) alter or change - -------- ------- the amount or kind of the consideration to be received by the shareholders of Seller in the Merger, (B) adversely affect the tax treatment to Seller shareholders as a result of receiving the Mercantile Common Stock in the Merger or (C) materially impede or delay receipt of any approvals, referred to in Section 6.01(b) or - 9 - 14 the consummation of the transactions contemplated by this Agreement. ARTICLE II ---------- REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER As an inducement to Buyers to enter into and perform their respective obligations under this Agreement, and notwith- standing any examination, inspection, audit or any other investiga- tion made by Buyers, Seller represents and warrants to and covenants with Buyers as follows: 2.01. Organization and Authority. Seller is a -------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Missouri, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted. Seller is registered as a bank holding company with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") under the BHCA. True and complete copies of the Articles of Incorporation and Bylaws of Seller and of the Articles of Agreement and Bylaws of Southwest Bank ("Bank"), its wholly owned (except for directors' qualifying shares), Missouri-chartered bank, each as in effect on the date of this Agreement, have been provided to Buyers. 2.02. Subsidiaries. ------------ (a) Schedule 2.02 sets forth, a complete and ------------- correct list of all of Seller's "Subsidiaries" (as defined in Rule - 10 - 15 1-02 of Regulation S-X promulgated by the Securities and Exchange Commission (the "SEC"); each a "Seller Subsidiary" and collectively the "Seller Subsidiaries"), all outstanding Equity Securities (as defined in Section 2.03) of each of which are owned directly or indirectly by Seller. Except as set forth on Schedule 2.02(a), all ---------------- of the outstanding shares of capital stock of the Seller Subsidiar- ies owned directly or indirectly by Seller are validly issued, fully paid and nonassessable and are owned free and clear of any lien, claim, charge, option, encumbrance, agreement, mortgage, pledge, security interest or restriction (a "Lien") with respect thereto. Each of the Seller Subsidiaries is a corporation or bank duly incorporated or organized and validly existing under the laws of its jurisdiction of incorporation or organization, and has corporate power and authority to own or lease its properties and assets and to carry on its business as it is now being conducted. Each of the Seller Subsidiaries is duly qualified to do business in each jurisdiction where its ownership or leasing of property or the conduct of its business requires it so to be qualified, except where the failure to so qualify would not have a material adverse effect on the financial condition, results of operations or business (collectively, the "Condition") of Seller and the Seller Subsidiaries, taken as a whole. Except as set forth on Schedule -------- 2.02(a), neither Seller nor any Seller Subsidiary owns - ------- beneficially, directly or indirectly, any shares of any class of Equity Securities or similar interests of any corporation, bank, business trust, association or organization or any interest in a partnership or joint venture of any kind. - 11 - 16 (b) Bank is a commercial bank duly organized, validly existing and in good standing under the laws of the State of Missouri. The deposits of Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC") under the Federal Deposit Insurance Act of 1950, as amended (the "FDI Act"). 2.03. Capitalization. The authorized capital stock of -------------- Seller consists of 100,000 shares of Seller Common Stock, of which, as of December 31, 1994, 35,981 shares were issued and outstanding. Since December 31, 1994, no Equity Securities of Seller have been issued. "Equity Securities" of an issuer means capital stock or other equity securities of such issuer, options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, shares of any capital stock or other Equity Securities of such issuer, or contracts, commitments, understandings or arrangements by which such issuer is or may become bound to issue additional shares of its capital stock or other Equity Securities of such issuer, or options, warrants, scrip or rights to purchase, acquire, subscribe to, calls on or commitments for any shares of its capital stock or other Equity Securities. Except as set forth above, there are no other Equity Securities of Seller outstanding. All of the issued and outstanding shares of Seller Common Stock are validly issued, fully paid, and nonassessable, and have not been issued in violation of any preemptive right of any shareholder of Seller. Seller has previously delivered a valid list of shareholders dated not earlier than the fifth business day prior to the date of this Agreement. - 12 - 17 2.04. Authorization. ------------- (a) Seller has the corporate power and authority to enter into this Agreement and, subject to the approval of this Agreement by the shareholders of Seller and Regulatory Authorities (as defined in Section 2.06), to carry out its obligations hereunder. The only shareholder vote required for Seller to approve this Agreement is the affirmative vote of the holders of at least two-thirds of the outstanding shares of Seller Common Stock entitled to vote at a meeting called for such purpose. The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby in accordance with and subject to the terms of this Agreement have been duly authorized by the Board of Directors of Seller. Subject to the approval of Seller's shareholders and subject to the receipt of such approvals of the Regulatory Authorities as may be required by statute or regulation, this Agreement is a valid and binding obligation of Seller enforceable against Seller in accordance with its terms. (b) Except as set forth in Schedule 2.04(b), ---------------- neither the execution nor delivery nor performance by Seller of this Agreement, nor the consummation by Seller of the transactions contemplated hereby, nor compliance by Seller with any of the provisions hereof, will (i) violate, conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or - 13 - 18 acceleration of, or result in the creation of, any Lien upon any of the properties or assets of Seller or any of the Seller Subsidiaries under any of the terms, conditions or provisions of (x) its articles of incorporation or articles of agreement, as the case may be, or bylaws or (y) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Seller or any of the Seller Subsidiaries is a party or by which it may be bound, or to which Seller or any of the Seller Subsidiaries or any of the properties or assets of Seller or any of the Seller Subsidiaries may be subject, or (ii) subject to compliance with the statutes and regulations referred to in subsection (c) of this Section 2.04 violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Seller or any of the Seller Subsidiaries or any of their respective properties or assets; other than violations, conflicts, breaches, defaults, terminations, accelerations or Liens which would not have a material adverse effect on the Condition of Seller and the Seller Subsidiaries, taken as a whole. (c) Other than in connection or in compliance with the provisions of the Missouri Statute, 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 BHCA, or any required approvals of the Federal Reserve Board and the Division of Finance or other governmental agencies or governing - 14 - 19 boards having regulatory authority over Seller or any Seller Subsidiary, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Seller of the transactions contemplated by this Agreement. 2.05. Seller Financial Statements. --------------------------- (a) Attached hereto as Schedule 2.05(a) are ---------------- copies of the following financial statements: (i) Audited, consolidated balance sheets of Seller as of December 31, 1993 and 1992, related consolidated statements of income, changes in shareholders' equity and cash flows for the three (3) years ended December 31, 1993, together with the notes thereto certified by Seller's independent auditors; (ii) Unaudited consolidated balance sheets of Seller as of September 30, 1994 and 1993 and related consolidated statements of income, changes in shareholders' equity and cash flows for the nine-month period ended September 30, 1994; and (iii) The Consolidated Reports of Condition and Income of Bank as of and for the years ended December 31, 1993, 1992 and 1991, and as of and for the nine-month period ended September 30, 1994, as filed by Bank with the FDIC. (b) The financial statements document referenced in Schedule 2.05(a) are referred to collectively as the ---------------- "Seller Financial Statements." The Seller Financial Statements - 15 - 20 have been prepared in accordance with generally accepted accounting principles ("GAAP") or, as to the financial statements referenced in subsection (a) (iii) above, regulatory accounting principles, consistently applied during the periods involved, and present fairly the consolidated financial positions of Seller, Bank and their respective Subsidiaries, as the case may be, at the dates thereof and the consolidated results of operations and cash flows of Seller, Bank and their respective Subsidiaries, as the case may be, for the periods stated therein. (c) Seller Subsidiaries 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, assets and operations. 2.06. Seller Reports. Since January 1, 1991, each of -------------- Seller and the Seller Subsidiaries has filed all material reports, registrations and statements, together with any required amendments thereto, that it was required to file with any federal, state, municipal, local or foreign government, securities, banking, savings and loan, insurance and other governmental or regulatory authority, and the agencies and staffs thereof (such entities being referred to herein collectively as the "Regulatory Authorities" and individually as a "Regulatory Authority"), having jurisdiction over the affairs of it. All such reports and statements filed with any such Regulatory Authority are collectively referred to herein as the "Seller Reports." As of each of their respective dates, the Seller Reports complied in all material respects with all the rules - 16 - 21 and regulations promulgated by the applicable Regulatory Authority. With respect to Seller Reports filed with the Regulatory Authorities, there is no unresolved violation, criticism or exception by any Regulatory Authority with respect to any report or statement filed by, or any examinations of, Seller or Bank. 2.07. Title to and Condition of Assets. -------------------------------- (a) Except as may be reflected in the Seller Financial Statements and with the exception of all "Real Property" (which is the subject of Section 2.08 hereof), Seller or the Seller Subsidiaries has, and at the Closing Date will have, good and marketable title to its owned properties and assets, including, without limitation, those reflected in the Seller Financial Statements (except those disposed of since the date thereof), free and clear of any Lien, except for Liens for (i) taxes, assessments or other governmental charges not yet delinquent and (ii) as set forth or described in the Seller Financial Statements or any subsequent Seller financial statements delivered to Buyers prior to the Effective Time. (b) No material properties or assets that are reflected as owned by Seller or the Seller Subsidiaries in the Seller Financial Statements as of September 30, 1994 have been sold, leased, transferred, assigned or otherwise disposed of since September 30, 1994, except in the ordinary course of business. (c) All furniture, fixtures, vehicles, machinery and equipment and computer software owned or used by Seller or the Seller Subsidiaries, including any such items leased as a lessee, (taken as a whole as to each of the foregoing with no - 17 - 22 single item deemed to be of material importance) are in good working order and free of known defects, subject only to normal wear and tear. The operation by Seller or the Seller Subsidiaries of such properties and assets is in compliance in all material respects with all applicable laws, ordinances and rules and regulations of any governmental authority having jurisdiction over such use. 2.08. Real Property. ------------- (a) The legal description of each parcel of real property owned by Seller or any of the Seller Subsidiaries (other than real property acquired in foreclosure or in lieu of foreclosure in the course of the collection of loans and being held by Seller or a Seller Subsidiary for disposition as required by law) is set forth in Schedule 2.08(a) under the heading "Owned Real ---------------- Property" (such real property being herein referred to as the "Owned Real Property"). The legal description of each parcel of real property leased by Seller or any of the Seller Subsidiaries is also set forth in Schedule 2.08(a) under the heading "Leased Real ---------------- Property" (such real property being herein referred to as the "Leased Real Property"). 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 Seller or any of the Seller Subsidiaries as to the title of or the right to use any of the Real Property. (c) Neither Seller nor any of the Seller Subsidiaries has any interest in any other real property except - 18 - 23 interests as a mortgagee, and except for any real property acquired in foreclosure 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 of real estate or any easement or right-of-way or "setback" line in any material respect and all such buildings, structures and improvements are in all material respects located and constructed in conformity with all applicable zoning ordinances and building codes. (e) None of the buildings, structures or improvements located on the Owned Real Property are the subject of any official complaint or notice by any governmental authority of violation of any applicable zoning ordinance or building code and there is no zoning ordinance, building code, use or occupancy restriction or condemnation action or proceeding pending, or, to the best knowledge of Seller, threatened, with respect to any such building, structure or improvement. The Owned Real Property is in generally good condition, ordinary wear and tear excepted, and has been maintained in accordance with reasonable and prudent business practices applicable to like facilities. (f) Except as may be reflected in the Seller Financial Statements or with respect to such easements, Liens, defects or encumbrances as do not individually or in the aggregate materially adversely affect the use or value of the parcel of Owned Real Property, Seller and the Seller Subsidiaries have, and at the - 19 - 24 Closing Date will have, good and marketable title to their respective Owned Real Properties. 2.09. Taxes. Seller and each Seller Subsidiary have ----- timely filed or will timely (including extensions) file all material tax returns required to be filed at or prior to the Closing Date ("Seller Returns"). Each of Seller and the Seller Subsidiaries has paid, or set up adequate reserves on the Seller Financial Statements for the payment of, all taxes required to be paid in respect of the periods covered by such returns and has set up adequate reserves on the most recent Seller Financial Statements for the payment of all taxes anticipated to be payable in respect of all periods up to and including the latest period covered by such Seller Financial Statements. To the best knowledge of Seller, neither Seller nor any Seller Subsidiary has any liability material to the Condition of Seller and the Seller Subsidiaries, taken as a whole, for any such taxes in excess of the amounts so paid or reserves so established and no material deficiencies for any tax, assessment or governmental charge have been proposed, asserted or assessed (tentatively or definitely) against any of Seller or any of the Seller Subsidiaries which would not be covered by existing reserves. Neither Seller nor any of the Seller Subsidiaries is 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 and state income tax returns of Seller and the Seller Subsidiaries have not been audited by the - 20 - 25 Internal Revenue Service (the "IRS") or the appropriate state tax authorities for any period beginning on or after January 1, 1984. There is no deficiency or refund litigation or, to the best of Seller's knowledge, matter in controversy with respect to Seller Returns. Neither Seller nor any of the Seller Subsidiaries has extended or waived any statute of limitations on the assessment of any tax due that is currently in effect. 2.10. Material Adverse Change. Since September 30, ----------------------- 1994, there has been no material adverse change in the Condition of Seller and the Seller Subsidiaries, taken as a whole, except as may have resulted or may result from changes to laws and regulations, GAAP or regulatory accounting principles, or interpretations thereof. 2.11. Loans, Commitments and Contracts. -------------------------------- (a) Schedule 2.11(a) contains a complete and ---------------- accurate listing as of the date hereof of all contracts entered into with respect to deposits of $250,000 or more, by account, 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 and other commitments to extend credit by Seller or any of the Seller Subsidiaries 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, and, where applicable, such other information as shall be necessary to identify any related group of entities. - 21 - 26 (b) Except for the contracts and agreements required to be listed on Schedule 2.11(a) and the loans required to ---------------- be listed on Schedule 2.11(f), as of the date hereof neither Seller ---------------- nor any of the Seller Subsidiaries is a party to or is bound by any: (i) agreement, contract, arrangement, understanding or commitment with any labor union; (ii) franchise or license agreement; (iii) written employment, severance or termination pay, agency, consulting or similar agreement or commitment in respect of personal services; (iv) any material agreement, arrangement or commitment (A) not made in the ordinary course of business, or (B) pursuant to which Seller or any of the Seller Subsidiaries is or may become obligated to invest in or contribute to any Seller Subsidiary other than pursuant to Seller Employee Plans (as that term is defined in Section 2.19 hereof) and agreements relating to joint ventures or partnerships set forth in Schedule -------- 2.02, true and complete copies of which have been ---- furnished to Buyers; (v) any agreement, indenture or other instrument not disclosed in the Seller Financial Statements relating to the borrowing of money by Seller or any of the Seller Subsidiaries or the guarantee by Seller or any of the Seller Subsidiaries of any such obligation (other than trade payables or instruments - 22 - 27 related to transactions entered into in the ordinary course of business by Seller or any of the Seller Subsidiaries, such as deposits, Fed Funds borrowings and repurchase and reverse repurchase agreements), other than such agreements, indentures or instruments providing for annual payments of less than $50,000; (vi) any contract containing covenants which limit the ability of Seller or any of the Seller Subsidiaries to compete in any line of business or with any person or which involves any restrictions on the geographical area in which, or method by which, Seller or any of the Seller Subsidiaries may carry on their respective businesses (other that as may be required by law or any applicable Regulatory Authority); (vii) any other contract or agreement which is a "material contract" within the meaning of Item 601(b)(10) of Regulation S-K as promulgated by the SEC to be performed after the date of this Agreement that has not been filed or incorporated by reference in the Seller Reports; (viii) any lease with annual rental payments aggregating $50,000 or more; (ix) loans or other obligations payable or owing to any officer, director or employee except (A) salaries, wages and directors' fees incurred and accrued in the ordinary course of business and (B) obligations due in respect of any depository accounts maintained by - 23 - 28 any of the foregoing at the Seller Subsidiaries in the ordinary course of business; (x) loans or debts payable or owing by any executive officer or director of Seller or any of the Seller Subsidiaries 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, except as set forth in Schedule 2.11(b)(x); ------------------- (xi) other agreement, contract, arrange- ment, understanding or commitment involving an obligation by Seller or any of the Seller Subsidiaries of more than $50,000 and extending beyond six months from the date hereof that cannot be cancelled without cost or penalty upon notice of 30 days or less, other than contracts entered into in respect of deposits, loan agreements, and commitments, notes, security agreements, repurchase and reverse repurchase agreements, bankers' acceptances, outstanding letters of credit and commitments to issue letters of credit, participation agreements and other documents relating to transactions entered into by Seller or any of the Seller Subsidiaries in the ordinary course of business and not involving extensions of credit with respect to any one entity or related group of entities in excess of $250,000. (c) Seller and/or the Seller Subsidiaries carry property, liability, products liability and other insurance - 24 - 29 coverage as set forth in Schedule 2.11(c) under the heading "Insurance." ---------------- (d) True, correct and complete copies of the agreements, contracts, leases, insurance policies and other documents referred to in Schedules 2.11 (a), (b) and (c) have been ------------------------------- or shall be furnished or made available to Buyers. (e) To the best knowledge of Seller, each of the agreements, contracts, leases, insurance policies and other documents referred to in Schedules 2.11 (a), (b) and (c) is a ------------------------------- valid, binding and enforceable obligation of the parties sought to be bound thereby, except as the enforceability thereof against the parties thereto (other than Seller or any of the Seller Subsidi- aries) 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 2.11(f) under the heading "Loans" ---------------- contains a true, correct and complete listing, as of the date of this Agreement, by account, of (i) all loans in excess of $100,000 of the Seller or any of the Seller Subsidiaries which have been accelerated during the past twelve months; (ii) all loan commitments or lines of credit of Seller and any of the Seller Subsidiaries in excess of $100,000 which have been terminated by Seller or any of the Seller Subsidiaries during the past twelve months by reason of default or adverse developments in the condition of the borrower or other events or circumstances - 25 - 30 affecting the credit of the borrower; (iii) all loans, lines of credit and loan commitments in excess of $100,000 as to which Seller or any of the Seller Subsidiaries has given written notice of its intent to terminate during the past twelve months; (iv) with respect to all loans in excess of $100,000 all notification letters and other written communications from Seller or any of the Seller Subsidiaries to any of their respective borrowers, customers or other parties during the past twelve months wherein Seller or any of the Seller Subsidiaries has requested or demanded that actions be taken to correct existing defaults or facts or circumstances which may become defaults; (v) each borrower, customer, or other party which has notified Seller or any of the Seller Subsidiaries during the past twelve months of, or has asserted against Seller or any of the Seller Subsidiaries, in writing, any "lender liability" or similar claim, and, to the best knowledge of Seller, each borrower, customer or other party which has given Seller or any of the Seller Subsidiaries any oral notification of, or orally asserted against Seller or any of the Seller Subsidiaries, any such claim; (vi) all loans in excess of $100,000 (A) that are contractually past due 90 days or more in the payment of principal and/or interest, (B) that are on non-accrual status, (C) where a reasonable doubt exists as to the timely future collectibility of principal and/or interest, whether or not interest is still accruing or the loan is less than 90 days past due, (D) 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 - 26 - 31 ability to pay in accordance with such initial terms, or (E) where a specific reserve allocation exists in connection therewith; and (vii) all loans or debts payable or owing by any executive officer or director of Seller or any of the Seller Subsidiaries 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. 2.12. Absence of Defaults. Neither Seller nor any of ------------------- the Seller Subsidiaries is in violation of its charter documents or bylaws or in default under any material agreement, commitment, arrangement, lease, insurance policy, or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event that, with the lapse of time or giving of notice or both, would consti- tute such a default, except, in all cases, where such default would not have a material adverse effect on the Condition of Seller and the Seller Subsidiaries, taken as a whole. 2.13. Litigation and Other Proceedings. Neither Seller -------------------------------- nor any of the Seller Subsidiaries is a party to any pending or, to the best knowledge of Seller, threatened claim, action, suit, investigation or proceeding, or is subject to any order, judgment or decree, except for matters which, in the aggregate, will not have, or reasonably could not be expected to have, a material adverse effect on the Condition of Seller and the Seller Subsidiaries, taken as a whole, or which purports or seeks to enjoin or restrain the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, there are no - 27 - 32 actions, suits or proceedings pending or, to the best knowledge of Seller, threatened against Seller or any of the Seller Subsidiaries or any of their respective officers or directors by any shareholder of Seller or any of the Seller Subsidiaries (or any former shareholder of Seller or any of the Seller Subsidiaries) or involving claims under the Community Reinvestment Act of 1977, as amended, the Bank Secrecy Act, the fair lending laws or any other applicable laws. 2.14. Directors' and Officers' Insurance. Each of ---------------------------------- Seller and the Seller Subsidiaries has taken or will take all requisite action (including without limitation the making of claims and the giving of notices) pursuant to its directors' and officers' liability insurance policy or policies in order to preserve all rights thereunder with respect to all matters (other than matters arising in connection with this Agreement and the transactions contemplated hereby) occurring prior to the Effective Time that are known to Seller, except for such matters which, individually or in the aggregate, will not have and reasonably could not be expected to have a material adverse effect on the Condition of Seller and the Seller Subsidiaries, taken as a whole. Set forth on Schedule -------- 2.14 is a list of all insurance policies maintained by or for the - ---- benefit of Seller or its Subsidiaries as of the date hereof for their directors, officers, employees or agents. 2.15. Compliance with Laws. -------------------- (a) To the best knowledge of Seller, Seller and each of the Seller Subsidiaries have all permits, licenses, authorizations, orders and approvals of, and have made all filings, - 28 - 33 applications and registrations with, all Regulatory Authorities that are required in order to permit them to own or lease their respective properties and assets and to carry on their respective businesses as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and no suspension or cancellation of any of them is threatened; and all such filings, applications and registrations are current; in each case except for permits, licenses, authoriza- tions, orders, approvals, filings, applications and registrations the failure to have (or have made) would not have a material adverse effect on the Condition of Seller and the Seller Subsidi- aries, taken as a whole. (b) (i) To the best knowledge of Seller, each of Seller and the Seller Subsidiaries has complied with all laws, regulations and orders (including without limitation zoning ordinances, building codes, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and securities, tax, environ- mental, civil rights, and occupational health and safety laws and regulations and including without limitation in the case of any Seller Subsidiary that is a bank or savings association, banking organization, banking corporation or trust company, all statutes, rules, regulations and policy statements pertaining to the conduct of a banking, deposit-taking, lending or related business, or to the exercise of trust powers) and governing instruments applicable to it and to the conduct of its business, except where such failure to comply would not have a material adverse effect on the Condition of Seller and the Seller Subsidiaries, taken as a whole, and (ii) - 29 - 34 neither Seller nor any of the Seller Subsidiaries is in default under, and no event has occurred which, with the lapse of time or notice or both, could result in the default under, the terms of any judgment, order, writ, decree, permit, or license of any Regulatory Authority or court, whether federal, state, municipal or local, and whether at law or in equity, except where such default would not have a material adverse effect on the Condition of Seller and the Seller Subsidiaries, taken as a whole. To the best knowledge of Seller, neither Seller nor any of the Seller Subsidiaries is subject to or reasonably likely to incur a liability as a result of its ownership, operation, or use of any Property (as defined below) of Seller (whether directly or, to the best knowledge of Seller, as a consequence of such Property being part of the investment portfolio of Seller or any of the Seller Subsidiaries) (A) that is contaminated by or contains any hazardous waste, toxic substance, or related materials, including without limitation asbestos, PCBs, pesticides, herbicides, and any other substance or waste that is hazardous to human health or the environment (collectively, a "Toxic Substance"), or (B) on which any Toxic Substance has been stored, disposed of, placed, or used in the construction thereof; and which, in each case, reasonably could be expected to have a material adverse effect on the Condition of Seller and the Seller Subsidiaries, taken as a whole. "Property" shall include all property (real or personal, tangible or intangible) owned or controlled by Seller or any of the Seller Subsidiaries, including without limitation property under foreclosure, property held by Seller or any of the Seller Subsidiaries in its capacity as a - 30 - 35 trustee and property in which any venture capital or similar unit of Seller or any of the Seller Subsidiaries has an interest. No claim, action, suit or proceeding is pending against Seller or any of the Seller Subsidiaries relating to Property of Seller or any of the Seller Subsidiaries before any court or other Regulatory Authority or arbitration tribunal relating to Toxic Substances, pollution or the environment, and there is no outstanding judgment, order, writ, injunction, decree or award against or affecting Seller or any of the Seller Subsidiaries with respect to the same. Except for statutory or regulatory restrictions of general application, no Regulatory Authority has placed any restriction on the business of Seller or any of the Seller Subsidiaries which reasonably could be expected to have a material adverse effect on the Condition of Seller and the Seller Subsidiaries, taken as a whole. (c) Since December 31, 1991, neither Seller nor any of the Seller Subsidiaries has received any notification or communication which has not been resolved from any Regulatory Authority (i) asserting that any Seller or any of the Seller Subsidiaries is not in substantial compliance with any of the statutes, regulations or ordinances that such Regulatory Authority enforces, except with respect to matters which reasonably could not be expected to have a material adverse effect on the Condition of Seller and the Seller Subsidiaries, taken as a whole, (ii) threatening to revoke any license, franchise, permit or governmental authorization that is material to the Condition of Seller and the Seller Subsidiaries, taken as a whole, including - 31 - 36 without limitation such company's status as an insured depository institution under the FDI Act, (iii) requiring or threatening to require Seller or any of the Seller Subsidiaries, or indicating that Seller or any of the Seller Subsidiaries may be required, to enter into a cease and desist order, agreement or memorandum of understanding or any other agreement restricting or limiting or purporting to direct, restrict or limit in any manner the operations of Seller or any of the Seller Subsidiaries, including without limitation any restriction on the payment of dividends. No such cease and desist order, agreement or memorandum of understanding or other agreement is currently in effect. (d) Neither Seller nor any of the Seller Subsidiaries is required by Section 32 of the FDI Act to give prior notice to any federal banking agency of the proposed addition of an individual to its board of directors or the employment of an individual as a senior executive officer. 2.16. Labor. No work stoppage involving Seller or any ----- of the Seller Subsidiaries is pending or, to the best knowledge of Seller, threatened. Neither Seller nor any of the Seller Subsid- iaries is involved in, or, to the best knowledge of Seller, threatened with or affected by, any labor dispute, arbitration, lawsuit or administrative proceeding which reasonably could be expected to have a material adverse affect on the Condition of Seller and the Seller Subsidiaries, taken as a whole. None of the employees of Seller or the Seller Subsidiaries are represented by any labor union or any collective bargaining organization. - 32 - 37 2.17. Material Interests of Certain Persons. Except as ------------------------------------- set forth on Schedule 2.17, no officer or director of Seller or any ------------- Subsidiary of Seller, or any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of any such officer or director, has any interest in any contract or property (real or personal, tangible or intangible), used in, or pertaining to the business of, Seller or any of the Seller Subsidiaries, which in the case of Seller and each of the Seller Subsidiaries would be required to be disclosed by Item 404 of Regulation S-K promulgated by the SEC if such entity had a class of securities registered under Section 12 of the Exchange Act. 2.18. Allowance for Loan and Lease Losses; Non- ----------------------------------------- Performing Assets. - ----------------- (a) All of the accounts, notes, and other receivables which are reflected in the Seller Financial Statements as of September 30, 1994 were acquired in the ordinary course of business and, to the best knowledge of Seller, as of September 30, 1994, were 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 Seller Financial Statements and the collection experience of Seller and the Seller Subsidiaries since September 30, 1994 to the date hereof has not been materially adverse to the credit and collection experience of the Seller and the Seller Subsidiaries, taken as a whole, in the nine months ended September 30, 1994. (b) The allowances for loan losses contained in the Seller Financial Statements were established in accordance - 33 - 38 with the past practices and experiences of Seller and the Seller Subsidiaries, and the allowance for loan and lease losses shown on the consolidated condensed balance sheet of Seller and the Seller Subsidiaries as of September 30, 1994 were adequate in all material respects under the requirements of GAAP to provide for possible losses on loans and leases (including without limitation accrued interest receivable) and credit commitments (including without limitation stand-by letters of credit) as of the date of such balance sheet. (c) Schedule 2.18(c) sets forth as of the date ---------------- of this Agreement all assets classified as real estate acquired through foreclosure, including in-substance foreclosed real estate ("Non-Performing Assets"). (d) The aggregate amount of all loans and leases described in Section 2.11(f)(vi) (regardless of dollar amount limitations contained in such Section) and all Non- Performing Assets pursuant to Section 2.18(c) do not exceed one percent (1%) of (i) the gross amounts of all loans and leases on the books of Seller and the Seller Subsidiaries, taken as a whole, plus (ii) the aggregate book value of all Non-Performing Assets. 2.19. Employee Benefit Plans. ---------------------- (a) Schedule 2.19(a) lists all pension, ---------------- retirement, supplemental retirement, stock option, stock purchase, stock ownership, savings, stock appreciation right, profit sharing, deferred compensation, consulting, bonus, medical, disability, workers' compensation, vacation, group insurance, severance and other employee benefit, incentive and welfare policies, contracts, - 34 - 39 plans and arrangements, and all trust agreements related thereto, maintained by or contributed to by Seller or any of the Seller Subsidiaries in respect of any of the present or former directors, officers, or other employees of and/or consultants to Seller or any of the Seller Subsidiaries (collectively, "Seller Employee Plans"). Seller has furnished Buyers with the following documents with respect to each Seller Employee Plan: (i) a true and complete copy of all written documents comprising such Seller Employee Plan (including amendments and individual agreements relating thereto) or, if there is no such written document, an accurate and complete description of the Seller Employee Plan; (ii) the most recently filed Form 5500 or Form 5500-C (including all schedules thereto), if applicable; (iii) the most recent financial statements and actuarial reports, if any; (iv) the summary plan description currently in effect and all material modifications thereof, if any; and (v) the most recent IRS determination letter, if any. (b) To the best knowledge of Seller, all Seller Employee Plans have been maintained and operated in all material respects in accordance with their terms and the require- ments of all applicable statutes, orders, rules and final regulations, including without limitation, to the extent applica- ble, ERISA and the Internal Revenue Code of 1986, as amended (the "Code"). All contributions required to be made to Seller Employee Plans have been made. (c) With respect to each of the Seller Employee Plans which is a pension plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"): (i) each Pension Plan which is - 35 - 40 intended to be "qualified" within the meaning of Section 401(a) of the Code has been determined to be so qualified by the IRS and, to the knowledge of Seller, such determination letter may still be relied upon, and each related trust is exempt from taxation under Section 501(a) of the Code; (ii) the present value of all benefits vested and all benefits accrued under each Pension Plan which is subject to Title IV of ERISA did not, in each case, as of the last applicable annual valuation date (as indicated on Schedule -------- 2.19(a)), exceed the value of the assets of the Pension Plan - ------- allocable to such vested or accrued benefits; (iii) there has been no "prohibited transaction," as such term is defined in Section 4975 of the Code or Section 406 of ERISA, which could subject any Pension Plan or associated trust, or, to the best knowledge of Seller, the Seller or any of the Seller Subsidiaries, to any tax or penalty; (iv) no Pension Plan or any trust created thereunder has been terminated, nor to the best knowledge of Seller have there been any "reportable events" with respect to any Pension Plan, as that term is defined in Section 4043 of ERISA since January 1, 1987; and (v) no Pension Plan or any trust created thereunder has incurred any "accumulated funding deficiency", as such term is defined in Section 302 of ERISA (whether or not waived). No Pension Plan is a "multiemployer plan" as that term is defined in Section 3(37) of ERISA. (d) Neither Seller nor any of the Seller Subsidiaries has any liability for any post-retirement health, medical or similar benefit of any kind whatsoever, except as required by statute or regulation. - 36 - 41 (e) Neither Seller nor any of the Seller Subsidiaries has any material liability under ERISA or the Code as a result of its being a member of a group described in Sections 414(b), (c), (m) or (o) of the Code. (f) Neither the execution nor delivery of this Agreement, nor the consummation of any of the transactions contemplated hereby, will (i) result in any payment (including without limitation severance, unemployment compensation or golden parachute payment) becoming due to any director or employee of Seller or any of the Seller Subsidiaries from any of such entities, (ii) increase any benefit otherwise payable under any of the Seller Employee Plans or (iii) result in the acceleration of the time of payment of any such benefit. Seller shall use its best efforts to insure that no amounts paid or payable by Seller, the Seller Subsidiaries or Buyers to or with respect to any employee or former employee of Seller or any of the Seller Subsidiaries will fail to be deductible for federal income tax purposes by reason of Section 280G of the Code. 2.20. Conduct of Seller to Date. From and after ------------------------- September 30, 1994 through the date of this Agreement, except as set forth in the Seller Financial Statements: (i) Seller and the Seller Subsidiaries have conducted their respective businesses in the ordinary and usual course consistent with past practices; (ii) neither Seller nor any of the Seller Subsidiaries has issued, sold, granted, conferred or awarded any of its Equity Securities, or any corporate debt securities which would be classified under GAAP as long-term debt on the balance sheets of Seller or the Seller - 37 - 42 Subsidiaries; (iii) Seller has not effected any stock split or adjusted, combined, reclassified or otherwise changed its capitalization; (iv) Seller has not declared, set aside or paid any dividend or other distribution in respect of its capital stock, or purchased, redeemed, retired, repurchased, or exchanged, or otherwise acquired or disposed of, directly or indirectly, any of its Equity Securities, whether pursuant to the terms of such Equity Securities or otherwise; (v) neither Seller nor any of the Seller Subsidiaries has incurred any obligation or liability (absolute or contingent), except liabilities incurred in the ordinary course of business, or subjected to Lien any of its assets or properties other than in the ordinary course of business consistent with past practice; (vi) neither Seller nor any of the Seller Subsidiaries has discharged or satisfied any Lien or paid any obligation or liability (absolute or contingent), other than in the ordinary course of business; (vii) neither Seller nor any of the Seller Subsidiaries has sold, assigned, transferred, leased, exchanged, or otherwise disposed of any of its properties or assets other than for a fair consideration in the ordinary course of business; (viii) except as required by contract or law, neither Seller nor any of the Seller Subsidiaries has (A) increased the rate of compensation of, or paid any bonus to, any of its directors, officers, or other employees, except in accordance with existing policy, (B) entered into any new, or amended or supplemented any existing, employment, management, consulting, deferred compensation, severance, or other similar contract, (C) entered into, terminated, or substantially modified any of the Seller Employee Plans or (D) agreed to do any - 38 - 43 of the foregoing; (ix) neither Seller nor any Seller Subsidiary has suffered any material damage, destruction, or loss, whether as the result of fire, explosion, earthquake, accident, casualty, labor trouble, requisition, or taking of property by any Regulatory Authority, flood, windstorm, embargo, riot, act of God or the enemy, or other casualty or event, and whether or not covered by insurance; (x) neither Seller nor any of the Seller Subsidiaries has cancelled or compromised any debt, except for debts charged off or compromised in accordance with the past practice of Seller and the Seller Subsidiaries, and (xi) neither Seller nor any of the Seller Subsidiaries has entered into any material transaction, contract or commitment outside the ordinary course of its business. 2.21. Absence of Undisclosed Liabilities. ---------------------------------- (a) As of the date of this Agreement, neither Seller nor any of the Seller Subsidiaries has any debts, liabili- ties 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, which are required to be reflected in Seller's Financial Statements or the notes thereto in accordance with GAAP except: (i) liabilities and obligations reflected on the Seller Financial Statements; (ii) operating leases reflected on Schedule 2.11; and ------------- (iii) debts, liabilities or obligations incurred since September 30, 1994 in the ordinary and usual course of their respective businesses, none of - 39 - 44 which are for breach of contract, breach of warranty, torts, infringements or lawsuits and none of which have a material adverse effect on the Condition of the Seller and the Seller Subsidiaries, taken as a whole. (b) Neither Seller nor any of the Seller Subsidiaries was as of September 30, 1994 and since such date to the date hereof has become a party to, any contract or agreement which affected, affects or may reasonably be expected to affect, materially and adversely, the Condition of the Seller and the Seller Subsidiaries, taken as a whole. 2.22. Proxy Statement, etc. None of the information --------------------- regarding Seller or any of the Seller Subsidiaries to be supplied by Seller for inclusion or included in (i) the Registration Statement on Form S-4 to be filed with the SEC by Mercantile for the purpose of registering the shares of Mercantile Common Stock to be exchanged for shares of Seller Common Stock pursuant to the provisions of this Agreement (the "Registration Statement"), (ii) the Proxy Statement to be mailed to Seller's shareholders in connection with the meeting to be called to consider the Merger (the "Proxy Statement") or (iii) any other documents to be filed with any Regulatory Authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with any Regulatory Authority and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading - 40 - 45 or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the meeting of Seller's shareholders referred to in Section 5.03, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communica- tion with respect to the solicitation of any proxy for such meeting. All documents which Seller or any of the Seller Subsid- iaries is responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. 2.23. Registration Obligations. Neither Seller nor any ------------------------ of the Seller Subsidiaries is under any obligation, contingent or otherwise, which will survive the Effective Time by reason of any agreement to register any transaction involving any of its securities under the Securities Act. 2.24. Tax and Regulatory Matters. Neither Seller nor -------------------------- any of the Seller Subsidiaries has taken or agreed to take any action or has any knowledge of any fact or circumstance that would (i) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code or (ii) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the transactions contemplated by this Agreement. 2.25. Brokers and Finders. Neither Seller nor any of ------------------- the Seller Subsidiaries nor any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage - 41 - 46 fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for Seller or any of the Seller Subsidiaries in connection with this Agreement or the transactions contemplated hereby. 2.26. Interest Rate Risk Management Instruments. ----------------------------------------- Neither Seller nor any of the Seller Subsidiaries are parties to, nor are any of their properties or assets bound by, interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements. 2.27. Accuracy of Information. The statements ----------------------- contained in this Agreement, the Schedules and any other written document executed and delivered by or on behalf of Seller pursuant to the terms of this Agreement are true and correct as of the date hereof or as of the date delivered in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained therein not misleading. ARTICLE III ----------- REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS As an inducement to Seller to enter into and perform its obligations under this Agreement, and notwithstanding any examina- tion, inspection, audit or other investigation made by Seller, Buyers jointly and severally represent and warrant to and covenant with Seller as follows: 3.01. Organization and Authority. Buyer and Merger Sub -------------------------- are each corporations duly organized, validly existing and in good standing under the laws of the State of Missouri, are each qualified to do business and are each in good standing in all - 42 - 47 jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and has corporate power and authority to own its properties and assets and to carry on its business as it is now being conducted, except where the failure to be so qualified would not have a material adverse effect on the Condition of Mercantile and its Subsidiaries, taken as a whole. Each of Mercantile and Merger Sub is registered as a bank holding company with the Federal Reserve Board under the BHCA. True and complete copies of the Articles of Incorporation and Bylaws of Mercantile and Merger Sub, each in effect on the date of this Agreement, have been provided to Seller. 3.02. Capitalization of Mercantile. The authorized ---------------------------- capital stock of Mercantile consists of (i) 100,000,000 shares of Mercantile Common Stock, of which, as of December 31, 1994, 43,207,524 shares were issued and outstanding and (ii) 5,000,000 shares of preferred stock, no par value ("Mercantile Preferred Stock"), issuable in series, of which none are issued or outstanding. Mercantile has designated 1,000,000 shares of Mercantile Preferred Stock as "Series A Junior Participating Preferred Stock" and has reserved such shares under a Rights Agreement dated May 23, 1988 (the "Mercantile Rights Agreement"), between Mercantile and Mercantile Bank of St. Louis National Association, as Rights Agent. As of January 3, 1995, Mercantile issued (less any fractional shares) (i) 970,000 shares of Mercantile Common Stock pursuant to the consummation of the acquisition of Wedge Bank pursuant to the Agreement and Plan of Reorganization dated as of July 6, 1994 between Mercantile, - 43 - 48 Mercantile Bancorporation of Illinois Inc., Wedge Bank and The Wedge Holding Company and (ii) 1,731,142 shares of Mercantile Common Stock pursuant to the consummation of the acquisition of UNSL Financial Corp. ("UNSL") pursuant to the Agreement and Plan of Reorganization dated July 12, 1994 between Mercantile, Ameribanc, Inc. ("Ameribanc") and UNSL. As of December 31, 1994, Mercantile had reserved (i) 4,721,246 shares of Mercantile Common Stock for issuance under the Mercantile stock option and incentive plans; (ii) 2,625,533 shares of Mercantile Common Stock for issuance upon the acquisition of Central Mortgage Bancshares, Inc. ("CMB") pursuant to the Amended and Restated Agreement and Plan of Reorganization dated November 1, 1994 by and between Mercantile, Ameribanc and CMB; (iii) 4,750,000 shares of Mercantile Common Stock for issuance upon the acquisition of TCBankshares, Inc. ("TCB") pursuant to the Agreement and Plan of Reorganization dated December 2, 1994 by and between Mercantile and TCB; (iv) 1,400,000 shares of Mercantile Common Stock for issuance upon the acquisition of Plains Spirit Financial Corporation ("Plains Spirit") pursuant to the Agreement and Plan of Merger dated December 23, 1994 by and between Mercantile, Mercantile Bancorporation Inc. of Iowa and Plains Spirit; and (v) 351,101 shares of Mercantile Common Stock for issuance upon conversion of Mercantile's 8% Subordinated Capital Convertible Notes due 1995 (the "Convertible Notes"). In connection with the TCB transaction, Mercantile authorized the issuance of 5,306 shares of Preferred Stock, Series B-1, no par value, and 9,500 shares of Preferred Stock, Series B-2, no par value, in addition to the Mercantile Common Stock as aforesaid. - 44 - 49 From December 31, 1994 through the date of this Agreement, no Equity Securities of Mercantile have been issued excluding the number of shares disclosed in this Section 3.02 pursuant to the consummation of the Wedge Bank and UNSL acquisitions on January 3, 1995 and any shares of Mercantile Common Stock which may have been issued under the Mercantile stock option and incentive plans or upon conversion of the Convertible Notes. Mercantile continually evaluates possible acquisitions and may prior to the Effective Time enter into one or more agreements providing for, and may consummate, the acquisition by it of another bank, association, bank holding company, savings and loan holding company or other company (or the assets thereof) for consideration that may include Equity Securities. In addition, prior to the Effective Time, Mercantile may, depending on market conditions and other factors, otherwise determine to issue equity, equity-linked or other securities for financing purposes. Notwithstanding the foregoing, Mercantile will not take any action that would (i) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code or (ii) materially impede or delay receipt of any approval referred to in Section 6.01(b) or the consummation of the trans- actions contemplated by this Agreement. Except as set forth above, there are no other Equity Securities of Mercantile outstanding. All of the issued and outstanding shares of Mercantile Common Stock are validly issued, fully paid, and nonassessable, and have not been issued in violation of any preemptive right of any shareholder of Mercantile. At the Effective Time, the Mercantile Common Stock - 45 - 50 to be issued in the Merger will be duly authorized, validly issued, fully paid and nonassessable, and will not be issued in violation of any preemptive right of any shareholder of Mercantile. 3.03. Authorization. ------------- (a) Mercantile and Merger Sub each have the corporate power and authority to enter into this Agreement and to carry out their respective obligations hereunder. The execution, delivery and performance of this Agreement by Mercantile and Merger Sub and the consummation by Mercantile and Merger Sub of the transactions contemplated hereby have been duly authorized by all requisite corporate action of Mercantile and Merger Sub. Subject to the receipt of such approvals of the Regulatory Authorities as may be required by statute or regulation, this Agreement is a valid and binding obligation of Mercantile and Merger Sub enforceable against each in accordance with its terms. (b) Neither the execution, delivery and performance by Mercantile and Merger Sub of this Agreement, nor the consummation by Mercantile and Merger Sub of the transactions contemplated hereby, nor compliance by Mercantile and Merger Sub with any of the provisions hereof, will (i) violate, conflict with or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any Lien upon any of the properties or assets of Mercantile or Merger Sub under any of the terms, conditions or provisions of (x) their - 46 - 51 respective Articles of Incorporation or Bylaws, or (y) any material note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Mercantile or Merger Sub is a party or by which they may be bound, or to which Mercantile or Merger Sub or any of their respective properties or assets may be subject, or (ii) subject to compliance with the statutes and regulations referred to in subsection (c) of this Section 3.03, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Mercantile or Merger Sub or any of their respective properties or assets; other than violations, conflicts, breaches, defaults, terminations, accelerations or Liens which would not have a material adverse effect on the Condition of Mercantile and its Subsidiaries, taken as a whole. (c) Other than in connection with or in compliance with the provisions of the Missouri Statute, the Securities Act, the Exchange Act, the securities or blue sky laws of the various states or filings, consents, reviews, authoriza- tions, approvals or exemptions required under the BHCA, the FDI Act or any required approvals of any other Regulatory Authority, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Mercantile and Merger Sub of the transac- tions contemplated by this Agreement. 3.04. Mercantile Financial Statements. The supple- ------------------------------- mental consolidated and parent company only balance sheets of Mercantile and its Subsidiaries as of December 31, 1993, 1992 and - 47 - 52 1991 and related supplemental consolidated and parent company only statements of income, changes in shareholders' equity and cash flows for each of the three years in the three-year period ended December 31, 1993, together with the notes thereto, audited by KPMG Peat Marwick LLP and included in Mercantile's current report on Form 8-K dated June 17, 1994 as filed with the SEC, and the unaudited consolidated balance sheets of Mercantile and its Subsidiaries as of September 30, 1994 and the related unaudited consolidated statements of income and cash flows for the periods ended September 30, 1994 and 1993 included in the quarterly report on Form 10-Q as filed with the SEC (collectively, the "Mercantile Financial Statements"), have been prepared in accordance with GAAP, present fairly the consolidated financial position of Mercantile and its Subsidiaries at the dates and the consolidated results of operations, changes in shareholders' equity and cash flows of Mercantile and its Subsidiaries for the periods stated therein and are derived from the books and records of Mercantile and its Subsidiaries, which are complete and accurate in all material respects and have been maintained in accordance with good business practices. Neither Mercantile nor any of its Subsidiaries has any material contingent liabilities that are not described in the Mercantile Financial Statements. 3.05. Mercantile Reports. Since January 1, 1991, each ------------------ of Mercantile and its Subsidiaries has filed all reports, registra- tions and statements, together with any required amendments thereto, that it was required to file with any Regulatory Authority. All such reports and statements filed with any such - 48 - 53 Regulatory Authority are collectively referred to herein as the "Mercantile Reports." As of its respective date, each Mercantile Report complied in all material respects with all the rules and regulations promulgated by the applicable Regulatory Authority and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.06. Material Adverse Change. Since September 30, ----------------------- 1994, there has been no material adverse change in the Condition of Mercantile and its Subsidiaries, taken as a whole, except as may have resulted or may result from changes to laws and regulations, or interpretations thereto, or changes in economic conditions, including interest rates, applicable to depository institutions generally. 3.07. Legal Proceedings or Other Adverse Facts. There ---------------------------------------- is no legal action or other governmental proceeding or investiga- tion pending or, to the best knowledge of Buyers, threatened against Mercantile or any of its Subsidiaries that could prevent or adversely affect in a material manner or seeks to prohibit the consummation of the transactions contemplated herein, nor is Mercantile or any of its Subsidiaries subject to any order of a court or governmental authority having any such effect. To the best knowledge of Buyers, there is no other fact that could prevent or adversely affect the consummation of the transactions contem- plated herein. - 49 - 54 3.08. Registration Statement, etc. None of the ---------------------------- information regarding Mercantile or any of its Subsidiaries to be supplied by Buyers for inclusion or included in (i) the Registra- tion Statement, (ii) the Proxy Statement, or (iii) any other documents to be filed with any Regulatory Authority in connection with the transactions contemplated hereby will, at the respective times such documents are filed with any Regulatory Authority and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the meeting of shareholders referred to in Section 5.03, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meeting. All documents which Mercantile or Merger Sub are responsible for filing with any Regulatory Authority in connection with the Merger will comply as to form in all material respects with the provisions of applicable law. 3.09. Brokers and Finders. Neither Mercantile, Merger ------------------- Sub nor any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder's fees, and no broker or finder has acted directly or indirectly for - 50 - 55 Mercantile or Merger Sub in connection with this Agreement or the transactions contemplated hereby. 3.10. Accuracy of Information. The statements ----------------------- contained in this Agreement, the Schedules and in any other written document executed and delivered by or on behalf of Buyers pursuant to the terms of this Agreement are true and correct in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained herein or therein not misleading. ARTICLE IV ---------- CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME 4.01. Conduct of Businesses Prior to the Effective -------------------------------------------- Time. During the period from the date of this Agreement to the - ---- Effective Time, Seller shall, and shall cause each of the Seller Subsidiaries to, conduct their respective businesses according to the ordinary and usual course consistent with past practices and shall, and shall cause each such Subsidiary to, use its best efforts to maintain and preserve its business organization, employees and advantageous business relationships and retain the services of its officers and key employees. 4.02. Forbearances of Seller. Except as set forth in ---------------------- Schedule 4.02 and except to the extent required by law, regulation - ------------- or Regulatory Authority, or with the prior written consent of Buyers, during the period from the date of this Agreement to the Effective Time, Seller shall not and shall not permit any of the Seller Subsidiaries to: - 51 - 56 (a) declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock (other than dividends from any of the Seller Subsidiaries to Seller or to another of the Seller Subsidiaries); (b) enter into or amend any employment, severance or similar agreement or arrangement with any director or officer or employee, or materially modify any of the Seller Employee Plans or grant any salary or wage increase or materially increase any employee benefit (including incentive or bonus payments), except (i) normal individual increases in compensation to employees consistent with past practice, (ii) as required by law or contract and (iii) such increases of which Seller notifies Buyers in writing and which Buyers do not disapprove within 10 days of the receipt of such notice; (c) authorize, recommend, propose or announce an intention to authorize, so recommend or propose, or enter into an agreement in principle with respect to, any merger, consolida- tion or business combination (other than the Merger), any acquisi- tion of a material amount of assets or securities, any disposition of a material amount of assets or securities or any release or relinquishment of any material contract rights; (d) propose or adopt any amendments to its articles of incorporation, association or other charter document or bylaws; (e) issue, sell, grant, confer or award any of its Equity Securities or effect any stock split or adjust, combine, - 52 - 57 reclassify or otherwise change its capitalization as it existed on the date of this Agreement; (f) purchase, redeem, retire, repurchase, or exchange, or otherwise acquire or dispose of, directly or indirectly, any of its Equity Securities, whether pursuant to the terms of such Equity Securities or otherwise; (g) (i) without first consulting with Mercantile, enter into, renew or increase any loan or credit commitment (including stand-by letters of credit) to, or invest or agree to invest in any person or entity or modify any of the material provisions or renew or otherwise extend the maturity date of any existing loan or credit commitment (collectively, "Lend to") in an amount in excess of $200,000 or in any amount which, when aggregated with any and all loans or credit commitments of Seller and its Subsidiaries to such person or entity, would be in excess of $200,000; (ii) without first obtaining the written consent of Mercantile, Lend to any person or entity in an amount in excess of $1,000,000 or in any amount which, or when aggregated with any and all loans or credit commitments of Seller and its Subsidiaries to such person or entity, would be in excess of $1,000,000; (iii) Lend to any person other than in accordance with lending policies as in effect on the date hereof, provided that in the case of clauses (i) -------- and (iii) Seller or any of the Seller Subsidiaries may make any such loan in the event (A) Seller or any Seller Subsidiary has delivered to Buyers or their designated representative a notice of its intention to make such loan and such information as Buyers or their designated representative may reasonably require in respect - 53 - 58 thereof and (B) Buyers or their designated representative shall not have reasonably objected to such loan by giving written or facsimile notice of such objection within two business days following the delivery to Buyers or their designated representative of the notice of intention and information as aforesaid; or (iv) Lend to any person or entity any of the loans or other extensions of credit to which or investments in which are on a "watch list" or similar internal report of Seller or any of the Seller Subsidiaries (except those denoted "pass" thereon), in an amount in excess of $50,000; provided, however, that nothing in this paragraph shall -------- ------- prohibit Seller or any Seller Subsidiary from honoring any contractual obligation in existence on the date of this Agreement or, with respect to loans described in clause (i) above, making such loans after consulting with Buyers. Notwithstanding clause (i) and clause (ii) of this Section 4.02(g), Seller shall be authorized, without first consulting with Buyers or obtaining Buyers' prior written consent, to increase the aggregate amount of the credit facilities theretofore established in favor of any person or entity (the "Pre-Existing Facilities"), provided that the aggregate amount of any and all such increases shall not be in excess of five percent (5%) of such Pre-Existing Facilities or $25,000, whichever is greater; (h) directly or indirectly (including through its officers, directors, employees or other representatives) (i) initiate, solicit or encourage any discussions, inquiries or proposals with any third party (other than Buyers) relating to the disposition of any significant portion of the business or assets of - 54 - 59 Seller or any of the Seller Subsidiaries or the acquisition of Equity Securities of Seller or any of the Seller Subsidiaries or the merger of Seller or any of the Seller Subsidiaries with any person (other than Buyers) or any similar transaction (each such transaction being referred to herein as an "Acquisition Transaction"), or (ii) provide any such person with information or assistance or negotiate with any such person with respect to an Acquisition Transaction, and Seller shall promptly notify Buyers orally of all the relevant details relating to all inquiries, indications of interest and proposals which it may receive with respect to any Acquisition Transaction; (i) take any action that would (A) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Buyers or Seller to obtain any approval of any Regulatory Authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement or (B) prevent or impede the transactions contemplated hereby from qualifying as a reorganiza- tion within the meaning of Section 368 of the Code; (j) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity; (k) materially restructure or change its investment securities portfolio, through purchases, sales or otherwise, or the manner in which the portfolio is classified or - 55 - 60 reported, or execute individual investment transactions of greater than $500,000 for U.S. Treasury Securities and $250,000 for all other investment instruments; (l) agree in writing or otherwise to take any of the foregoing actions or engage in any activity, enter into any transaction or intentionally take or omit to take any other act which would make any of the representations and warranties in Article II of this Agreement untrue or incorrect in any material respect if made anew after engaging in such activity, entering into such transaction, or taking or omitting such other act; or (m) enter into, increase or renew any loan or credit commitment (including standby letters of credit) to any executive officer or director of Seller or any of the Seller Subsidiaries, any Seller shareholder, or any entity controlled, directly or indirectly, by any of the foregoing or engage in any transaction with any of the foregoing which is of the type or nature sought to be regulated in 12 U.S.C. 371c and 12 U.S.C. 371c- 1, without first obtaining the prior written consent of Buyers, which consent shall not be unreasonably withheld. For purposes of this subsection (m), "control" shall have the meaning associated with that tern under 12 U.S.C. 371c. 4.03. Forbearances of Buyers. During the period from ---------------------- the date of this Agreement to the Closing Date, Buyers shall not, and shall not permit any of their respective subsidiaries to, without the prior written consent of Seller, agree in writing or otherwise engage in any activity, enter into any transaction or take or omit to take any other action: - 56 - 61 (a) that would (i) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Buyers or Seller to obtain any approval of any Regulatory Authority required for the transactions contemplated by this Agreement or to perform its covenants and agreements under this Agreement or (ii) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code; or (b) which would make any of the representa- tions 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. ---------------------- (a) Buyers and Seller shall each afford to the other, and to the other's accountants, counsel and other represen- tatives, full access during normal business hours, during the period prior to the Effective Time, to all their respective properties, books, contracts, commitments and records and, during such period, each shall furnish promptly to the other (i) a copy of each report, schedule and other document filed or received by it during such period pursuant to the requirements of federal and state securities laws and (ii) all other information concerning its business, properties and personnel as the other may reasonably request. Each party shall, and shall cause its advisors and - 57 - 62 representatives to, (A) hold confidential all information obtained in connection with any transaction contemplated hereby with respect to the other party and its Subsidiaries which is not otherwise public knowledge, (B) in the event of a termination of this Agreement, return all documents (including copies thereof) obtained hereunder from the other party or any of its Subsidiaries to them and (C) use their respective best efforts to cause all of such party's confidential information obtained pursuant to this Agreement or in connection with the negotiation of this Agreement to be treated as confidential and not use, or knowingly permit others to use, any such information unless such information becomes generally available to the public. (b) Buyers shall promptly following the date of this Agreement, commence its review of Seller and the Seller Subsidiaries and their respective operations, business affairs, prospects and financial condition, including, without limitation, those matters which are the subject of the Seller's representations and warranties (the "Due Diligence Review"). Buyers shall conclude such review by no later than twenty (20) business days after the date of this Agreement (the "Due Diligence Review Period"), but the pendency of such 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 Regulatory Authorities. Buyers shall advise Seller of any situation, event, circumstance or other matter which first comes to the attention of Buyers during the Due Diligence Review which could potentially - 58 - 63 result in the termination of this Agreement by Buyer pursuant to Section 7.01(d) hereof, or, if applicable, of notice to Seller as promptly as possible of the absence of any perceived impediment to the consummation of the Merger. Notwithstanding anything herein- above contained or implied to the contrary, the Due Diligence Review shall not limit, restrict or preclude Buyers, 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 Due Diligence Period of any event or condition which was not detected in the Due Diligence Review by Buyers and which constitutes a breach of any representa- tion, warranty or agreement of Seller under this Agreement. 5.02. Registration Statement; Regulatory Matters. ------------------------------------------ (a) Mercantile shall prepare and, subject to the review and consent of Seller with respect to matters relating to Seller, file with the SEC as soon as is reasonably practicable the Registration Statement (or the equivalent in the form of preliminary proxy materials) with respect to the shares of Mercantile Common Stock to be issued in the Merger. Mercantile shall prepare and, subject to the review and consent of Seller with respect to matters relating to Seller, use its best efforts to file as soon as is reasonably practicable an application for approval of the Merger with the Federal Reserve Board and 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 Seller and the Seller Subsidiaries - 59 - 64 shall furnish Mercantile all information concerning Seller and the Seller Subsidiaries and the shareholders thereof as Mercantile may reasonably request in connection with any such action. (b) Seller and Buyers shall cooperate and use their respective best efforts to prepare all documentation, to effect all filings and to obtain all permits, consents, approvals and authorizations of all third parties and Regulatory Authorities necessary to consummate the transactions contemplated by this Agreement and, as and if directed by Mercantile, to consummate such other transactions by and among Mercantile's Subsidiaries and the Seller Subsidiaries concurrently with or following the Effective Time, provided that such actions do not (i) materially impede or -------- delay the receipt of any approval referred to in Section 6.01(b) or (ii) the consummation of the transactions contemplated by this Agreement. 5.03. Shareholder Approval. Seller shall call a -------------------- meeting of its shareholders to be held as soon as practicable for the purpose of voting upon the Merger. In connection with such meetings, Mercantile shall prepare, subject to the review and consent of Seller, the Proxy Statement (which shall be part of the Registration Statement to be filed with the SEC by Mercantile) and mail the same to the shareholders of Seller. The Board of Directors of Seller shall submit for approval of Seller's share- holders the matters to be voted upon at such meeting. The Board of Directors of Seller hereby does and will recommend this Agreement and the transactions contemplated hereby to shareholders of Seller and use its reasonable best efforts to obtain any vote of Seller's - 60 - 65 shareholders necessary for the approval and adoption of this Agreement. 5.04. Current Information. During the period from the ------------------- date of this Agreement to the Effective Time, each party shall promptly furnish the other with copies of all interim financial statements as the same become available and shall cause one or more of its designated representatives to confer on a regular and frequent basis with representatives of the other party. Each party shall promptly notify the other party of 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) an event which would cause any representation or warranty of such party or any Schedule, statement, report, notice, certificate or other writing furnished by such party to be untrue or misleading in any material respect, (b) any material adverse change in its business, financial condition or results of operations, (c) the issuance or commence- ment of any governmental complaint, investigation or hearing (or any communication indicating that the same may be contemplated), or (d) the institution or threat of material litigation involving such party, and shall keep the other party fully informed of such events. 5.05. Agreements of Affiliates. Set forth as Schedule ------------------------ -------- 5.05 is a list (which includes individual and beneficial ownership) - ---- of all persons whom Seller believes to be "affiliates" of Seller for purposes of Rule 145 under the Securities Act. Seller shall use its best efforts to cause each person who is identified as an - 61 - 66 "affiliate" to deliver to Mercantile, as of the date hereof, or as soon as practicable hereafter, a written agreement in substantially the form set forth as Exhibit A to this Agreement providing that --------- each such person will agree not to sell, pledge, transfer or otherwise dispose of any shares of Mercantile Common Stock to be received by such person in the Merger except in compliance with the applicable provisions of the Securities Act and until such time as financial results covering at least thirty (30) days of combined operations or Mercantile and Seller shall have been published. Prior to the Effective Time, and via letter, Seller shall amend and supplement Schedule 5.05 and use its best efforts to cause each ------------- additional person who is identified as an "affiliate" to execute a written agreement as set forth in this Section 5.05. 5.06. Expenses. Each party hereto shall bear its own -------- expenses incident to preparing, entering into and carrying out this Agreement and to consummating the Merger, provided, however, that -------- ------- Buyers shall pay all printing and mailing expenses and filing fees associated with the Registration Statement, the Proxy Statement and regulatory applications. 5.07. Miscellaneous Agreements and Consents. Subject ------------------------------------- to the terms and conditions herein provided, each of the parties hereto agrees to use its respective best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regula- tions to consummate and make effective the transactions contem- plated by this Agreement as expeditiously as possible, including without limitation using its respective best efforts to lift or - 62 - 67 rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. Each party shall, and shall cause each of its respective subsidiaries to, use its best efforts to obtain consents of all third parties and Regulatory Authorities necessary or, in the opinion of Buyers, desirable for the consum- mation of the transactions contemplated by this Agreement. 5.08. Employee Agreements and Benefits. -------------------------------- (a) Following the Effective Time, Buyers shall cause the Surviving Corporation to honor in accordance with their terms all employment, severance and other compensation contracts set forth on Schedule 5.08 between Seller, any of the Seller ------------- Subsidiaries, and any current or former director, officer, employee or agent thereof, and all provisions for vested benefits or other vested amounts earned or accrued through the Effective Time under the Seller Employee Plans. (b) The provisions of any plan, program or arrangement providing for the issuance or grant of any other interest in respect of the capital stock of Seller or any of the Seller Subsidiaries shall be deleted and terminated as of the Effective Time. (c) Except as set forth in Section 5.08(b) hereof, the Seller Employee Plans shall not be terminated by reason of the Merger but shall continue thereafter as plans of the Surviving Corporation until such time as the employees of the Seller and the Seller Subsidiaries are integrated into Mercantile's employee benefit plans that are available to other employees of - 63 - 68 Mercantile and its Subsidiaries, subject to the terms and condi- tions specified in such plans and to such changes therein as may be necessary to reflect the consummation of the Merger. Mercantile shall take such steps as are necessary or required to integrate the employees of Seller and the Seller Subsidiaries in Mercantile's employee benefit plans available to other employees of Mercantile and its Subsidiaries as soon as practicable after the Effective Time, with (i) full credit for prior service with Seller or any of the Seller Subsidiaries for purposes of vesting and eligibility for participation (but not benefit accruals under any defined benefit plan), and co-payments and deductibles, and (ii) waiver of all waiting periods and pre-existing condition exclusions or penalties. 5.09. Press Releases. Except as may be required by -------------- law, Seller and Mercantile shall consult and agree with each other as to the form and substance of any proposed press release relating to this Agreement or any of the transactions contemplated hereby. 5.10. State Takeover Statutes. Seller will take all ----------------------- steps necessary to exempt the transactions contemplated by this Agreement and any agreement contemplated hereby from, and if necessary challenge the validity of, any applicable state takeover law. 5.11. Directors' and Officers' Indemnification. ---------------------------------------- Mercantile agrees that the Merger shall not affect or diminish any of the duties and obligations of indemnification of the Seller or any of the Seller Subsidiaries existing as of the Effective Time in favor of employees, agents, directors or officers of Seller or any of the Seller Subsidiaries arising by virtue of its Articles of - 64 - 69 Incorporation, Charter or Bylaws in the form in effect at the date of this Agreement or arising by operation of law or arising by virtue of any contract, resolution or other agreement or document existing at the date of this Agreement, and such duties and obligations shall continue in full force and effect for so long as they would (but for the Merger) otherwise survive and continue in full force and effect. To the extent that Seller's existing directors' and officers' liability insurance policy would provide coverage for any action or omission occurring prior to the Effective Time, Seller agrees to give proper notice to the insurance carrier and to Mercantile of a potential claim thereunder so as to preserve Seller's rights to such insurance coverage. Mercantile represents that the directors' and officers' liability insurance policy maintained by it provides for coverage of "prior acts" for directors and officers of entities acquired by Mercantile including Seller and the Seller Subsidiaries on and after the Effective Time. 5.12. Tax Opinion Certificates. Seller shall cause ------------------------ such of its executive officers, directors and/or holders of one percent (1%) or more of the Seller Common Stock (including shares beneficially held) as may requested by Thompson & Mitchell to timely execute and deliver to Thompson & Mitchell certificates substantially in the form of Exhibit B or Exhibit C hereto, as the --------- --------- case may be. 5.13. Best Efforts to Insure Pooling. Each of Buyers ------------------------------ and Seller undertakes and agrees to use its best efforts to cause - 65 - 70 the Merger to qualify for pooling-of-interests accounting treat- ment. ARTICLE VI ---------- CONDITIONS 6.01. Conditions to Each Party's Obligation To Effect ----------------------------------------------- the Merger. The respective obligations of each party to effect the - ---------- Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: (a) This Agreement shall have received the requisite approval of shareholders of Seller at the meeting of shareholders called pursuant to Section 5.03 of this Agreement. (b) All requisite approvals of this Agreement and the transactions contemplated hereby shall have been received from the Regulatory Authorities, and all waiting periods after such approvals required by law or regulation have been satisfied. (c) The Registration Statement shall have been declared effective and shall not be subject to a stop order or any threatened stop order. (d) Neither Seller nor Buyers shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger. (e) Seller shall have received from Thompson & Mitchell an opinion (which opinion shall not have been withdrawn at or prior to the Effective Time) reasonably satisfactory in form and substance to it to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Code and - 66 - 71 to the effect that, as a result of the merger, except with respect to fractional share interests, holders of Seller Common Stock who receive Mercantile Common Stock in the Merger will not recognize gain or loss for federal income tax purposes, the basis of such Mercantile Common Stock will equal the basis of the Seller Common Stock for which it is exchanged and the holding period of such Mercantile Common Stock will include the holding period of the Seller Common Stock for which it is exchanged, assuming that such Seller Common Stock is a capital asset in the hands of the holder thereof at the Effective Time. 6.02. Conditions to Obligations of Seller To Effect the ------------------------------------------------- Merger. The obligations of Seller to effect the Merger shall be - ------ subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The ------------------------------ representations and warranties of Buyers set forth in Article III of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time except (i) to the extent such representations and warranties are by their express provisions made as of a specified date, (ii) where the facts which caused the failure of any representation or warranty to be so true and correct have not resulted, and are not likely to result, in a material adverse effect on the Condition of Mercantile and its Subsidiaries taken as a whole (for purposes hereof changes to laws and regulations, generally accepted or regulatory accounting principles, or interpretations thereof, or changes in economic - 67 - 72 conditions, including interest rates applicable to commercial banking institutions generally shall not be taken into account) and (iii) for the effect of transactions contemplated by this Agreement) and Seller shall have received a certificate of the Vice Chairman of Mercantile, signing solely in his capacity as an officer of Mercantile, to that effect. (b) Performance of Obligations. Buyers shall -------------------------- have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Effective Time, and Seller shall have received a certificate of the Vice Chairman of Mercantile, signing solely in his capacity as an officer of Mercantile, to that effect. (c) Permits, Authorizations, etc. Buyers ---------------------------- shall have obtained any and all material permits, authorizations, consents, waivers and approvals required for the lawful consum- mation of the Merger. (d) No Material Adverse Change. Since the -------------------------- date of this Agreement, there shall have been no material adverse change to the Condition of Mercantile and its Subsidiaries, taken as a whole, except as may have resulted from changes to laws and regulations, generally accepted or regulatory accounting principles, or interpretations thereof, or changes in economic conditions, including interest rates, applicable to commercial banking institutions generally. (e) Opinion of Counsel. Mercantile shall have ------------------ delivered to Seller an opinion of Mercantile's counsel dated as of - 68 - 73 the Closing Date or a mutually agreeable earlier date in substan- tially the form set forth as Exhibit D to this Agreement. --------- 6.03. Conditions to Obligations of Buyers To Effect the ------------------------------------------------- Merger. The obligations of Buyers to effect the Merger shall be - ------ subject to the fulfillment or waiver at or prior to the Effective Time of the following additional conditions: (a) Representations and Warranties. The ------------------------------ representations and warranties of Seller set forth in Article II of this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time (as though made on and as of the Effective Time except (i) to the extent such representations and warranties are by their express provisions made as of a specific date, (ii) where the facts which caused the failure of any representation or warranty to be so true and correct have not resulted, and are not likely to result, in a material adverse effect on the Condition of Seller and its Subsidiaries taken as a whole (for purposes hereof changes to laws and regulations, generally accepted or regulatory accounting principles, or interpretations thereof, or changes in economic conditions, including interest rates applicable to thrift institu- tions generally shall not be taken into account) and (iii) for the effect of transactions contemplated by this Agreement) and Buyers shall have received a certificate of the President and the Chief Financial Officer of Seller, acting solely in their capacities as officers of Seller, to that effect. (b) Performance of Obligations. Seller shall -------------------------- have performed in all material respects all obligations required to - 69 - 74 be performed by it under this Agreement prior to the Effective Time, and Buyers shall have received a certificate of the President and the Chief Financial Officer of Seller acting solely in their capacities as officers of Seller, to that effect. (c) Permits, Authorizations, etc. Seller ----------------------------- shall have obtained any and all material permits, authorizations, consents, waivers and approvals required for the lawful consum- mation by it of the Merger. (d) No Material Adverse Change. Since the -------------------------- date of this Agreement, there shall have been no material adverse change to the Condition of Seller and the Seller Subsidiaries, taken as a whole, except as may have resulted from changes to laws and regulations, generally accepted or regulatory accounting principles, or interpretations thereof, or changes in economic conditions, including interest rates, applicable to thrift institutions generally. (e) Opinion of Counsel. Seller shall have ------------------ delivered to Buyers an opinion of Seller's counsel dated as of the Closing Date or a mutually agreeable earlier date in substantially the form set forth as Exhibit E to this Agreement. --------- (f) Opinion of KPMG Peat Marwick. Buyer shall ---------------------------- have received an opinion of KPMG Peat Marwick, satisfactory in form and substance to Mercantile, that the Merger will qualify for pooling-of-interests accounting treatment, which opinion shall not have been withdrawn at or prior to the Effective Time. - 70 - 75 ARTICLE VII ----------- TERMINATION, AMENDMENT AND WAIVER 7.01. Termination. This Agreement may be terminated at ----------- any time prior to the Effective Time, whether before or after approval by Seller shareholders: (a) by mutual consent by the Executive Committee of the Board of Directors of Mercantile and by the respective Boards of Directors of Seller and Merger Sub; (b) by the Executive Committee of the Board of Directors of Mercantile or the respective Boards of Directors of either Seller or Merger Sub at any time after January 27, 1996 if the Merger shall not theretofore have been consummated (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein); (c) by the Executive Committee of the Board of Directors of Mercantile or the respective Boards of Directors of either Seller or Merger Sub if (i) the Federal Reserve Board or any other federal and/or state regulatory agency whose approval is required for the consummation of the transactions contemplated hereby has denied approval of the Merger and such denial has become final and nonappealable or (ii) the shareholders of Seller shall not have approved this Agreement at the meeting referred to in Section 5.03; (d) by the Executive Committee of the Board of Directors of Mercantile or the Board of Directors of Merger Sub in the event (i) any situation, event, circumstance or other matter - 71 - 76 shall come to the attention of Mercantile or Merger Sub during the course of the Due Diligence Review conducted pursuant to Section 5.01(b) hereof which Mercantile or Merger Sub shall, in a good faith exercise of its reasonable discretion, believe either (A) to be inconsistent in any material and adverse respect with any of the representations or warranties of Seller, (B) to be of such significance as to materially and adversely affect the Condition of Seller and the Seller Subsidiaries, taken as a whole, or (C) to deviate materially and adversely from Seller's financial statements for the nine months ended September 30, 1994, and (ii) Mercantile or Merger Sub notifies Seller of such matters within five (5) business days after the end of the Due Diligence Review Period and such matters are not capable of being cured or have not been cured within thirty (30) days after written notice thereof to Seller; or (e) by the Executive Committee of the Board of Directors of Mercantile or the Board of Directors of Merger Sub, on the one hand, or by the Board of Directors of Seller, on the other hand, in the event of a breach by the other party to this Agreement of any representation, warranty or agreement contained herein, which breach is not cured within 30 days after written notice thereof is given to the breaching party by the non-breaching party or is not waived by the non-breaching party during such period. 7.02. Effect of Termination. In the event of termin- --------------------- ation of this Agreement as provided in Section 7.01 hereof, this Agreement shall forthwith become void and there shall be no liability on the part of Buyers or Seller or their respective officers or directors except as set forth in the second sentence of - 72 - 77 Section 5.01(a) and in Sections 5.06 and 8.02, and except that no termination of this Agreement pursuant to Section 7.01(e) shall relieve the breaching party of any liability to the non-breaching party hereto arising from the intentional, deliberate and willful non-performance of any covenant contained herein, after giving notice to such breaching party and an opportunity to cure as set forth in Section 7.01(e). 7.03. Amendment. This Agreement and the Schedules --------- hereto may be amended by the parties hereto, by action taken by or on behalf of the Executive Committee of the Board of Directors of Mercantile and the respective Boards of Directors of Merger Sub or Seller, at any time before or after approval of this Agreement by the shareholders of Seller; provided, however, that after any such -------- ------- approval by the shareholders of Seller no such modification shall (a) alter or change the amount or kind of consideration to be received by holders of Seller Common Stock as provided in this Agreement or (b) adversely affect the tax treatment to Seller shareholders as a result of receiving the shares of Mercantile Common Stock in the Merger. This Agreement may not be amended except by an instrument in writing signed on behalf of each of Buyers and Seller. 7.04. Waiver. Any term, condition or provision of this ------ Agreement may be waived in writing at any time by the party which is, or whose shareholders are, entitled to the benefits thereof. - 73 - 78 ARTICLE VIII ------------ GENERAL PROVISIONS 8.01. Non-Survival of Representations, Warranties and ----------------------------------------------- Agreements. No investigation by the parties hereto made heretofore - ---------- or hereafter shall affect the representations and warranties of the parties which are contained herein and each such representation and warranty shall survive such investigation. Except as set forth below in this Section 8.01, all representations, warranties and agreements in this Agreement of Buyers and Seller or in any instrument delivered by Buyers or Seller pursuant to or in connection with this Agreement shall expire at the Effective Time or upon termination of this Agreement in accordance with its terms. In the event of consummation of the Merger, the agreements contained in or referred to in Sections 5.02(b), 5.07, 5.08 and 5.11 shall survive the Effective Time. In the event of termination of this Agreement in accordance with its terms, the agreements contained in or referred to in the second sentence of Section 5.01, Section 5.06, Section 7.02 and Section 8.02 shall survive such termination. 8.02. Indemnification. Buyers and Seller (hereinafter, --------------- in such capacity being referred to as the "Indemnifying Party") agree to indemnify and hold harmless each other and their officers, directors and controlling persons (each such other party being hereinafter referred to, individually and/or collectively, as the "Indemnified Party") against any and all losses, claims, damages or liabilities, joint or several, to which the Indemnified Party may become subject under the Securities Act, the Exchange Act or other - 74 - 79 federal or state law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof): (a) arise primarily out of any information furnished to the Indemnified Party by the Indemnifying Party or are based primarily upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement as originally filed or in any amendment 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 primarily out of or are based primarily 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 made therein not misleading, and agrees to reimburse each such Indemnified Party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action. 8.03. No Assignment; Successors and Assigns. This ------------------------------------- Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors 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 the other party, and any purported transfer or assignment in violation of this Section 8.03 shall be void and of no effect. There shall not be any third party beneficiaries of any provisions hereof except for Sections 1.08, - 75 - 80 5.08, 5.11 and 8.02, which may be enforced against Buyers or Seller by the parties therein identified. 8.04. 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. 8.05. 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. 8.06. Entire Agreement. This Agreement and the ---------------- Exhibits, Appendices and Schedules hereto constitute the entire agreement between the parties with respect to the subject matter hereof, supersede all prior negotiations, representations, warranties, commitments, offers, letters of interest or intent, proposal letters, contracts, writings or other agreements or understandings with respect thereto. No waiver, and no modifi- cation or amendment of any provision of this Agreement shall be effective unless specifically made in writing and duly signed by all parties thereto. 8.07. Counterparts. This Agreement may be executed in ------------ one or more counterparts, and any party to this Agreement may executed and deliver this Agreement by executing and delivering any - 76 - 81 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. 8.08. Notices. All notices and other communications ------- hereunder shall be in writing and shall be deemed to be duly received (i) on the date given if delivered personally or (ii) upon confirmation of receipt, if by facsimile transmission or (iii) on the date received if mailed by registered or certified mail (return receipt requested), 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 Buyers: Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, Missouri 63166-0524 Attention: Ralph W. Babb, Jr. Vice Chairman Telecopy: (314) 425-8108 Copies to: Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, Missouri 63166-0524 Attention: Jon W. Bilstrom, Esq. General Counsel and Secretary Telecopy: (314) 425-1386 and Thompson & Mitchell One Mercantile Center St. Louis, Missouri 63101 Attention: Robert M. LaRose, Esq. Telecopy: (314) 342-1717 - 77 - 82 (ii) if to Seller: Southwest Bancshares, Inc. 102 South Springfield Street Bolivar, Missouri 65613 Attention: Joe F. Rayl Chairman Telecopy: (417) 326-2150 Copies to: Taylor, Stafford, Woody, Clithero & Fitzgerald Tenth Floor - Plaza Towers Glenstone at Sunshine Springfield, Missouri 65804 Attention: O.J. Taylor, Esq. Telecopy: (417) 887-8431 8.09. Severability. Any term, provision, covenant or ------------ restriction contained in this Agreement held by a court or a Regulatory Authority of competent jurisdiction to be invalid, void or unenforceable, shall be ineffective to the extent of such invalidity, voidness or unenforceability, but neither the remaining terms, provisions, covenants or restrictions contained in this Agreement nor the validity or enforceability thereof in any other jurisdiction shall be affected or impaired thereby. Any term, provision, covenant or restriction contained in this Agreement that is so found to be so broad as to be unenforceable shall be interpreted to be as broad as is enforceable. 8.10. Governing Law. This Agreement shall be governed ------------- by and controlled as to validity, enforcement, interpretation, effect and in all other respects by the internal laws of the State of Missouri. - 78 - 83 IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be signed and, by such signature, acknowledged by their respective officers thereunto duly authorized, and such signatures to be attested to by their respective officers thereunto duly authorized, all as of the date first "BUYERS" MERCANTILE BANCORPORATION INC. By: /s/ Ralph W. Babb, Jr. --------------------------- Ralph W. Babb, Jr. Vice Chairman AMERIBANC, INC. By: /s/ Ralph W. Babb, Jr. --------------------------- Ralph W. Babb, Jr. Chairman "SELLER" SOUTHWEST BANCSHARES, INC. By: /s/ Joe F. Rayl --------------------------- Joe F. Rayl Chairman, President and Chief Executive Officer - 79 - 84 EXHIBIT A [Form of Southwest Affiliate's Undertaking] ----------------, 1995 Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, Missouri 63166-0524 Gentlemen: I have been advised that as of the date hereof I may be deemed an "affiliate" ("Affiliate") of Southwest Bancshares, Inc., a Missouri corporation ("Southwest"), as that term is defined for purposes of paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations") under the Securities Act of 1933, as amended (the "Act"). Pursuant to the terms of the Agreement and Plan of Merger among Mercantile Bancorporation Inc., a Missouri corporation ("Mercantile"), Ameribanc, Inc., a Missouri corporation ("ABNK"), and Southwest (the "Merger Agreement"), Southwest will be merged with and into ABNK (the "Merger"), and as a result of the Merger, I will receive shares of common stock of Mercantile, $5.00 par value ("Mercantile Common Stock"). In connection with the above transactions, I represent and warrant to Mercantile and agree that: A. I will not make any sale, transfer or other disposition of the shares of Mercantile Common Stock in violation of the Act or the Rules and Regulations. B. I have been advised that the offering, sale and delivery of the shares of Mercantile Common Stock to me pursuant to the Merger will be registered under the Act on a Registration A - 1 85 Statement on Form S-4. I have also been advised, however, that, since I may be deemed to be an Affiliate of Southwest at the time the Merger Agreement is submitted for a vote of the shareholders of Southwest, such shares of Mercantile Common Stock may be sold, transferred or otherwise disposed of by me only if (i) such shares of Mercantile Common Stock have been registered for distribution under the Act, (ii) a sale of the shares of Mercantile Common Stock is made in conformity with the volume and other limitations of Rule 145 or (iii) another exemption from registration under the Act is available with respect to any such proposed sale, transfer or other disposition of such shares of Mercantile Common Stock. C. I have carefully read this letter and the Merger Agreement and have discussed their requirements and other applicable limitations upon my ability to sell, transfer or otherwise dispose of the shares of Mercantile Common Stock, to the extent I felt necessary, with my counsel or counsel for Southwest. D. I understand that Mercantile is under no obligation to register the sale, transfer or other disposition of the shares of Mercantile Common Stock for sale, transfer or other disposition by me to make compliance with an exemption from registration available. E. Notwithstanding the other provisions hereof, I agree not to sell, pledge, transfer or otherwise dispose (other than by bona fide gift) of the shares of Mercantile Common Stock, or reduce my risk relative to the Mercantile Common Stock in any other way, from the date hereof until such time as financial results covering at least thirty (30) days of combined operations of the parties to A - 2 86 the Merger have been published within the meaning of Section 201.01 of the Codification of Financial Reporting Policies of the Securities and Exchange Commission ("SEC"). I have not reduced my risk relative to the Mercantile Common Stock or the Southwest Common Stock from the date I became aware of the negotiation between Mercantile and Southwest with regard to the acquisition to date. F. I understand that stop transfer instructions will be given to the registrar of the certificates for the shares of Mercantile Common Stock and that there will be placed on the certificates for the shares of Mercantile Common Stock, or any substitutions therefore, a legend stating in substance: "The shares represented by this certificate were issued in a transaction (the acquisition of Southwest Bancshares, Inc.) to which Rule 145 promulgated under the Securities Act of 1933, as amended (the "Act"), applies and may be sold or otherwise transferred only in compliance with the limitations of such Rule 145, or an exemption from registration under the Act is available, or pursuant to a registration statement under the Act. The shares represented by this certificate may not be sold or otherwise transferred prior to the publication by Mercantile Bancorporation Inc. of an earnings statement covering at least thirty (30) days of operations subsequent to [the effective date of the Merger]." A - 3 87 G. I hereby agree that, for a period of two (2) years following the effective date of the Merger, I will obtain an agreement similar to this agreement from each transferee of the shares of Mercantile Common Stock sold or otherwise transferred by me, but only if such transfer is effected other than in a trans- action involving a registered public offering or as a sale pursuant to Rule 145. It is understood and agreed that this Agreement will terminate and be of no further force and effect and the legend set forth in Paragraph F above will be removed by delivery of substi- tute certificates without such legend, and the related transfer restrictions shall be lifted forthwith, if the period of time specified in Paragraph E of this Agreement has passed and (i) my shares of Mercantile Common Stock shall have been registered under the Act for sale, transfer or other disposition by me or on my behalf, (ii) I am not at the time an Affiliate of Mercantile and have held the shares of Mercantile Common Stock for at least two (2) years (or such other period as may be prescribed by the Act and the Rules and Regulations) and Mercantile has filed with the SEC all of the reports it is required to file under the Securities Exchange Act of 1934, as amended, during the preceding twelve (12) months, (iii) I am not and have not been for at least three (3) months an Affiliate of Mercantile and I have held the shares of Mercantile Common Stock for at least three (3) years, or (iv) Mercantile shall have received a letter from the staff of the SEC, or an opinion of Mercantile's General Counsel or other counsel A - 4 88 acceptable to Mercantile, to the effect that the stock transfer restrictions and the legend are not required. By its acceptance hereof, Mercantile agrees, for a period of two years after the Merger, that it will file on a timely basis all reports required to be filed by it pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, so that the public information provisions of Rule 144(c) under the Act are satisfied and the resale provisions of paragraphs (d)(1) and (2) are therefore available to me in the event I desire to transfer shares of Mercantile Common Stock issued to me in the Merger. This Agreement shall be binding on my heirs, legal representatives and successors. Very truly yours, ------------------------------------ Accepted as of the ------ day of ----------------, 1995. MERCANTILE BANCORPORATION INC. By:------------------------------------- A - 5 89 EXHIBIT B OFFICER/DIRECTOR CERTIFICATE ---------------------------- The undersigned, [Name] , [Title] of ------------------- --------------- Southwest Bancshares, Inc., a Missouri corporation ("Southwest"), HEREBY CERTIFIES that (a) I am familiar with the terms and conditions of the Agreement and Plan of Merger by and among Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), Ameribanc, Inc., a Missouri corporation ("Ameribanc"), and Southwest dated * , 1995, including the schedules and ----------- exhibits thereto (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 Southwest that the merger of Southwest with and into Ameribanc (the "Merger") will constitute a reorganization within the meaning of section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the representations and undertaking recited herein will survive the Merger. The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF Southwest, that: (1) The fair market value of the MBI common stock, par value $5.00 per share ("MBI Common Stock"), to be received by each Southwest shareholder 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 B - 1 90 Southwest common stock, par value $10.00 per share ("Southwest Common Stock"), surrendered in the Merger by each such shareholder. (2) [To be modified with a knowledge qualifier if sufficient shareholders execute Exhibit C.] 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 Southwest 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 Southwest 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 date on which the Merger is consummated (the "Effective Date"), of less than 50 percent of the value of all of the formerly outstanding Southwest Common Stock as of the Effective Date. For purposes of this representation, shares of Southwest Common Stock exchanged for cash or other property or exchanged for cash in lieu of fractional shares of MBI Common Stock will be treated as outstanding on the Effective Date. Moreover, all shares of Southwest Common Stock and/or shares of MBI Common Stock held by Southwest shareholders and otherwise sold, redeemed or disposed of before or after the Effective Date will be taken into account in making this representation. (3) Southwest will transfer to Ameribanc in the Merger 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 B - 2 91 Southwest immediately prior to the Merger. For purposes of this representation, Southwest assets used to pay dissenters or to pay shareholders who receive cash, and Southwest assets used to pay expenses of the Merger or to fund any redemption or distribution within 24 months before the Merger (except for regular, normal dividends) shall be included as assets of Southwest held immediately prior to the Merger. For purposes of this representation, any asset of Southwest or any other member of Southwest's "affiliated group" (as the quoted term is defined in Code section 1504) (the "Southwest Affiliated Group") 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 Southwest held immediately prior to the Merger. (4) Before the Merger, Southwest 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 Southwest that, if exercised or converted after the Merger, would affect MBI's retention of control of Ameribanc (within the meaning of section 368(c) of the Code). (5) At the time of the Merger and except with regard to Transaction Costs (as defined below), each liability of Southwest and each liability to which an asset of Southwest is subject will have been incurred by Southwest in the ordinary course of business and no such liability will have been incurred in anticipation of the Merger. In addition, at the time of the Merger and except with regard to Transaction Costs, Southwest will not, B - 3 92 directly or indirectly, have paid (or loaned) any amount or incurred any liability to or for the benefit of, or assumed or cancelled any liability of, any Southwest shareholder in connection with the Merger. For purposes of this representation, (a) the term "Southwest" shall be deemed also to refer to each other member of the Southwest Affiliated Group, (b) the term "liability" shall include any undertaking to pay or to cause the reduction, release or extinguishment of, any obligation, without regard to whether any such undertaking or obligation is contingent or legally enforceable (for example and without limitation, the term "liability" includes an unenforceable agreement to cause the repayment of an obligation guaranteed by a Southwest shareholder or to cause by other means the release of such guaranty), and (c) the term "Transaction Costs" 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 Southwest or any other member of the Southwest Affiliated Group, if any, and (iii) as compensation to any employee of Southwest or any other member of the Southwest Affiliated Group for services rendered in the ordinary course of his or her employment. (6) Expenses, if any, that are incurred in connection with the Merger and are properly attributable to Southwest's shareholders will be paid by those shareholders and not by Southwest. Southwest will pay its own expenses that are incurred in connection with the Merger, except for those printing, mailing and filing expenses described in Section 5.06 of the Agreement. B - 4 93 (7) No indebtedness between Southwest or any other member of the Southwest Affiliated Group, on the one hand, and Ameribanc or MBI or any other member of MBI's "affiliated group" (defined as above), on the other hand, exists or will exist prior to the Merger 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 quoted term is defined for purposes of Code section 453B), between Southwest, on the one hand, and Ameribanc, on the other hand, exists or will exist prior to the Merger that will be extinguished as a result of the Merger. (8) The fair market value of the assets of Southwest to be transferred to Ameribanc will exceed the sum of the amount of liabilities to be assumed by Ameribanc, plus the amount of liabilities, if any, to which the assets to be transferred are subject. (9) 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 Merger to the Southwest shareholders 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 Southwest shareholders in exchange for their shares of Southwest Common Stock. The fractional share interests of each Southwest shareholder will be aggregated, and no Southwest shareholder will receive cash in lieu of fractional share interests in an amount B - 5 94 equal to or greater than the value of one full share of MBI Common Stock. (10) None of the compensation paid or accrued before the Merger to or for the benefit of any Southwest shareholder- employee will be separate consideration for, or allocable to, any of their shares of Southwest Common Stock; none of the shares of MBI Common Stock received in the Merger by any Southwest shareholder-employee will be separate consideration for, or allocable to, any employment agreement; and all compensation paid or accrued before the Merger to or for the benefit of any Southwest shareholder-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. (11) Except for dispositions to be made in the ordinary course of business, Southwest is aware of no plan or intention to sell or otherwise dispose (whether by dividend distribution or otherwise) of (a) any assets of Southwest acquired in the Merger, or (b) any assets of any other member of the Southwest Affiliated Group. (12) All payments made to dissenters and all cash payments made in lieu of fractional shares of MBI Common Stock will be funded with assets of MBI. No such payments will be funded with Southwest assets. 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 B - 6 95 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 Southwest this ----- day of ---------------, 1995. SOUTHWEST BANCSHARES, INC. By------------------------------- B - 7 96 EXHIBIT C SHAREHOLDER CERTIFICATE ----------------------- The undersigned shareholder of Southwest Bancshares, Inc., a Missouri corporation ("Southwest"), [SHAREHOLDER'S NAME], --------------------- a holder of * shares of Southwest common stock, par value ------- $10.00 per share ("Southwest Common Stock"), HEREBY CERTIFIES that (a) I am familiar with the terms and conditions of the Agreement and Plan of Merger by and among Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), Ameribanc, Inc., a Missouri corporation ("Ameribanc"), and Southwest dated * , 1995, and --------- (b) I am aware that (i) this Certificate will be relied on by Thompson & Mitchell, counsel for MBI, in rendering its opinion to Southwest that the merger of Southwest with and into Ameribanc (the "Merger") will constitute a reorganization within the meaning of section 368(a)(1) of the Internal Revenue Code of 1986, as amended, and (ii) the representations and undertaking recited herein will survive the Merger. The undersigned HEREBY FURTHER CERTIFIES that (a) 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, par value $5.00 per share ("MBI Common Stock"), to be received in the Merger, with the exception of any fractional share of MBI Common Stock to be exchanged for cash pursuant to the Merger, and (b) except as otherwise set forth by the undersigned on an attachment hereto, the undersigned is not aware that any other holder of Southwest Common Stock has any plan, intention or arrangement (including any option or pledge) to sell, C - 1 97 exchange or otherwise dispose of any of the MBI Common Stock to be received in the Merger, with the exception of fractional shares of MBI Common Stock to be exchanged for cash pursuant to the Merger. 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, the undersigned has executed this certificate, or caused this certificate to be executed by its duly authorized representative, this ----- day of ---------------, 1995. ---------------------------------- C - 2 98 EXHIBIT D [Letterhead of counsel of Mercantile Bancorporation Inc.] (a) Mercantile and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business and is in good standing in all jurisdictions where the ownership or leasing of its respective properties or the conduct of its business requires it to be so qualified, except, with respect to subsidiaries of Mercantile other than ABNK, where the failure to be so qualified would not have a material adverse effect on the Condition of Mercantile and its Subsidiaries, taken as a whole. Mercantile and ABNK are each registered as bank holding companies with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended. (b) Mercantile and each of its subsidiaries possesses all corporate power to own and operate its respective properties and to carry out its respective business as and where the same is now being conducted. (c) Mercantile and ABNK each have the corporate power and authority to enter into and deliver the Merger Agreement and to carry out its obligations thereunder. (d) The Merger Agreement has been duly authorized by all necessary corporate action of Mercantile and ABNK, respectively, and such Merger Agreement constitutes a valid and binding obliga- tion of Mercantile and ABNK that is enforceable against Mercantile and ABNK, as the case may be, in accordance with its terms, except as may be limited by bankruptcy, insolvency, moratorium, reorgani- D - 1 99 zation or similar laws affecting the rights of creditors generally, or the exercise of judicial discretion in accordance with general principles applicable to equitable and similar remedies. (e) The execution, delivery and performance by Mercantile or ABNK of the Merger Agreement or the consummation of the Merger, or compliance by Mercantile or ABNK with any of the provisions of the Merger Agreement, will not: (i) violate, conflict with or result in a breach of any of the provisions of, or constitute a default (or event which, with notice or the lapse of time, or both, would constitute a default) under, or result in the termination of, or result in the right to termination or acceleration of, or result in the creation of, any lien, security interest, charge or encumbrance upon any of the respective properties of Mercantile or ABNK under any of the terms, conditions or provisions of: (A) the respective Articles of Incorporation or By-laws of Mercantile or ABNK or (B) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Mercantile or ABNK or any of their respective properties or assets may be subject and which is material to Mercantile and its subsidiaries taken as a whole, or (ii) to the best of our knowledge, violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Mercantile or ABNK, or any of their respective properties or assets and which is material to Mercantile and its subsidiaries taken as a whole. (f) Except as received prior to the date hereof, no notice to, filing with, exemption or review by or authorization, consent or approval of, any public body or authority is necessary for the D - 2 100 consummation by Mercantile or ABNK of the Merger as contemplated by the Merger Agreement other than articles and certificates of merger. (g) To the best of our knowledge, the authorized and issued capital of Mercantile conforms to the description thereof contained in Section 3.03 of the Merger Agreement. To the best of our knowledge, except as set forth in the Merger Agreement or in the schedules thereto, there are no 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 capital stock, or options, warrants or rights to purchase or acquire any additional shares of capital stock of Mercantile. To the best of our knowledge, all of the issued and outstanding shares of Mercantile Common Stock are validly issued, fully paid and nonassessable by Mercantile and none of such shares have been issued in violation of any preemptive or similar right of any shareholder of Mercantile. The shares of Mercantile Common Stock to be issued pursuant to the Merger Agreement will be, when issued, duly authorized, validly issued, fully paid and nonassessable by Mercantile, and none of such shares will be subject to preemptive or other similar rights. (h) To the best of our knowledge, neither Mercantile nor ABNK is the subject of any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger. D - 3 101 (i) To the best of our knowledge, there is no litigation, proceeding or controversy before any court or governmental agency whether federal, state or local, pending or threatened, that is likely to have a material and adverse effect on the business, results of operations or financial condition of Mercantile and the Subsidiaries, taken as a whole. D - 4 102 EXHIBIT E [Letterhead of counsel of Southwest Bancshares, Inc.] (a) Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Missouri, is duly qualified to do business and is in good standing in all jurisdictions where the ownership or leasing of its properties or the conduct of its business require Seller to be so qualified, except where the failure to be so qualified would not have a material adverse effect on the Condition of Seller and the Seller Subsidiaries, taken as a whole. Seller is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. (b) Bank is a Missouri chartered banking corporation duly organized, validly existing and in good standings under the laws of the State of Missouri. (c) Seller and Bank each possesses all corporate power to own and operate its respective properties and to carry out its business as and where the same is now being conducted. (d) Seller has the corporate power and authority to enter into and deliver the Merger Agreement and to carry out its obligations thereunder. (e) The Merger Agreement has been duly authorized by all necessary corporate action of Seller, and such Merger Agreement constitutes a valid and binding obligation of Seller that is enforceable against Seller in accordance with its terms, except as may be limited by bankruptcy, insolvency, moratorium, reorgani- zation or similar laws affecting the rights of creditors generally, E - 1 103 or the exercise of judicial discretion in accordance with general principles applicable to equitable and similar remedies. (f) The execution, delivery and performance by Seller of the Merger Agreement or the consummation of the Merger, or compliance by Seller with any of the provisions of the Merger Agreement will not (i) violate, conflict with or result in a breach of any of the provisions of, or constitute a default (or event which, with notice or the lapse of time, or both, would constitute a default) under, or result in the termination of, or result in the right to termination or acceleration of, or result in the creation of, any lien, security interest, charge or encumbrance upon any of the respective properties of Seller under any of the terms, conditions or provisions of: (A) its Certificate of Incorporation or By-laws, or (B) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation known to us to which either Seller or any of the Seller Subsidiaries or their respective properties or assets may be subject and which is material to Seller and the Seller Subsidiaries taken as a whole, or (ii) violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation known to us which is applicable to Seller or any of the Seller Subsidiaries, or any of their respec- tive properties or assets and which is material to Seller and the Seller Subsidiaries taken as a whole. (g) Except as made or received prior to the date hereof, no notice to, filing with, exemption or review by or authorization, consent or approval of, any public body or authority is necessary E - 2 104 for the consummation by Seller of the Merger as contemplated by the Merger Agreement other than articles and certificates of merger. (h) The authorized capital stock of Seller consists of 100,000 shares of Seller common stock, $10.00 par value ("Seller Common Stock"), of which, as of the date hereof, 35,981 shares were issued and outstanding. To the best of our knowledge, except as set forth in the schedules to the Merger Agreement, there are no 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 Seller, or contracts, commitments, understandings or arrangements by which Seller 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 Seller. To the best of our knowledge, all of the issued and outstanding shares of Seller Common Stock are validly issued, fully paid and nonassessable by Seller and none of such shares have been issued in violation of any preemptive or similar right of any shareholder of Seller. (i) Seller is the owner of record of all of the issued and outstanding shares of Common Stock of the Seller Subsidiaries, except for directors' qualifying shares. To the best of our knowledge, there are no 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 any of the Seller Subsidiaries, or contracts, commitments, understandings or arrangements by which any of the Seller Subsidiaries is or may become bound to issue additional E - 3 105 shares of capital stock, or options, warrants or rights to purchase or acquire any additional shares of capital stock of such entity. To the best of our knowledge, all of the issued and outstanding shares of common stock of each of the Seller Subsidiaries is validly issued, fully paid and nonassessable by each such subsid- iary and none of such shares have been issued in violation of any preemptive or similar right of any shareholder of such entity. (j) To the best of our knowledge, neither Seller nor any of the Seller Subsidiaries is the subject of any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger. (k) To the best of our knowledge, there is no litigation, proceeding or controversy before any court or governmental agency whether federal, state or local, pending or threatened, that is likely to have a material and adverse effect on the business, results of operations or financial condition of Seller and the Seller Subsidiaries taken as a whole. E - 4 EX-2.2 3 VOTING AGREEMENT 1 Exhibit 2.2 VOTING AGREEMENT This Voting Agreement dated as of January 27, 1995, is entered into between Mercantile Bancorporation Inc. ("Mercantile"), and the undersigned director and shareholder ("Shareholder") of Southwest Bancshares, Inc. ("Southwest"). WHEREAS, Southwest and Mercantile have proposed to enter into an Agreement and Plan of Merger (the "Agreement"), dated as of today, which contemplates the acquisition by Mercantile of 100% of the common stock of Southwest (the "Southwest Stock") by means of a merger between Southwest and Mercantile's subsidiary, Ameribanc, Inc. (the "Merger"); and WHEREAS, Mercantile is willing to expend the substantial time, effort and expense necessary to implement the Merger, only if Shareholder enters into this Voting Agreement; and WHEREAS, the Shareholder believes that the Merger is in his best interest and the best interest of Southwest; NOW, THEREFORE, in consideration of the premises, Shareholder hereby agrees as follows: 1. Voting Agreement - Shareholder shall vote, or ---------------- cause to be voted, all of the shares of Southwest Stock he now or hereafter owns and over which he now has, or prior to the record date for voting at the Meeting (as hereinafter defined) acquires, voting control in favor of the Merger at the meeting of stockholders of Southwest to be called for the purpose of approving the Merger (the "Meeting"). 2 2. No Competing Transaction - Shareholder shall ------------------------ not vote any of his shares of Southwest Stock in favor of any other merger or sale of all or substantially all the assets of Southwest to any person other than Mercantile or its affiliates until closing of the Merger, termination of the Agreement or abandonment of the Merger by the mutual agreement of Southwest and Mercantile, whichever comes first. 3. Transfers Subject to Agreement - Shareholder ------------------------------ shall not transfer his shares of Southwest Stock unless the transferee, prior to such transfer, executes a voting agreement with respect to the transferred shares substantially to the effect of this Voting Agreement and reasonably satisfactory to Mercantile. 4. No Ownership Interest. Nothing contained in --------------------- this Voting Agreement shall be deemed to vest in Mercantile any direct or indirect ownership or incidence of ownership of or with respect to any shares of Southwest Stock. All rights, ownership and economic benefits of and relating to the shares of Southwest Stock shall remain and belong to Shareholder and Mercantile shall have no authority to manage, direct, superintend, restrict, regulate, govern or administer any of the policies or operations of Southwest or exercise any power or authority to direct Shareholder in the voting of any of his shares of Southwest Stock, except as otherwise expressly provided herein, or the performance of his duties or responsibilities as a director of Southwest. 2 3 5. Evaluation of Investment. Shareholder, by ------------------------ reason of his knowledge and experience in financial and business matters and in his capacity as a director of a financial institution, believes himself capable of evaluating the merits and risks of the potential investment in common stock of Mercantile, $5.00 par value ("Mercantile Common Stock"), contemplated by the Agreement. 6. Documents Delivered. Shareholder acknowledges ------------------- having reviewed the Agreement and its attachments and that reports, proxy statements and other information with respect to Mercantile filed with the Securities and Exchange Commission (the "Commission") were, prior to his execution of this Voting Agreement, available for inspection and copying at the Offices of the Commission and that Mercantile delivered the following such documents to Southwest: (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; (c) Mercantile's Current Report on Form 8-K dated February 11, 1994, June 17, 1994, October 3, 1994 and December 21, 1994; and 3 4 (d) Mercantile's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994. 7. Amendment and Modification. This Voting -------------------------- Agreement may be amended, modified or supplemented at any time by the written approval of such amendment, modification or supplement by Shareholder and Mercantile. 8. Entire Agreement. This Voting Agreement ---------------- evidences the entire agreement among the parties hereto with respect to the matters provided for herein and there are no agreements, representations or warranties with respect to the matters provided for herein other than those set forth herein and in the Agreement. This Voting Agreement supersedes any agreements among Southwest and the Shareholder concerning the Merger, disposition or control of the stock of Southwest. 9. Severability. The parties agree that if any ------------ provision of this Voting Agreement shall under any circumstances be deemed invalid or inoperative, this Voting Agreement shall be construed with the invalid or inoperative provisions deleted and the rights and obligations of the parties shall be construed and enforced accordingly. 10. Counterparts. This Voting Agreement may be ------------ executed in two counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11. Governing Law. The validity, construction, ------------- 4 5 enforcement and effect of this Voting Agreement shall be governed by the internal laws of the State of Missouri. 12. Headings. The headings for the paragraphs of -------- this Voting Agreement are inserted for convenience only and shall not constitute a part hereof or affect the meaning or interpretation of this Voting Agreement. 13. Termination. This Voting Agreement shall ----------- terminate upon the consummation of the Merger, termination of the Agreement or abandonment of the Merger by the mutual agreement of Southwest and Mercantile, whichever comes first. 14. Successors. This Voting Agreement shall be ---------- binding upon and inure to the benefit of Mercantile and its successors, and Shareholder, such Shareholder's respective executors, personal representatives, administrators, heirs, legatees, guardians and other legal representatives. This Voting Agreement shall survive the death or incapacity of Shareholder. This Voting Agreement may be assigned by Mercantile only to an affiliate of Mercantile. MERCANTILE BANCORPORATION INC. By:---------------------------- Ralph W. Babb, Jr. Vice Chairman SHAREHOLDERS ------------------------------- 5 EX-5.1 4 OPINION RE LEGALITY 1 Exhibit 5.1 [Letterhead of Thompson & Mitchell June 12, 1995 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 June 12, 1995 (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 675,000 shares of the Company's common stock, $5.00 par value (the "Shares"), in connection with the acquisition by merger of Southwest Bancshares, Inc. ("Southwest") pursuant to the Agreement and Plan of Merger dated January 27, 1995 (the "Merger Agreement"), by and among the Company, Southwest and Ameribanc, Inc., all as provided in the Registration Statement. In rendering the opinions set forth herein, we have examined such corporate records of the Company, such laws and such other information as we have deemed relevant, including the Company's Restated Articles of Incorporation and Bylaws, as amended and currently in effect, the resolutions adopted by the 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 assumed the genuineness of all signatures; the authenticity of all documents submitted to us as originals; the conformity to the originals of all documents submitted to us as certified, photostatic or conformed copies; the authenticity of the originals of all such latter documents; and the correctness of statements submitted to us by officers and representatives of the Company. Based only on the foregoing, the undersigned is of the opinion that: 1. The Company has been duly incorporated and is validly existing under the laws of the State of Missouri; and 2. The Shares to be sold by the Company, when issued as provided in the Merger Agreement, will be 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 5 OPINION RE TAX MATTERS 1 Exhibit 8.1 [Letterhead of Thompson & Mitchell] June 12, 1995 Board of Directors Southwest Bancshares, Inc. 102 South Springfield Street Bolivar, Missouri 65613 Gentlemen: You have requested our opinion with regard to certain federal income tax consequences of the proposed merger (the "Merger") of Southwest Bancshares, Inc. ("Southwest") with and into Ameribanc, Inc. ("Ameribanc"), a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"). In connection with the preparation of our opinion, we have examined and have relied upon the following: (i) The Agreement and Plan of Merger by and among MBI, Ameribanc, and Southwest, dated January 27, 1995 , including the schedules and exhibits thereto (the "Plan"); (ii) MBI's Registration Statement on Form S-4, including the Proxy Statement and Prospectus contained therein, filed with the Securities and Exchange Commission on June 12, 1995 (the "Registration Statement"); (iii) The representations and undertaking of MBI substantially in the form of Exhibit A hereto; (iv) The representations and undertakings of Southwest and certain holders of Southwest common stock, par value $10.00 per share ("Southwest Common Stock"), substantially in the form of Exhibits B and C hereto; and (v) The Rights Agreement between MBI and Mercantile Bank of St. Louis National Association (formerly Mercantile Bank National Association) as rights agent, 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. We also have assumed the authenticity of all original documents, the conformity of all copies to the original documents, and the genuineness of all signatures. We have not attempted to verify independently the accuracy of any information in any such document, and we have assumed that such documents accurately and completely set forth all material facts relevant to this opinion. All of our assumptions were made with your consent. If any fact or assumption described herein or below is incorrect, any or all of the federal income tax consequences described herein may be inapplicable. 2 Southwest Bancshares, Inc. June 12, 1995 Page 2 OPINION Subject to the foregoing, to the conditions and limitations expressed elsewhere herein, and assuming that the Merger is consummated in accordance with the Plan, we are of the opinion that for federal income tax purposes: 1. The Merger will constitute a reorganization within the meaning of sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"). 2. Each shareholder of Southwest who exchanges, in the Merger, shares of Southwest Common Stock solely for shares of MBI common stock, par value $5.00 per share ("MBI Common Stock"): 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 basis for the shares of MBI Common Stock received (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 3, below) equal to the aggregate basis of the shares of Southwest Common Stock surrendered (Code section 358(a)(1)); and c) will have a holding period for the shares of MBI Common Stock received (including any fractional share of MBI Common Stock deemed to be received, as described in paragraph 3, below) which includes the period during which the shares of Southwest Common Stock surrendered were held, provided that the shares of Southwest Common Stock surrendered were capital assets in the hands of such holder at the time of the Merger (Code section 1223(1)). 3. Each shareholder of Southwest who receives, in the Merger, cash in lieu of a fractional share of MBI Common Stock will be treated as if the fractional share had been received in the Merger and then redeemed by MBI. Provided that the shares of Southwest Common Stock surrendered were capital assets in the hands of such holder at the time of the Merger, the receipt of such cash will cause the recipient to recognize capital gain or loss, equal to the difference between the amount of cash received and the portion of such holder's aggregate adjusted tax basis in the shares of MBI Common Stock allocable to the fractional share (Code sections 1001 and 1222; Rev. Rul. 66-365, 1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2 C.B. 574). 4. Each shareholder of Southwest who receives solely cash as a result of the exercise of dissenters' rights will recognize gain or loss (determined separately as to each block of Southwest Common Stock exchanged) in an amount equal to the difference between (x) the amount of cash received by such shareholder and (y) such shareholder's basis for the shares of Southwest Common Stock surrendered, provided that the cash payment does not have the effect of the distribution of a dividend (Code sections 1001 and 302(a)). Such gain or loss will be capital gain or 3 Southwest Bancshares, Inc. June 12, 1995 Page 3 loss if the shares of Southwest Common Stock surrendered were capital assets in the hands of the holder, and long-term or short-term depending on the holder's holding period for each block of Southwest Common Stock surrendered (Code section 1222). However, if the cash payment does have the effect of the distribution of a dividend, such shareholder will recognize income in the amount of the cash received (without regard to such shareholder's basis in the Southwest Common Stock surrendered), which generally will be taxable as a dividend (Code sections 302(d) and 301). The determination of whether a cash payment has the effect of the distribution of a dividend will be made pursuant to the provisions and limitations of section 302 of the Code, taking into account the stock ownership attribution rules of section 318 of the Code. Because such determination generally will depend on the facts and circumstances of each Southwest shareholder, we express no opinion as to whether the cash payments discussed in this paragraph 4 will be treated as having the effect of the distribution of a dividend. A cash payment will be considered not to have the effect of the distribution of a dividend under section 302 of the Code only if the cash payment (i) results in a "complete redemption" of such shareholder's actual and constructive stock interest, (ii) qualifies as a "substantially disproportionate" reduction in such shareholder's actual and constructive stock interest, or (iii) is not "essentially equivalent to a dividend" (Code section 302(b)(1), (2), (3)). A cash payment will result in a "complete redemption" of a shareholder's stock interest if such shareholder does not actually or constructively own any stock after the Merger. A reduction in a shareholder's stock interest will be "substantially disproportionate" if (i) the percentage of outstanding shares actually and constructively owned by such shareholder after the receipt of the cash payment is less than four-fifths (i.e., 80%) of the percentage of outstanding shares ---- actually and constructively owned by such shareholder immediately prior to the receipt of the cash payment, and (ii) such shareholder actually and constructively owns less than 50 percent of the number of shares outstanding after the receipt of the cash payment (Code section 302(b)(2)). The cash payment will not be "essentially equivalent to a dividend" if there has been a "meaningful reduction" (as the quoted term has been interpreted by judicial authorities and by rulings of the Internal Revenue Service (the "Service")) of the shareholder's actual and constructive ownership interest (Code section 302(b)(1); United States v. Davis, 397 U.S. 301 (1970); see, e.g., Rev. - ---------------------- --- ---- Rul. 76-385, 1976-2 C.B. 92; Rev. Rul. 76-364, 1976-2 C.B. 91). Under the traditional analysis (which apparently continues to be used by the Service), section 302 of the Code will apply as though the distribution of cash were made by Southwest in a hypothetical redemption of Southwest Common Stock immediately prior to, and in a transaction separate from, the Merger (a "deemed Southwest redemption"). Thus, under the traditional analysis, the determination of whether a cash payment results in a complete redemption of interest, qualifies as a substantially disproportionate reduction of interest, or is not essentially equivalent to a dividend will be made by comparing (x) the shareholder's actual and constructive stock interest in Southwest before the deemed Southwest redemption, with (y) such shareholder's actual and constructive stock interest in Southwest after the deemed Southwest redemption (but before the Merger). Nevertheless, in view of Commissioner v. Clark, 489 U.S. 726 --------------------- (1989), many tax practitioners believe that the continuing 4 Southwest Bancshares, Inc. June 12, 1995 Page 4 validity of the traditional analysis is open to question and that, in a transaction such as the Merger, the receipt of solely cash in exchange for stock actually owned should be treated in accordance with the principles of Commissioner v. Clark, supra, --------------------- ----- as if the Southwest Common Stock exchanged for cash in the Merger had instead been exchanged in the Merger for shares of MBI Common Stock followed immediately by a redemption of such shares by MBI for the cash payment (a "deemed MBI redemption"). Under this analysis, the determination of whether a cash payment satisfies any of the foregoing tests would be made by comparing (i) the shareholder's actual and constructive stock interest in MBI before the deemed MBI redemption (determined as if such shareholder had received solely MBI Common Stock in the Merger), with (ii) such shareholder's actual and constructive stock interest in MBI after the deemed MBI redemption. Because this analysis may be more likely to result in capital gain treatment than the traditional analysis, each Southwest shareholder who receives solely cash in exchange for all of the Southwest Common Stock he or she actually owns should consult his or her own tax advisor with regard to the proper treatment of such cash. The determination of ownership for purposes of the foregoing tests will be made by taking into account both shares actually owned by such shareholder and shares constructively owned by such shareholder pursuant to section 318 of the Code (Code section 302(c)). Under section 318 of the Code, a shareholder will be deemed to own stock that is owned or deemed to be owned by certain members of his or her family (spouse, children, grandchildren, and parents) and other related parties including, for example, certain entities in which such shareholder has a direct or indirect interest (including partnerships, estates, trusts and corporations), as well as shares of stock that such shareholder (or a related person) has the right to acquire upon exercise of an option or conversion right. Section 302(c)(2) of the Code provides certain exceptions to the family attribution rules for the purpose of determining whether a complete redemption of a shareholder's interest has occurred for purposes of Code section 302. * * * * * * * * * * * * We express no opinion with regard to (1) the federal income tax consequences of the Merger not addressed expressly by this opinion, including without limitation, (i) the tax consequences, if any, to those shareholders of Southwest who acquired shares of Southwest Common Stock pursuant to the exercise of employee stock options or otherwise as compensation, and (ii) the tax consequences to special classes of shareholders, if any, including without limitation, foreign persons, insurance companies, tax-exempt entities, retirement plans, and dealers in securities; and (2) federal, state, local, or foreign taxes (or any other federal, state, local, or foreign laws) not specifically referred to and discussed herein. Further, our opinion is based upon the Code, Treasury Regulations proposed or promulgated thereunder, and administrative interpretations and judicial precedents relating thereto, all of which are subject to change at any time, possibly with retroactive effect, and we assume no obligation to advise you of any subsequent change thereto. If there is any change in the applicable law or regulations, or if there is any new administrative or judicial interpretation of the applicable law or regulations, any or all of the federal income tax consequences herein may become inapplicable. 5 Southwest Bancshares, Inc. June 12, 1995 Page 5 The foregoing opinion reflects our legal judgment solely on the issues presented and discussed herein. This opinion has no official status or binding effect of any kind. Accordingly, we cannot assure you that the Service or any court of competent jurisdiction will agree with this opinion. We hereby consent to the filing of this letter as an exhibit to the Registration Statement and to all references made to this letter in the Registration Statement. Very truly yours, /s/ Thompson & Mitchell 6 Exhibit A CERTIFICATE ----------- The undersigned, Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), through ------------------, its - ----------, HEREBY CERTIFIES that (a) it is familiar with the terms and conditions of the Agreement and Plan of Merger by and among MBI, Ameribanc, Inc., a Missouri corporation ("Ameribanc"), and Southwest Bancshares, Inc., a Missouri corporation ("Southwest"), dated January 27, 1995, including the schedules and exhibits thereto (the "Agreement"), and (b) it is aware that (i) this Certificate will be relied on by Thompson & Mitchell, counsel for MBI, in rendering its opinion to Southwest that the merger of Southwest with and into Ameribanc (the "Merger") will constitute a reorganization within the meaning of section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the representations and undertaking recited herein will survive the Merger. The undersigned HEREBY FURTHER CERTIFIES that: (1) The fair market value of the MBI common stock, par value $5.00 per share ("MBI Common Stock"), to be received by each Southwest shareholder 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 Southwest common stock, par value $10.00 per share ("Southwest Common Stock"), surrendered in the Merger by each such shareholder. (2) Except as otherwise set forth by the undersigned on an attachment hereto, MBI is aware of no plan, intention or arrangement (including any option or pledge) on the part of any holder of Southwest Common Stock to sell, exchange or otherwise dispose of any of the MBI Common Stock to be received in the Merger, with the exception of fractional shares of MBI Common Stock to be exchanged for cash pursuant to the Merger. (3) Before the Merger, MBI will be in control of Ameribanc within the meaning of section 368(c) of the Code. 7 (4) After the Merger, (a) Ameribanc will not issue additional shares of its stock that would result in MBI losing control of Ameribanc within the meaning of section 368(c) of the Code, and (b) Ameribanc 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 Ameribanc that, if exercised or converted, would affect MBI's retention of control of Ameribanc (as defined above). No stock of Southwest will be issued in connection with the Merger. (5) In the Merger, MBI and Ameribanc will tender no consideration for Southwest Common Stock other than MBI Common Stock and cash in lieu of fractional shares of MBI Common Stock. (6) Neither MBI nor any other member of MBI's "affiliated group" (as the quoted term is defined in Code section 1504) (the "MBI Affiliated Group") has any plan or intention to redeem or otherwise reacquire any of the MBI Common Stock issued to the shareholders of Southwest in the Merger. MBI may, however, and solely for business purposes unrelated to the Merger, acquire MBI Common Stock from time to time through anonymous purchases on an established securities market at prices then prevailing in such market. (7) Neither MBI nor any other member of the MBI Affiliated Group has any plan or intention (a) to liquidate Ameribanc, (b) to merge Ameribanc with and into another corporation, (c) to sell or otherwise dispose (whether by dividend distribution or otherwise) of the stock of Ameribanc, or (d) except for transfers described in section 368(a)(2)(C) of the Code, dispositions made in the ordinary course of business or dispositions approved by Thompson & Mitchell, to cause, suffer, or permit Ameribanc to sell or otherwise dispose (whether by dividend distribution or otherwise) of (i) any assets of Southwest acquired in the Merger, or (ii) any assets of any other member of Southwest's "affiliated group" (as defined above) (the "Southwest Affiliated Group"). (8) After the Merger, Ameribanc will continue the historic businesses of Southwest and the other members of the Southwest Affiliated Group, or will use a significant portion of the historic business assets of the members of the Southwest Affiliated Group in a business (no stock of any member of the Southwest Affiliated Group shall be treated as a business asset for purposes of this representation). 8 (9) MBI, Ameribanc, Southwest, and the shareholders of Southwest will each pay their respective expenses, if any, incurred in connection with the Merger; provided, however, that MBI or Ameribanc may pay and assume those expenses of Southwest that are solely and directly related to 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. (10) Except with regard to Transaction Costs (as defined below), neither MBI nor any other member of the MBI Affiliated Group will pay any amount or incur any liability to or for the benefit of, or assume or cancel any liability of, any shareholder of Southwest in connection with the Merger, and no liability to which Southwest Common Stock is subject will be extinguished as a result of the Merger. For purposes of this representation, (a) the term "liability" shall include any undertaking to pay or to cause the reduction, release, or extinguishment of, any obligation, without regard to whether any such undertaking or obligation is contingent or legally enforceable (for example and without limitation, the term "liability" includes an unenforceable agreement to cause the repayment of an obligation guaranteed by a Southwest shareholder or to cause by other means the release of such guaranty), and (b) the term "Transaction Costs" shall mean amounts paid or liabilities incurred in connection with the Merger (i) to dissenters, if any, (ii) to Southwest shareholders with respect to the MBI Common Stock (including cash in lieu of fractional shares thereof) to be delivered in the Merger, (iii) for legal, accounting, and investment banking and/or advisor services rendered to MBI or Ameribanc, if any, (iv) for those expenses payable or assumable by MBI or Ameribanc in accordance with representation (9) above, and (v) as compensation to any employee of any member of the MBI Affiliated Group or the Southwest Affiliated Group for services rendered in the ordinary course of his or her employment. (11) No indebtedness between Southwest or any other member of the Southwest Affiliated Group, on the one hand, and Ameribanc or MBI or any other member of the MBI Affiliated Group, on the other hand, exists or will exist prior to the Merger 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 quoted term is defined for purposes of Code section 453B), between Southwest, on the one hand, and Ameribanc, on the other hand, exists or will exist prior to the Merger that will be extinguished as a result of the Merger. 9 (12) The payment of cash in lieu of fractional shares of MBI Common Stock in 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. The total cash consideration that will be paid in the Merger to the Southwest shareholders 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 Southwest shareholders in exchange for their shares of Southwest Common Stock. The fractional share interests of each Southwest shareholder will be aggregated, and no Southwest shareholder 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. (13) All payments made to dissenters, if any, and all cash payments made in lieu of fractional shares of MBI Common Stock will be funded with assets of MBI. No such payments will be funded with Southwest assets. (14) None of the compensation to be paid or accrued after the Merger to or for the benefit of any shareholder-employee of Southwest will be separate consideration for, or allocable to, any of their shares of Southwest Common Stock; none of the shares of MBI Common Stock received in the Merger by any Southwest shareholder-employee will be separate consideration for, or allocable to, any employment agreement; and all compensation to be paid or accrued after the Merger to or for the benefit of any Southwest shareholder-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. (15) With regard to the Rights Agreement by and between MBI and Mercantile Bank of St. Louis National Association (as successor in interest to Mercantile Bank National Association) as rights agent, 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. (16) Neither MBI nor any other member of the MBI Affiliated Group owns, directly or indirectly, any stock of Southwest, other than in a fiduciary capacity; and neither MBI nor any other member of the MBI Affiliated Group has owned, directly or indirectly, any stock 10 of Southwest within the last five years, other than in a fiduciary capacity or as a result of foreclosure of previously contracted debts. 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 MBI this ----- day of ------------, 1995. MERCANTILE BANCORPORATION INC. By------------------------------------ 11 Exhibit B CERTIFICATE The undersigned, [Name] , [Title] of ------------------ --------------- Southwest Bancshares, Inc., a Missouri corporation ("Southwest"), HEREBY CERTIFIES that (a) I am familiar with the terms and conditions of the Agreement and Plan of Merger by and among Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), Ameribanc Corporation], a Missouri corporation ("Ameribanc"), and Southwest dated January 27, 1995, including the schedules and exhibits thereto (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 Southwest that the merger of Southwest with and into Ameribanc (the "Merger") will constitute a reorganization within the meaning of section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the representations and undertaking recited herein will survive the Merger. The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF Southwest, that: (1) The fair market value of the MBI common stock, par value $5.00 per share ("MBI Common Stock"), to be received by each Southwest shareholder 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 Southwest common stock, par value $10.00 per share ("Southwest Common Stock"), surrendered in the Merger by each such shareholder. (2) 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 Southwest 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 Southwest 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 date on which the Merger is consummated (the "Effective Date"), of less than 50 percent of the value of all of the formerly outstanding Southwest Common Stock as of the Effective Date. For purposes of this representation, shares of Southwest Common Stock exchanged for cash or other 12 property or exchanged for cash in lieu of fractional shares of MBI Common Stock will be treated as outstanding on the Effective Date. Moreover, all shares of Southwest Common Stock and/or shares of MBI Common Stock held by Southwest shareholders and otherwise sold, redeemed, or disposed of before or after the Effective Date will be taken into account in making this representation. (3) Southwest will transfer to Ameribanc in the Merger 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 Southwest immediately prior to the Merger. For purposes of this representation, Southwest assets used to pay dissenters or to pay shareholders who receive cash, and Southwest assets used to pay expenses of the Merger or to fund any redemption or distribution within 24 months before the Merger (except for regular, normal dividends) shall be included as assets of Southwest held immediately prior to the Merger. For purposes of this representation, any asset of Southwest or any other member of Southwest's "affiliated group" (as the quoted term is defined in Code section 1504) (the "Southwest Affiliated Group") 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 Southwest held immediately prior to the Merger. (4) Before the Merger, Southwest 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 Southwest that, if exercised or converted after the Merger, would affect MBI's retention of control of Ameribanc (within the meaning of section 368(c) of the Code). (5) At the time of the Merger and except with regard to Transaction Costs (as defined below), each liability of Southwest and each liability to which an asset of Southwest is subject will have been incurred by Southwest in the ordinary course of business and no such liability will have been incurred in anticipation of the Merger. In addition, at the time of the Merger and except with regard to Transaction Costs, Southwest will not, directly or indirectly, have paid (or loaned) any amount or incurred any liability to or for the benefit of, or assumed or cancelled any liability of, any Southwest shareholder in connection with the Merger. For purposes of this representation, (a) the term "Southwest" shall be deemed also to refer to each other member of the Southwest Affiliated Group, (b) the term "liability" shall include any undertaking to pay or to cause the reduction, release, or extinguishment of, any obligation, without regard to whether any such 13 undertaking or obligation is contingent or legally enforceable (for example and without limitation, the term "liability" includes an unenforceable agreement to cause the repayment of an obligation guaranteed by a Southwest shareholder or to cause by other means the release of such guaranty), and (c) the term "Transaction Costs" 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 Southwest or any other member of the Southwest Affiliated Group, if any, and (iii) as compensation to any employee of Southwest or any other member of the Southwest Affiliated Group for services rendered in the ordinary course of his or her employment. (6) Expenses, if any, that are incurred in connection with the Merger and are properly attributable to Southwest's shareholders will be paid by those shareholders and not by Southwest. Southwest will pay its own expenses that are incurred in connection with the Merger, except for those printing, mailing and filing expenses described in Section 5.06 of the Agreement. (7) No indebtedness between Southwest or any other member of the Southwest Affiliated Group, on the one hand, and Ameribanc or MBI or any other member of MBI's "affiliated group" (defined as above), on the other hand, exists or will exist prior to the Merger 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 quoted term is defined for purposes of Code section 453B), between Southwest, on the one hand, and Ameribanc, on the other hand, exists or will exist prior to the Merger that will be extinguished as a result of the Merger. (8) The fair market value of the assets of Southwest to be transferred to Ameribanc will exceed the sum of the amount of liabilities to be assumed by Ameribanc, plus the amount of liabilities, if any, to which the assets to be transferred are subject. (9) 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 Merger to the Southwest shareholders 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 Southwest shareholders in exchange for their shares of Southwest Common Stock. The fractional share interests of each Southwest shareholder will be aggregated, and no Southwest 14 shareholder 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. (10) None of the compensation paid or accrued before the Merger to or for the benefit of any Southwest shareholder-employee will be separate consideration for, or allocable to, any of their shares of Southwest Common Stock; none of the shares of MBI Common Stock received in the Merger by any Southwest shareholder-employee will be separate consideration for, or allocable to, any employment agreement; and all compensation paid or accrued before the Merger to or for the benefit of any Southwest shareholder-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. (11) Except for dispositions to be made in the ordinary course of business, Southwest is aware of no plan or intention to sell or otherwise dispose (whether by dividend distribution or otherwise) of (a) any assets of Southwest acquired in the Merger, or (b) any assets of any other member of the Southwest Affiliated Group. (12) All payments made to dissenters and all cash payments made in lieu of fractional shares of MBI Common Stock will be funded with assets of MBI. No such payments will be funded with Southwest assets. 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 Southwest this ----- day of ---------------, 1995. ------------------------------- 15 Exhibit C SHAREHOLDER CERTIFICATE ----------------------- The undersigned shareholder of Southwest Bancshares, Inc., a Missouri corporation ("Southwest"), [SHAREHOLDER'S NAME], -------------------- a holder of * shares of Southwest common stock, par value ------ $10.00 per share ("Southwest Common Stock"), HEREBY CERTIFIES that (a) I am familiar with the terms and conditions of the Agreement and Plan of Merger by and among Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), Ameribanc, Inc., a Missouri corporation ("Ameribanc"), and Southwest dated January 27, 1995, and (b) I am aware that (i) this Certificate will be relied on by Thompson & Mitchell, counsel for MBI, in rendering its opinion to Southwest that the merger of Southwest with and into Ameribanc (the "Merger") will constitute a reorganization within the meaning of section 368(a)(1) of the Internal Revenue Code of 1986, as amended, and (ii) the representations and undertaking recited herein will survive the Merger. The undersigned HEREBY FURTHER CERTIFIES that 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, par value $5.00 per share ("MBI Common Stock"), to be received in the Merger, with the exception of any fractional share of MBI Common Stock to be exchanged for cash pursuant to the Merger. 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, the undersigned has executed this certificate, or caused this certificate to be executed by its duly authorized representative, this ----- day of - ---------------, 1995. ------------------------------- EX-23.1 6 CONSENT OF EXPERT 1 Exhibit 23.1 Independent Auditors' Consent ----------------------------- The Board of Directors and Stockholders Mercantile Bancorporation Inc.: We consent to the use of our reports incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP St. Louis, Missouri June 9, 1995 EX-23.2 7 CONSENT OF EXPERT 1 Exhibit 23.2 Independent Auditors' Consent ----------------------------- The Board of Directors and Stockholders Southwest Bancshares, Inc.: We consent to the use of our report incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. /s/ Kirkpatrick, Phillips & Miller Springfield, Missouri June 8, 1995 -----END PRIVACY-ENHANCED MESSAGE-----