-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BbgXxIzn0rWbzeqsXsqnumIyTHIW6zb80FR3Y17QK2DUUOlkgV8Z+De1aiJ7EZpf bcaa4pzl/0TWHR5FtOl0bA== 0000950114-96-000337.txt : 19961213 0000950114-96-000337.hdr.sgml : 19961213 ACCESSION NUMBER: 0000950114-96-000337 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19961212 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: 333-17757 FILM NUMBER: 96679997 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 MERCANTILE BANCORPORATION INC. FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 12, 1996 Registration No. 333------ =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- FORM S-4 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ------------------------- MERCANTILE BANCORPORATION INC. (Exact name of registrant as specified in its charter) MISSOURI 6712 43-0951744 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) P.O. Box 524 St. Louis, Missouri 63166-0524 (314) 425-2525 (Address, including ZIP code, and telephone number, including area code, of registrant's principal executive offices) ------------------------- JON W. BILSTROM, ESQ. General Counsel and Secretary Mercantile Bancorporation Inc. P.O. Box 524 St. Louis, Missouri 63166-0524 (314) 425-2525 (Name, address, including ZIP code, and telephone number, including area code, of agent for service) ------------------------- Copies to: JOHN Q. ARNOLD ROBERT M. LaROSE, ESQ. JAMES H. ERLINGER III, ESQ. Chief Financial Officer Thompson Coburn Bryan Cave LLP Mercantile Bancorporation Inc. Suite 3400 211 North Broadway P.O. Box 524 One Mercantile Center Suite 3600 St. Louis, Missouri St. Louis, Missouri St. Louis, Missouri 63166-0524 63101 63102-2750 (314) 425-2525 (314) 552-6000 (314) 259-2000 ------------------------- 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 600,419 $19.30 $11,586,747.04 $3,511.14 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 $23,886,676.00 aggregate book value of the 25,321 shares of common stock, $10.00 par value, of Regional Bancshares, Inc. issued and outstanding as of November 30, 1996, less $12,299,928.96, the respective portion of such aggregate book value to be paid in cash by the Registrant in connection with the exchange.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. =============================================================================== 2 [LETTERHEAD OF REGIONAL BANCSHARES, INC.] ----------------, 1996 Dear Fellow Shareholder: On behalf of the Board of Directors and management of Regional Bancshares, Inc. ("Regional"), I cordially invite you to attend a Special Meeting of Shareholders of Regional to be held at - --:-0 -.m., Central Time, on ---------, -------------------, 1997, at the offices of Bryan Cave LLP, 201 North Broadway, Suite 3600, St. Louis, Missouri (the "Special Meeting"). At this important meeting, you will be asked to consider and vote upon the Agreement and Plan of Merger, dated as of August 23, 1996 (the "Merger Agreement"), and each of the transactions contemplated thereby, pursuant to which Regional will be merged (the "Merger") with and into Ameribanc, Inc., a Missouri corporation and wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"). Upon consummation of the Merger, each share of Regional common stock will be converted into the right to receive as consideration in the Merger: (i) an amount in cash equal to $485.76; (ii) 23.7123 shares of MBI common stock; and (iii) 0.4838 of a share of West Pointe Bank And Trust Company common stock, all as more fully described in the accompanying Proxy Statement/Prospectus. I have enclosed the following items relating to the Special Meeting and the Merger: 1. A Proxy Statement/Prospectus; 2. A proxy card; and 3. A return envelope pre-addressed to Regional 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 Regional 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 REGIONAL HAS CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT. THE BOARD HAS DETERMINED THAT THE MERGER IS IN THE BEST INTEREST OF REGIONAL AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT. --- It is very important that your shares are represented at the Special Meeting, whether or not you plan to attend in person. The affirmative vote of at least two-thirds of the outstanding Regional common stock is required for approval of the Merger Agreement. A failure to vote for approval of the Merger Agreement will have the same effect as a vote against the Merger Agreement. Therefore, I urge you to execute, date and return the enclosed proxy card in the enclosed postage-paid envelope as soon as possible to assure that your shares will be voted at the Special Meeting. The Board of Directors and management of Regional appreciate your continued support and look forward to seeing you at the Special Meeting. If you have any questions or require assistance, please contact ------------------------------ at - ----------------------. Very truly yours, DAVID B. UTTERBACK President and Chairman 3 REGIONAL BANCSHARES, INC. 1520 WASHINGTON AVE. ALTON, ILLINOIS 62002 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON -------------, 1997 TO THE SHAREHOLDERS OF REGIONAL: Notice is hereby given that a Special Meeting of Shareholders of Regional Bancshares, Inc., an Illinois corporation ("Regional"), will be held at the offices of Bryan Cave LLP, 211 North Broadway, Suite 3600, St. Louis, Missouri on -----------------, 1997, at --:-0 -.m., Central Time, for the following purposes: (1) To consider and vote upon the adoption and approval of the Agreement and Plan of Merger (the "Merger Agreement"), dated as of August 23, 1996, and each of the transactions contemplated thereby, pursuant to which Regional will be merged (the "Merger") with and into Ameribanc, Inc. ("Ameribanc"), a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI"), and the business and operations of Regional will be continued through Ameribanc, and whereby, upon consummation of the Merger, each share (other than shares held by MBI or shares as to which a shareholder has perfected dissenters' rights) of Regional common stock will be converted into the right to receive per share of Regional common stock as consideration in the Merger: (i) an amount in cash equal to $485.76; (ii) 23.7123 shares of MBI common stock; and (iii) 0.4838 of a share of West Pointe Bank And Trust Company common stock. (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 ----------------------------------------, 1996. In the event the Merger is approved and consummated, each holder of Regional common stock will have the right to dissent from the Merger and demand payment of the fair value of his or her shares. The right of a shareholder to receive such payment is contingent upon strict compliance with the requirements of Section 11.70 of the Illinois Business Corporation Act of 1983, as amended, the full text of which is attached as Annex A to the accompanying ------- Proxy Statement/Prospectus. For a summary of these requirements, see "APPRAISAL RIGHTS OF SHAREHOLDERS OF REGIONAL" in the accompanying Proxy Statement/Prospectus. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT TO REGIONAL IN THE ACCOMPANYING ENVELOPE. By Order of the Board of Directors ------------------------------------- Secretary - --------------------, 1996 4 MERCANTILE BANCORPORATION INC. PROSPECTUS ---------------------------- REGIONAL BANCSHARES, INC. PROXY STATEMENT SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON --------------, 1997 This Prospectus of Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), relates to up to 600,419 shares of common stock, $5.00 par value (the "MBI Stock"), and attached preferred share purchase rights (the "MBI Rights"), of MBI (the MBI Stock and MBI Rights are collectively referred to herein as the "MBI Common Stock"), to be issued to the shareholders of Regional Bancshares, Inc., an Illinois corporation ("Regional"), upon consummation of the proposed merger (the "Merger") of Regional with and into Ameribanc, Inc., a Missouri corporation and wholly owned subsidiary of MBI ("Ameribanc"). Upon receipt of the requisite shareholder and regulatory approvals, the Merger will be consummated in accordance with the terms and conditions of the Agreement and Plan of Merger (the "Merger Agreement"), dated as of August 23, 1996, by and among MBI, Ameribanc and Regional. This Prospectus also serves as the Proxy Statement for Regional in connection with the Special Meeting of Shareholders of Regional (the "Special Meeting"), which will be held on - ---------------------------------, 1997, at the time and place and for the purposes stated in the Notice of Special Meeting of Shareholders accompanying this Proxy Statement/Prospectus. Pursuant to the Merger Agreement, MBI will issue up to an aggregate of 600,419 shares of MBI Common Stock. Upon consummation of the Merger, the business and operations of Regional will be continued through Ameribanc and each share (other than a share held by MBI or a share as to which a shareholder of Regional has perfected dissenters' rights) of the common stock, $10.00 par value, of Regional (the "Regional Common Stock") will be converted into the right to receive as consideration in the Merger: (i) an amount in cash equal to $485.76 (the "Cash Consideration"); (ii) 23.7123 shares of MBI Common Stock (the "Stock Consideration"); and (iii) 0.4838 of a share of the common stock (the "West Pointe Common Stock") of West Pointe Bank And Trust Company ("West Pointe") (the "West Pointe Consideration") (the Cash Consideration, the Stock Consideration and the West Pointe Consideration are collectively referred to herein as the "Merger Consideration"), all as more fully described in detail at pages - ---- of this Proxy Statement/Prospectus. The fair market value of the MBI Common Stock and the West Pointe 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 or West Pointe Common Stock will be issued in the Merger, but cash will be paid in lieu of fractional shares. See "TERMS OF THE PROPOSED MERGER - Fractional Shares." The Merger is intended to qualify as a reorganization under Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and is intended to achieve certain federal income tax tax-deferral benefits for Regional shareholders with respect to shares of MBI Common Stock received in the Merger. See "SUMMARY INFORMATION - Certain Federal Income Tax Consequences" 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 December 10, 1996, the closing sale price for MBI Common Stock as reported on the NYSE Composite Tape was $51 3/8 per share. Neither the Regional Common Stock nor the West Pointe Common Stock has an established trading market. 5 This Proxy Statement/Prospectus, the Notice of Special Meeting and the form of proxy were first mailed to the shareholders of Regional on or about December ---, 1996. 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 SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF MBI COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER FEDERAL OR STATE GOVERNMENTAL AGENCY. All information contained in this Proxy Statement/Prospectus with respect to MBI has been supplied by MBI and all information with respect to Regional has been supplied by Regional. The date of this Proxy Statement/Prospectus is December ---, 1996. - 2 - 6 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 with the Commission reports, proxy statements and other information. Such reports, proxy statements and other information filed with the Commission by MBI 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 Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. The Commission maintains an Internet site on the World Wide Web containing reports, proxy and information statements and other information filed electronically by MBI with the Commission. The address of the World Wide Web site maintained by the Commission is http://www.sec.gov. MBI Common Stock is listed on the NYSE, and such reports, proxy statements and other information concerning MBI 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 RELATING TO MBI WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. IN ADDITION, THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS RELATING TO MARK TWAIN BANCSHARES, INC. ("MARK TWAIN"), A MISSOURI CORPORATION AND BANK HOLDING COMPANY THAT RECENTLY ENTERED INTO A DEFINITIVE AGREEMENT WITH MBI TO BE ACQUIRED BY MBI. SUCH DOCUMENTS, EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF STOCK OF MBI TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, 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 PRIOR TO THE SPECIAL MEETING, ANY REQUEST SHOULD BE MADE BY -----------------, 1996. The following documents filed with the Commission by MBI under the Exchange Act are incorporated herein by reference: (a) MBI's Annual Report on Form 10-K for the year ended December 31, 1995. (b) MBI's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 and September 30, 1996. (c) MBI's Current Reports on Form 8-K dated January 16, 1996, March 11, 1996 and November 6, 1996. - 3 - 7 (d) The description of the MBI 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 the MBI 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. The following documents filed with the Commission by Mark Twain under the Exchange Act are incorporated herein by reference: (a) Mark Twain's Annual Report on Form 10-K for the year ended December 31, 1995. (b) Mark Twain's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. Such incorporation by reference shall not be deemed to incorporate by reference the information referred to in Item 402(a)(8) of Regulation S-K. All documents filed by MBI and Mark Twain pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof and until the date of the Special Meeting shall be deemed to be incorporated by reference herein and made a part hereof from the date any such document is filed. The information relating to MBI and Mark Twain 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 REGIONAL. 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 REGIONAL OR ANY OF THEIR SUBSIDIARIES OR IN THE INFORMATION SET FORTH HEREIN SUBSEQUENT TO THE DATE HEREOF. - 4 - 8 TABLE OF CONTENTS -----------------
Page ---- AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 3 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE. . . . . . . . . . 3 SUMMARY INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 7 Business of MBI. . . . . . . . . . . . . . . . . . . . . . . . . 7 Business of Ameribanc. . . . . . . . . . . . . . . . . . . . . . 8 Business of Regional . . . . . . . . . . . . . . . . . . . . . . 8 Business of West Pointe. . . . . . . . . . . . . . . . . . . . . 8 The Proposed Merger. . . . . . . . . . . . . . . . . . . . . . . 9 Conditions to the Merger . . . . . . . . . . . . . . . . . . . . 9 Effective Time; Closing Date . . . . . . . . . . . . . . . . . . 9 Amendment; Termination . . . . . . . . . . . . . . . . . . . . . 10 Voting Agreements. . . . . . . . . . . . . . . . . . . . . . . . 10 Interests of Certain Persons in the Merger . . . . . . . . . . . 10 Effect on Benefit Plans. . . . . . . . . . . . . . . . . . . . . 11 Special Meeting of Regional Shareholders . . . . . . . . . . . . 11 Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . 11 Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . 12 Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . 12 Certain Federal Income Tax Consequences. . . . . . . . . . . . . 12 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . 12 Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . 13 Markets and Market Prices. . . . . . . . . . . . . . . . . . . . 14 Comparative Unaudited Per Share Data . . . . . . . . . . . . . . 15 Summary Financial Data . . . . . . . . . . . . . . . . . . . . . 16 INFORMATION REGARDING SPECIAL MEETING. . . . . . . . . . . . . . . . 19 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Date, Time and Place . . . . . . . . . . . . . . . . . . . . . . 19 Record Date; Vote Required; Voting Agreements. . . . . . . . . . 19 Voting and Revocation of Proxies . . . . . . . . . . . . . . . . 19 Solicitation of Proxies. . . . . . . . . . . . . . . . . . . . . 20 TERMS OF THE PROPOSED MERGER . . . . . . . . . . . . . . . . . . . . 20 General Description of the Merger. . . . . . . . . . . . . . . . 21 Conditions to the Merger . . . . . . . . . . . . . . . . . . . . 21 Effective Time; Closing Date . . . . . . . . . . . . . . . . . . 23 Amendment of Merger Agreement. . . . . . . . . . . . . . . . . . 23 Termination of Merger Agreement. . . . . . . . . . . . . . . . . 24 Voting Agreements. . . . . . . . . . . . . . . . . . . . . . . . 25 Interests of Certain Persons in the Merger . . . . . . . . . . . 25 Effect on Benefit Plans. . . . . . . . . . . . . . . . . . . . . 25 Background of and Reasons for the Merger; Board Recommendations. 26 Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . 27 Surrender of Regional Stock Certificates and Receipt of Merger Consideration. . . . . . . . . . . . . . . . . . . . . . . . . 28 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . 28 Business Pending the Merger. . . . . . . . . . . . . . . . . . . 29 Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . 32 - 5 - 9 CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. . . . . . . . 32 RIGHTS OF DISSENTING SHAREHOLDERS OF REGIONAL. . . . . . . . . . . . 36 PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . 38 Comparative Unaudited Per Share Data . . . . . . . . . . . . . . 38 Pro Forma Combined Consolidated Financial Statements (Unaudited) 39 INFORMATION REGARDING REGIONAL . . . . . . . . . . . . . . . . . . . 47 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . 55 Security Ownership of Certain Beneficial Owners and Management . 64 INFORMATION REGARDING MBI STOCK. . . . . . . . . . . . . . . . . . . 65 Description of MBI Common Stock and Attached Preferred Share Purchase Rights. . . . . . . . . . . . . . . . . . . . . . . . 65 Restrictions on Resale of MBI Stock by Affiliates. . . . . . . . 67 Comparison of the Rights of Shareholders of MBI and Regional . . 67 SUPERVISION AND REGULATION . . . . . . . . . . . . . . . . . . . . . 70 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Certain Transactions with Affiliates . . . . . . . . . . . . . . 71 Payment of Dividends . . . . . . . . . . . . . . . . . . . . . . 71 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . 71 FDIC Insurance Assessments . . . . . . . . . . . . . . . . . . . 71 Proposals to Overhaul the Savings Association Industry . . . . . 72 Support of Subsidiary Banks. . . . . . . . . . . . . . . . . . . 73 FIRREA and FDICIA. . . . . . . . . . . . . . . . . . . . . . . . 73 Depositor Preference Statute . . . . . . . . . . . . . . . . . . 74 The Interstate Banking and Community Development Legislation . . 74 RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . 74 LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . 75 CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . 76 ANNEX A -- Dissenters' Rights Provisions of the Illinois Business Corporation Act . . . . . . . . . . . . . . . . . . . . A-1
- 6 - 10 SUMMARY INFORMATION ------------------- THE FOLLOWING SUMMARY OF THE IMPORTANT TERMS OF THE PROPOSED MERGER AND RELATED INFORMATION DISCUSSED ELSEWHERE IN THIS PROXY STATEMENT/ PROSPECTUS 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 REGIONAL 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 STOCK 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 September 30, 1996, MBI indirectly owned all of the capital stock of Mercantile Bank of St. Louis National Association ("Mercantile Bank"), 37 other commercial banks and one federally-chartered thrift, which together operated from 437 banking offices and 405 Fingertip Banking automated teller machines, including 42 off-premises machines, located throughout Missouri, Illinois, eastern Kansas, northern 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 September 30, 1996, MBI had 60,163,042 shares of its Common Stock outstanding and reported, on a consolidated basis, total assets of $18.2 billion, total deposits of $14.6 billion, total loans of $12.2 billion and shareholders' equity of $1.5 billion. On January 2, 1996, MBI completed the acquisitions of (i) Hawkeye Bancorporation ("Hawkeye"), an Iowa corporation and registered bank holding company under the BHCA, located in Des Moines, Iowa, and (ii) First Sterling Bancorp, Inc. ("Sterling"), an Illinois corporation and registered bank holding company under the BHCA, located in Sterling, Illinois. These acquisitions were accounted for under the pooling-of-interests method of accounting. As of January 2, 1996, Hawkeye and Sterling reported total assets of $2.0 billion and $168 million, respectively. On February 9, 1996 and March 7, 1996, respectively, MBI completed the acquisitions of (i) Security Bank of Conway, F.S.B. ("Conway"), a federal stock savings bank located in Conway, Arkansas, and (ii) Metro Savings Bank, F.S.B. ("Metro"), a federal stock savings bank located in Wood River, Illinois. These acquisitions were accounted for under the purchase method of accounting. As of February 9, 1996, Conway reported total assets of $103 million. As of March 7, 1996, Metro reported total assets of $81 million. In connection with the acquisition of Hawkeye, MBI restated its consolidated financial statements as of and for the years ended December 31, 1995, 1994 and 1993. MBI filed supplemental financial statements as of and for the years ended December 31, 1995, 1994 and 1993 in a Current Report on Form 8-K, dated March 11, 1996, which has been incorporated by reference into this Proxy Statement/Prospectus. Due to the immateriality of the financial condition and results of operations of Sterling to that of MBI, the supplemental consolidated financial statements of MBI do not reflect the acquisition of Sterling. On August 22, 1996, November 1, 1996 and November 7, 1996, respectively, MBI completed the acquisitions of (i) Peoples State Bank ("Peoples"), a Kansas state-chartered bank, located in Topeka, Kansas, (ii) First Financial Corporation of America ("First Financial"), a Missouri corporation and registered bank holding company under the BHCA, located in Salem, Missouri, and (iii) TODAY'S BANCORP, INC. ("TODAY'S"), a Delaware corporation and registered bank holding company under the - 7 - 11 BHCA, located in Freeport, Illinois. These acquisitions were accounted for under the purchase method of accounting. As of August 22, 1996, November 1, 1996 and November 7, 1996, respectively, Peoples, First Financial and TODAY'S reported total assets of $96 million, $88 million and $501 million. On October 27, 1996, MBI entered into an agreement to acquire Mark Twain, a Missouri corporation, located in St. Louis, Missouri. This acquisition will be accounted for under the pooling-of-interests method of accounting. As of September 30, 1996, Mark Twain reported total assets of $3.1 billion, total deposits of $2.4 billion, total loans and leases of $2.1 billion and shareholders' equity of $289 million. On July 15, 1996, Mark Twain entered into an agreement to acquire First City Bancshares, Incorporated of Missouri ("First City"), a Missouri corporation, located in Springfield, Missouri. Such acquisition is expected to be consummated prior to the consummation of the Merger and will be accounted for under the purchase method of accounting. As of September 30, 1996, First City reported total assets of $89 million, total deposits of $77 million, total loans and leases of $58 million and shareholders' equity of $6 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 AMERIBANC Ameribanc, a Missouri corporation which was organized in 1991, is a wholly owned subsidiary of MBI and registered bank holding company under the BHCA. At September 30, 1996, Ameribanc owned, directly or indirectly, all of the capital stock of 38 banks, one federally-chartered thrift and one trust company, which together operated from 437 locations in Missouri, Illinois, northern Arkansas, eastern Kansas and Iowa. Ameribanc will be the surviving corporation upon consummation of the Merger. BUSINESS OF REGIONAL Regional, an Illinois corporation, was organized in 1979 and is registered as a bank holding company under the BHCA. Regional currently owns all of the issued and outstanding shares of capital stock of the Bank of Alton ("Bank of Alton"), an Illinois state-chartered bank, located in Alton, Illinois. As of September 30, 1996, 25,321 shares of Regional Common Stock were issued and outstanding and Regional reported, on a consolidated basis, total assets of $182 million, total deposits of $147 million, total loans and leases of $103 million and shareholders' equity of $23 million. See "INFORMATION REGARDING REGIONAL." Regional's principal executive offices are located at 1520 Washington Avenue, Alton, Illinois 62002 and its telephone number is (618) 474-3500. BUSINESS OF WEST POINTE West Pointe, an Illinois state-chartered bank located in Belleville, Illinois, was organized in 1990. West Pointe currently operates from two locations in Belleville and Swansea, Illinois. As of September 30, 1996, 350,000 shares of West Pointe Common Stock were issued and outstanding and West Pointe reported total assets of $125 million, total deposits of $114 million, net loans and leases of $81 million and shareholders' equity of $9.3 million. - 8 - 12 THE PROPOSED MERGER Subject to the satisfaction of the terms and conditions set forth in the Merger Agreement, Regional, an Illinois corporation, will be merged with and into Ameribanc, a Missouri corporation. Upon consummation of the Merger, Regional's corporate existence will terminate and Ameribanc will continue as the surviving entity. Simultaneously with the effectiveness of the Merger, each share of Regional Common Stock (other than (a) a share held by MBI or any MBI corporate affiliate, except a share held in a fiduciary capacity or in satisfaction of a debt previously contracted in good faith, or (b) a share as to which a Regional shareholder has perfected dissenters' rights pursuant to Section 11.70 of the Illinois Act ("Dissenting Shares")) will be converted into the right to receive as consideration in the merger: (i) the Cash Consideration (cash equal to $485.76); (ii) the Stock Consideration (23.7123 shares of MBI Common Stock); and (iii) the West Pointe Consideration (0.4838 of a share of West Pointe Common Stock). The Stock Consideration and West Pointe Consideration are subject to certain anti-dilution protections but are not adjustable based on the operating results, financial condition or other factors affecting MBI, Regional or West Pointe prior to the consummation of the Merger. The fair market value of the MBI Common Stock and West Pointe 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. MBI will select an exchange agent (the "Exchange Agent") for purposes of effecting the conversion of Regional Stock into the right to receive cash, MBI Common Stock and West Pointe Common Stock upon consummation of the Merger. Within two business days following the Effective Time (as defined below), a letter of transmittal (including instructions setting forth the procedures for exchanging certificates representing shares of Regional Common Stock for the cash, MBI Common Stock and West Pointe Common Stock payable to each holder thereof pursuant to the Merger Agreement) will be sent to each record holder as of the Effective Time (as defined below). Upon surrender to the Exchange Agent of such certificate(s), together with a duly completed and executed letter of transmittal, such holder will receive the cash, shares of MBI Common Stock and shares of West Pointe Common Stock to which such holder is entitled under the Merger Agreement, together with an amount in cash for any fractional shares of MBI Common Stock or West Pointe Common Stock which such holder would otherwise be entitled to receive. See "TERMS OF THE PROPOSED MERGER - Surrender of Stock Certificates and Receipt of Merger Consideration" and "- Fractional Shares." CONDITIONS TO 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 holders of the outstanding shares of Regional Common Stock and the receipt of both the requisite regulatory approvals and an opinion of MBI 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 to the Merger." EFFECTIVE TIME; CLOSING DATE The Merger will become effective on the date and at the time (the "Effective Time") of the issuance of a certificate of merger by each of the Office of the Secretary of State of the State of Missouri and the Office of the Secretary of State of the State of Illinois. Unless MBI, Ameribanc and Regional otherwise agree, the closing for the Merger (the "Closing") will occur on a date (the "Closing Date") mutually agreed upon by the parties which is no later than forty-five days following the satisfaction or waiver of the conditions to the consummation of the Merger provided in the Merger Agreement. See - 9 - 13 "TERMS OF THE PROPOSED MERGER - Effective Time; Closing Date" and "- Conditions to the Merger." AMENDMENT; TERMINATION The Merger Agreement may be amended by a subsequent writing signed by each of MBI, Ameribanc and Regional upon the approval of their respective Boards of Directors, whether before or after the approval of the Merger Agreement by the Regional shareholders at the Special Meeting; provided, however, that after such shareholder approval, no modification may, without the approval of the Regional shareholders who are affected by such modification (i) alter or change the amount or form of Merger Consideration to be received by the Regional shareholders or (ii) otherwise materially adversely affect the Regional shareholders. The Merger Agreement may be terminated at any time prior to the Effective Time by the mutual consent of the parties or unilaterally by either party (i) upon the occurrence of certain events or (ii) if the Merger is not consummated by August 23, 1997. See "TERMS OF THE PROPOSED MERGER - Conditions to the Merger" and "- Termination of the Merger Agreement." VOTING AGREEMENTS In addition to and contemporaneously with the Merger Agreement, MBI executed separate Voting Agreements (the "Voting Agreements") with certain of the executive officers and directors of Regional and the controlling shareholder of Regional, pursuant to which such officers, directors and controlling shareholder agreed that they will vote or cause to be voted all of the shares of Regional Common Stock then beneficially owned or controlled or subsequently acquired in favor of the approval of the Merger Agreement at the Special Meeting. In addition, until the earliest to occur of the Closing Date, the termination of the Merger Agreement or the abandonment of the Merger by mutual agreement of MBI and Regional, such officers, directors and controlling shareholder further agreed not to vote or cause to be voted any of such shares in favor of the approval of any other agreement relating to the merger or sale of substantially all of the assets of Regional to any person other than MBI or its affiliates. Such officers, directors and controlling shareholder also agreed not to transfer such shares unless, prior to such transfer, the transferee executes an agreement with respect to the transferred shares in substantially the same form as the Voting Agreement and reasonably satisfactory to MBI. As of the Record Date, such officers, directors and controlling shareholder owned beneficially an aggregate of 23,987 shares of Regional Common Stock, or approximately 94.7% of the issued and outstanding shares. See "TERMS OF THE PROPOSED MERGER - Other Agreements - Voting Agreement." INTERESTS OF CERTAIN PERSONS IN THE MERGER From and after the Effective Time, MBI and Ameribanc, as applicable, have agreed to indemnify each present and former director, officer, employee and agent of Regional or Bank of Alton, to the extent provided in the Articles of Incorporation, By-Laws and applicable indemnification agreements of Regional and Bank of Alton as in effect on August 23, 1996, against amounts paid by such person in connection with any action or omission occurring prior to the Effective Time and arising from such person's position as an officer, director or other fiduciary capacity with Regional or Bank of Alton. MBI has also agreed to advance to indemnifiable persons expenses incurred in connection with indemnifiable claims upon the receipt of certain undertakings by such persons. See "TERMS OF THE PROPOSED MERGER - Interests of Certain Persons in the Merger." - 10 - 14 EFFECT ON BENEFIT PLANS The Merger Agreement provides that MBI will cause Ameribanc to honor all provisions for vested benefits earned or accrued through the Effective Time under employee benefit plans of Regional and Bank of Alton (the "Benefit Plans"); provided, however, that the provisions of any plan, program or arrangement that provide for the issuance or grant of any other interest in respect of the capital stock of Regional or Bank of Alton will be terminated as of the date of the Merger Agreement. The Benefit Plans will not be terminated by reason of the Merger but will continue after the Merger as plans of Ameribanc until such time as the employees of Regional and Bank of Alton are integrated into MBI's employee benefit plans that are available to other employees of MBI. MBI will take such steps as are necessary to integrate the former employees of Regional and Bank of Alton into such MBI employee benefit plans as soon as practicable after the Effective Time. See "TERMS OF THE PROPOSED MERGER - Effect on Benefit Plans." SPECIAL MEETING OF REGIONAL SHAREHOLDERS The Special Meeting will be held on ----------------------, 1997, at ---:--- --.m. Central Time, at the offices of Bryan Cave LLP, 211 North Broadway, Suite 3600, St. Louis, Missouri. Approval by the Regional shareholders of the Merger Agreement requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of Regional Common Stock. Only holders of record of Regional Common Stock at the close of business on ----------------------------------, 1996 (the "Record Date") will be entitled to notice of, and to vote at, the Special Meeting. At such date, there were 25,321 shares of Regional Common Stock issued and outstanding. As of the Record Date, the executive officers and directors of Regional and the controlling shareholder of Regional owned beneficially an aggregate of 23,987 shares of Regional Common Stock, or approximately 94.7% of the issued and outstanding shares of Regional Common Stock entitled to vote at the Special Meeting. Pursuant to his or her respective Voting Agreement, each of such officers, directors and controlling shareholder has committed to vote his or her shares of Regional Common Stock for the approval of the Merger Agreement. THE BOARD OF DIRECTORS OF REGIONAL HAS CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE MERGER. THE BOARD HAS DETERMINED THAT THE MERGER IS IN THE BEST INTEREST OF REGIONAL AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL --- TO APPROVE THE MERGER AGREEMENT. REASONS FOR THE MERGER REGIONAL. The Board of Directors of Regional believes that the Merger is in the best interest of Regional and its shareholders. In reaching the decision to recommend the Merger to the shareholders, the Board of Directors, without assigning any relative or specific weights, considered a number of factors, including (i) the Cash Consideration, Stock Consideration, West Pointe Consideration and the other terms of the Merger, (ii) the benefits expected to result from the combination of Regional and MBI and (iii) 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. The Board of Directors of MBI believes that the Merger will enable MBI to (i) increase its presence in southwestern Illinois through the acquisition of an established banking organization and (ii) enhance its ability to compete in the increasingly competitive banking and financial - 11 - 15 services industry. See "TERMS OF THE PROPOSED MERGER - Background of and Reasons for the Merger; Board Recommendations." FRACTIONAL SHARES No fractional shares of MBI Common Stock or West Pointe Common Stock will be issued to the shareholders of Regional in connection with the Merger. Each holder of Regional 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 $47.80, the average of the closing stock price of MBI Common Stock on the NYSE Composite Tape as reported in The Wall Street Journal for the five trading days prior to August 23, 1996, the date of execution of the Merger Agreement (the "Average MBI Stock Price"). Each holder of Regional Common Stock who otherwise would have been entitled to receive a fraction of a share of West Pointe Common Stock shall receive in lieu thereof cash, without interest, in an amount equal to such holder's fractional share interest multiplied by $30.00. Cash received by Regional shareholders in lieu of fractional shares of MBI Common Stock or West Pointe Common Stock may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." DISSENTERS' RIGHTS Under the Illinois Act, each holder of Regional Common Stock may, in lieu of receiving the Merger Consideration, seek the fair value of his or her shares of Regional Common Stock and, if the Merger is consummated, receive payment of such fair value in cash by following certain procedures set forth in Section 11.70 of the Illinois Act, the text of which is attached hereto as Annex A. Failure to follow such procedures may ------- result in a loss of such shareholder's dissenters' rights. Any Regional shareholder returning a blank executed proxy card will be deemed to have approved the Merger Agreement, thereby waiving any such dissenters' rights. See "DISSENTERS' RIGHTS OF SHAREHOLDERS OF REGIONAL." CERTAIN FEDERAL INCOME TAX CONSEQUENCES Thompson Coburn, MBI's legal counsel, has delivered its opinion to the effect that, assuming the Merger occurs in accordance with the Merger Agreement and conditioned on the accuracy of certain representations made by MBI, Regional and the majority shareholder of Regional, the Merger will constitute a "reorganization" for federal income tax purposes and that, accordingly, no gain or loss will be recognized by Regional shareholders with regard to the MBI Common Stock received solely in exchange for shares of Regional Common Stock in the Merger. However, gain (but not loss) or dividend income realized as a result of the receipt of the Cash Consideration and the West Pointe Consideration (including cash received in lieu of fractional shares, if any) will be recognized. Cash received in lieu of fractional shares of MBI Common Stock also may give rise to taxable income. EACH REGIONAL 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 APPROVALS Applications regarding the Merger have been filed with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and the Illinois Commissioner of Banks and Real Estate (the "Illinois Commissioner") (the Federal Reserve Board, Illinois Commissioner and any other regulatory authority that may be necessary or appropriate are collectively referred to herein as the "Regulatory Authorities" and, individually, as a "Regulatory Authority"). The Merger cannot be - 12 - 16 consummated until receipt of approvals from such Regulatory Authorities. In reviewing the Merger, the Regulatory Authorities 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. There can be no assurance that the necessary regulatory approvals will be received or as to the timing of such approvals. See "TERMS OF THE PROPOSED MERGER - Regulatory Approval" and "SUPERVISION AND REGULATION." ACCOUNTING TREATMENT The Merger will be accounted for under the purchase method of accounting. See "TERMS OF THE PROPOSED MERGER - Accounting Treatment." - 13 - 17 MARKETS AND MARKET PRICES MBI Common Stock is currently traded on the NYSE under the symbol "MTL." The last sale price reported for MBI Common Stock on August 23, 1996, the last trading date preceding the public announcement of the Merger, was $47.75. As of the Record Date, Regional had eight shareholders of record. There is no established public trading market for Regional Common Stock; to the knowledge of management of Regional, there has never been a sale of Regional Common Stock. In addition, there is no established public trading market for West Pointe Common Stock. The last sale price for West Pointe Common Stock known to management of West Pointe prior to the public announcement of the Merger was $32.00 per share in 1996. Because of this lack of established trading market for shares of Regional Common Stock and West Pointe Common Stock, the respective managements of Regional and West Pointe do not have knowledge of the prices paid in all transactions involving their shares and have not necessarily verified the prices indicated in the table with the parties to the relevant transactions. Thus, the sale prices listed below may not reflect the prices that would have been paid in an active market. The following table sets forth for the periods indicated the high and low prices per share of MBI Common Stock as reported on the NYSE, of Regional Common Stock as known to management of Regional and of West Pointe as known to management of West Pointe, along with the quarterly cash dividends per share declared. The per share prices do not include adjustments for retail mark-ups, mark-downs or commissions.
MBI REGIONAL WEST POINTE ----------------------------- ------------------------- ----------------------- SALES PRICE CASH SALES PRICE CASH SALES PRICE CASH ------------------- DIVIDEND ------------- DIVIDEND ------------- DIVIDEND HIGH LOW DECLARED HIGH LOW DECLARED HIGH LOW DECLARED -------- ------- -------- ---- ----- -------- ---- ----- -------- 1994 - ---- First Quarter $34.125 $29.875 $.28 $ -- $.14 Second Quarter 38.125 31.125 .28 -- .14 Third Quarter 39.250 34.875 .28 -- .14 Fourth Quarter 36.875 29.500 .28 5.93 .14 1995 - ---- First Quarter $37.250 $31.250 $.33 $ 7.10 $.14 Second Quarter 44.875 36.000 .33 7.10 .14 Third Quarter 47.000 41.625 .33 16.97 .14 Fourth Quarter 46.500 41.500 .33 9.66 .14 1996 - ---- First Quarter $46.500 $41.500 $.41 $10.00 $.14 Second Quarter 47.875 43.500 .41 10.00 .14 Third Quarter 52.875 43.375 .41 10.00 .14 Fourth Quarter (through December 10, 1996) 54.000 49.000 .41 -- 32.00 32.00 .14 - -------------------- For recent sale prices of MBI Common Stock, see page 2 of this Proxy Statement/Prospectus. No trades known to management of Regional for the period indicated or during any other period. No trades known to management of West Pointe.
- 14 - 18 COMPARATIVE UNAUDITED PER SHARE DATA The following table sets forth for the periods indicated selected historical per share data of MBI and Regional and the corresponding pro forma and pro forma equivalent per share amounts, giving effect to the proposed acquisition of Regional, the completed acquisitions of First Financial and TODAY'S, and the proposed acquisitions of First City and Mark Twain. The data presented is based upon the supplemental consolidated financial statements and consolidated financial statements and related notes of MBI and the consolidated financial statements and related notes of Regional and Mark Twain 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 - Notes to Pro Forma Combined Consolidated Financial Statements (Unaudited)." 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 proposed acquisition of Regional, the completed acquisitions of TODAY'S and First Financial or the proposed acquisitions of First City and Mark Twain had been consummated at the beginning of the periods indicated. All adjustments consisting of only normal recurring adjustments necessary for a fair statement of results of interim periods have been included.
MBI/ MBI/ MBI/All MBI/ Regional Regional Entities All Entities MBI Regional Pro Forma Pro Forma Pro Forma Pro Forma Reported Reported Combined Equivalent Combined Equivalent ---------------------------------------------------------------------------------------- Book Value per Share: September 30, 1996 $ 25.51 $924.77 $25.73 $610.12 $23.84 $565.30 December 31, 1995 26.04 913.16 26.24 622.21 25.04 593.76 Cash Dividends Declared per Share: Nine months ended September 30, 1996 $ 1.23 $ 30.00 $ 1.23 $ 29.17 $ 1.23 $ 29.17 Year ended December 31, 1995 1.32 40.83 1.32 31.30 1.32 31.30 Earnings per Share: Nine months ended September 30, 1996 $ 2.01 $ 79.37 $ 1.99 $ 47.19 $ 2.03 $ 48.14 Year ended December 31, 1995 3.74 108.93 3.71 87.97 3.47 82.28 Market Price per Share: At August 23, 1996 $47.750 n/a n/a n/a n/a n/a At December 10, 1996 51.375 n/a n/a n/a n/a n/a - -------------------- Includes the effect of pro forma adjustments for Regional. See "PRO FORMA FINANCIAL INFORMATION - Notes to Pro Forma Combined Consolidated Financial Statements (Unaudited)." Based on the pro forma combined per share amounts multiplied by 23.7123, the Stock Consideration. Further explanation of the assumptions used in the preparation of the pro forma combined consolidated financial statements is included in the notes to the pro forma financial statements. See "PRO FORMA FINANCIAL INFORMATION - Notes to Pro Forma Combined Consolidated Financial Statements (Unaudited)." Includes the effect of pro forma adjustments for Regional, TODAY'S, First Financial, First City and Mark Twain. See "PRO FORMA FINANCIAL INFORMATION - Notes to Pro Forma Combined Consolidated Financial Statements (Unaudited)." The market price per share of MBI Common Stock was determined as of August 23, 1996 and December 10, 1996, the last trading day preceding the public announcement of the proposed Merger and as of the latest available date prior to the filing of the Registration Statement, respectively, based on the last sale price as reported on the NYSE Composite Tape. There are no publicly available quotations of Regional Common Stock.
- 15 - 19 SUMMARY FINANCIAL DATA The following table sets forth for the periods indicated certain summary historical consolidated financial information for MBI and Regional. The balance sheet data and income statement data of MBI included in the summary financial data as of and for the five years ended December 31, 1995 are taken from the 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 of Regional included in the summary financial data as of and for the five years ended December 31, 1995 are taken from the audited consolidated financial statements of Regional as of and for the year ended December 31, 1995 and the unaudited consolidated financial statements of Regional as of and for the years ended December 31, 1994, 1993, 1992 and 1991. The balance sheet data and income statement data included in the summary financial data as of and for the nine months ended September 30, 1996 and 1995 are taken from the unaudited consolidated financial statements of MBI and the unaudited consolidated financial statements of Regional as of and for the nine months ended September 30, 1996 and 1995. These data include all adjustments which are, in the opinion of the respective managements of MBI and Regional, necessary to present a fair statement of these periods and are of a normal recurring nature. Results for the nine months ended September 30, 1996 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 Regional, 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." - 16 - 20 MERCANTILE BANCORPORATION INC. SUMMARY FINANCIAL DATA
As of or for the Nine Months Ended As of or for the September 30 Year Ended December 31 --------------------- ---------------------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- PER COMMON SHARE DATA Net income $ 2.01 $ 2.85 $ 3.74 $ 3.19 $ 2.79 $ 2.40 $ 2.34 Dividends declared 1.23 .99 1.32 1.12 .99 .93 .93 Book value at period end 25.51 25.31 26.04 23.32 21.59 19.44 18.12 Average common shares outstanding (thousands) 62,161 61,498 61,884 59,757 58,751 55,050 47,159 EARNINGS (THOUSANDS) Interest income $987,701 $962,361 $1,293,944 $1,118,069 $1,094,611 $1,139,807 $1,156,821 Interest expense 465,821 459,432 620,534 450,950 444,573 549,642 668,578 -------- -------- ---------- ---------- ---------- ---------- ---------- Net interest income 521,880 502,929 673,410 667,119 650,038 590,165 488,243 Provision for possible loan losses 55,915 29,177 36,530 43,265 64,302 79,551 64,028 Other income 211,929 199,616 273,653 236,561 245,589 224,456 195,237 Other expense 482,170 407,120 553,748 555,176 570,182 529,645 486,490 Income taxes 70,407 90,164 124,109 113,165 96,074 69,681 28,418 -------- -------- ---------- ---------- ---------- ---------- ---------- Net income $125,317 $176,084 $ 232,676 $ 192,074 $ 165,069 $ 135,744 $ 104,544 ======== ======== ========== ========== ========== ========== ========== ENDING BALANCE SHEET (MILLIONS) Total assets $ 18,199 $ 18,007 $ 17,928 $ 16,724 $ 16,293 $ 16,033 $ 14,045 Earning assets 16,744 16,590 16,264 15,427 14,980 14,678 12,854 Investment securities 4,320 4,263 4,211 4,280 4,670 4,632 3,412 Loans and leases, net of unearned income 12,166 11,948 11,731 10,904 9,809 9,570 8,809 Deposits 14,610 13,552 13,714 12,865 13,243 13,260 11,685 Long-term debt 303 344 325 330 316 336 238 Shareholders' equity 1,535 1,612 1,640 1,409 1,295 1,143 939 Reserve for possible loan losses 202 209 202 216 206 199 176 SELECTED RATIOS Return on average assets .93% 1.35% 1.33% 1.17% 1.03% .89% .78% Return on average equity 10.35 15.58 15.14 14.06 13.46 12.76 11.81 Net interest rate margin 4.29 4.29 4.28 4.53 4.52 4.33 4.12 Equity to assets 8.43 8.95 9.15 8.42 7.95 7.13 6.68 Reserve for possible loan losses to: Outstanding loans 1.66 1.75 1.72 1.98 2.10 2.08 2.00 Non-performing loans 348.56 366.62 245.18 583.17 290.02 154.17 109.79 Dividend payout ratio 61.19 34.74 35.29 35.11 35.48 38.75 39.74 Based on weighted average common shares outstanding.
- 17 - 21 REGIONAL BANCSHARES, INC. SUMMARY FINANCIAL DATA
As of or for the Nine Months Ended As of or for the September 30 Year Ended December 31 --------------------- ---------------------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- PER SHARE DATA Net income $ 79.37 $ 78.94 $ 108.93 $ 100.55 $ 119.21 $ 105.92 $ 2.37 Dividends declared 30.00 31.17 40.83 5.93 -- -- -- Book value at period end 924.77 883.02 913.16 777.42 724.06 604.83 498.83 Average common shares outstanding 25,321 25,321 25,321 25,321 25,321 25,321 25,321 EARNINGS (THOUSANDS) Interest income $ 9,682 $ 8,707 $ 11,840 $ 10,311 $ 9,609 $ 10,594 $ 12,386 Interest expense 4,826 3,833 5,318 4,048 3,742 4,744 6,837 Net interest income 4,856 4,874 6,522 6,263 5,867 5,850 5,549 Provision for possible loan losses 75 42 42 (280) (960) 1,040 3,130 Other income 798 840 1,108 829 1,269 1,769 992 Other expense 3,128 2,973 3,897 4,030 4,437 3,390 3,397 Income taxes 441 700 933 796 1,158 507 (46) Cumulative effect adjustment of accounting change -- -- -- -- 518 -- -- -------- -------- ---------- ---------- ---------- ---------- ---------- Net income $ 2,010 $ 1,999 $ 2,758 $ 2,546 $ 3,019 $ 2,682 $ 60 ======== ======== ========== ========== ========== ========== ========== ENDING BALANCE SHEET (THOUSANDS) Total assets $182,082 $162,268 $ 167,680 $ 148,140 $ 143,063 $ 133,149 $ 131,479 Earning assets 169,741 153,450 156,733 138,476 134,890 124,798 122,737 Investment and mortgage-backed securities 66,077 55,991 56,424 45,735 55,068 44,807 46,088 Loans and leases, net of unearned income 103,169 96,259 96,684 91,316 75,922 75,091 76,649 Borrowings and advances from Federal Home Loan Bank 10,000 -- -- -- -- -- -- Shareholders' equity 23,416 22,359 23,122 19,685 18,334 15,315 12,631 Reserve for possible loan losses 1,473 1,383 1,350 1,825 1,897 2,322 1,600 SELECTED RATIOS Return on average assets 1.54% 1.74% 1.74% 1.73% 2.24% 2.03% 0.04% Return on average equity 11.53 12.85 11.93 12.77 16.47 17.51 0.48 Net interest rate margin 4.35 4.89 4.83 5.05 5.19 5.35 4.79 Equity to assets 12.86 13.78 13.79 13.29 12.82 11.50 9.61 Reserve for possible loan losses to: Outstanding loans 1.43 1.44 1.40 2.00 2.50 3.09 2.09 Non-performing loans 162.05 131.59 130.31 73.74 69.77 186.51 173.91 Cash dividend payout 37.79 39.48 37.49 5.90 -- -- -- Based on interest income on a fully tax-equivalent basis.
- 18 - 22 INFORMATION REGARDING SPECIAL MEETING ------------------------------------- GENERAL This Proxy Statement/Prospectus is being furnished to holders of Regional Common Stock in connection with the solicitation of proxies by the Board of Directors of Regional for use at the Special Meeting and any adjournments or postponements thereof at which the shareholders of Regional will consider and vote upon a proposal to approve the Merger Agreement and each of the transactions contemplated thereby and 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 a Notice of Special Meeting of Shareholders, a proxy card and a return envelope pre- addressed to Regional for the proxy card. This Proxy Statement/Prospectus is also furnished by MBI to each holder of Regional 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 and proxy card are being first mailed to shareholders of Regional on December ---, 1996. DATE, TIME AND PLACE The Special Meeting will be held at the offices of Bryan Cave LLP, 211 North Broadway, Suite 3600, St. Louis, Missouri, on ------------------------, --------------------, 1997, at -------------- ----.m., Central Time. RECORD DATE; VOTE REQUIRED; VOTING AGREEMENTS On the Record Date, there were 25,321 shares of Regional 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 Regional Common Stock is required to approve the Merger Agreement. As of the Record Date, certain of the executive officers and directors of Regional and certain of the other shareholders of Regional owned beneficially an aggregate of 23,987 shares of Regional Common Stock, or approximately 94.7% of the outstanding shares of Regional Common Stock entitled to vote at the Special Meeting. Such shareholders, pursuant to the terms of their respective Voting Agreements, have committed to vote or cause to be voted all of the shares of Regional Common Stock beneficially owned or controlled or subsequently acquired in favor of the approval of the Merger Agreement at the Special Meeting. VOTING AND REVOCATION OF PROXIES Shares of Regional Common Stock which are represented by a properly executed proxy card 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 designation is revoked in the manner set forth herein in advance of the vote at the Special Meeting. ANY REGIONAL 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. - 19 - 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 and as voted for the purposes of determining the base number of shares voting on the proposal. Such shares will, therefore, 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 such brokers or nominees do not have discretionary power to vote) will be considered as present for purposes of determining the presence of a quorum but will not be considered as voting at the Special Meeting. Broker non-votes, therefore, will also have the effect of votes against the approval of the Merger Agreement. Any shareholder of Regional giving a proxy may revoke it at any time prior to the vote at the Special Meeting. Shareholders of Regional wishing to revoke a proxy prior to the vote may do so by delivering to the Secretary of Regional at 1520 Washington Avenue, Alton, Illinois, 62002, at or before the Special Meeting, a written notice of revocation bearing a later date than the proxy or a later dated proxy relating to the same shares, or by attending the Special Meeting and voting the same shares in person. Attendance at the Special Meeting will not in itself constitute the revocation of a proxy. The Board of Directors of Regional 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 Regional. SOLICITATION OF PROXIES Regional 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 Regional may also solicit proxies in person or by telephone. Directors, executive officers and any other employees of Regional 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 REGIONAL COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT TO REGIONAL 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. - 20 - 24 GENERAL DESCRIPTION OF THE MERGER Subject to the satisfaction or waiver of the terms and conditions set forth in the Merger Agreement, which are described below, Regional, an Illinois corporation, will be merged with and into Ameribanc, a Missouri corporation. Upon consummation of the Merger, Regional's corporate existence will terminate and Ameribanc will continue as the surviving entity. Simultaneously with the effectiveness of the Merger, each share of Regional Common Stock (other than (a) a share held by MBI or any MBI corporate affiliate, except a share held in a fiduciary capacity or in satisfaction of a debt previously contracted in good faith, or (b) a share as to which a Regional shareholder has perfected dissenters' rights pursuant to Section 11.70 of the Illinois Act) will be converted into the right to receive as consideration in the Merger: (i) an amount in cash equal to $485.76; (ii) 23.7123 shares of MBI Common Stock; and (iii) 0.4838 of a share of West Pointe Common Stock. Such consideration is subject to certain anti-dilution protections but is not adjustable based on the operating results, financial condition or other factors affecting MBI, Regional or West Pointe prior to the consummation of the Merger. The fair market value of the MBI Common Stock and the West Pointe 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 Merger Consideration was established through arm's-length negotiations between MBI, Ameribanc and Regional, and reflects the balancing of a number of countervailing factors. The total amount of the Merger Consideration reflects a price both parties concluded was appropriate. See "- Background of and Reasons for the Merger; Board Recommendations." NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK OR WEST POINTE COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET VALUE OF MBI COMMON STOCK OR WEST POINTE COMMON STOCK, RESPECTIVELY, ON THE DATE SUCH STOCK IS RECEIVED BY A REGIONAL SHAREHOLDER OR AT ANY OTHER TIME. THE FAIR MARKET VALUE OF MBI COMMON STOCK AND WEST POINTE COMMON STOCK AT THE TIME IT IS RECEIVED BY A REGIONAL SHAREHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET VALUE OF MBI COMMON STOCK OR WEST POINTE COMMON STOCK, RESPECTIVELY, DUE TO NUMEROUS MARKET FACTORS. At the Effective Time of the Merger, each outstanding share of Regional Common Stock will be converted into the right to receive the Cash Consideration, the Stock Consideration and the West Pointe Consideration. See "- Surrender of Regional Stock Certificates and Receipt of Merger Consideration." CONDITIONS TO THE MERGER The respective obligations of MBI, Ameribanc and Regional to consummate the Merger are subject to the satisfaction on or before the Closing Date of the following mutual conditions, except as such parties may waive such conditions in writing: (1) At the Special Meeting, the Merger and the Merger Agreement shall have been duly approved by the Regional shareholders. (2) Orders, consents and approvals, in form and substance reasonably satisfactory to MBI, Ameribanc and Regional, shall have been entered by the Regulatory Authorities and shall remain in force, granting the authority necessary: (i) for - 21 - 25 consummation of the transactions contemplated by the Merger Agreement pursuant to the provisions of the Securities Act of 1933, as amended (the "Securities Act") and other applicable laws; and (ii) to satisfy all other requirements prescribed by applicable laws and the rules and regulations of the Regulatory Authorities. (3) No judgment, order or decree of any court and no order, notice, statute or regulation of any government or governmental agency having jurisdiction or authority over Regional, Bank of Alton, MBI or Ameribanc shall be in effect which restrains or prohibits, and no litigation, proceeding or investigation shall be pending or threatened by or before any such court or governmental agency attempting to restrain or prohibit: (i) consummation of the transactions contemplated by the Merger Agreement; or (ii) the exercise of control by MBI or Ameribanc over Regional or Bank of Alton following the Merger. (4) The Registration Statement shall have become effective under the Securities Act and as of the Closing Date no stop order suspending the effectiveness thereof shall have been issued or threatened. (5) The MBI Common Stock shall be listed for trading on the NYSE. (6) MBI shall have delivered to Regional an opinion of Thompson Coburn dated as of the Closing Date or a mutually agreeable earlier date, reasonably satisfactory in form and substance to Regional and its legal counsel, to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Code and that no gain or loss will be recognized by Regional or the shareholders of Regional or Bank of Alton to the extent that each received shares of MBI Common Stock solely in exchange for shares of Regional Common Stock in the Merger, which opinion shall not have been withdrawn at or prior to the Effective Time. The obligation of MBI to consummate the Merger is subject to the satisfaction on or before the Closing Date of the following conditions, except as MBI may waive such conditions in writing: (1) All representations and warranties of Regional contained in the Merger Agreement shall be true and correct in all material respects on and as of the Closing Date as if such representations and warranties were made on and as of the Closing Date, and Regional shall have performed in all material respects all agreements and covenants required by the Merger Agreement to be performed by it on or prior to the Closing Date. (2) Regional shall have furnished to MBI a certificate dated as of the Closing Date, signed by an executive officer of Regional to the effect that, to his knowledge, the representations and warranties of Regional contained in the Merger Agreement are true and correct in all material respects as of the Closing Date and Regional has performed all agreements, covenants and obligations required to be performed by it in all material respects. (3) Since the date of the Merger Agreement, there shall have been no material adverse change in the financial condition of Regional and Bank of Alton, taken as a whole, except as may have resulted from changes to laws and regulations, generally accepted accounting principles ("GAAP") or regulatory accounting principles, - 22 - 26 interpretations thereof, other conditions that affect the banking industry generally or changes in the general level of interest rates. (4) MBI shall have received from Bryan Cave LLP an opinion as to certain legal matters. The obligation of Regional to consummate the Merger shall be subject to the satisfaction on or before the Closing Date of all of the following conditions, except as Regional may waive such conditions in writing: (1) All representations and warranties of MBI and Ameribanc contained in the Merger Agreement shall be true and correct in all material respects on and as of the Closing Date as if such representations and warranties were made on and as of the Closing Date, and MBI shall have performed in all material respects all agreements and covenants required by the Merger Agreement to be performed by it on or prior to the Closing Date. (2) MBI shall have furnished to Regional a certificate, dated as of the Closing Date, signed by an executive officer of MBI and to the effect that, to the knowledge of such officer, the representations and warranties of MBI and Ameribanc contained in the Merger Agreement are true and correct in all material respects as of the Closing Date and MBI and Ameribanc have performed all agreements, covenants and obligations required to be performed by them. (3) Since the date of the Merger Agreement, there shall have been no material adverse change in the financial condition of MBI or its subsidiaries (as defined in the Merger Agreement), taken as whole, except as may have resulted from changes to laws and regulations, GAAP, interpretations thereof, other conditions that affect the banking industry generally, or changes in the general level of interest rates. (4) Regional shall have received from Thompson Coburn an opinion as to certain legal matters. (5) The Registration Statement shall have become effective under the Securities Act and, as of the Effective Time, no stop order suspending the effectiveness thereof shall have been issued or threatened. EFFECTIVE TIME; CLOSING DATE The Merger will be consummated and the Effective Time will occur at the time of the issuance of a certificate of merger by each of the Office of the Secretary of State of the State of Missouri and the Office of the Secretary of State of the State of Illinois. Pursuant to the Merger Agreement, unless MBI, Ameribanc and Regional otherwise agree, the Effective Time shall occur no later than forty-five days following satisfaction or waiver of the conditions to the consummation of the Merger provided in the Merger Agreement. See " - Conditions to the Merger." AMENDMENT OF MERGER AGREEMENT The Merger Agreement may be amended at any time by written agreement of the parties upon the approval of their respective Boards of Directors; provided, however, that after the approval of - 23 - 27 the Merger Agreement by the shareholders of Regional at the Special Meeting, no such modification may, without approval of the shareholders of Regional (i) alter or change the amount or form of the Merger Consideration to be received by such shareholders or (ii) otherwise materially adversely affect such shareholders. TERMINATION OF MERGER AGREEMENT The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after approval by the shareholders of Regional: (1) by mutual consent of the Boards of Directors of MBI and Regional; (2) unilaterally by the Board of Directors of MBI or the Board of Directors of Regional: (i) at any time after August 23, 1997, if the Merger has not been consummated by such date (provided that the failure of such consummation to occur is not a result of a willful and deliberate breach, through action or failure to act, of any representation, warranty, covenant or agreement under the Merger Agreement by the terminating party); (ii) if there shall have been a final judicial or regulatory determination that any of the material provisions of the Merger Agreement are illegal, invalid or unenforceable or denying any regulatory application the approval of which is a condition precedent to such party's obligations under the Merger Agreement; (iii) if the Merger Agreement is not approved by the holders of the outstanding shares of Regional Common Stock at the Special Meeting; or (iv) in the event of a material breach by a party of any representation, warranty, covenant or agreement contained in the Merger Agreement, which breach cannot be or is not cured within 30 days after written notice thereof is given to the breaching party by the non-breaching party; provided, however, that the departure of any Executive Officer from the employ of Regional will not be deemed a material breach of the Merger Agreement; or (3) by the Executive Committee of the Board of Directors of MBI in the event that: (i) an environmental audit discloses the existence of certain material environmental liabilities on the properties or assets of Regional or Bank of Alton; (ii) Regional does not choose to correct the condition leading to such environmental liability and to otherwise indemnify MBI from such liability; and (iii) MBI reasonably believes the cost of such remediation or potential liability exceeds $250,000. No assurance can be given that the Merger will be consummated on or before August 23, 1997 or that MBI or Regional 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, the Merger Agreement shall become void and there shall be no continuing obligations on the part of any party or their respective officers and directors, except that: (i) confidentiality obligations shall survive termination; (ii) MBI and Ameribanc shall pay all printing, mailing and filing expenses with respect to the Registration Statement, this Proxy Statement/Prospectus and the regulatory applications; and (iii) in - 24 - 28 the case of termination due to the intentional, deliberate and willful non-performance of any covenant contained in the Merger Agreement after notice and opportunity to cure, the breaching party shall not be relieved of liability to the nonbreaching party arising from such nonperformance. VOTING AGREEMENTS In addition to and contemporaneously with the Merger Agreement, MBI executed separate Voting Agreements with certain of the executive officers and directors of Regional and the controlling shareholder of Regional, pursuant to which such officers, directors and controlling shareholder agreed that they will vote or cause to be voted all of the shares of Regional Common Stock that they beneficially own, control or subsequently acquire in favor of the approval of the Merger Agreement at the Special Meeting. In addition, until the earliest to occur of the Closing Date, the termination of the Merger Agreement or the abandonment of the Merger by mutual agreement of Regional and MBI, such officers, directors and controlling shareholder further agreed that they will not vote or cause to be voted any such shares in favor of the approval of any other agreement relating to the merger or sale of all or substantially all the assets of Regional to any person other than MBI or its affiliates. Such officers, directors and controlling shareholder also agreed that they will not transfer shares of Regional Common Stock unless, prior to such transfer, the transferee executes an agreement with respect to the transferred shares in substantially the same form as the Voting Agreement and in a form reasonably satisfactory to MBI. As of the Record Date, such officers, directors and controlling shareholder together owned beneficially an aggregate of 23,987 shares of Regional Common Stock, or approximately 94.7% of the issued and outstanding shares. INTERESTS OF CERTAIN PERSONS IN THE MERGER From and after the Effective Time, MBI and Ameribanc, as applicable, subject to any limitations or other provisions of applicable law and to the full extent provided in the respective Articles of Incorporation, Bylaws and applicable indemnification agreements of Regional and Bank of Alton as in effect on August 23, 1996, have agreed to indemnify and hold harmless each present and former director, officer, employee and agent of Regional or Bank of Alton, against any costs or expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation, whether civil, administrative or investigative, arising out of, relating to or in connection with any action or omission occurring prior to the Effective Time including, without limitation, acts or omissions arising from such person's position as an officer, director or other fiduciary capacity with Regional or Bank of Alton. MBI will also make advances of expenses incurred prior to the final disposition of a civil, administrative or investigative action, suit, proceeding or claim to any indemnifiable person upon the receipt of certain undertakings from such person that such person shall repay such amounts advanced in the event that it is ultimately determined that such person is not entitled to such indemnification. EFFECT ON BENEFIT PLANS The Merger Agreement provides that MBI will cause Ameribanc to honor all provisions for vested benefits earned or accrued through the Effective Time under the Benefit Plans of Regional and Bank of Alton; provided, however, that the provisions of any plan, program or arrangement that provide for the issuance or grant of any other interest in respect of the capital stock of Regional or Bank of Alton will be terminated as of the date of the Merger Agreement. The Benefit Plans will not be terminated by reason of the Merger but will continue after the Merger as plans of Ameribanc until such time as the employees of Regional and Bank of Alton are integrated into MBI's employee benefit plans that are available to other employees of MBI. MBI will take such steps as are necessary to integrate the former - 25 - 29 employees of Regional and Bank of Alton into such MBI employee benefit plans as soon as practicable after the Effective Time, with (i) full credit for prior service with Regional and Bank of Alton 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, to the extent met or satisfied by an affected employee of Regional or Bank of Alton under the Benefit Plans, all pre-existing condition exclusions or penalties. BACKGROUND OF AND REASONS FOR THE MERGER; BOARD RECOMMENDATIONS BACKGROUND OF THE MERGER. The Board of Directors of Regional has periodically evaluated Regional's corporate strategy based upon general conditions in the banking industry, legislative changes and other developments affecting the industry in general and Regional 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. Beginning in the second quarter of 1996, the Board of Directors of Regional began reviewing the desirability of a business combination with a larger financial institution in light of increased economic and competitive pressures on community banks and the current trends in acquisitions and consolidations of banking organizations within Regional's service areas. As a result of this review, the Board of Directors determined that pursuing such a business combination was in the best interests of Regional and its shareholders. Accordingly, in May 1996, the Board of Directors solicited several institutions for preliminary expressions of interest in such a transaction. Upon receipt of confidentiality agreements, interested institutions were given access to a limited collection of Regional's financial and business documents. Initially, three large regional bank holding companies, none of which was MBI, expressed a preliminary interest and reviewed these documents. After completing their review of the documents, these parties were asked to submit firm expressions of interest along with the general terms of a proposed transaction by May 31, 1996. Each of these three companies submitted a firm expression of interest along with the basic terms of a proposed transaction. A fourth and fifth regional bank holding company, one of which was MBI, later expressed a preliminary interest. After representatives of Regional undertook discussions with these additional regional bank holding companies, each chose to execute a confidentiality agreement and examine the limited collection of Regional's financial and business documents. After examining these documents, MBI chose to submit a firm expression of interest and the other party, after discussions with representatives of Regional, chose not to proceed with the bidding process. All four remaining parties were provided, for their comment and review, a form of merger agreement setting forth proposed terms on which Regional would proceed with a transaction and were asked for definitive proposals representing their highest and best offers. After further discussion and due diligence review, each of these four bank holding companies submitted their highest and best offers to acquire all the Regional Common Stock. Each final bid was made in terms of a combination of cash and common stock in exchange for each share of Regional Common Stock. After further discussions between representatives of Regional and the four bank holding companies, on June --, 1996, Regional's Board of Directors considered the definitive proposals submitted by the four regional bank holding companies. At that meeting, the Board of Directors approved the bid submitted by MBI and authorized certain directors to conduct final negotiations. During June and July 1996, representatives of Regional's Board of Directors, MBI and their respective counsel negotiated the - 26 - 30 form of merger agreement. On August --, 1996 the board approved the final terms of the Merger Agreement and approved the execution of the Merger Agreement. REGIONAL'S REASONS AND BOARD RECOMMENDATIONS. The Board of Directors of Regional, after careful study and evaluation of economic, financial, legal and market factors, believes that the Merger Agreement and the Merger are in the best interest of Regional and its shareholders. The Board of Directors believes that the Stock Consideration, in addition to the Cash Consideration and West Pointe Consideration to be received by the shareholders of Regional in the Merger, represents an opportunity for the shareholders of Regional to exchange their shares of Regional Common Stock for MBI Common Stock at a favorable exchange ratio for a security with a greater market liquidity. Among the other factors considered by the Board of Directors of Regional in deciding to approve and recommend the execution of the Merger Agreement were MBI's respective businesses, the results of operations and financial condition (including asset quality and capital levels), growth prospects, products available to customers, historical dividend and market performance, and the fact that MBI Common Stock is traded on the NYSE. Additionally, the Board considered MBI's commitment to serving the banking and other needs of the Bank of Alton's depositors, employees, customers and community. Upon careful review and analysis of all of the factors described above, no single factor being substantially more important in the review process than any other, the Board of Directors unanimously approved the Merger Agreement as being in the best interests of Regional and its shareholders. The Board of Directors of Regional unanimously recommends approval of the Merger Agreement. The Board believes that the terms of the Merger Agreement are fair and that the Stock Consideration, Cash Consideration, distribution of the West Pointe Common Stock and the Merger are in the best interest of Regional and its shareholders. See "INFORMATION REGARDING SPECIAL MEETING - Record Date; Vote Required; Voting Agreements." THE BOARD OF DIRECTORS OF REGIONAL CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST INTEREST OF REGIONAL AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF REGIONAL UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF REGIONAL 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 Regional and projected synergies which MBI anticipates will result from the Merger. The Executive Committee concluded that the Merger presents an unique opportunity for MBI to increase its presence in southwestern Illinois through the acquisition of an established banking organization having significant operations in the targeted area. MBI's decision to pursue discussions with Regional was primarily a result of MBI's assessment of the value of Regional banking franchise, its asset base within that area and the compatibility of the businesses of the two banking organizations. FRACTIONAL SHARES No fractional shares of MBI Common Stock or West Pointe Common Stock will be issued to the shareholders of Regional in connection with the Merger. Each holder of Regional 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 $47.80, the Average MBI Stock Price. Each holder of Regional Common Stock who otherwise would have been entitled to receive a fraction of a share of West Pointe Common Stock shall - 27 - 31 receive in lieu thereof cash, without interest, in an amount equal to the holder's fractional share interest multiplied by $30.00. Cash received by Regional shareholders in lieu of fractional shares of MBI Common Stock or West Pointe Common Stock may give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." SURRENDER OF REGIONAL STOCK CERTIFICATES AND RECEIPT OF MERGER CONSIDERATION At the Effective Time of the Merger, each outstanding share of Regional Common Stock will be converted into the right to receive the Cash Consideration, the Stock Consideration and the West Pointe Consideration. See "- General Description of the Merger." Within two business days following the Effective Time, the Exchange Agent will mail to each former Regional shareholder a form of letter of transmittal which shall specify instructions for use in effecting the surrender of the certificate or certificates which as of the Effective Time represented outstanding shares of Regional Common Stock (each, a "Certificate"). Upon the surrender to the Exchange Agent of a Certificate for cancellation (or a lost certificate affidavit or bond in a form reasonably acceptable to the Exchange Agent), together with a duly executed letter of transmittal, the holder of such Certificate shall be entitled to receive the cash, the certificate representing MBI Common Stock and the certificate representing West Pointe Common Stock to which such shareholder is entitled as Merger Consideration. No interest will be accrued or paid with respect to the cash component of the Merger Consideration. No dividends or other distributions declared after the Effective Time will be paid to a former Regional shareholder with respect to the MBI Common Stock or West Pointe Common Stock issuable as Merger Consideration until such shareholder's letter of transmittal and Certificate(s) are delivered to the Exchange Agent. Upon such delivery, all such dividends or other distributions declared after the Effective Time with respect to the whole number of shares of MBI Common Stock and West Pointe Common Stock to which such shareholder is entitled will be paid to such shareholder (without interest thereon). No fractional shares of MBI Common Stock or West Pointe Common Stock will be issued in the Merger. Cash, without interest, determined by multiplying the holder's fractional share interest by $47.80, the Average MBI Stock Price, will be paid in lieu of fractional shares of MBI Common Stock. Cash, without interest, determined by multiplying the holder's fractional share interest by $30.00, will be paid in lieu of fractional shares of West Pointe Common Stock. See "- Fractional Shares." The shares of MBI Common Stock and West Pointe Common Stock issued as Merger Consideration will be freely transferable, except that shares of MBI Common Stock issued as Merger Consideration to certain shareholders of Regional who are deemed to be "affiliates" of Regional will be restricted in their transferability in accordance with the rules and regulations promulgated by the Commission. No such restrictions on transfer exist with respect to the West Pointe Common Stock. See "INFORMATION REGARDING MBI STOCK - Restrictions on Resale of MBI Stock by Affiliates." After the Effective Time, there will be no further transfers of Regional stock certificates on the records of Regional and, if any such certificates are presented to MBI or the Exchange Agent for transfer, they will be cancelled against delivery of the Merger Consideration. REGULATORY APPROVALS In addition to the approval of the Merger Agreement by the shareholders of Regional, the obligations of the parties to effect the Merger are subject to prior approval of the Federal Reserve Board and the Illinois Commissioner. 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. The Federal Reserve Board may withhold such approval if, among other things, the Federal Reserve Board determines that the effect of the Merger would be to lessen substantially competition in - 28 - 32 the relevant markets. In addition, the Federal Reserve Board will 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. 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. MBI must also file an application with the Illinois Commissioner. The Illinois Commissioner will review the record of MBI's subsidiary financial institutions in meeting the credit needs of the communities they serve. Applications for such approvals have been filed with the Federal Reserve Board and the Illinois Commissioner. The Merger cannot be consummated prior to receipt of such approvals and the passage of any applicable waiting periods. MBI and Regional 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 any such approval or action or, if such a challenge is brought, as to the result thereof, or that any such approval or action will not be conditioned in a manner that would cause the parties to abandon the Merger. See "SUPERVISION AND REGULATION." BUSINESS PENDING THE MERGER The Merger Agreement provides that, during the period from August 23, 1996 to the Effective Time, except as consented to by MBI in writing, Regional will, and will cause Bank of Alton to: (1) maintain its tangible property and assets in the present state of repair, order and condition, reasonable wear and tear excepted; (2) maintain its books, accounts and records in accordance with GAAP or regulatory accounting principles, as the case may be, consistently applied; (3) comply in all material respects with all laws applicable to the conduct of its business; (4) conduct its business only in the usual, regular and ordinary course consistent with prior practice, and not make any purchase or sale or introduce any method of management or operation in respect of such business or property, except in a manner consistent with prior practice; (5) make no change in its Articles of Incorporation, Charters or Bylaws; (6) maintain and keep in full force and effect all fire and other insurance on property and assets, all of the liability and other casualty insurance, and all bonds on personnel, presently carried by it; (7) duly and timely file all reports, tax returns and other documents required to be filed with federal, state and local and other authorities; - 29 - 33 (8) unless it is contesting the same in good faith and have established reasonable reserves therefor, pay when required to pay all taxes indicated by such tax returns or otherwise lawfully levied or assessed upon it, or any of its properties or assets, or which it is otherwise legally obligated to pay and withhold or collect and pay to the proper governmental authorities or hold in separate bank accounts for such payment all taxes and other assessments which it believes in good faith to be required by law to be so withheld or collected; (9) not sell, mortgage, subject to lien, pledge or encumber or otherwise dispose of any of its assets other than in the ordinary course of business; (10) not redeem, retire or otherwise acquire or agree to redeem or otherwise acquire any of its capital stock or any option, warrant or right to acquire shares of its capital stock or any security convertible into its capital stock, or redeem or otherwise acquire any notes, or make any prepayment on account of or in respect of any indebtedness for any borrowed money; (11) make no change in the number of shares of its capital stock issued and outstanding, and grant no option or commitment relating to their capital stock or any security convertible into its capital stock or any security the value or return of which is measured by capital stock or any security subordinated to the claims of its general creditors; (12) except as otherwise specifically provided in the Merger Agreement, not enter into or amend any employment or severance contract or agreement with or employee plan covering, or grant any salary or wage increase to, any director, officer, employee or agent of Regional or Bank of Alton except for normal increases in compensation to individual non-officer employees in accordance with past practice, and not increase in any amount the benefits or compensation, if any, of any such directors, officers, employees or agents under any Benefit Plan or other contract or commitment, and not pay nor agree to pay any bonus or commission to any such director, officer, employee or agent; (13) not declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock (other than dividends from Bank of Alton to Regional), except that Regional may pay its regular quarterly dividend of $10.00 per share, in accordance with its past practice; provided however, that if the Effective Time shall not have occurred prior to March 10, 1997, Regional may declare, set aside or pay a dividend for each share of Regional Common Stock for each quarter thereafter in which the MBI Board of Directors shall declare a dividend on shares of MBI Common Stock in an amount that equals the product of (i) 164% of the Stock Consideration, and (ii) the amount of the dividend per share declared by the Board of Directors of MBI; provided further, however, that Regional shall not declare or pay any such regular quarterly dividend for any quarter in which Regional shareholders will be entitled to receive a regular quarterly dividend on the shares of MBI Common Stock to be issued in the Merger; (14) not merge or consolidate with any other corporation or other entity, acquire any stock (except in a fiduciary capacity or to realize upon collateral obtained in the ordinary course of business), effect any reorganization or recapitalization involving Regional or Bank of Alton; not acquire any assets of any other person, corporation or - 30 - 34 business organization except in the ordinary course of business, or acquire any assets (including, without limitation, deposits) of, or make any investment in, any financial institution; (15) not lease, sell or dispose of any material part of its assets, make capital or fixed asset expenditures in excess of $100,000 for any single item or $250,000 in the aggregate, enter into any leases of fixed assets, purchase any data processing equipment, waive or release any right or cancel or compromise any debt or claim except in the ordinary course of business, enter into any management, maintenance, servicing or similar contracts having a term of more than one year or providing for fees in excess of a rate of $250,000 per year, or otherwise enter into any material contract, transaction or commitment except in the ordinary course of business; (16) not make any loans, discounts or commitments to loan or discount in excess of the applicable legal lending limits; (17) not: (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 equal to or in excess of $200,000; (ii) without first consulting with and obtaining the written consent of MBI, Lend to any person or entity in an amount equal to or in excess of $400,000; (iii) Lend to any person other than in accordance with lending policies as in effect on August 23, 1996, provided that in the case of clauses (i) through (iii) Regional or Bank of Alton may make any such loan in the event (A) Regional or Bank of Alton has delivered to MBI or its designated representative a notice of its intent to make such loan and such information as MBI or its designated representative may reasonably require in respect thereof and (B) MBI or its designated representative shall not have reasonably objected to such loan by giving written or facsimile notice of such objection within two business days following the delivery to MBI or its 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 Regional or Bank of Alton (except those denoted "pass" thereon), in an amount equal to or in excess of $50,000; provided, however, Regional and Bank of Alton may honor any contractual obligation in existence on August 23, 1996, or, with respect to loans made in compliance with clauses (i) through (iii) above, make such loans after consulting with MBI. Notwithstanding clauses (i) and (ii), Regional or Bank of Alton shall be authorized without first consulting with MBI or obtaining MBI's prior written consent, to increase the aggregate amount of any credit facilities theretofore established in favor of any person or entity (each a "Pre-Existing Facility"), provided that the aggregate amount of any and all such increases shall not be in excess of $25,000. (18) not, 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) relating to the disposition of any significant portion of the business or assets of Regional or Bank of Alton or the acquisition of equity securities of Regional or Bank of Alton or the merger of Regional or Bank of Alton with any person (other than MBI) or any similar transaction (each, an "Acquisition Transaction"), or (ii) provide any such person with information or assistance - 31 - 35 or negotiate with any such person with respect to an Acquisition Transaction, and Regional shall promptly notify MBI 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; (19) not take any action that would (A) materially impede or delay the consummation of the transactions contemplated by the Merger Agreement or the ability of MBI or Regional to obtain any approval of any regulatory authority required for the transactions contemplated by the Merger Agreement or to perform their respective covenants and agreements under the Merger Agreement or (B) prevent or impede the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code; (20) not 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 or Federal Agency Securities and $100,000 for all other investment instruments; or (21) not 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 action which would make any of its 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 action. ACCOUNTING TREATMENT The Merger will be accounted for under the purchase method of accounting. Accordingly, data regarding the financial condition and results of operations of Regional will be included in MBI's consolidated financial statements on and after the Closing Date. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER ----------------------------------------------------- The following discussion is a general summary of the material United States federal income tax ("federal income tax") consequences of the Merger to certain Regional shareholders and does not purport to be a complete analysis or listing of all potential tax considerations or consequences relevant to a decision whether to vote for the approval of the Merger. The discussion does not address all aspects of federal income taxation that may be applicable to Regional shareholders in light of their status or personal investment circumstances, nor does it address the federal income tax consequences of the Merger that are applicable to Regional shareholders subject to special federal income tax treatment including (without limitation) foreign persons, insurance companies, tax-exempt entities, retirement plans, dealers in securities, persons who acquired their Regional Common Stock pursuant to the exercise of employee stock options or otherwise as compensation, and persons who hold their Regional Common Stock as part of a "straddle," "hedge" or "conversion transaction." In addition, the discussion does not address the effect of any applicable state, local or foreign tax laws, or the effect of any federal tax laws other than those pertaining to the federal income tax. AS A RESULT, EACH REGIONAL SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. The discussion assumes that shares of Regional Common Stock are held as capital assets (within the meaning of Section 1221 of the Code) at the Effective Time. - 32 - 36 Regional has received an opinion from Thompson Coburn solely to the effect that, assuming the Merger occurs in accordance with the Merger Agreement, the Merger will constitute a "reorganization" for federal income tax purposes under Section 368 of the Code. If the Merger constitutes a reorganization under the Code, each holder of Regional Common Stock who exchanges, in the Merger, shares of Regional Common Stock solely for shares of MBI Common Stock and the Cash Consideration: (i) will realize gain, determined separately as to each block of Regional Common Stock (shares of Regional Common Stock acquired at the same time in a single transaction) exchanged, if (x) the sum of the fair market value of the shares of MBI Common Stock received and the amount of the Cash Consideration received exceeds (y) the aggregate adjusted tax basis of the Regional Common Stock surrendered in exchange therefor, and will recognize such gain, if any, up to but not in excess of amount of Cash Consideration received; (ii) will not recognize any loss realized (determined separately as to each block of Regional Common Stock exchanged); (iii) will have basis for the shares of MBI Common Stock received (including any fractional share of MBI Common Stock deemed to be received, as described below) equal to the aggregate adjusted tax basis of the shares of Regional Common Stock surrendered, increased by the amount of gain, if any, recognized by such holder and decreased by the amount of Cash Consideration received; and (iv) 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 below) which includes the holding period of the Regional Common Stock surrendered. The recognized gain described in clause (ii) above will be capital gain or will be treated as the receipt of a taxable dividend, depending on the facts and circumstances of each Regional shareholder. Under Section 356 of the Code, the determination of whether the receipt of the Cash Consideration has the effect of the distribution of a dividend will be made generally in accordance with the principles of Section 302 of the Code, taking into account the stock ownership attribution rules of Section 318 of the Code. Provided that the receipt of the Cash Consideration by a Regional shareholder does not have the effect of the distribution of a dividend, such gain will be capital gain, and long-term or short-term depending on the holder's holding period for each block of Regional Common Stock surrendered. However, if the receipt of the Cash Consideration does have the effect of the distribution of a dividend, such gain generally will be taxable as a dividend. The receipt of the Cash Consideration by a Regional shareholder will be considered not to have the effect of the distribution of a dividend under Section 302 of the Code and such shareholder's recognized gain will be capital only if the receipt of the Cash Consideration (i) results in a "substantially disproportionate" reduction in such shareholder's actual and constructive stock interest, or (ii) is "not essentially equivalent to a dividend." These two tests will be applied as if all Regional Common Stock exchanged for the Cash Consideration in the Merger had instead been exchanged in the Merger solely for shares of MBI Common Stock, and such shares of MBI Common Stock were then redeemed by MBI in return for the Cash Consideration (a deemed post-Merger redemption). Accordingly, the determination of whether the receipt of the Cash Consideration by a Regional shareholder satisfies either of the foregoing - 33 - 37 tests will be made by comparing (i) such shareholder's actual and constructive stock interest in MBI before the deemed post-Merger 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 post-Merger redemption. The receipt of the Cash Consideration will result in a "substantially disproportionate" reduction in a Regional shareholder's stock interest and such shareholder's recognized gain will be capital if the percentage of outstanding MBI Common Stock actually and constructively owned by such shareholder after the deemed post-Merger redemption is less than four-fifths (i.e., 80%) of the percentage of outstanding MBI Common Stock ---- actually and constructively owned by such shareholder immediately prior to the deemed post-Merger redemption (determined as if such shareholder had received solely MBI Common Stock in the Merger). The receipt of the Cash Consideration will not be "essentially equivalent to a dividend" and such shareholder's recognized gain will be capital if the deemed post-Merger redemption 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 Regional 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 reduction" in interest if the receipt of the Cash Consideration reduces such holder's actual and constructive stock ownership by even a small amount. The determination of ownership for purposes of the 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. Because the determination of whether the receipt of the Cash Consideration will be treated as having the effect of the distribution of a dividend will generally depend upon the facts and circumstances of each Regional shareholder, Regional shareholders are strongly advised to consult their own tax advisors regarding the tax treatment of the Cash Consideration received in the Merger. A Regional shareholder who receives cash in the Merger in lieu of a fractional share of MBI Common Stock should be treated as if the fractional share had been received by such shareholder in the Merger and then redeemed by MBI in return for the cash. The receipt of such cash will cause the recipient to recognize capital gain or loss equal to the difference between the amount of cash received and the portion of such holder's adjusted tax basis in the shares of MBI Common Stock allocable to the fractional share. The appropriate treatment of the West Pointe Consideration (including cash received in lieu of fractional shares thereof, if any) is unclear. The West Pointe Consideration could be accorded the same treatment as the Cash Consideration, in which case the West Pointe Consideration would be taken into account in determining gain, loss and basis as described above, and gain attributable to the West Pointe Consideration would be characterized either as capital gain or dividend income as described above. Alternatively, - 34 - 38 the West Pointe Consideration could be treated as having been received in a pre-Merger dividend. If such pre-Merger dividend treatment were appropriate, each Regional shareholder would recognize dividend income in an amount equal to the fair market value of the West Pointe Consideration received, and the West Pointe Consideration would not be taken into account in determining gain, loss or basis as described in the foregoing discussion. Each Regional shareholder should consult his or her own tax advisor as to the determination of basis and holding period in any one share of MBI Common Stock, because several methods of determination may be available. In this regard, the transmittal letter to be received by each Regional shareholder from the Exchange Agent after the Closing Date permits each Regional shareholder to designate the number of MBI Common Stock certificates he or she wishes to receive, in order to permit tracing of basis and holding period. See "TERMS OF THE PROPOSED MERGER - Surrender of Regional Stock Certificates and Receipt of Merger Consideration." Thompson Coburn's opinion is subject to the conditions and assumptions that are stated therein and relies upon various representations made by MBI, Regional and the majority shareholder of Regional, the truth and accuracy of which are assumed for purposes of rendering such opinion. If any of these conditions, assumptions or representations is inaccurate, the Merger may fail to qualify as a reorganization and the tax consequences of the Merger could differ from those described herein. In particular, the Merger must satisfy the "continuity of interest" requirement to qualify as a reorganization. To satisfy the "continuity of interest" requirement, Regional shareholders must not, pursuant to a plan or intent existing at or prior to the Effective Time of the Merger, dispose of or transfer so much of the MBI Common Stock to be received in the Merger ("Planned Dispositions"), such that the Regional shareholders, as a group, would no longer retain a significant, albeit indirect, equity interest in the former business of Regional. Regional shareholders generally will be regarded as having a significant equity interest as long as the MBI Common Stock received in the Merger (after taking into account Planned Dispositions), in the aggregate, represents a substantial portion of the entire consideration received by the Regional shareholders in the Merger. For advance ruling purposes, the IRS considers an interest equal to 50% or more of the fair market value of the outstanding shares of Regional held immediately before the Merger as a significant equity interest (the "IRS Continuity Test"). Notwithstanding the IRS Continuity Test, case law clearly supports less than the 50% threshold required for advance ruling purposes. In rendering its opinion, Thompson Coburn has relied upon a representation of the majority shareholder of Regional that such shareholder has no plan or intention to sell, exchange or otherwise dispose of shares of MBI Common Stock received in the Merger. Based on such representation, which is the sole representation that Thompson Coburn relied upon with regard to the continuity of interest requirement, the IRS Continuity Test should be satisfied. However, Regional shareholders should be aware that the majority shareholder of Regional holds sufficient Regional Common Stock such that Planned Dispositions by such shareholder alone could cause the Merger to fail to satisfy the continuity of interest test. A successful IRS challenge to the Reorganization status of the Merger (as a result of a failure of the "continuity of interest" requirement or otherwise) would result in significant tax consequences. A Regional shareholder would recognize capital gain or loss with respect to each share of Regional Common Stock surrendered equal to the difference between the shareholder's basis in such share and the fair market value, as of the Effective Time, of the Merger Consideration received with in respect of such share of Regional Common Stock. In such event, a shareholder's aggregate basis in the MBI Common Stock so received would equal its fair market value, and the shareholder's holding period for such stock would begin the day after the Merger. - 35 - 39 Thompson Coburn's opinion is also based upon the Code, regulations proposed or promulgated thereunder, judicial precedent relating thereto, and current administrative rulings and practice, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences discussed herein. The opinion is available without charge upon written request to Jon W. Bilstrom, General Counsel and Secretary, Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524. The receipt of Counsel's opinion again as of the date of the closing of the Merger is a condition to the consummation of the Merger. 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 were litigated, a court may reach a decision contrary to the opinion. Neither MBI nor Regional has requested an advance ruling as to the federal income tax consequences of the Merger, and the Service is not expected to issue such a ruling. THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO CERTAIN REGIONAL SHAREHOLDERS AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH REGIONAL SHAREHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH REGIONAL SHAREHOLDER. ACCORDINGLY, EACH REGIONAL SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS. RIGHTS OF DISSENTING SHAREHOLDERS OF REGIONAL --------------------------------------------- Each holder of Regional Common Stock has the right to dissent from the Merger and receive the fair value of such shares of Regional Common Stock in cash if the shareholder follows the procedures set forth in the Illinois Act, included as Annex A ------- hereto and the material provisions of which are summarized below. Pursuant to the Illinois Act, a holder of Regional Common Stock may dissent and Ameribanc, as the surviving corporation, will pay to such shareholder the fair value of such shareholder's shares of Regional Common Stock, exclusive of any appreciation or depreciation in anticipation of the Merger, as of immediately before the consummation of the Merger if such shareholder: (1) files with Regional prior to the vote being taken a written demand for payment for his or her shares if the Merger is consummated; and (2) does not vote in favor --- thereof. MBI will include notice of the Effective Time in its letter to all shareholders of Regional notifying them of the procedures to exchange their shares of Regional Common Stock for the Merger Consideration. Such letter shall be sent within two business days following the Effective Time. Within 10 days after the shareholder's vote is effective or 30 days after such shareholder delivers to Regional a written demand for payment, whichever is later, Ameribanc shall send each shareholder who has delivered a written demand for payment a statement setting forth the opinion of Ameribanc as to the estimated fair value of the shares of Regional Common Stock, Regional's latest balance sheet as of the end of a fiscal year ended not earlier than 16 months before the delivery of the statement, together with the statement of income for that year and the latest available interim financial statements, and either (i) a commitment to pay for the shares of the dissenting shareholder at the estimated fair value thereof upon transmittal to Ameribanc of the certificate or certificates, or other evidence of ownership, with respect to such shares or (ii) instructions to the dissenting shareholder to sell his or her - 36 - 40 shares within 10 days after the delivery of such statement to the shareholder. A VOTE AGAINST THE MERGER, WHETHER BY PROXY OR IN PERSON, WILL NOT, BY ITSELF, BE REGARDED AS A WRITTEN DEMAND FOR PAYMENT FOR PURPOSES OF ASSERTING DISSENTERS' RIGHTS. Upon consummation of the Merger, Ameribanc shall pay to each dissenter who transmits to Ameribanc the certificate or other evidence of ownership of the shares of Regional Common Stock the amount Ameribanc estimates to be the fair value of such shares, plus accrued interest, accompanied by a written explanation of how the interest was calculated. Upon payment of the agreed value, the dissenting shareholder shall cease to have any interest in such shares of Regional Common Stock or in Regional, Ameribanc or MBI. If the dissenting shareholder does not agree with the opinion of Ameribanc as to the estimated fair value of the shares of Regional Common Stock or the amount of interest due, the dissenting shareholder must, within 30 days from the delivery of Ameribanc's statement of value, notify Ameribanc in writing, of the shareholder's estimated fair value and interest due and demand payment for the difference between the shareholder's estimate of fair value and interest due and the amount of the payment by Ameribanc. If, within 60 days from delivery to Ameribanc of the shareholder notification of estimate of fair value of shares of Regional Common Stock and interest due, Ameribanc and the dissenting shareholder have not agreed in writing upon the fair value of such shares and interest due, Ameribanc shall either pay the difference in value demanded by the shareholder, with interest, or file a petition in the circuit court of the county in which either the registered office or the principal office of Regional is located, requesting the court to determine the fair value of such shares and interest due. The "fair value" determined by the court may be more or less than the amount offered to Regional shareholders under the Merger Agreement. The judgment shall be payable only upon, and simultaneously with, the surrender to MBI of the certificate or certificates representing said shares of Regional Common Stock. Upon the payment of the judgment, the dissenting shareholder shall cease to have any interest in such shares of Regional Common Stock or in Regional, Ameribanc or MBI. FAILURE TO COMPLY STRICTLY WITH THESE PROCEDURES WILL CAUSE THE SHAREHOLDER TO LOSE HIS OR HER DISSENTERS' RIGHTS. CONSEQUENTLY, ANY SHAREHOLDER WHO DESIRES TO EXERCISE HIS OR HER DISSENTERS' RIGHTS IS URGED TO CONSULT A LEGAL ADVISOR BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS. THE PRECEDING DISCUSSION IS A SUMMARY OF THE PROVISIONS REGARDING DISSENTERS' RIGHTS UNDER THE ILLINOIS ACT AND IS QUALIFIED IN ITS ENTIRETY BY THE TEXT OF SECTION 11.70 OF THE ILLINOIS ACT WHICH IS ATTACHED HERETO AS ANNEX A. REGIONAL ------- SHAREHOLDERS WHO ARE INTERESTED IN PERFECTING DISSENTERS' RIGHTS PURSUANT TO THE ILLINOIS ACT IN CONNECTION WITH THE MERGER SHOULD CONSULT WITH THEIR COUNSEL FOR ADVICE AS TO THE PROCEDURES REQUIRED TO BE FOLLOWED. - 37 - 41 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 Regional and the corresponding pro forma and pro forma equivalent per share amounts, giving effect to the proposed acquisition of Regional, the recent acquisitions of First Financial and TODAY'S and the proposed acquisitions of First City and Mark Twain. The data presented is based upon the supplemental consolidated financial statements and consolidated financial statements and related notes of MBI and the consolidated financial statements and related notes of Regional and Mark Twain 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 "- Notes to Pro Forma Combined Consolidated Financial Statements (Unaudited)." 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 proposed acquisition of Regional, the recent acquisitions of First Financial and TODAY'S and the proposed acquisitions of First City and Mark Twain had been consummated at the beginning of the periods indicated. All adjustments consisting of only normal recurring adjustments for a fair statement of results of interim periods have been included.
MBI/ MBI/ MBI/All MBI/ Regional Regional Entities All Entities MBI Regional Pro Forma Pro Forma Pro Forma Pro Forma Reported Reported Combined Equivalent Combined Equivalent -------- -------- ------------- --------------- ------------- --------------- Book Value per Share: September 30, 1996 $ 25.51 $924.77 $25.73 $610.12 $23.84 $565.30 December 31, 1995 26.04 913.16 26.24 622.21 25.04 593.76 Cash Dividends Declared per Share: Nine months ended September 30, 1996 $ 1.23 $ 30.00 $ 1.23 $ 29.17 $ 1.23 $ 29.17 Year ended December 31, 1995 1.32 40.83 1.32 31.30 1.32 31.30 Earnings per Share: Nine months ended September 30, 1996 $ 2.01 $ 79.37 $ 1.99 $ 47.19 $ 2.03 $ 48.14 Year ended December 31, 1995 3.74 108.93 3.71 87.97 3.47 82.28 Market Price per Share: At August 23, 1996 $47.750 n/a n/a n/a n/a n/a At December 10, 1996 51.375 n/a n/a n/a n/a n/a - -------------------- Includes the effect of pro forma adjustments for Regional. See "- Notes to Pro Forma Combined Consolidated Financial Statements (Unaudited)." Based on the pro forma combined per share amounts multiplied by 23.7123, the Stock Consideration. 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 "- Notes to Pro Forma Combined Consolidated Financial Statements (Unaudited)." Includes the effect of pro forma adjustments for Regional, TODAY'S, First Financial, First City and Mark Twain. See "- Notes to Pro Forma Combined Consolidated Financial Statements (Unaudited)." The market price per share of MBI Common Stock was determined as of August 23, 1996, and December 10, 1996, the last trading day preceding the public announcement of the proposed Merger and as of the latest available date prior to the filing of the Registration Statement, respectively, based on the last sale price as reported on the NYSE Composite Tape. There are no publicly available quotations of Regional Common Stock.
- 38 - 42 PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited pro forma combined consolidated balance sheet gives effect to the proposed Merger, the recent acquisitions of First Financial and TODAY'S and the proposed acquisitions of First City and Mark Twain as if each of the acquisitions were consummated on September 30, 1996. The following pro forma combined consolidated income statements for the nine months ended September 30, 1996 and 1995 and the year ended December 31, 1995 set forth the results of operations of MBI combined with the results of operations of Regional, First Financial, TODAY'S, First City and Mark Twain as if the proposed Merger, the recent acquisitions of First Financial and TODAY'S and the proposed acquisitions of First City and Mark Twain had occurred as of the first day of the period presented. 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, Regional and Mark Twain. These pro forma combined consolidated financial statements may not be indicative of the results of operations that actually would have occurred if the proposed acquisitions had been consummated on the dates assumed above or of the results of operations that may be achieved in the future. - 39 - 43 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET September 30, 1996 (Thousands) (Unaudited)
MBI, Regional Pro Forma Regional Combined MBI Regional Adjustments Consolidated Mark Twain ----------- --------- --------------- ------------ ---------- ASSETS Cash and due from banks $ 909,350 $ 7,452 $ (12,330) $ 904,472 $ 169,916 Due from banks-interest bearing 74,713 -- 74,713 16 Federal funds sold and repurchase agreements 183,227 495 183,722 15,879 Investments in debt and equity securities Trading 804 -- 804 43,669 Available-for-sale 3,959,361 66,077 4,025,438 459,690 Held to maturity 359,682 -- 359,682 225,384 ----------- -------- --------- ----------- ---------- Total 4,319,847 66,077 -- 4,385,924 728,743 Loans and leases 12,166,461 103,169 12,269,630 2,143,218 Reserve for possible loan losses (202,149) (1,473) (203,622) (32,068) ----------- -------- --------- ----------- ---------- Net loans and leases 11,964,312 101,696 -- 12,066,008 2,111,150 Other assets 747,092 6,362 23,416 771,038 122,229 (23,416) 17,584 ----------- -------- --------- ----------- ---------- Total Assets $18,198,541 $182,082 $ 5,254 $18,385,877 $3,147,933 =========== ======== ========= =========== ========== Mark Twain, First City, All Entities First Financial, Pro Forma First TODAY'S Combined First City Financial TODAY'S Adjustments Consolidated ---------- --------- --------- --------------- ------------ ASSSETS Cash and due from banks $ 5,864 $ 2,466 $ 14,461 $ (35,000) $ 1,014,534 (10,310) (3,335) (34,000) Due from banks-interest bearing -- -- 270 74,999 Federal funds sold and repurchase agreements 11,279 -- 10,250 221,130 Investments in debt and equity securities Trading -- -- -- 44,473 Available-for-sale 9,988 34,328 89,223 4,618,667 Held to maturity 2,022 -- 25,139 612,227 -------- -------- -------- --------- ----------- Total 12,010 34,328 114,362 -- 5,275,367 Loans and leases 57,687 48,226 358,239 14,876,999 Reserve for possible loan losses (822) (651) (3,769) (240,932) -------- -------- -------- --------- ---------- Net loans and leases 56,864 47,575 354,470 -- 14,636,067 Other assets 3,134 3,502 25,290 289,433 973,975 (289,433) 5,942 (5,942) 10,831 (10,831) 47,164 (47,164) 4,517 4,149 40,098 -------- -------- -------- --------- ----------- Total Assets $ 89,151 $ 87,871 $519,103 $ (33,881) $22,196,054 ======== ======== ======== ========= =========== See Notes to Pro Forma Combined Consolidated Financial Statements.
- 40 - 44 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET September 30, 1996 (Thousands) (Unaudited)
MBI, Regional Pro Forma Regional Combined MBI Regional Adjustments Consolidated Mark Twain ----------- --------- --------------- ------------ ---------- LIABILITIES Deposits Non-interest bearing $ 2,659,811 $ 13,717 $ 2,673,528 $ 449,001 Interest bearing 11,621,523 133,270 11,754,793 1,983,483 Foreign 328,717 -- 328,038 -- ----------- -------- ------- ----------- ---------- Total deposits 14,610,051 146,987 -- 14,757,038 2,432,484 Federal funds purchased and repurchase agreements 1,022,995 -- 1,022,995 -- Other borrowings 778,990 10,000 788,990 361,617 Other liabilities 251,633 1,679 253,312 64,399 ----------- -------- ------- ----------- ---------- Total liabilities 16,663,669 158,666 -- 16,822,335 2,858,500 SHAREHOLDERS' EQUITY Preferred stock -- -- -- -- Common stock 316,276 253 (253) 316,276 21,089 Capital surplus 232,873 2,907 1,933 234,806 67,077 (2,907) Retained earnings 1,122,371 20,256 (20,256) 1,122,371 215,951 Treasury stock (136,648) -- 26,737 (109,911) (14,684) ----------- -------- ------- ----------- ---------- Total shareholders' equity 1,534,872 23,416 5,254 1,563,542 289,433 ----------- -------- ------- ----------- ---------- Total liabilities and shareholders' equity $18,198,541 $182,082 $ 5,254 $18,385,877 $3,147,933 =========== ======== ======= =========== ========== Mark Twain, First City, All Entities First Financial, Pro Forma First TODAY'S Combined First City Financial TODAY'S Adjustments Consolidated ----------- --------- ------- --------------- ------------ LIABILITIES Deposits Non-interest bearing $ 12,369 $ 7,520 $ 48,073 $ (10,310) $ 3,180,181 Interest bearing 64,234 67,783 398,500 14,268,793 Foreign -- -- -- 328,717 ----------- -------- -------- ----------- ----------- Total deposits 76,603 75,303 446,573 (10,310) 17,777,691 Federal funds purchase and repurchase agreements -- 1,076 8,938 1,033,009 Other borrowings 6,285 -- 10,833 1,167,725 Other liabilities 321 661 5,595 324,288 ----------- -------- -------- ----------- ----------- Total liabilities 83,209 77,040 471,939 (10,310) 20,302,713 SHAREHOLDERS' EQUITY Preferred stock -- -- -- -- Common stock 17 8 13,809 76,750 394,276 (21,089) 1,250 (17) (8) (13,809) Capital surplus 1,259 771 6,627 (78,345) 167,274 (67,077) 9,209 (1,259) 215 (771) 1,389 (6,627) Retained earnings 5,581 10,052 26,728 215,951 1,338,322 (215,951) (5,581) (10,052) (26,728) Treasury stock (915) -- -- (35,000) (6,531) 75,077 14,684 915 11,430 51,873 ----------- -------- -------- ----------- ----------- Total shareholders' equity 5,942 10,831 47,164 (23,571) 1,893,341 ----------- -------- -------- ----------- ----------- Total liabilities and shareholders' equity $ 89,151 $ 87,871 $519,103 $ (33,881) $22,196,054 =========== ======== ======== =========== =========== See Notes to Pro Forma Combined Consolidated Financial Statements.
- 41 - 45 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
MBI, Regional Pro Forma Regional Combined MBI Regional Adjustments Consolidated Mark Twain --------- -------- --------------- ------------ ---------- Interest income $ 987,701 $9,682 $(1,465) $ 995,918 $170,209 Interest expense 465,821 4,826 470,647 75,803 --------- ------ ------- --------- -------- Net interest income 521,880 4,856 (1,465) 525,271 94,406 Provision for possible loan losses 55,915 75 55,990 2,001 --------- ------ ------- --------- -------- Net Interest Income after provision for Possible Loan Losses 465,965 4,781 (1,465) 469,281 92,405 Other Income Trust 59,491 142 59,633 4,976 Service charges 59,492 260 59,752 6,061 Credit card fees 18,515 18 18,533 795 Securities gains (losses) (2,843) (11) (2,854) 234 Other 77,274 389 77,663 17,134 --------- ------ ------- --------- -------- Total Other Income 211,929 798 -- 212,727 29,200 Other Expense Salaries and employee benefits 237,447 1,528 238,975 36,968 Net occupancy and equipment 66,069 407 66,476 9,297 Other 178,654 1,193 879 180,726 14,173 --------- ------ ------- --------- -------- Total Other Expense 482,170 3,128 879 486,177 60,438 --------- ------ ------- --------- -------- Income Before Income Taxes 195,724 2,451 (2,344) 195,831 61,167 Income Taxes 70,407 441 (527) 70,321 22,197 --------- ------ ------- --------- -------- Net Income $ 125,317 $2,010 $(1,817) $ 125,510 $ 38,970 ========= ====== ======= ========= ======== Per Share Data Average Common Shares Outstanding 62,160,601 62,761,019 Net Income $2.01 $1.99 Mark Twain, First City, All Entities First Financial, Pro Forma First TODAY'S Combined First City Financial TODAY'S Adjustments Consolidated ---------- --------- ------- ---------------- ------------ Interest income $5,214 $4,894 $28,985 $(2,815) $1,198,631 (554) (3,220) Interest expense 2,692 2,174 14,730 566,046 ------ ------ ------- ------- ---------- Net interest income 2,522 2,720 14,255 (6,589) 632,585 Provision for possible loan losses 146 18 1,440 59,595 ------ ------ ------- ------- ---------- Net Interest Income after provision for Possible Loan Losses 2,376 2,702 12,815 (6,589) 572,990 Other Income Trust -- -- 1,334 65,943 Service charges 226 154 1,246 67,439 Credit card fees -- -- 37 19,365 Securities gains (losses) -- -- 6 (2,614) Other 1,688 175 960 97,620 ------ ------ ------- ------- ---------- Total Other Income 1,914 329 3,583 -- 247,753 Other Expense Salaries and employee benefits 975 1,177 5,598 283,693 Net occupancy and equipment 466 268 1,107 77,614 Other 594 360 6,254 226 204,545 207 2,005 ------ ------ ------- ------- ---------- Total Other Expense 2,035 1,805 12,959 2,438 565,852 ------ ------ ------- ------- ---------- Income Before Income Taxes 2,255 1,226 3,439 (9,027) 254,891 Income Taxes 271 390 1,148 (1,014) 91,955 (199) (1,159) ------ ------ ------- ------- ---------- Net Income $1,984 $ 836 $ 2,291 $(6,655) $ 162,936 ====== ====== ======= ======= ========== Per Share Data Average Common Shares Outstanding 80,029,801 Net Income $2.03 See Notes to Pro Forma Combined Consolidated Financial Statements.
- 42 - 46 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
MBI, Regional Pro Forma Regional Combined MBI Regional Adjustments Consolidated Mark Twain --------- -------- --------------- ------------ ---------- Interest income $ 962,361 $8,707 $(1,465) $ 969,603 $166,669 Interest expense 459,432 3,833 463,265 70,299 --------- ------ ------- --------- -------- Net interest income 502,929 4,874 (1,465) 506,338 96,370 Provision for possible loan losses 29,177 42 29,219 3,344 --------- ------ ------- --------- -------- Net Interest Income after provision for Possible Loan Losses 473,752 4,832 (1,465) 477,119 93,026 Other Income Trust 52,142 149 52,291 -- Service charges 56,331 252 56,583 5,220 Credit card fees 15,622 16 15,638 -- Securities gains (losses) 3,776) 22 3,798 46 Other 71,745 401 72,146 22,123 --------- ------ ------- --------- -------- Total Other Income 199,616 840 200,456 27,389 Other Expense Salaries and employee benefits 219,540 1,366 220,906 36,300 Net occupancy and equipment 60,371 328 60,699 9,934 Other 127,209 1,279 879 129,367 18,386 --------- ------ ------- --------- -------- Total Other Expense 407,120 2,973 879 410,972 64,620 --------- ------ ------- --------- -------- Income Before Income Taxes 266,248 2,699 (2,344) 266,603 55,795 Income Taxes 90,164 700 (527) 90,337 20,579 --------- ------ ------- --------- -------- Net Income $ 176,084 $1,999 $(1,817) $ 176,266 $ 35,216 ========= ====== ======= ========= ======== Per Share Data Average Common Shares Outstanding 61,497,977 62,098,395 Net Income $2.85 $2.83 Mark Twain, First City, All Entities First Financial, Pro Forma First TODAY'S Combined First City Financial TODAY'S Adjustments Consolidated ---------- --------- ------- ---------------- ------------ Interest income $4,490 $4,490 $29,099 $(2,815) $1,168,489 (554) Interest expense 2,557 1,982 14,605 (3,220) 552,708 ------ ------ ------- ------- ---------- Net interest income 2,660 2,508 14,494 (6,589) 615,781 Provision for possible loan losses 146 -- 615 33,324 ------ ------ ------- ------- ---------- Net Interest Income after provision for Possible Loan Losses 2,514 2,508 13,879 (6,589) 582,457 Other Income Trust -- 155 1,216 53,662 Service charges 241 -- 1,347 63,391 Credit card fees -- -- -- 15,638 Securities gains (losses) (18) (82) 140 3,884 Other 264 290 1,188 96,011 ------ ------ ------- ------- ---------- Total Other Income 487 363 3,891 -- 232,586 Other Expense Salaries and employee benefits 951 1,137 5,783 265,077 Net occupancy and equipment 405 325 2,093 73,456 Other 729 500 4,518 226 155,938 207 2,005 ------ ------ ------- ------- ---------- Total Other Expense 2,085 1,962 12,394 2,438 494,471 ------ ------ ------- ------- ---------- Income Before Income Taxes 916 909 5,376 (9,027) 320,572 Income Taxes 336 286 1,874 (1,014) 111,040 (199) (1,159) ------ ------ ------- ------- ---------- Net Income $ 580 $ 623 $ 3,502 $(6,655) $ 209,532 ====== ====== ======= ======= ========== Per Share Data Average Common Shares Outstanding 79,252,494 Net Income $2.63 See Notes to Pro Forma Combined Consolidated Financial Statements.
- 43 - 47 MERCANTILE BANCORPORATION INC. PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995 (THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
MBI, Regional Pro Forma Regional Combined MBI Regional Adjustments Consolidated Mark Twain --------- -------- --------------- ------------ ---------- Interest income $1,293,944 $11,840 $(1,953) $1,303,831 $223,173 Interest expense 620,534 5,318 625,852 94,932 ---------- ------- ------- ---------- -------- Net interest income 673,410 6,522 (1,953) 677,979 128,241 Provision for possible loan losses 36,530 42 36,572 5,003 ---------- ------- ------- ---------- -------- Net Interest Income after provision for Possible Loan Losses 636,880 6,480 (1,953) 641,407 123,238 Other Income Trust 70,751 198 70,949 6,364 Service charges 75,408 341 75,749 7,051 Credit card fees 19,690 21 19,711 676 Securities gains (losses) 4,042 10 4,052 296 Other 103,762 538 -- 104,300 22,399 ---------- ------- ------- ---------- -------- Total Other Income 273,653 1,108 -- 274,761 36,786 Other Expense Salaries and employee benefits 298,625 1,811 300,436 47,531 Net occupancy and equipment 82,674 439 83,113 13,222 Other 172,449 1,647 1,172 175,268 25,769 ---------- ------- ------- ---------- -------- Total Other Expense 553,748 3,897 1,172 558,817 86,522 ---------- ------- ------- ---------- -------- Income Before Income Taxes 356,785 3,691 (3,125) 357,351 73,502 Income Taxes 124,109 933 (703) 124,339 25,789 ---------- ------- ------- ---------- -------- Net Income $ 232,676 $ 2,758 $(2,422) $ 233,012 $ 47,713 ========== ======= ======= ========== ======== Per Share Data Average Common Shares Outstanding 61,883,723 62,484,141 Net Income $3.74 $3.71 Mark Twain, First City, All Entities First Financial, Pro Forma First TODAY'S Combined First City Financial TODAY'S Adjustments Consolidated ---------- --------- ------- ---------------- ------------ Interest income $7,030 $6,104 $39,180 $(3,754) $1,570,532 (738) (4,294) Interest expense 3,517 2,693 19,775 746,769 ------ ------ ------- ------- ---------- Net interest income 3,513 3,411 19,405 (8,786) 823,763 Provision for possible loan losses 311 -- 960 42,846 ------ ------ ------- ------- ---------- Net Interest Income after provision for Possible Loan Losses 3,202 3,411 18,445 (8,786) 780,917 Other Income Trust -- -- 1,624 78,937 Service charges 347 264 1,655 85,066 Credit card fees -- -- -- 20,387 Securities gains (losses) (18) (37) 62 4,355 Other 348 484 1,640 129,171 ------ ------ ------- ------- ---------- Total Other Income 677 711 4,981 -- 317,916 Other Expense Salaries and employee benefits 1,221 1,569 7,318 358,075 Net occupancy and equipment 546 191 2,806 99,878 Other 2,209 934 5,836 301 213,267 277 2,673 ------ ------ ------- ------- ---------- Total Other Expense 3,976 2,694 15,960 3,261 671,220 ------ ------ ------- ------- ---------- Income Before Income Taxes (97) 1,428 7,466 (12,037) 427,613 Income Taxes (76) 430 2,587 (1,351) 149,906 ------ ------ ------- ------- ---------- (266) (1,546) ------ ------ ------- ------- ---------- Net Income $ (21) $ 998 $ 4,879 $(8,874) $ 277,707 ====== ====== ======= ======= ========== Per Share Data Average Common Shares Outstanding 79,676,965 Net Income $3.47 See Notes to Pro Forma Combined Consolidated Financial Statements.
- 44 - 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 Hawkeye, effective January 2, 1996. Such acquisition was accounted for as a pooling of interests. The acquisition of Sterling was also accounted for as a pooling of interests; however, due to the immateriality of the financial condition and results of operations of Sterling to that of MBI, MBI did not restate its historical financial statements to reflect the acquisition of Sterling. Each of Sterling, Conway, Metro and Peoples is included in these pro forma financial statements only from its acquisition date forward. The full impact of these acquisitions is immaterial to the pro forma combined consolidated financial statements. The acquisition of Mark Twain will be accounted for as a pooling of interests. The acquisitions of Regional, First City, First Financial and TODAY'S will be accounted for as purchase transactions. Purchase price adjustments offset each other or are immaterial. Included herein are the amortization of goodwill over a 15-year period (see footnote 15 below) and the lost interest income on the cash consideration (for Regional, First Financial and TODAY'S) and stock buybacks. Goodwill is considered non- deductible. The balance sheet impact of goodwill amortization and lost interest income is ignored due to immateriality. In conjunction with the proposed acquisition of Mark Twain, MBI plans on issuing 900,000 shares of MBI Common Stock held as treasury shares that were previously acquired in the open market at an average price per share of $44.53. An additional 700,000 shares may be repurchased with an estimated price per share of $50.00. In conjunction with the proposed acquisitions of Regional, First Financial and TODAY'S, MBI repurchased 2,036,267 shares of MBI Common Stock in the open market at an average price per share of $44.22. Purchase entry of Regional with assumed consideration consisting of 600,418 reissued treasury shares at $47.75 per share, plus $12,330,000 in cash. The closing price for MBI Common Stock on August 23, 1996 (the date of execution of the Merger Agreement) was $47.75. Exclusion of the West Pointe Consideration from the purchase entry is not material to the financial condition or results of operations reflected in the Pro Forma Combined Consolidated Statements. Elimination of MBI's investment in Regional. Acquisition of Mark Twain with 16,950,000 shares of issued MBI Common Stock, including 1,600,000 reissued treasury shares, based on the exchange ratio of .952 shares of MBI Common Stock per share of Mark Twain common stock. Mark Twain acquired Northland Bancshares, Inc., owner of First National Bank of Platte County, in September 1996 in an acquisition accounted for as a pooling of interests; however, due to the immateriality of the financial condition and results of operations of Northland Bancshares, Inc. to that of Mark Twain, Mark Twain did not restate its historical financial statements to reflect this acquisition. The full impact of the acquisition of Northland Bancshares, Inc. is immaterial to the pro forma combined consolidated financial statements. Elimination of non-interest bearing deposit balance of Mark Twain subsidiary bank with MBI subsidiary bank. Elimination of MBI's investment in Mark Twain. - 45 - 49 The purchase of First City by Mark Twain is expected to be completed prior to the acquisition of Mark Twain by MBI. Assumed consideration of First City is 261,479 shares of Mark Twain common stock valued at $40 per share. Based on the exchange ratio of .952 shares of MBI Common Stock per share of Mark Twain common stock, approximately 250,000 equivalent shares of MBI Common Stock will be issued in the First City acquisition. Elimination of MBI's investment in First City. Purchase entry of First Financial with assumed consideration consisting of 258,783 reissued treasury shares at $45.00 per share, plus $3,335,000 in cash. The closing price for MBI Common Stock on July 9, 1996 (the date of execution of the definitive merger agreement between MBI and First Financial) was $45.00. Elimination of MBI's investment in First Financial. Purchase entry of TODAY'S with assumed consideration of 1,177,066 reissued treasury shares at $45.25 per share, plus $34,000,000 in cash. The closing price for MBI Common Stock on March 19, 1996 (the date of the execution of the definitive merger agreement between MBI and TODAY'S) was $45.25. Elimination of MBI's investment in TODAY'S. The pro forma excess of cost over fair value of net assets acquired was $17,584,000, $4,517,000, $4,149,000 and $40,098,000 as of September 30, 1996 for Regional, First City, First Financial and TODAY'S, respectively. Upon consummation of the acquisition of Mark Twain, MBI expects to record certain adjustments related to such acquisition at an approximate pre-tax total of $30 million. - 46 - 50 INFORMATION REGARDING REGIONAL ------------------------------ BUSINESS Regional is a registered single bank holding company that was incorporated in 1979 under the laws of the State of Illinois. As of September 30, 1996, Regional had consolidated assets of $182,082,000, deposits of $146,987,000, loans, net of unearned discount, of $103,169,000 and shareholders' equity of $23,416,000 and employed fifty full-time employees and fourteen part-time employees. Regional owns 100% of the outstanding capital stock of Bank of Alton. Bank of Alton is a full-service community bank that offers banking services to commercial and residential customers throughout Madison County, Illinois. Such banking services include commercial, real estate and personal loans, money market accounts, checking, savings and time deposit accounts and trust services. The lending portion of Bank of Alton's business relates primarily to the activities of small- to medium-sized businesses, local community residences and other consumer purposes. Regional is subject to vigorous competition from major banking institutions, as well as other financial institutions in its principal service area, such as savings and loan associations, insurance companies, credit unions and finance companies. Regional and Bank of Alton are subject to supervision, regulation and examination by the Federal Reserve Board, the Illinois Commissioner and the Federal Deposit Insurance Corporation (the "FDIC"). The deposits of Bank of Alton are primarily insured by the Bank Insurance Fund ("BIF") of the FDIC. In the following pages, statistical information about Regional is presented. Such information should be read in conjunction with " -- Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of Regional included elsewhere herein. - 47 - 51 DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES The following tables show the condensed average balance sheets for the periods presented and the percentage of each principal category of assets, liabilities and shareholders' equity to total assets. Also shown are the average yield on each category of interest- earning assets and the average rate paid on interest-bearing liabilities for each of the periods presented.
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------------------------------------------------- 1996 1995 --------------------------------------- --------------------------------------- PERCENT INTEREST AVERAGE PERCENT INTEREST AVERAGE AVERAGE OF TOTAL INCOME/ YIELD/ AVERAGE OF TOTAL INCOME/ YIELD BALANCE ASSETS EXPENSE RATE BALANCE ASSETS EXPENSE RATE ------- ------ ------- -------- ------- ------ ------- -------- (DOLLARS IN THOUSANDS) Assets: Interest-earning assets: Loans $99,433 57.25% $ 6,679 8.96% $94,584 61.58% $6,285 8.86% Taxable investment securities 43,757 25.19 2,018 6.15 30,229 19.68 1,426 6.29 Non-taxable investment securities 19,911 11.47 1,441 9.65 16,687 10.87 1,291 10.31 Federal funds sold 806 0.46 34 5.62 3,294 2.14 143 5.79 -------- ------ ------- ---- -------- ------ ------ ----- Total interest-earning assets 163,907 94.37 10,172 8.27 144,794 94.27 9,145 8.42 Noninterest earning assets: Cash and due from banks 5,083 2.90 4,316 2.81 Premises and equipment 3,576 2.06 3,338 2.17 Other assets 2,589 1.49 2,738 1.78 Allowance for possible loan losses (1,422) (0.82) (1,580) (1.03) -------- ------ -------- ------ Total assets $173,688 100.00% $153,606 100.00% ======== ====== ======== ====== Liabilities and shareholders' equity: Interest-bearing liabilities: Demand deposits $ 17,807 10.25% $ 272 2.04 $ 17,013 11.08% $ 263 2.06 Savings deposits 13,231 7.62 294 2.96 12,859 8.37 285 2.96 Money market 23,094 13.30 702 4.05 18,975 12.35 530 3.72 Time deposits 76,966 44.31 3,323 5.76 70,239 45.73 2,745 5.21 Federal funds purchased and short-term borrowings 5,383 3.10 235 5.82 218 0.14 10 6.12 -------- ------ ------- ---- -------- ------ ------ ----- Total interest-bearing liabilities 136,481 78.58 4,826 4.71 119,304 77.67 3,833 4.28 Noninterest-bearing liabilities: Demand deposits 12,195 7.02 12,153 7.91 Other liabilities 1,775 1.02 1,405 0.92 -------- ------ -------- ------ Total liabilities 150,451 86.62 132,862 86.50 Shareholders' equity 23,237 13.38 20,744 13.50 -------- ------ -------- ------ Total liabilities and shareholders' equity $173,688 100.00% $153,606 100.00% ======== ====== ======== ====== Net interest Income $ 5,346 $5,312 ======= ====== Interest rate spread 3.56% 4.14% ==== ===== Net interest rate margin 4.35% 4.89% ==== ===== - -------------------- Average yield/rate for the nine months ended September 30, 1996 and 1995 is annualized. Average balances include non-accrual loans. The income on such loans is included in interest but is recognized only upon receipt. Non-taxable investment income presented on a fully tax-equivalent basis. The tax effect resulted in an increase in interest income of $490,000 and $439,000 for the nine months ended September 30, 1996 and 1995, respectively. - 48 - 52 YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------------- 1995 1994 --------------------------------------- --------------------------------------- PERCENT INTEREST AVERAGE PERCENT INTEREST AVERAGE AVERAGE OF TOTAL INCOME/ YIELD/ AVERAGE OF TOTAL INCOME/ YIELD BALANCE ASSETS EXPENSE RATE BALANCE ASSETS EXPENSE RATE ------- ------ ------- ---- ------- ------ ------- ---- (DOLLARS IN THOUSANDS) Assets: Interest-earning assets: Loans $ 95,077 60.12% $ 8,529 8.97% $ 84,372 57.19% $ 6,889 8.17% Taxable investment securities 32,103 20.30 2,000 6.23 33,515 22.72 1,872 5.59 Non-taxable investment securities 17,065 10.79 1,723 10.10 20,307 13.77 2,264 11.15 Federal funds sold 3,017 1.91 173 5.73 1,171 0.79 55 4.70 -------- ------ ------- ----- -------- ------ ------- ----- Total interest-earning assets 147,262 93.12 12,425 8.44 139,365 94.47 11,080 7.95 Noninterest earning assets: Cash and due from banks 4,418 2.79 3,913 2.65 Premises and equipment 3,330 2.11 3,220 2.18 Other assets 4,673 2.95 3,127 2.12 Allowance for possible loan losses (1,527) (0.97) (2,097) (1.42) -------- ------ -------- ------ Total assets $158,156 100.00% $147,528 100.00% ======== ====== ======== ====== Liabilities and shareholders' equity Interest-bearing liabilities: Demand deposits $ 17,265 10.92% $ 355 2.06 $ 15,800 10.71% $ 328 2.08 Savings deposits 12,848 8.12 381 2.97 12,731 8.63 381 2.99 Money market 19,692 12.45 752 3.82 20,737 14.06 553 2.67 Time deposits 71,277 45.07 3,810 5.35 61,508 41.69 2,688 4.37 Federal funds purchased and short-term borrowings 322 0.20 20 6.21 2,167 1.47 98 4.52 -------- ------ ------- ----- -------- ------ ------- ----- Total interest-bearing liabilities 121,404 76.76 5,318 4.38 112,943 76.56 4,048 3.58 Noninterest-bearing liabilities: Demand deposits 12,143 7.68 13,049 8.85 Other liabilities 1,487 0.94 1,600 1.08 -------- ------ -------- ------ Total liabilities 135,034 85.38 127,592 86.49 Shareholders' equity 23,122 14.62 19,936 13.51 -------- ------ -------- ------ Total liabilities and shareholders' equity $158,156 100.00% $147,528 100.00% ======== ====== ======== ====== Net interest income $ 7,107 $ 7,032 ======= ======= Interest rate spread 4.06% 4.37% ===== ===== Net interest rate margin 4.83% 5.05% ===== ===== - -------------------- Average balances include non-accrual loans. The income on such loans is included in interest but is recognized only upon receipt. Non-taxable investment income presented on a fully tax-equivalent basis. The tax effect resulted in an increase in interest income of $585,000 and $770,000 for the years ended December 31, 1995 and 1994, respectively.
- 49 - 53 INTEREST DIFFERENTIAL The following table sets forth, on a tax-equivalent basis for the periods presented, a summary of the changes in interest income and expenses resulting from changes in yields/ rates. The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the changes in each.
AMOUNT OF INCREASE (DECREASE) 1995 COMPARED TO 1994 INCREASE (DECREASE) DUE TO: ------------------------------------------- VOLUME RATE NET ---------- -------- ------ (DOLLARS IN THOUSANDS) Interest earned on: Loans $ 926 $ 714 $1,640 Taxable investment securities (81) 209 128 Non-taxable investment securities (340) (201) (541) Federal funds sold 104 14 118 ----- ----- ------ Total interest-earning assets 609 736 1,345 ----- ----- ------ Interest paid on: Interest-bearing demand deposits 30 27 Savings deposits 3 -- Money market (29) 228 199 Time deposits 465 657 1,122 Federal funds purchased & other short-term borrowings (105) 27 (78) ----- ----- ------ Total interest-bearing liabilities 364 906 1,270 ----- ----- ------ Net interest income $ 245 $(170) $ 75 ===== ===== ====== - -------------------- Change in volume multiplied by yield/rate of prior period. Change in yield/rate multiplied by volume of prior period. Nontaxable investment securities are presented on a fully tax-equivalent basis assuming a tax rate of 34%.
INVESTMENT PORTFOLIO The book value of investment securities is summarized as follows:
DECEMBER 31, --------------------------------------------------------------- 1995 1994 --------------------------- --------------------------- PERCENT PERCENT OF TOTAL OF TOTAL AMOUNT SECURITIES AMOUNT SECURITIES ------ ---------- ------ ---------- (DOLLARS IN THOUSANDS) U.S. Treasury securities and U.S. government agencies and corporations $27,775 49.2% $21,012 45.9% State and municipal 27,070 48.0% 20,586 45.0% Other 1,579 2.8% 4,137 9.1% ------- ----- ------- ----- Total $56,424 100.0% $45,735 100.0% ======= ===== ======= =====
- 50 - 54 The following table summarizes maturity and yield information on investment securities at December 31, 1995:
DECEMBER 31, 1995 MATURING ----------------------------------------------------------------------------------------- OVER ONE OVER FIVE IN ONE THROUGH THROUGH OVER YEAR OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL ------------------ ------------------- ------------------ ------------------ ------- AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT ------ --------- ------ --------- ------ --------- ------ --------- ------- (DOLLARS IN THOUSANDS) U.S. Treasury securities and other U.S. government agencies and corporations $1,008 6.80% $21,132 5.59% $2,229 6.76% $ -- --% $24,369 State and municipal 887 7.01 8,699 8.00 4,314 8.67 13,170 9.45 27,070 Other (includes MBS) 102 9.00 3,406 5.75 -- -- -- -- 3,508 ------ ------- ------ ------- ------- Total $1,997 7.01% $33,237 6.24% $6,543 8.02% $13,170 9.45% $54,947 ====== ==== ======= ==== ====== ==== ======= ==== ======= - -------------------- Presented on a fully tax-equivalent basis assuming a tax rate of 34%. Equity securities of $1,035,000 in Federal Home Loan Mortgage Corporation stock and $442,400 in Federal Home Loan Bank of Chicago stock are not included in this table as these equity securities have no stated maturity.
LOAN PORTFOLIO The composite of the loan portfolio is summarized as follows:
DECEMBER 31, --------------------------------------------------------------- 1995 1994 --------------------------- --------------------------- PERCENT PERCENT OF TOTAL OF TOTAL AMOUNT LOANS AMOUNT LOANS ------ -------- ------ -------- (DOLLARS IN THOUSANDS) Commercial, financial and agricultural $36,539 36.6% $35,410 37.7% Real estate-mortgage 22,368 22.4 25,351 27.0 Installment 37,859 38.0 30,360 32.4 Consumer 3,004 3.0 2,513 2.7 Loans held for sale -- -- 214 0.2 ------- ----- ------- ----- Total $99,770 100.0% $93,848 100.0% ======= ===== ======= =====
- 51 - 55 The following table sets forth the maturities and sensitivities composition of total loans at December 31, 1995 and summarizes maturity information for the loan portfolio as of December 31, 1995:
DECEMBER 31, 1995 --------------------------------------------------------------- AFTER ONE IN ONE THROUGH AFTER YEAR OR LESS FIVE YEARS FIVE YEARS TOTAL ------------ ---------- ---------- ----- (DOLLARS IN THOUSANDS) Fixed Rate Loans: - ---------------- Commercial, financial and agricultural $12,111 $10,344 $ 259 $22,174 Real estate-mortgage 2,678 6,586 5,528 14,792 Installment 1,484 34,897 1,469 37,850 Consumer 225 -- -- 225 ------- ------- ------- ------- Total $16,498 $51,827 $ 7,256 $75,581 ======= ======= ======= ======= Variable Rate Loans: - ------------------- Commercial, financial and agricultural $ 6,531 $ 6,949 $ 345 $13,825 Real estate-mortgage 1,108 -- 6,468 7,576 Installment 9 -- -- 9 Consumer 2,779 -- -- 2,779 ------- ------- ------- ------- Total $10,427 $ 6,949 $ 6,813 $24,189 ======= ======= ======= ======= Total Loans: - ----------- Commercial, financial and agricultural $18,642 $17,293 $ 604 $36,539 Real estate-mortgage 3,786 6,586 11,996 22,368 Installment 1,493 34,897 1,469 37,859 Consumer 3,004 -- -- 3,004 ------- ------- ------- ------- Total $26,925 $58,776 $14,069 $99,770 ======= ======= ======= =======
RISK ELEMENTS INVOLVED IN LENDING ACTIVITIES. The following table details the nonperforming asset information for the periods presented:
SEPTEMBER 30, DECEMBER 31, ------------- ------------------------ 1996 1995 1994 ---- ---- ---- (DOLLARS IN THOUSANDS) Non-accrual loans $ 730 $1,031 $2,414 Loans past due 90 days or more 179 5 61 Restructured loans -- -- -- ------ ------ ------ Total non-performing loans 909 1,036 2,475 Foreclosed property 631 960 719 ------ ------ ------ Total non-performing assets $1,540 $1,996 $3,194 ====== ====== ====== Non-performing loans to loans 0.88% 1.07% 2.71% Non-performing assets to loans plus foreclosed property 1.48% 2.04% 3.47% Non-performing assets to total assets 0.85% 1.19% 2.16%
It is generally the policy of Regional to discontinue the accrual of interest on loans when principal or interest is due and has remained unpaid for 90 days or more, unless the loan is well secured and in the process of collection. If interest on nonaccrual loans had been accrued, such income would have amounted to $85,000 for 1995. Interest income on those loans, representing cash payments received, amounted to $20 for 1995. - 52 - 56 POTENTIAL PROBLEM LOANS. Certain loans may require frequent management attention and are reviewed on a monthly or more frequent basis. Although payments on these loans are less than 90 days past due or in many cases are current, the borrowers have or have had a history of financial difficulties and management has concern as to the borrower's ability to comply with present loan repayment terms. As such, these loans may result in classification at some future point as nonperforming. At September 30, 1996 and December 31, 1995, such loans (excluding all nonperforming loans described above) amounted to $4,146,000 and $3,887,000, respectively. FOREIGN OUTSTANDING. Regional had no loans to any foreign countries on any of the dates specified in the tables. LOAN CONCENTRATIONS. Regional does not have a particular concentration of credit in any one economic sector. SUMMARY OF LOAN LOSS EXPERIENCE The following table summarizes changes in the allowance for loan loss arising from loans charged off and recoveries on loans previously charged off, by loan category and additions to the allowance that have been charged to expense.
YEAR ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------ 1996 1995 1994 ------------- ------ ------ (DOLLARS IN THOUSANDS) Balance at beginning of period $1,350 $1,825 $1,897 Loans charged off: Commercial, financial and agricultural 29 800 7 Real estate-mortgage -- -- -- Installment and consumer 150 114 24 ------ ------ ------ Total charge-offs 179 914 31 ------ ------ ------ Recoveries of loans previously charged off: Commercial, financial and agricultural 194 384 231 Real estate-mortgage 2 -- -- Installment and consumer 31 13 8 ------ ------ ------ Total recoveries 227 397 239 ------ ------ ------ Net charge-offs (recoveries) (48) 517 (208) ------ ------ ------ Additions to allowance charged to (credited to) expense 75 42 (280) ------ ------ ------ Balance at end of period $1,473 $1,350 $1,825 ====== ====== ====== Net charge-offs (recoveries) to average loans (0.05)% 0.54% (0.25)% Allowance for loan losses to loans 1.43 % 1.40% 2.00 % Allowance for loan losses to non-performing loans 162.05 % 130.31% 73.74 %
The level of the allowance for loan loss is reviewed quarterly by the board of directors and management utilizing two methods of analysis. The first method assigns specific allocation percentages based on the loans' risk ratings and includes unused loan commitments. These specific allocation percentages are reviewed annually by the board of directors and management. The second method utilizes a loss history for each type of loan category while estimating the potential loss exposure. - 53 - 57 Management views the allowance for loan losses as being available for all potential or previously unidentified loan losses which may occur in the future. The risk of future losses that is inherent in the loan portfolio is not precisely attributable to a particular loan or category of loans. Based on its review of adequacy, Regional's management has estimated those portions of the allowance that could be attributable to major categories of loans as detailed in the following table:
DECEMBER 31, ------------------------------------------------------------------ 1995 1994 ------------------------------ -------------------------------- PERCENT OF PERCENT OF LOANS IN EACH LOANS IN EACH CATEGORY TO CATEGORY TO ALLOWANCE TOTAL LOANS ALLOWANCE TOTAL LOANS --------- ------------- --------- ------------- (DOLLARS IN THOUSANDS) Commercial, financial and agricultural $ 848 36.6% $1,146 37.7% Real estate-mortgage 892 2.4 120 27.0 Installment 356 38.0 482 32.4 Consumer 57 3.0 7 2.7 Loans held for sale -- -- -- 0.2 ------ ----- ------ ----- Total $1,350 100.0% $1,825 100.0% ====== ===== ====== =====
Allocations estimated for the loan categories do not specifically represent that loan charge-offs of that magnitude will necessarily be incurred. The allocation does not restrict future loan losses attributable to other categories. The risk factors considered when determining the overall level of the allowance for loan losses are the same when estimating the allocation by major category, as specified in the allowance category. DEPOSITS The following table shows, for each type of deposit, the average balance and rate paid on each type of deposit for the years ended December 31, 1995 and 1994:
DECEMBER 31, -------------------------------------------------------------- 1995 1994 -------------------------------------------------------------- AVERAGE AVERAGE BALANCE RATE BALANCE RATE -------------------------- -------------------------- (DOLLARS IN THOUSANDS) Noninterest bearing demand deposits $ 12,143 --% $ 13,049 --% Interest-bearing demand deposits 36,956 3.00 36,537 2.41 Savings deposits 12,848 2.97 12,731 2.99 Time deposits 71,277 5.35 61,508 4.37 -------- -------- Total $133,224 3.98% $123,825 3.19% ======== ==== ======== ====
The following table shows the maturity of time deposits of $100,000 or more at December 31, 1995:
(DOLLARS IN THOUSANDS) Three months or less $1,069 Over three through six months 3,940 Over six through twelve months 2,427 Over twelve months 1,727 ------ $9,163 ======
- 54 - 58 RETURN OF EQUITY AND ASSETS The following ratios are among those commonly used in analyzing the performance of banks and bank holding companies:
1995 1994 ------ ------ Return on average assets 1.74% 1.73% Return on average equity 11.93% 12.77% Dividend payout ratio 37.49% 5.90% Equity to assets ratio 14.62% 13.51%
PROPERTIES Both Regional's and Bank of Alton's principal office is located at 1520 Washington Avenue, Alton, Illinois 62002. Bank of Alton also operates two branch facilities; one of which is located at 2627 State Street, Alton, Illinois 62002; and the other of which is located at One Terminal Drive, Bethalto, Illinois 62010. LEGAL PROCEEDINGS During the normal course of business, various legal claims have arisen which, in the opinion of the management of Regional, will not result in any material liability to Regional. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION. The following discussion and analysis is intended to review the significant factors affecting the financial condition and results of operations of Regional for the nine months ended September 30, 1996 and 1995 and the three-year period ended December 31, 1995. It provides a more comprehensive review of factors not otherwise apparent from the consolidated financial statements of Regional alone. Reference should be made to those financial statements and the selected financial data presented elsewhere herein for an understanding of the following review. NET INCOME ANALYSIS. Regional's net income for 1995 was $2,758,000, compared to $2,546,000 for 1994 and $3,019,000 for 1993. The increase in net income for 1995 as compared to 1994 was due primarily to a decrease in non-interest expense offset by an increase in provision for loan loss expense. The decrease in net income for 1994 as compared to 1993 was due to both the adoption of a new accounting standard for income taxes, which added $518,000 to 1993 net income, and the change in the provision for loan loss credit from $(960,000) in 1993 to $(280,000) in 1994. For the nine months ended September 30, 1996 and 1995, net income was $2,010,000 and $1,999,000, respectively. The increase was due primarily to a decrease in income tax expense. NET INTEREST INCOME. Net interest income is the largest component of earnings and is affected by the volume of the sources and uses of funds, the respective rates earned and paid on those funds, the mix of those funds and the volume of non-performing assets. Regional's net interest income increased 4.1% to $6,522,000 for 1995 and increased 6.7% to $6,263,000 for 1994. The net interest margin, which is calculated by dividing tax-equivalent net interest income by average interest-earning assets, was 4.83% in 1995, compared to 5.05% and 5.19% in 1994 and 1993, respectively. Regional's yield on interest-earning assets increased to 8.44% in 1995 from 7.95% in 1994 while the cost of funds - 55 - 59 increased to 4.38% in 1995 from 3.58% in 1994. The decreases in net interest margin were attributable to the increasing rate environment and intense competition for deposits between local financial institutions. During 1995, increases in the average volume of loans and federal funds sold resulted in an increase in interest income of $1,030,000. This increase was partially offset by a $421,000 decrease in average volume of taxable and non-taxable investment securities. Changes in interest rates on the average volume of loans and federal funds sold increased interest income by $728,000. Changes in interest rates on the average volume of money markets and time deposits increased interest expense by $885,000. The net effect of the volume and rate changes associated with all categories of interest-earning assets during 1995 as compared to 1994 increased interest income by $1,345,000, while the net effect of the volume and rate changes associated with all categories of interest-bearing liabilities increased interest expense by $1,270,000. Net interest income was $4,856,000 for the first nine months of 1996, a .3% decrease from the same period of 1995. Interest income increased $975,000 for the first nine months of 1996 and interest expense increased $993,000. The net decrease was primarily attributable to lower than expected loan demand and strong local competition for deposits. PROVISION FOR LOAN LOSSES. The provision for loan losses charged to expense was $42,000 in 1995, compared to credits of $(280,000) in 1994 and $(960,000) in 1993. The negative provisions recorded by Regional in 1994 and 1993 were due to significant performance improvements on several credits which resulted in management's decision to reduce the level of the allowance for loan losses in 1994 and 1993. The allowance for loan losses is maintained at a level considered adequate to provide for potential losses. The provision for loan losses is based on a periodic analysis, considering, among other factors, current economic conditions, loan portfolio composition, past loan loss experience, independent appraisals, loan collateral and payment experience. In addition to the allowance for losses on identified problem loans, an overall unallocated allowance is established to provide for unidentified credit losses inherent in the portfolio. As adjustments become necessary, they are reflected in the results of operations in the periods in which they become known. Management believes the allowance for loan losses is adequate to absorb losses in the loan portfolio. While management uses available information to recognize loan losses, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the allowance for loan losses. Such agencies may require Regional to increase the allowance for loan losses based on their judgments and interpretations about information available to them at the time of their examinations. The ratio of nonperforming loans to loans decreased since 1993 as a result of a more aggressive approach to account collections and the effectiveness of management in working with the problem credits coupled with acquisitions of foreclosed real estate. The provision for loan losses was $75,000 in the first nine months of 1996, compared to $42,000 in the same period for 1995. NON-INTEREST INCOME. Regional's 1995 non-interest income was $1,108,000, representing a 33.7% increase from 1994 results, while 1994 non-interest income represents a 34.7% decrease from 1993 results. The increase in 1995 was due to an increase of $35,000 in ATM switch income, a $10,000 increase in gain on sale of investment securities, offset by a decrease of $37,000 in gain on sale of other - 56 - 60 real estate. In addition, no security losses were recorded in 1995, compared to a loss of $250,000 in 1994 resulting from repositioning the investment portfolio. The decrease in 1994 non-interest income was due primarily to a decrease of 80% on gain on sale of mortgage loans due to a decrease of the volume of loans sold from $13,356,000 in 1993 to $5,084,000 in 1994, partially offset by a $85,000 increase in ATM switch income. In addition, Regional recorded a gain on sale of investment securities of $176,000 in 1993, compared to the loss of $250,000 in 1994. Non-interest income for the first nine months of 1996 was $798,000, a 5.0% decrease from 1995. The decrease was due primarily to a decrease in gains on sales of investment securities, mortgage loans and other real estate. NON-INTEREST EXPENSE. Non-interest expense decreased 3.3% in 1995 and 9.2% in 1994. FDIC insurance assessment decreased 47.5% in 1995, primarily due to the FDIC's reduction of deposit premiums charged to commercial banks, which resulted from the BIF reaching its required reserve level of 1.25% of total insured deposits during 1995. These decreases in non-interest expense were offset by an increase in equipment and data processing expense of 18.0% and 55.2%, respectively, due to implementation of a new data processing system in August 1994. The 1994 decrease was attributable to a decrease in occupancy expense of 35.7% and a decrease in legal and professional fees of 27.8%. In 1993, the useful lives of many fixed assets were evaluated and shortened, resulting in a one-time charge to depreciation expense which inflated 1993 occupancy expense. In addition, 1993 legal and professional fees contained expenses associated with regulatory matters involving a former bank officer. These decreases were offset by a 46.7% increase in data processing expense, again due to implementation of a new data processing system in August 1994. Non-interest expense for the first nine months of 1996 was $3,128,000 compared to $2,973,000 in the first nine months of 1995. The addition of a new facility in Bethalto, Illinois increased salaries and employee benefits 11.9%, increased occupancy 34.4% and increased equipment expense 17.7%. These increases were partially offset by a 99.5% decrease in FDIC insurance assessment, again primarily due to the FDIC's reduction in the deposit premium charged to commercial banks. Other non- interest expense increased 12.0% partially due to a write-down on other real estate of $50,000. INCOME TAXES. Regional recorded income tax expense of $933,000 for 1995, $796,000 for 1994 and $1,158,000 for 1993. The effective income tax rates were 25.3%, 23.8% and 31.6% for the years ended December 31, 1995, 1994 and 1993, respectively. Income tax expense of $441,000 and $700,000 was recorded for the nine months ended September 30, 1996 and 1995, respectively. In February 1992, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). SFAS 109 was effective for fiscal years beginning after December 15, 1992 and could have been applied through retroactive restatement of previously issued financial statements, or through reporting the cumulative effect of applying the changes in the period of its initial application. Regional implemented SFAS 109 during 1993 and reported the cumulative effect of this change in the method of accounting for income taxes resulting in an increase in earnings of $518,000 in Regional's 1993 consolidated statement of income. LIQUIDITY AND INTEREST RATE SENSITIVITY. Liquidity is provided to Regional through earning assets, including short-term investments in federal funds sold, and through maturities in the investment - 57 - 61 and loan portfolios. In addition, liquidity is provided by advances from the Federal Home Loan Bank of Chicago. The asset/liability management process, which involves management of the components of the balance sheet to allow assets and liabilities to reprice at approximately the same time, is a dynamic process essential to minimizing the effect of interest rate fluctuations on net interest income. The following tables reflect Regional's GAP analysis (rate-sensitive assets minus rate-sensitive liabilities) as of September 30, 1996 and December 31, 1995, respectively:
SEPTEMBER 30, 1996 ------------------------------------------------------------ OVER OVER 3 MONTHS 1 YEAR 3 MONTHS THROUGH 12 THROUGH OVER OR LESS MONTHS 5 YEARS 5 YEARS TOTAL -------- ---------- ------- ------- ----- (DOLLARS IN THOUSANDS) Assets: Investments in debt and equity securities $ 155 $ 2,287 $ 36,937 $26,698 $ 66,077 Loans 21,408 15,701 48,733 20,685 106,527 Federal funds sold 495 -- -- -- 495 Interest-bearing deposits -- -- -- -- -- -------- -------- -------- ------- -------- Total interest-sensitive assets 22,058 17,988 85,670 47,383 173,099 -------- -------- -------- ------- -------- Liabilities: Money market deposits (interest-bearing demand) 41,797 -- -- -- 41,797 Savings 12,547 -- -- -- 12,547 Time deposits 30,757 23,944 24,225 -- 78,926 Short-term borrowings 4,000 5,000 1,000 -- 10,000 -------- -------- -------- ------- -------- Total interest-sensitive liabilities 89,101 28,944 25,255 -- 143,270 -------- -------- -------- ------- -------- Interest-sensitivity gap at September 30, 1996: Incremental $(67,043) $(10,956) $ 60,445 $47,383 $ 29,829 ======== ======== ======== ======= ======== Cumulative $(67,043) $(77,999) $(17,554) $47,383 ======== ======== ======== ======= DECEMBER 31, 1995 ------------------------------------------------------------ OVER OVER 3 MONTHS 1 YEAR 3 MONTHS THROUGH 12 THROUGH OVER OR LESS MONTHS 5 YEARS 5 YEARS TOTAL -------- ---------- ------- ------- ----- (DOLLARS IN THOUSANDS) Assets: Investments in debt and equity securities $ -- $ 1,997 $ 33,237 $21,190 $ 56,424 Loans 19,661 12,178 49,355 18,576 99,770 Federal funds sold 3,625 -- -- -- 3,625 -------- ------- -------- Total interest-sensitive assets 23,286 14,175 82,592 39,766 159,819 -------- -------- -------- ------- -------- Liabilities: Money market deposits (interest-bearing demand) 43,013 -- -- -- 43,013 Savings 13,041 -- -- -- 13,041 Time deposits 22,062 33,502 19,286 -- 74,850 Total interest-sensitive liabilities 78,116 33,502 19,286 -- 130,904 -------- -------- -------- ------- -------- Interest-sensitivity gap at December 31, 1995: Incremental $(54,830) $(19,327) $ 63,306 $39,766 $ 28,915 ======== ======== ======== ======= ======== Cumulative $(54,830) $(74,157) $(10,851) $28,915 ======== ======== ======== =======
As indicated in the preceding tables, Regional was liability sensitive on a cumulative basis in the near term (three months or less) at September 30, 1996 and December 31, 1995, based on contractual maturities and earliest repricing dates. In this regard, an increase in the general level of interest rates would generally have a negative effect on Regional's net interest income as the repricing of the larger volume of interest- sensitive liabilities would create a larger amount of interest expense than - 58 - 62 the additional amount of interest income created by the repricing of the smaller volume of interest-sensitive assets. The following table summarizes certain trends in Regional's consolidated balance sheet during the two-year period:
DECEMBER 31, ------------ 1995 1994 ---- ---- (DOLLARS IN THOUSANDS) Total assets $167,680 $148,140 Earning assets $156,733 $138,476 Deposits $142,714 $127,107 Loans to deposits (net loans) 67.75% 71.84% Loans to total assets (net loans) 57.66% 61.64% Debt securities to total assets 33.65% 30.87%
The composition of total assets and earning assets changed during 1995 as funds were shifted into investments due to lower than expected loan growth. Regional's earning assets increased $18,257,000 from December 31, 1994 to December 31, 1995. Investment securities were $56,424,000 at December 31, 1995 as compared to $45,375,000 at December 31, 1994. Loans, net of unearned discount, were $96,684,000 at December 31, 1995, compared to $91,316,000 at December 31, 1994. Deposits increased $15,607,000 from December 31, 1994 to December 31, 1995. Interest-bearing deposits increased $17,182,000, while non interest-bearing deposits decreased $1,575,000. CAPITAL ADEQUACY. Regional's equity capital was $23,416,000, $23,122,000 and $19,685,000 at September 30, 1996, December 31, 1995 and December 31, 1994, respectively. During 1996, equity capital increased $294,000 as a result of net income of $2,010,000, offset by dividends paid of $760,000 and a net unrealized loss on securities available-for-sale of $(956,000). During 1995, equity capital increased $3,437,000. This increase was attributable to net income of $2,758,000, and a $1,713,000 net unrealized gain on marketable equity securities, offset by dividends paid of $1,034,000. Risk-based capital guidelines for financial institutions were adopted by regulatory authorities and were effective January 1, 1991. These guidelines were designed to relate regulatory capital requirements to the risk profile of the specific institutions and to provide for uniform requirements among the various regulators. Currently, the risk-based capital guidelines require Regional to meet a minimum total capital ratio of 8.0%, of which at least 4.0% must consist of Tier 1 capital. Tier 1 capital generally consists of (a) common shareholders' equity, (b) qualifying perpetual preferred stock and related surplus subject to certain limitations specified by the FDIC and (c) minority interests in the equity accounts of consolidated subsidiaries less goodwill and any other intangible assets and investments in subsidiaries that the FDIC determines should be deducted from Tier 1 capital. The FDIC also requires a minimum leverage ratio of 3.0%, defined as the ratio of Tier 1 capital less purchased mortgage servicing rights to total assets, for banking organizations deemed the strongest and most highly-rated by banking regulators. A higher minimum leverage ratio is required of less highly-rated banking organizations. - 59 - 63 The following tables summarize, on a consolidated basis, Regional's risk-based capital and leverage ratios:
RISK BASED CAPITAL RATIOS ------------------------------------------------------------------------------------------------- TOTAL TIER 1 -------------------------------------------- ------------------------------------------- SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, ------------- ---------------------- ------------- --------------------- 1996 1995 1994 1996 1995 1994 ---- ---- ---- ---- ---- ---- 21.97% 22.43% 22.99% 20.72% 21.18% 21.74% LEVERAGE RATIOS -------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------- ---------------------- 1996 1995 1994 ---- ---- ---- 12.86% 13.79% 13.29%
Risk Management. Regional's management objective in structuring the balance sheet is to maximize the return on stockholders' equity while minimizing the associated risks. The major risks involved in the banking industry are market, credit and liquidity risks. The following is a discussion of Regional's management of these risks. Market Risk Management. Regional's management ---------------------- believes its loan and investment portfolios are sufficiently diversified to minimize the effect of a downturn in any particular industry or market. Regional does not have any particular concentration of credit in any one economic sector. Installment loans as of December 31, 1995 totaled $37,859,000, or 38%, of the loan portfolio, while real estate loans totaled $22,368,000, or 22.4%, of the loan portfolio. Commercial loans as of December 31, 1995 totaled $36,539,000, or 36.6%, of the loan portfolio. The commercial loan portfolio, which includes loans made primarily to businesses located in Madison County and served by Regional, is generally secured by business assets such as inventory, accounts receivable and equipment. At December 31, 1995 the total investment portfolio was $56,424,000. Approximately 49.2% of the portfolio is comprised of U.S. Government issues and approximately 48.0% is comprised of State and Municipal Bonds. Credit Risk Management. The risks Regional's ---------------------- management assumes in providing credit products to customers is fundamental to its business operation. Credit risk management includes defining an acceptable level of risk and return, establishing policies and procedures to govern the credit process and maintaining a thorough portfolio review function. Credit policies are ultimately the responsibility of Regional's Board of Directors and, as such, are reviewed and approved by the Board of Directors. Of equal importance in this risk management process are the ongoing monitoring procedures performed by management. Nonperforming loans represented .88% of total loans at September 30, 1996, compared to 1.07% and 2.71% at December 31, 1995 and 1994, respectively. Other real estate owned by Regional totaled $631,000 at September 30, 1996 and $960,000 and $719,000 at December 31, 1995 and 1994, respectively. Liquidity Risk Management. Liquidity is a ------------------------- measurement of Regional's ability to meet the borrowing needs and the deposit withdrawal requirements of its customers. Regional actively manages the composition of its assets and liabilities to maintain the appropriate level of liquidity in the balance sheet. Management is guided by regularly reviewed policies when determining the - 60 - 64 appropriate portion of total assets, which should be comprised of readily marketable assets available to meet future liquidity needs. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS. During May 1993, FASB issued Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan ("SFAS 114") and SFAS 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115"). During October 1994, the FASB issued SFAS 118, Accounting by Creditors for Impairment of a Loan - - Income Recognition and Disclosures ("SFAS 118"), which amends SFAS 114. During October 1994, the FASB issued SFAS 119, Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments ("SFAS 119"). In March 1995, the FASB issued SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). In May 1995, the FASB issued SFAS 122, Accounting for Mortgage Servicing Rights ("SFAS 122"), an amendment of FASB Statement No. 65. In June 1995, the FASB issued SFAS 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities ("SFAS 125"). SFAS 114, as amended by SFAS 118, amends SFAS 5, Accounting for Contingencies, and SFAS 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings, and became effective for Regional on January 1, 1995. SFAS 114 defines the recognition criterion for loan impairment and the measurement methods for certain impaired loans and restructured loans, loans whose terms have been modified in troubled-debt restructurings. Specifically, a loan is considered impaired when it is probable a creditor will be unable to collect all amounts due, including both principal and interest, according to the contractual terms of the loan agreement. When measuring impairment, the expected future cash flows of an impaired loan will be discounted at the loan's effective interest rate. Alternatively, impairment could be measured by reference to an observable market price, if one exists, or the fair value of the collateral for a collateral- dependent loan. Regardless of the measurement method used, SFAS 114 requires a creditor to measure impairment based on the fair value of the collateral when the creditor determines foreclosure is probable. Additionally, impairment of a restructured loan will be measured by discounting the total expected future cash flow at the loan's effective rate of interest as stated in the original loan agreement. SFAS 118 amends SFAS 114 to allow creditors to use existing methods of recognizing interest income on impaired loans. Regional has elected to continue to use its existing nonaccrual methods of recognizing interest on impaired loans. The impact of initially applying SFAS 114 and SFAS 118 was not reported as an accounting change; rather, it was reported as a component of the provision for loan losses charged to operations, and had no effect on Regional's consolidated results of operation as a result of implementation. SFAS 114 and SFAS 118 are effective for fiscal years beginning after December 15, 1994. SFAS 115 supersedes SFAS 12, Accounting for Certain Marketable Securities and related interpretations, and significantly amends SFAS 65, Accounting for Certain Mortgage Banking Activities, and SFAS No. 60, Accounting and Reporting by Insurance Enterprises. Regional adopted the provisions of SFAS 115 on January 1, 1994. SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values, and all investments in debt securities. Under SFAS 115, debt and equity securities are classified into one of three categories; trading; available-for-sale and held-to- maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities in which Regional has the ability and intent to hold until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. Regional has classified all securities as available-for-sale. - 61 - 65 As previously mentioned, effective January 1, 1994, Regional adopted SFAS 115, for which the cumulative effect was recorded on the consolidated balance sheet on that date. On January 1, 1994: (i) debt and marketable equity securities with an amortized cost of $55,075,000 were classified as available- for-sale securities; (ii) a market valuation account was established for the available-for-sale securities of $2,713,000 to increase the recorded balance of such securities at January 1, 1994 to their fair value on that date; (iii) a deferred liability of $922,000 was recorded to reflect the tax effect of the market valuation account; and (iv) the net increase resulting from the market valuation adjustment at January 1, 1994 was recorded as a separate component of shareholders' equity. Regional did not classify any securities as held-to-maturity or trading securities at January 1, 1994. Prior to the adoption of SFAS 115, marketable equity securities were carried at the lower of cost or estimated market value. A deferred tax benefit was established for the unrealized loss on marketable equity securities at January 1, 1994. SFAS 119 requires disclosures about the amounts, nature and terms of derivative financial instruments 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, because they do not result in off-balance-sheet risk of accounting loss. SFAS 119 requires that a distinction be made between financial instruments held or issued for trading purposes and financial instruments held or issued for purposes other than trading. SFAS 119 was effective for financial statements issued for fiscal years ending after December 15, 1994 and resulted in no effect on Regional's consolidated financial statements, other than additional disclosure requirements with respect to fixed rate loan commitments. Effective January 1, 1996, Regional adopted SFAS 121. SFAS 121 provides guidance for recognition and measurement of impairment on long-lived assets, certain identifiable intangibles and goodwill related both to assets to be held and used and assets to be disposed of. The statement requires entities to perform separate calculations for assets to be held and used to determine whether recognition of an impairment loss is required, and, if so, to measure impairment. If the sum of the expected future cash flows, undiscounted and without interest charges, is less than the asset's carrying amount, an impairment loss can be recognized. If the sum of the expected future cash flows is more than the assets carrying amount, an impairment loss cannot be recognized. Measurement of an impairment loss is based on the fair value of the asset. SFAS 121 also requires long-lived assets and certain identifiable intangibles to be disposed of to be reported at the lower of carrying amount or fair value less cost to sell. As of the adoption date January 1, 1996, Regional had no impaired long-lived or intangible assets affected by SFAS 121. SFAS 122 amends SFAS 65, Accounting for Certain Mortgage Banking Activities, to require that a mortgage banking enterprise recognize as separate assets rights to service mortgage loans for others, regardless of how such servicing rights are acquired. A mortgage banking enterprise that acquires mortgage servicing rights through either the purchase or origination of mortgage loans sells or securitizes those loans with servicing rights and the loans (without mortgage servicing rights) based on their relative fair values, if it is practicable to estimate those fair values. If it is not practicable to estimate the fair values of the mortgage servicing rights and the mortgage loans (without the mortgage servicing rights), the entire cost of purchasing or originating the loans should be allocated to the mortgage loans and no cost should be allocated to mortgage servicing rights. SFAS 122 also requires that a mortgage banking enterprise assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. SFAS 122 must be applied prospectively for fiscal years beginning after December 15, 1995, with earlier adoption encouraged, to transactions in which a mortgage banking enterprise sells or securitizes mortgage loans with servicing rights retained and to impairment evaluations of all amounts capitalized as mortgage servicing rights, including those purchased before the adoption of SFAS 122. Retroactive capitalization of mortgage servicing rights retained in transactions in which a mortgage banking enterprise originates mortgage loans and sells or securitizes those loans before the - 62 - 66 adoption of SFAS 122 is prohibited. Regional adopted the provisions of SFAS 122 effective January 1, 1996. The adoption of SFAS 122 had no impact on Regional's consolidated financial position or results of operations. SFAS 125 established accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities. The standards established by SFAS 125 are based on consistent applications of a "financial- components" approach that focuses on control. Under such approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities that it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished. SFAS 125 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996 and is to be applied prospectively. Earlier or retroactive application is not permitted. Regional does not believe that the implementation of SFAS 125 will have a material effect on its consolidated financial position or results of operation. EFFECT OF INFLATION. Persistent high rates of inflation can have a significant effect on the reported financial condition and results of operations of all industries. However, the asset and liability structure of commercial banks is substantially different from that of an industrial company in that virtually all assets and liabilities of commercial banks are monetary in nature. Accordingly, changes in interest rates may have a significant impact on a commercial bank's performance. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Inflation does have an impact on the growth of total assets in the banking industry, often resulting in a need to increase equity capital at higher than normal rates to maintain an appropriate equity-to-assets ratio. - 63 - 67 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of the Record Date the number of shares of Regional Common Stock beneficially owned and the percentage of ownership of outstanding shares of Regional Common Stock by (a) each director and executive officer of Regional, (b) each person who is known by Regional to own beneficially 5% or more of such stock and (c) all directors and executive officers of Regional as a group:
SHARES PERCENT NAME AND ADDRESS BENEFICIALLY OF OF BENEFICIAL OWNER OWNED CLASS - ------------------- ----- ----- Paul E. Utterback 23,373 92.31% 94 Fairmount Alton, IL 62002 David B. Utterback 267 1.05% President and Chairman 4305 S.W. 83rd Way Gainesville, Florida 32608 Mark P. Utterback 38 .15% Vice President 4530 Pershing St. Louis, MO 63108 Sarah E. Utterback 38 .15% Secretary and Treasurer 7515 Parkdale, #1 West St. Louis, MO 63105 Virgil D. Hook 1,334 5.27% All Directors and 614 2.42% Executive Officers as a Group (three persons) - -------------------- Includes shares held by the Paul E. Utterback Voting Trust, of which Billy R. Summers is the trustee and Paul E. Utterback is the sole beneficiary. Also includes shares held by the Mary G. Utterback Family Trust and the Mary G. Utterback Marital Trust; Paul E. Utterback is the trustee and sole beneficiary for each. Includes shares held by the Virgil D. Hook Living Trust and the Margaret A. Hook Living Trust.
For purposes of the above table, a person is deemed to be a beneficial owner of shares of Regional 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. - 64 - 68 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 September 30, 1996, MBI had no shares of MBI Preferred Stock issued and outstanding and 60,163,042 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, MBI's Board of Directors has not acted to designate or issue any shares of MBI Preferred Stock. The existence of a substantial number of unissued and unreserved shares of MBI Common Stock and undesignated shares of MBI Preferred Stock may enable the Board of Directors to issue shares to such persons and in such manner as may be deemed to have an anti-takeover effect. The following summary of the terms of MBI's capital stock does not purport to be complete and is qualified in its entirety by reference to the applicable provisions of MBI's Restated Articles of Incorporation and By-Laws and Missouri law. DIVIDENDS. The holders of MBI Common Stock are entitled to share ratably in dividends when, as and if declared by the Board of Directors from funds legally available therefor, after full cumulative dividends have been paid or declared, and funds sufficient for the payment thereof set apart, on all series of MBI Preferred Stock ranking superior as to dividends to MBI Common Stock. The Board of Directors of MBI intends to maintain its present policy of paying quarterly cash dividends on MBI Common Stock, when justified by the financial condition of MBI and its subsidiaries. The declaration and amount of future dividends will depend on circumstances existing at the time, including MBI's earnings, financial condition and capital requirements as well as regulatory limitations, note and indenture provisions and such other factors as the Board of Directors may deem relevant. The payment of dividends to MBI by subsidiary banks is subject to extensive regulation by various state and federal regulatory agencies. See "SUPERVISION AND REGULATION." VOTING RIGHTS. Each holder of MBI Common Stock has one vote for each share held on matters presented for consideration by the shareholders, except that, in the election of directors, each shareholder has cumulative voting rights which entitle each such shareholder to the number of votes which equals the number of shares held by the shareholder multiplied by the number of directors to be elected. All such 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 - 65 - 69 any of its assets or funds that are available for distribution to its shareholders after the satisfaction of its liabilities (or after adequate provision is made therefor) and after preferences on any outstanding MBI Preferred Stock. ASSESSMENT AND REDEMPTION. Shares of MBI Common Stock are and will be, when issued, fully paid and nonassessable. Such shares do not have any redemption provisions. PREFERRED SHARE PURCHASE RIGHTS PLAN. One preferred share purchase right is attached to each share of MBI Common Stock. The MBI Rights trade automatically with shares of MBI Common Stock, and become exercisable and will trade separately from the MBI Common Stock on the tenth day after public announcement that a person or group has acquired, or has the right to acquire, beneficial ownership of 20% or more of the outstanding shares of MBI Common Stock, or upon commencement or announcement of intent to make a tender offer for 20% or more of the outstanding shares of MBI Common Stock, in either case without prior written consent of the Board. When exercisable, each MBI Right will entitle the holder to buy 1/100 of a share of MBI Series A Junior Participating Preferred Stock at an exercise price of $100 per MBI Right. In the event a person or group acquires beneficial ownership of 20% or more of MBI Common Stock, holders of MBI Rights (other than the acquiring person or group) may purchase MBI Common Stock having a market value of twice the then current exercise price of each MBI Right. If MBI is acquired by any person or group after the Rights become exercisable, each MBI Right will entitle its holder to purchase stock of the acquiring company having a market value of twice the current exercise price of each MBI Right. The MBI Rights are designed to protect the interests of MBI and its shareholders against coercive takeover tactics. The purpose of the MBI Rights is to encourage potential acquirors to negotiate with MBI's Board of Directors prior to attempting a takeover and to give the Board leverage in negotiating on behalf of all shareholders the terms of any proposed takeover. The MBI Rights may deter certain takeover proposals. The MBI Rights, which can be redeemed by MBI's Board of Directors in certain circumstances, expire by their terms on June 3, 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. - 66 - 70 RESTRICTIONS ON RESALE OF MBI STOCK BY AFFILIATES Under Rule 145 of the Securities Act, certain persons who receive MBI Common Stock pursuant to the Merger and who are deemed to be "affiliates" of Regional 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 Regional at the time the Merger is submitted to a vote of the shareholders of Regional. Each affiliate of Regional (generally each director and executive officer of Regional and each shareholder who beneficially owns a substantial number of outstanding shares of Regional 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 Regional 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 Regional 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 REGIONAL MBI is incorporated under the laws of the State of Missouri, while Regional is incorporated under the laws of the State of Illinois. The rights of the shareholders of MBI are governed by MBI's Restated Articles of Incorporation and By-Laws and the Missouri Act. The rights of Regional shareholders are governed by Regional's Articles of Incorporation and By-Laws and by the Illinois Act. The rights of Regional 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 Regional 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. Regional 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 - 67 - 71 are entitled, voting together as a single class (the "Voting Stock"), shall be required for the approval of any Business Combination. A "Business Combination" is defined generally to include sales, exchanges, leases, transfers or other dispositions of assets, mergers or consolidations, issuances of securities, liquidations or dissolutions of MBI, reclassifications of securities or recapitalizations of MBI, involving MBI on the one hand, and an Interested Shareholder or an affiliate of an Interested Shareholder on the other hand. An "Interested Shareholder" is defined generally to include any person, firm, corporation or other entity which is the beneficial owner of 5% or more of the voting power of the outstanding Voting Stock. If, however, at least two-thirds of the Board of Directors of MBI approve the Business Combination, such Business Combination shall require only the vote of shareholders as provided by Missouri law or otherwise. The amendment of the provisions of MBI's Restated Articles relating to the approval of Business Combinations requires the affirmative vote of the holders of at least 75% of the Voting Stock unless such amendment has previously been approved by at least two-thirds of the Board of Directors. To the extent that a potential acquiror's strategy depends on the passage of proposals which require a supermajority vote of MBI's shareholders, such provisions requiring a supermajority vote may have the effect of discouraging takeover attempts that do not have Board approval by making passage of such proposals more difficult. Neither Regional's Articles of Incorporation nor Regional'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. Neither Regional's Articles of Incorporation or By-Laws 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. Regional does not have a classified Board of Directors. ANTI-TAKEOVER STATUTES. The Missouri Act contains certain provisions applicable to Missouri corporations such as MBI which may be deemed to have an anti-takeover effect. Such provisions include Missouri's business combination statute and the control share acquisition statute. The Missouri business combination statute protects domestic corporations after hostile takeovers by prohibiting certain transactions once an acquiror has gained control. The statute restricts certain "Business Combinations" between a corporation and an "Interested Shareholder" or affiliates of the Interested Shareholder for a period of five years unless certain conditions are met. A "Business Combination" includes a merger or consolidation, certain sales, leases, exchanges, pledges and similar dispositions of corporate assets or stock and certain reclassifications and recapitalizations. An "Interested Shareholder" includes any person or entity which beneficially owns or controls 20% or more of the outstanding voting shares of the corporation. During the initial five-year restricted period, no Business Combination may occur unless such Business Combination or the transaction in which an Interested Shareholder becomes "interested" (the "Acquisition Transaction") was approved by the board of directors of the corporation on or before the date of the Acquisition Transaction. Business Combinations may occur after the five-year period - 68 - 72 following the Acquisition Transaction only if: (i) prior to the stock acquisition by the Interested Shareholder, the board of directors approves the transaction in which the Interested Shareholder became an Interested Shareholder or approves the Business Combination in question; (ii) the holders of a majority of the outstanding voting stock, other than stock owned by the Interested Shareholder, approve the Business Combination; or (iii) the Business Combination satisfies certain detailed fairness and procedural requirements. The Missouri Act exempts from its provisions: (i) corporations not having a class of voting stock registered under Section 12 of the Exchange Act; (ii) corporations which adopt provisions in their articles of incorporation or bylaws expressly electing not to be covered by the statute; and (iii) certain circumstances in which a shareholder inadvertently becomes an Interested Shareholder. MBI's Restated Articles of Incorporation and By-Laws do not contain an election to "opt out" of the Missouri business combination statute. The Missouri Act also contains a "Control Share Acquisition Statute" which provides that an "Acquiring Person" who after any acquisition of shares of a publicly traded corporation has the voting power, when added to all shares of the same corporation previously owned or controlled by the Acquiring Person, to exercise or direct the exercise of: (i) 20% but less than 33 1/3%, (ii) 33 1/3% or more but less than a majority or (iii) a majority, of the voting power of outstanding stock of such corporation, must obtain shareholder approval for the purchase of the "Control Shares." If approval is not given, the Acquiring Person's shares lose the right to vote. The statute prohibits an Acquiring Person from voting its shares unless certain disclosure requirements are met and the retention or restoration of voting rights is approved by both: (i) a majority of the outstanding voting stock, and (ii) a majority of the outstanding voting stock after exclusion of "Interested Shares." Interested Shares are defined as shares owned by the Acquiring Person, by directors who are also employees, and by officers of the corporation. Shareholders are given dissenters' rights with respect to the vote on Control Share Acquisitions and may demand payment of the fair value of their shares. A number of acquisitions of shares are deemed not to constitute Control Share Acquisitions, including good faith gifts, transfers pursuant to wills, purchases pursuant to an issuance by the corporation, mergers involving the corporation which satisfy the other requirements of the Missouri Act, transactions with a person who owned a majority of the voting power of the corporation within the prior year, or purchases from a person who has previously satisfied the provisions of the Control Share Acquisition Statute so long as the transaction does not result in the purchasing party having voting power after the purchase in a percentage range (such ranges are as set forth in the immediately preceding paragraph) beyond the range for which the selling party previously satisfied the provisions of the statute. Additionally, a corporation may exempt itself from application of the statute by inserting a provision in its articles of incorporation or bylaws expressly electing not to be covered by the statute. MBI's Restated Articles of Incorporation and By-Laws do not contain an election to "opt out" of the Control Share Acquisition Statute. Illinois has a business combination statute similar to Missouri's which generally prohibits a domestic corporation from engaging in mergers or other business combinations with certain "interested shareholders" for a period of three years from the time that the person becomes an "interested shareholder." The three year moratorium can be avoided if (i) the business combination or transaction in which the shareholder became an interested shareholder is approved by the Board of Directors prior to the date on which the interested shareholder acquires the requisite percentage of stock, (ii) as a result of the transaction pursuant to which the shareholder became an "interested shareholder," the interested shareholder owned 85% or more of the voting shares of the corporation, excluding for purposes of determining the number of shares outstanding those shares owned by (A) persons who are directors and - 69 - 73 also officers, and (B) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or (iii) subsequent to becoming an interested shareholder the transaction is approved by the Board of Directors and authorized (but not by written consent) by 66 2/3% or more of the corporation's shareholders (other than the interested shareholder). DISSENTERS' RIGHTS. Under both Section 351.455 of the Missouri Act and Section 11.65 of the Illinois 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. The provisions of the Illinois Act are applicable to the shareholders of Regional. SHAREHOLDERS' RIGHT TO INSPECT. Under Section 351.215 of the Missouri Act, any shareholder of MBI may inspect the corporation's books and records for any reasonable and proper purpose. Such inspection may be made at any reasonable time or times. Shareholders of Regional have similar rights under Section 7.75 of the Illinois Act. 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 twelve members. Regional's Board of Directors currently has three members. 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 Office of Thrift Supervision, the FDIC, the Office of the Comptroller of the Currency (the "Comptroller") and various state financial institution regulatory agencies. In addition, there are numerous governmental requirements and regulations that affect the activities of MBI and its subsidiaries. - 70 - 74 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 wholly owned financial institutions and other subsidiaries. The principal source of MBI's revenues is dividends from its financial institution subsidiaries. Various federal and state statutory provisions limit the amount of dividends the affiliate financial institutions can pay to MBI without regulatory approval. The approval of the appropriate federal or state bank regulatory agencies is required for any dividend if the total of all dividends declared by the bank in any calendar year would exceed the total of the institutions net profits, as defined by regulatory agencies, for such year combined with its retained net profits for the preceding two years. In addition, a national bank or a state member bank may not pay a dividend in an amount greater than its net profits then on hand. The payment of dividends by any financial institution subsidiary may also be affected by other factors, such as the maintenance of adequate capital. CAPITAL ADEQUACY The Federal Reserve Board has issued standards for measuring capital adequacy for bank holding companies. These standards are designed to provide risk-responsive capital guidelines and to incorporate a consistent framework for use by financial institutions operating in major international financial markets. The banking regulators have issued standards for banks that are similar to, but not identical with, the standards for bank holding companies. In general, the risk-related standards require financial institutions and financial institution holding companies to maintain capital levels based on "risk-adjusted" assets, so that categories of assets with potentially higher credit risk will require more capital backing than categories with lower credit risk. In addition, financial institutions and financial institution holding companies are required to maintain capital to support off-balance sheet activities such as loan commitments. FDIC INSURANCE ASSESSMENTS The subsidiary depository institutions of MBI are subject to FDIC deposit insurance assessments. The FDIC has adopted a risk-based premium schedule. Each financial institution is assigned to one of three capital groups--well capitalized, adequately capitalized or undercapitalized--and further assigned to one of three subgroups within a capital group, on the basis of supervisory evaluations by the institution's primary federal and, if applicable, state supervisors, and on the basis of other information relevant to the institution's financial condition and the risk posed to the applicable insurance fund. The actual assessment rate applicable to a particular institution will, therefore, depend in part upon the risk assessment classification so assigned to the institution by the FDIC. See "- FIRREA and FDICIA." The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), adopted in August 1989 to provide for the resolution of insolvent savings associations, required the FDIC - 71 - 75 to establish separate deposit insurance funds -- the BIF for banks and the Savings Association Insurance Fund ("SAIF") for savings associations. FIRREA also required the FDIC to set deposit insurance assessments at such levels as would 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 reached its designated reserve ratio in May 1995. As a result, effective January 1, 1996, the FDIC eliminated deposit insurance assessments (except for the minimum $2,000 payment required by law) for banks that are well capitalized and well managed and reduced the deposit insurance assessments for all other banks. As of January 1, 1996, the SAIF had not reached the designated reserve ratio. MBI, which has acquired substantial amounts of SAIF-insured deposits during the years from 1989 to the present, is required to pay SAIF deposit insurance premiums on these SAIF-insured deposits. The Deposit Insurance Funds Act of 1996 (the "Funds Act"), enacted on September 30, 1996, required the FDIC to take immediate steps to recapitalize the SAIF and to change the basis on which funds are raised to make the scheduled payments on the FICO bonds issued in 1987 to replenish the Federal Savings and Loan Insurance Corporation. The new legislation, combined with regulations issued by the FDIC immediately after enactment of the Funds Act, provides for the following: (i) A special assessment in the amount of 65.7 basis points on SAIF-insured deposits held by depository institutions on March 31, 1995 (the special assessment was required by the Funds Act to recapitalize the SAIF to the designated reserve ratio of 1.25 percent of the deposits insured by SAIF). Payments of this assessment were made in November 1996, but were accrued by financial institutions in the third calendar quarter of 1996. Institutions such as MBI that have deposits insured by both the BIF and the SAIF ("Oakar Banks") were required to pay the special assessment on 80% of their "adjusted attributable deposit amounts" ("AADA"). In addition, for purposes of future regular deposit insurance assessments, the AADA on which Oakar Banks pay assessments to SAIF was also reduced by 20%. (ii) Commencing January 1, 1997, BIF insured institutions will be responsible for a portion of the annual carrying costs of the FICO bonds. Such institutions will be assessed at 80% of the rate applicable to SAIF-insured institutions until December 31, 1999. Additionally, pursuant to the Funds Act, if the reserves in BIF at the end of any semiannual assessment period exceed 1.25% of insured deposits, the FDIC is required to refund the excess to the BIF- insured institutions. (iii) The merger of the BIF and the SAIF on January 1, 1999 to create the Deposit Insurance Fund, but only if no more savings associations are in existence at that time. The Deposit Act also directs the Secretary of the Treasury to conduct a study and submit recommendations to Congress regarding the establishment of a common charter for depository institutions. PROPOSALS TO OVERHAUL THE SAVINGS ASSOCIATION INDUSTRY Proposals recently have been introduced in the U.S. Congress that, if adopted, would overhaul the savings association industry. The most significant of these proposals would merge the Comptroller and the OTS, abolish the federal savings association charter and require federal thrifts to convert to commercial banks. MBI cannot predict whether these or any other legislative proposals will be enacted, or, if enacted, the final form of the law. - 72 - 76 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. FIRREA AND FDICIA 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. 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' - 73 - 77 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. DEPOSITOR PREFERENCE STATUTE Legislation enacted in August 1993 provides a preference for deposits and certain claims for administrative expenses and employee compensation against an insured depository institution, in the liquidation or other resolution of such an institution by any receiver. Such obligations would be afforded priority over other general unsecured claims against such an institution, including federal funds and letters of credit, as well as any obligation to shareholders of such an institution in their capacity as such. 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 ("Riegle- Neal") 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) banks to receive deposits, renew time deposits, close loans, service loans and receive payments on loans and other obligations as agent for any bank or thrift affiliate, whether the affiliate is located in the same state or a different state. One effect of Riegle-Neal is to permit MBI to acquire banks located in any state and to permit bank holding companies located in any state to acquire banks and bank holding companies in Missouri. Overall, Riegle-Neal is likely to have the effects of increasing competition and promoting geographic diversification in the banking industry. RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS ----------------------------------------- KPMG Peat Marwick LLP served as MBI's independent accountants for the year ended December 31, 1995 and continues to serve in such capacity. Services provided in connection with the audit function included examination of the annual consolidated financial statements, review and consultation regarding filings with the Commission and other regulatory authorities and consultation on financial accounting and reporting matters. KPMG Peat Marwick LLP served as Regional's independent accountants for the year ended December 31, 1995 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 regulatory authorities and consultation on financial accounting and reporting matters. - 74 - 78 LEGAL MATTERS ------------- Certain legal matters will be passed upon for MBI by Thompson Coburn, St. Louis, Missouri and for Regional by Bryan Cave LLP, St. Louis, Missouri. EXPERTS ------- The consolidated financial statements of MBI as of December 31, 1995, 1994 and 1993, and for each of the years in the three-year period ended December 31, 1995, incorporated by reference in MBI's Annual Report on Form 10-K, and the supplemental consolidated financial statements of MBI as of December 31, 1995, 1994 and 1993, and for each of the years in the three-year period ended December 31, 1995, contained in MBI's Current Report on Form 8-K dated March 11, 1996, 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 Mark Twain incorporated by reference in Mark Twain's Annual Report on Form 10-K for the year ended December 31, 1995, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon incorporated by reference therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Regional as of and for the year ended December 31, 1995 have been included herein in reliance upon the report of KPMG Peat Marwick LLP, 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 Regional, 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 Regional. SHAREHOLDER PROPOSALS --------------------- If the Merger is approved, the other conditions to the Merger are satisfied and the Merger is consummated, shareholders of Regional will become shareholders of MBI at the Effective Time. MBI shareholders may submit to MBI proposals for formal consideration at the 1997 and 1998 annual meetings of MBI's shareholders and inclusion in MBI's proxy statements for such meetings. The deadline for all such proposals to be considered for inclusion in MBI's Proxy Statement and proxy for the 1997 annual meeting was November 22, 1996. All such proposals to be considered for inclusion in MBI's Proxy Statement and proxy for the 1998 annual meeting must be received in writing by the Corporate Secretary at Mercantile Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524 by November 22, 1997. - 75 - 79 REGIONAL BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS INDEX ----- INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . .F-1 CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994 (UNAUDITED) . . . . . . . . . . . . . . . . . . .F-2 CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND 1995 (UNAUDITED) AND FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 (UNAUDITED) AND 1993 (UNAUDITED). . . . . . . .F-3 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 (UNAUDITED) AND 1993 (UNAUDITED). . . . . . . . . . .F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND 1995 (UNAUDITED) AND FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 (UNAUDITED) AND 1993 (UNAUDITED). . . . . . . .F-5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . .F-6 TO F-14 - 76 - 80 INDEPENDENT AUDITORS' REPORT The Board of Directors Regional Bancshares, Inc.: We have audited the accompanying consolidated balance sheet of Regional Bancshares, Inc. and subsidiary as of December 31, 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit 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 Regional Bancshares, Inc. and subsidiary as of December 31, 1995, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. March 1, 1996 F-1 81 REGIONAL BANCSHARES, INC. AND SUBSIDIARY Consolidated Balance Sheets September 30, 1996, and December 31, 1995 and 1994
December 31, September 30, --------------------------- Assets 1996 1995 1994 ------ ---- ---- ---- (unaudited) (unaudited) Cash and due from banks $ 7,452,252 6,068,895 4,810,081 Federal funds sold 495,000 3,625,000 1,425,000 ------------ ----------- ----------- Cash and cash equivalents 7,947,252 9,693,895 6,235,081 ------------ ----------- ----------- Investments in debt and marketable equity securities available-for-sale, at estimated market value 66,076,952 56,424,260 45,734,728 Loans 106,526,609 99,770,366 93,848,406 Less: Unearned discount and fees 3,357,540 3,086,141 2,532,455 Allowance for loan losses 1,473,078 1,350,143 1,825,044 ------------ ----------- ----------- Net loans 101,695,991 95,334,082 89,490,907 ------------ ----------- ----------- Premises and equipment, net 3,702,882 3,303,592 3,361,715 Accrued interest receivable 1,317,682 1,361,231 1,226,868 Other real estate 630,600 960,100 718,600 Other assets 710,838 602,805 1,372,506 ------------ ----------- ----------- Total assets $182,082,197 167,679,965 148,140,405 ============ =========== =========== Liabilities and Stockholders' Equity ------------------------------------ Deposits: Non-interest-bearing 13,716,585 11,809,821 13,384,765 Interest-bearing 133,269,970 130,904,150 113,721,824 ------------ ----------- ----------- Total deposits 146,986,555 142,713,971 127,106,589 Short-term borrowings 10,000,000 - - Other liabilities 1,679,405 1,844,082 1,348,932 ------------ ----------- ----------- Total liabilities 158,665,960 144,558,053 128,455,521 ------------ ----------- ----------- Commitments and contingencies Stockholders' equity: Common stock, $10 par value; 30,000 shares authorized, 25,321 shares issued and outstanding 253,210 253,210 253,210 Surplus 2,906,963 2,906,963 2,906,963 Retained earnings 20,543,954 19,293,738 17,569,329 Net unrealized gains (losses) on securities available-for-sale (287,890) 668,001 (1,044,618) ------------ ----------- ----------- Total stockholders' equity 23,416,237 23,121,912 19,684,884 ------------ ----------- ----------- Total liabilities and stockholders' equity $182,082,197 167,679,965 148,140,405 ============ =========== =========== See accompanying notes to consolidated financial statements.
F-2 82 REGIONAL BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Income Nine months ended September 30, 1996 and 1995 and years ended December 31, 1995, 1994 and 1993
September 30, December 31, ------------------ ------------------------------- 1996 1995 1995 1994 1993 ---- ---- ---- ---- ---- (unaudited) (unaudited) Interest income: Interest and fees on loans $6,679,393 6,284,770 8,529,234 6,889,208 6,171,383 Interest on federal funds sold 34,068 143,317 173,471 54,733 86,873 Interest and dividends on debt and marketable equity securities: Taxable 2,017,769 1,426,393 2,000,033 1,872,382 2,002,935 Exempt from federal income taxes 950,790 852,160 1,137,487 1,494,383 1,347,806 ---------- --------- ---------- ---------- --------- Total interest income 9,682,020 8,706,640 11,840,225 10,310,706 9,608,997 ---------- --------- ---------- ---------- --------- Interest expense: Interest on deposits 4,591,052 3,822,975 5,297,799 3,949,964 3,739,384 Other interest expense 234,837 10,345 20,402 98,015 2,207 ---------- --------- ---------- ---------- --------- Total interest expense 4,825,889 3,833,320 5,318,201 4,047,979 3,741,591 ---------- --------- ---------- ---------- --------- Net interest income 4,856,131 4,873,320 6,522,024 6,262,727 5,867,406 Provision for loan losses 74,997 41,665 41,665 (280,000) (960,000) ---------- --------- ---------- ---------- --------- Net interest income after provision for loan losses 4,781,134 4,831,655 6,480,359 6,542,727 6,827,406 ---------- --------- ---------- ---------- --------- Noninterest income: Service charges on deposits 259,993 252,170 341,352 360,877 326,380 Trust income 142,497 150,000 198,028 208,194 218,790 ATM switch income 153,818 109,142 144,863 109,694 24,529 Gain on sale of mortgage loans 19,531 42,417 65,664 42,103 213,616 Gain (loss) on sale of debt and marketable equity securities, net (11,513) 21,852 10,072 (249,608) 176,248 Gain on sale of other real estate, net 7,380 34,156 35,616 72,580 19,238 Other noninterest income 225,910 229,961 312,404 285,189 289,944 ---------- --------- ---------- ---------- --------- Total noninterest income 797,616 839,698 1,107,999 829,029 1,268,745 ---------- --------- ---------- ---------- --------- Noninterest expense: Salaries and employee benefits 1,527,667 1,365,600 1,811,480 1,889,273 1,793,117 Occupancy 163,511 122,234 164,513 186,760 290,561 Equipment 253,440 214,968 287,587 244,427 268,560 Data processing 188,327 178,798 238,990 153,660 105,202 FDIC insurance assessment 800 193,899 146,213 278,547 276,002 Legal and professional fees 143,549 137,043 168,043 171,380 236,766 Other noninterest expense 850,614 760,009 1,080,617 1,105,773 1,467,135 ---------- --------- ---------- ---------- --------- Total noninterest expense 3,127,908 2,972,551 3,897,443 4,029,820 4,437,343 ---------- --------- ---------- ---------- --------- Income before income tax expense and cumulative effect of change in accounting principle 2,450,842 2,698,802 3,690,915 3,341,936 3,658,808 Income tax expense 440,995 700,054 932,650 796,010 1,158,085 ---------- --------- ---------- ---------- --------- Income before cumulative effect of change in accounting principle 2,009,847 1,998,748 2,758,265 2,545,926 2,500,723 Cumulative effect of change in accounting for income taxes - - - - 517,850 ---------- --------- ---------- ---------- --------- Net income $2,009,847 1,998,748 2,758,265 2,545,926 3,018,573 ========== ========= ========== ========== ========= Earnings per share (based on weighted average shares outstanding of 25,321): Income before cumulative effect of change in accounting principle $ 79.37 78.94 108.93 100.55 98.76 Cumulative effect of change in accounting for income taxes - - - - 20.45 ---------- --------- ---------- ---------- --------- Net income $ 79.37 78.94 108.93 100.55 119.21 ========== ========= ========== ========== ========= See accompanying notes to consolidated financial statements.
F-3 83 REGIONAL BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Stockholders' Equity Nine months ended September 30, 1996 and years ended December 31, 1995, 1994, and 1993
Net unrealized gains (losses) on securities Common Retained available- stock Surplus earnings for-sale Total ----- ------- -------- -------- ----- Balance, December 31, 1992 (unaudited) $253,210 2,906,963 12,154,982 - 15,315,155 Net income (unaudited) - - 3,018,573 - 3,018,573 -------- --------- ---------- ---------- ---------- Balance, December 31, 1993 (unaudited) 253,210 2,906,963 15,173,555 - 18,333,728 Cumulative effect of implementation of change in accounting for debt and marketable equity securities, net of tax (unaudited) - - - 1,790,579 1,790,579 Net income (unaudited) - - 2,545,926 - 2,545,926 Cash dividends ($5.93 per share) (unaudited) - - (150,152) - (150,152) Net change in unrealized gains (losses) on securities available-for-sale (unaudited) - - - (2,835,197) (2,835,197) -------- --------- ---------- ---------- ---------- Balance, December 31, 1994 (unaudited) 253,210 2,906,963 17,569,329 (1,044,618) 19,684,884 Net income - - 2,758,265 - 2,758,265 Cash dividends ($40.83 per share) - - (1,033,856) - (1,033,856) Net change in unrealized gains (losses) on securities available-for-sale - - - 1,712,619 1,712,619 -------- --------- ---------- ---------- ---------- Balance, December 31, 1995 253,210 2,906,963 19,293,738 668,001 23,121,912 Net income (unaudited) - - 2,009,847 - 2,009,847 Cash dividends ($30.00 per share) (unaudited) - - (759,631) - (759,631) Net change in unrealized gains (losses) on securities available-for-sale (unaudited) - - - (955,891) (955,891) -------- --------- ---------- ---------- ---------- Balance, September 30, 1996 (unaudited) $253,210 2,906,963 20,543,954 (287,890) 23,416,237 ======== ========= ========== ========== ========== See accompanying notes to consolidated financial statements.
F-4 84 REGIONAL BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Nine months ended September 30, 1996 and 1995 and years ended December 31, 1995, 1994, and 1993
September 30, December 31, ------------------ ------------------------------- 1996 1995 1995 1994 1993 ---- ---- ---- ---- ---- (unaudited) (unaudited) Cash flows from operating activities: Net income $ 2,009,847 1,998,748 2,758,265 2,545,926 3,018,573 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 74,997 41,665 41,665 (280,000) (960,000) Depreciation and amortization 227,885 191,169 231,619 218,450 355,140 Loss (gain) on sale of debt and marketable equity securities, net 11,513 (21,852) (10,072) 249,608 (176,248) Gain on sale of other real estate, net (7,380) (34,156) (35,616) (72,580) (19,238) Decrease (increase) in accrued interest receivable 43,549 (39,293) (134,363) 993 110,901 Origination of secondary market mortgage loans (1,753,210) (3,838,026) (7,003,556) (5,232,318) (13,336,807) Proceeds from the sale of secondary market mortgage loans 1,735,991 4,080,372 7,454,345 5,084,103 13,355,616 Other operating activities, net 277,328 639,004 502,662 268,197 (760,984) ------------ ----------- ----------- ----------- ----------- Net cash provided by operating activities 2,620,520 3,017,631 3,804,949 2,782,379 1,586,953 ------------ ----------- ----------- ----------- ----------- Cash flows from investing activities: Proceeds from calls and maturities of and principal payments on debt securities 4,797,330 5,273,079 7,340,948 8,433,681 5,245,399 Proceeds from sales of debt and marketable equity securities 3,947,913 7,641,243 10,635,198 11,118,812 12,930,256 Purchase of debt and marketable equity securities (19,903,741) (20,941,923) (26,051,008) (12,089,885) (28,285,368) Net (increase) decrease in loans (6,298,656) (6,440,935) (7,166,055) (15,056,625) 87,374 Purchase of premises and equipment (609,842) (132,061) (209,810) (372,911) (252,097) Proceeds from sale of premises and equipment 1,500 19,200 26,600 35,467 - Proceeds from sales of other real estate 185,380 456,006 504,466 241,498 359,595 ------------ ----------- ----------- ----------- ----------- Net cash used in investing activities (17,880,116) (14,125,391) (14,919,661) (7,689,963) (9,914,841) ------------ ----------- ----------- ----------- ----------- Cash flows from financing activities: Net increase in deposits 4,272,584 11,050,916 15,607,382 3,385,333 7,494,289 Proceeds from short-term borrowings 10,000,000 - - - - Cash dividends paid on common stock (759,631) (789,255) (1,033,856) (150,152) - ------------ ----------- ----------- ----------- ----------- Net cash provided by financing activities 13,512,953 10,261,661 14,573,526 3,235,181 7,494,289 ------------ ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (1,746,643) (846,099) 3,458,814 (1,672,403) (833,599) Cash and cash equivalents at beginning of period 9,693,895 6,235,081 6,235,081 7,907,484 8,741,083 ------------ ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period $ 7,947,252 5,388,982 9,693,895 6,235,081 7,907,484 ============ =========== =========== =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest on deposits and borrowed funds $ 4,762,136 3,756,570 5,249,746 3,992,433 3,753,166 Income taxes 399,300 580,803 610,000 787,300 980,300 Noncash transactions: Transfers to other real estate in settlement of loans 2,500 813,458 813,458 140,600 39,079 Loans originated to facilitate sales of other real estate 104,000 - 66,500 80,000 22,500 Unrealized gain (loss) on securities available- for-sale (1,482,071) 2,219,258 2,594,877 (1,582,754) - ============ =========== =========== =========== =========== See accompanying notes to consolidated financial statements.
F-5 85 REGIONAL BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements December 31, 1995 (audited) and December 31, 1994 and 1993 (unaudited) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Regional Bancshares, Inc. and subsidiary (the Company) provides a full range of banking services to individual and corporate customers through its wholly owned subsidiary bank, Bank of Alton. The Company is subject to competition from other financial and nonfinancial institutions providing financial services in its customer service area, which is primarily the Alton-Wood River area of Southwestern Illinois. Additionally, the Company is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory agencies. The consolidated financial statements of the Company have been prepared in conformity with generally accepted accounting principles and conform to predominant practices within the banking industry. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions, including the determination of the allowance for loan losses, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting policies used by the Company in the preparation and presentation of the consolidated financial statements are summarized below: CONSOLIDATION The consolidated financial statements include the accounts of Regional Bancshares, Inc. and Bank of Alton. All significant intercompany balances and transactions have been eliminated. CONSOLIDATED STATEMENTS OF CASH FLOWS For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and due from banks and federal funds sold. INVESTMENTS IN DEBT AND MARKETABLE EQUITY SECURITIES The Company classifies its debt and equity securities as available-for-sale. Available-for-sale securities are recorded at fair value. Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and reported as a separate component of stockholders' equity until realized. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary results in a charge to earnings and the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the lives of the respective securities as an adjustment to yield using the interest method. Amortization of premiums and accretion of discounts on mortgage-backed securities are amortized in relation to the corresponding prepayment rates, both historical and estimated, using a method which approximates the interest method. Interest income is recognized when earned. Realized gains and losses for securities are included in earnings using the specific identification method for determining the cost of securities sold. LOANS Interest on commercial, real estate mortgage, and most consumer loans is recognized using the simple-interest method. Interest on some consumer loans is recognized using a method which approximates the interest method. The accrual of interest on loans is discontinued when, in management's judgment, the interest will not be collectible in the normal course of business. Subsequent payments received on such loans are applied to principal if doubt exists as to the collectibility of such principal; otherwise, the portion of such receipts representing interest is recorded as income. Loans are returned to accrual status when management believes full collectibility of principal and interest is expected. (Continued) F-6 86 REGIONAL BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Net loan origination fees are deferred and recognized over the lives of the related loans as a yield adjustment using a method approximating the interest method. The allowance for loan losses is available to absorb loan charge-offs. The allowance is increased by provisions charged to operations and reduced by loan charge-offs less recoveries. Management utilizes a systematic, documented approach in determining the appropriate level of the allowance for loan losses. Management's approach, which provides for general and specific allocations of the allowance for loan losses, is based on current economic conditions, past losses, collection experience, risk characteristics of the portfolio, assessment of collateral values by obtaining independent appraisals for significant properties, and such other factors which, in management's judgment, deserve current recognition in estimating loan losses. Management believes the allowance for loan losses is adequate to absorb losses in the loan portfolio. While management uses available information to recognize loan losses, future additions to the allowance may be necessary based on changes in economic conditions. Additionally, various regulatory agencies, as an integral part of the examination process, periodically review Bank of Alton's allowance for loan losses. Such agencies may require Bank of Alton to increase its allowance for loan losses based on their judgments and interpretations about information available to them at the time of their examinations. On January 1, 1995, the Company adopted SFAS No. 114, Accounting by Creditors for Impairment of a Loan (SFAS 114), as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures (SFAS 118). SFAS 114 (as amended by SFAS 118) defines the recognition criteria for loan impairment and the measurement methods for certain impaired loans and loans for which terms have been modified in troubled-debt restructurings (a restructured loan). Specifically, a loan is considered impaired when it is probable a creditor will be unable to collect all amounts due - both principal and interest - according to the contractual terms of the loan agreement. When measuring impairment, the expected future cash flows of an impaired loan is discounted at the loan's effective interest rate. Alternatively, impairment could be measured by reference to an observable market price, if one exists, or the fair value of the collateral for a collateral-dependent loan. Regardless of the historical measurement method used, SFAS 114 requires a creditor to measure impairment based on the fair value of the collateral when the creditor determines foreclosure is probable. Additionally, impairment of a restructured loan is measured by discounting the total expected future cash flows at the loan's effective rate of interest as stated in the original loan agreement. SFAS 118 amends SFAS 114 to allow creditors to use existing methods of recognizing interest income on impaired loans. The Company has elected to continue to use its existing nonaccrual methods for recognizing interest on impaired loans. The adoption of SFAS 114 and SFAS 118 resulted in no prospective adjustment to the provision for loan losses. SECONDARY MORTGAGE MARKET OPERATIONS The Bank of Alton originates mortgage loans for sale in the secondary market to the Federal Home Loan Mortgage Corporation (FHLMC). Any such mortgage loans held for sale are maintained on the Company's consolidated balance sheets at the lower of cost or market as determined by outstanding commitments from FHLMC to purchase such loans. Gains and losses on the sale of these loans and loan origination fees are recognized upon sale of the related loans and included in the consolidated statements of income as noninterest income. Additionally, loan administration fees, representing income earned from servicing these loans, are calculated on the outstanding principal balances of the loans serviced and recorded as noninterest income as earned. In May 1995, the Financial Accounting Standards Board issued SFAS No. 122, Accounting for Mortgage Servicing Rights (SFAS 122) which (Continued) F-7 87 REGIONAL BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements requires that a mortgage banking enterprise recognize as separate assets the rights to service mortgage loans for others at the origination or purchase date of the loans when the enterprise has definitive plans to sell or securitize the loans and retain the mortgage servicing rights, assuming the fair value of the loans and servicing rights may be practically estimated. Otherwise, servicing rights should be recognized when the underlying loans are sold or securitized, using an allocation of total cost of the loans based on the relative fair values at the date of sale. SFAS 122 also requires an assessment of capitalized mortgage servicing rights for impairment to be based on the current fair value of those rights. SFAS 122 is required to be applied prospectively in fiscal years beginning after December 31, 1995. The Company believes SFAS 122 will not have a material effect on its financial position or results of operations. PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of premises and equipment are provided using the straight-line method over the estimated useful lives of the respective assets or the respective lease terms for leasehold improvements. The estimated useful lives range from 30-40 years for buildings and improvements and 3-10 years for furniture, fixtures and equipment. Expenditures for major renewals and betterments of premises and equipment are capitalized, and those for maintenance and repairs are expensed as incurred. INCOME TAXES The Company and Bank of Alton file a consolidated federal income tax return. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period which includes the enactment date. OTHER REAL ESTATE Other real estate represents property acquired through foreclosure or deeded to the Company's banking subsidiary in lieu of foreclosure on loans on which the borrowers have defaulted as to payment of principal and interest. Other real estate is recorded on an individual asset basis at the lower of fair value minus estimated selling costs or cost. If the fair value minus estimated selling costs is less than cost, the deficiency is recorded in a valuation reserve account through a provision charged to income. Subsequent increases in the fair value minus estimated selling costs are recorded through a reversal of the valuation reserve, but not below zero. TRUST OPERATIONS Assets held in fiduciary or agency capacities for customers are not included in the accompanying consolidated balance sheets since such items are not assets of the Company. Trust income is recognized on the accrual basis. FINANCIAL INSTRUMENTS Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract that both: * Imposes on one entity a contractual obligation to deliver cash or another financial instrument to a second entity or to exchange other financial instruments on potentially unfavorable terms with the second entity; and * Conveys to that second entity a contractual right to receive cash or another financial instrument from the first entity or to exchange other financial instruments on potentially favorable terms with the first entity. EARNINGS PER SHARE Earnings per share is computed based upon the weighted average shares outstanding. (Continued) F-8 88 REGIONAL BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements NOTE 2 -- REGULATORY RESTRICTIONS Subsidiary bank dividends are the principal source of funds for payment of dividends by the Company to its stockholders. Bank of Alton is subject to regulations by regulatory authorities which require the maintenance of minimum capital levels. As of December 31, 1995, there are no regulatory restrictions, other than maintenance of minimum capital standards, as to the amount of dividends Bank of Alton may pay. Bank of Alton is required to maintain certain daily reserve balances on hand in accordance with Federal Reserve Board requirements. The reserve balance maintained in accordance with such requirements as of December 31, 1995 and 1994 was $771,000 and $722,000, respectively. NOTE 3 -- INVESTMENTS IN DEBT AND MARKETABLE EQUITY SECURITIES The amortized cost, gross unrealized gains, gross unrealized losses, and estimated market value for available-for-sale securities, by major security type, at December 31, 1995 and 1994 are as follows:
Gross Gross unreal- unreal- Estimated Amortized ized ized market cost gains losses value ---- ----- ------ ----- U.S. Treasury securities $ 9,484,634 130,583 16,932 9,598,285 Securities of U.S. government agencies and corporations 15,426,541 30,329 685,315 14,771,555 Obligations of states and political subdivisions 25,494,784 1,575,616 720 27,069,680 Mortgage-backed and other asset- backed securities 3,464,233 - 58,623 3,405,610 Corporate debt security 99,544 2,186 - 101,730 Federal Home Loan Mortgage Corporation stock 1,000,000 35,000 - 1,035,000 Federal Home Loan Bank stock 442,400 - - 442,400 ----------- --------- ------- ---------- Total $55,412,136 1,773,714 761,590 56,424,260 =========== ========= ======= ==========
Gross Gross unreal- unreal- Estimated Amortized ized ized market cost gains losses value ---- ----- ------ ----- U.S. Treasury securities $7,962,495 8,289 262,654 7,708,130 Securities of U.S. government agencies and corporations 11,000,000 - 1,239,374 9,760,626 Obligations of states and political subdivisions 20,230,039 418,314 62,114 20,586,239 Mortgage-backed and other asset- backed securities 6,901,599 - 525,045 6,376,554 Corporate debt security 98,996 1,070 - 100,066 Federal Home Loan Mortgage Corporation stock 1,000,000 - 20,000 980,000 Student Loan Mortgage Association stock 124,352 98,761 - 223,113 ----------- ------- --------- ---------- Total $47,317,481 526,434 2,109,187 45,734,728 =========== ======= ========= ==========
As a member of the Federal Home Loan Bank System administered by the Federal Housing Finance Board, Bank of Alton is required to maintain an investment in the capital stock of the Federal Home Loan Bank of Chicago (FHLB) in an amount equal to the greater of 1% of the aggregate outstanding balance of loans secured by dwelling units at the beginning of each year or .3% of the total assets of Bank of Alton. The stock is recorded at cost, which represents redemption value. The amortized cost and estimated market value of investments in debt and marketable equity securities at December 31, 1995, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Estimated Amortized market cost value ---- ----- Due in one year or less $ 1,979,887 1,997,240 Due after one year through five years 29,963,223 29,831,571 Due after five years through ten years 6,278,299 6,543,676 Due after ten years 12,284,094 13,168,763 Mortgage-backed securities 3,464,233 3,405,610 FHLMC stock 1,000,000 1,035,000 FHLB stock 442,400 442,400 ----------- ---------- $55,412,136 56,424,260 =========== ==========
(Continued) F-9 89 REGIONAL BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Proceeds from sales of debt and marketable equity securities during 1995, 1994, and 1993 were $10,635,198, $11,118,812, and $12,930,256, respectively. Gross gains of $511,353, $341,867, and $212,895 and gross losses of $501,281, $591,475, and $36,647 were realized on these sales during 1995, 1994, and 1993, respectively. Debt securities with a carrying value of $15,230,641 and $15,807,188 at December 31, 1995 and 1994, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes required or permitted by law. NOTE 4 -- LOANS The composition of the loan portfolio at December 31, 1995 and 1994 is as follows:
1995 1994 ---- ---- Commercial, financial, and agricultural $36,539,413 35,410,169 Real estate mortgage 22,367,669 25,565,124 Consumer 40,863,284 32,873,113 ----------- ---------- Total $99,770,366 93,848,406 =========== ==========
The Company grants commercial, financial, agribusiness, residential, and consumer loans to customers throughout their service area, which is primarily in the Alton-Wood River area of Southwestern Illinois. The Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector; however, a substantial portion of the portfolio is concentrated in and secured by real estate. The ability of the Company's borrowers to honor their contractual obligations is dependent upon the local economy and its effect on the real estate market. The Company's management has determined that no loans other than those on nonaccrual status were impaired during 1995. A summary of impaired loans at December 31, 1995 follows:
Impaired loans with Total Allowance no related impaired/ for losses on allowance nonaccrual impaired for loan loans loans losses ----- ----- ------ $1,030,205 200,000 668,638 ========== ======= =======
The average balance of impaired loans during 1995 was $1,593,228. If interest on impaired loans, consisting only of nonaccrual loans, had been accrued, such income would have amounted to $85,401 for 1995. Interest income on those loans, representing cash payments received, amounted to $20 for 1995. At December 31, 1994, the Company had loans on a nonaccrual basis totaling $2,413,832. If interest on these loans had been accrued, such additional income would have been $453,934 for the year ended December 31, 1994. Bank of Alton is an authorized seller of residential real estate mortgage loans to the FHLMC. Loans sold in this capacity are sold without recourse, with Bank of Alton servicing all loans sold in exchange for a servicing fee. Loans serviced for others totaled $22,059,196 and $17,135,000 at December 31, 1995 and 1994, respectively. Servicing fees received on loans serviced for others and included in other noninterest income were $50,064, $50,123, and $19,373 for the years ended December 31, 1995, 1994, and 1993, respectively. (Continued) F-10 90 REGIONAL BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements Transactions in the allowance for loan losses for the years ended December 31, 1995, 1994, and 1993 are summarized as follows:
1995 1994 1993 ---- ---- ---- Balance, beginning of year $1,825,044 1,896,942 2,321,897 Provision charged to operations 41,665 (280,000) (960,000) Loans charged off (913,499) (31,735) (660,795) Recoveries on loans previously charged off 396,933 239,837 1,195,840 ---------- --------- --------- Net (charge-offs) recoveries (516,566) 208,102 535,045 ---------- --------- --------- Balance, end of year $1,350,143 1,825,044 1,896,942 ========== ========= =========
Certain officers and directors of the Company (including associates of officers and directors) and certain corporations in which officers and directors had substantial beneficial interest or corporations in which officers and directors serve as trustees or in a similar capacity incurred indebtedness, in the form of loans, as customers, in the aggregate amount of $2,888,459 and $2,515,669 at December 31, 1995 and 1994, respectively. These loans were made in the normal course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and did not involve more than the normal risk of collectibility. NOTE 5 -- PREMISES AND EQUIPMENT A summary of premises and equipment at December 31, 1995 and 1994 is as follows:
1995 1994 ---- ---- Land $ 871,524 853,232 Buildings and improve- ments 2,370,545 2,378,451 Furniture, fixtures and equipment 1,957,596 1,799,729 ---------- --------- 5,199,665 5,031,412 Less accumulated deprecia- tion 1,896,073 1,669,697 ---------- --------- $3,303,592 3,361,715 ========== =========
Amounts charged to occupancy and equipment expense for depreciation aggregated $241,341, $180,049, and $330,216 for the years ended December 31, 1995, 1994, and 1993, respectively. NOTE 6 -- INTEREST-BEARING DEPOSITS A summary of interest-bearing deposits at December 31, 1995 and 1994 is as follows:
1995 1994 ---- ---- NOW, super NOW, and money market demand accounts $ 43,013,204 32,646,370 Savings accounts 13,041,075 13,057,398 Time deposits: Less than $100,000 65,686,704 60,312,982 $100,000 or more 9,163,167 7,705,074 ------------ ----------- $130,904,150 113,721,824 ============ ===========
A summary of interest on deposits for the years ended December 31, 1995, 1994, and 1993 is as follows:
1995 1994 1993 ---- ---- ---- NOW, super NOW, and money market demand accounts $1,107,416 881,415 953,827 Savings accounts 381,358 381,382 378,328 Time deposits: Less than $100,000 3,320,364 2,255,619 2,004,989 $100,000 or more 488,661 431,548 402,240 ---------- --------- --------- $5,297,799 3,949,964 3,739,384 ========== ========= =========
NOTE 7 -- INCOME TAXES The components of income tax expense for the year ended December 31, 1995 are as follows: Current $619,085 Deferred 313,565 -------- $932,650 ========
A reconciliation of expected income tax expense, computed by applying the federal statutory rate of 34% to income before applicable income tax expense for the year ended December 31, 1995 to reported income tax expense, is as follows: Expected statutory federal income tax $1,254,911 Tax-exempt interest income (341,267) State tax expense, net of federal tax benefit 63,442 Other, net (44,436) ---------- $ 932,650 ========== (Continued) F-11 91 REGIONAL BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements The tax effects of temporary differences which give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 are as follows:
Deferred tax assets: Other real estate $ 18,595 Deferred directors' fees 21,234 State income tax 83,211 Deferred loan fees 21,810 --------- Total deferred tax assets 144,850 --------- Deferred tax liabilities: Allowance for loan losses (345,917) Investments in debt and marketable equity securities (25,627) Premises and equipment (114,448) Unrealized losses on securities available-for-sale (344,122) --------- Total deferred tax liabilities (830,114) --------- Net deferred tax liabilities $(685,264) =========
A valuation allowance would be provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized. The Company has not established a valuation allowance as of December 31, 1995 due to management's belief that all criteria for recognition have been met, including the existence of a history of taxes paid sufficient to support the realization of the deferred tax assets. Income tax expense was $796,010 and $1,158,085 at December 31, 1994 and 1993, respectively. The Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109), during 1993. The cumulative effect of this change in accounting for income taxes was $517,850 as of December 31, 1993. NOTE 8 -- EMPLOYEE BENEFIT PLANS The Company maintains an employee savings plan formed in accordance with Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees of the Company. The Company's contribution to this plan was $116,400, $98,717, and $80,004 for the years ended December 31, 1995, 1994, and 1993, respectively. NOTE 9 -- COMMITMENTS AND CONTINGENT LIABILITIES During the normal course of business, various legal claims have arisen which, in the opinion of management, will not result in any material liability to the Company. NOTE 10 -- DISCLOSURES ABOUT FINANCIAL INSTRUMENTS The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the consolidated balance sheets. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for financial instruments included in the consolidated balance sheets. Off-balance-sheet financial instruments whose contractual amount represents credit risk as of December 31, 1995 and 1994 are as follows:
1995 1994 ---- ---- Commitments to extend credit $9,768,184 6,807,000 Standby letters of credit 964,288 1,221,000 ========= =========
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Of the total commitments to extend credit at December 31, 1995 and 1994, (Continued) F-12 92 REGIONAL BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements $926,165 and $308,563, respectively, represents fixed-rate loan commitments. Commitments to extend credit and standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies, but is generally residential or income-producing property, inventory, accounts receivable, or equipment. Following is a summary of the carrying amounts and fair values of the Company's financial instruments at December 31, 1995:
Carrying Fair amount value ------ ----- Balance sheet assets: Cash and due from banks $ 6,068,895 6,068,895 Federal funds sold 3,625,000 3,625,000 Investments in debt and marketable equity securities available-for-sale 56,424,260 56,424,260 Loans, net 95,334,082 96,794,054 Accrued interest receivable 1,361,231 1,361,231 ------------ ----------- $162,813,468 164,273,440 ============ =========== Balance sheet liabilities: Deposits 142,713,971 138,216,402 Accrued interest payable 486,262 486,262 ------------ ----------- $143,200,233 138,702,664 ============ ===========
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 such value: CASH AND OTHER SHORT-TERM INSTRUMENTS For cash and due from banks, federal funds sold, accrued interest receivable, and accrued interest payable, the carrying amount is a reasonable estimate of fair value, as such instruments are payable upon demand or reprice in a short time. INVESTMENTS IN DEBT AND MARKETABLE EQUITY SECURITIES For debt and marketable equity securities, fair values are based on quoted market prices or dealer quotes. LOANS The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. DEPOSITS The fair value of demand accounts, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT The fair value of commitments to extend credit and irrevocable letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counter-parties drawing on such financial instruments, and the present creditworthiness of such counterparties. The Company believes such commitments have been made on terms which are competitive in the markets in which it operates and, accordingly, the Company has not assigned a value to such instruments for purposes of this disclosure. (Continued) F-13 93 REGIONAL BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements NOTE 11 -- PARENT COMPANY ONLY FINANCIAL INFORMATION Following are condensed balance sheets of Regional Bancshares, Inc. (parent company only) as of December 31, 1995 and 1994, and condensed schedules of income and cash flows for the years ended December 31, 1995, 1994, and 1993: Condensed Balance Sheets (dollars expressed in thousands)
Assets 1995 1994 ------ ---- ---- Cash $ 54 106 Investment in Bank of Alton, at equity 22,848 19,047 Other assets 245 662 ------- ------ Total assets $23,147 19,815 ======= ====== Liabilities and Stockholders' Equity ------------------------------------ Other liabilities 25 130 Stockholders' equity: Common stock 253 253 Surplus 2,907 2,907 Retained earnings 19,294 17,569 Net unrealized gains (losses) on securities available-for-sale 668 (1,044) ------- ------ Total stockholders' equity 23,122 19,685 ------- ------ Total liabilities and stock- holders' equity $23,147 19,815 ======= ======
Condensed Schedules of Income (dollars expressed in thousands)
1995 1994 1993 ---- ---- ---- Income: Dividends from Bank of Alton $ 720 150 695 Other 7 24 42 ------ ----- ----- Total income 727 174 737 ------ ----- ----- Expenses: Salaries and employee benefits 32 125 75 Legal and professional fees 21 1 14 Other noninterest expense 39 17 426 ------ ----- ----- Total expenses 92 143 515 ------ ----- ----- Income before income tax benefit and equity in undistributed earnings of Bank of Alton 635 31 222 Income tax benefit 34 54 37 ------ ----- ----- Income before equity in undistributed earnings of Bank of Alton 669 85 259 Equity in undistributed earnings of Bank of Alton 2,089 2,461 2,760 ------ ----- ----- Net income $2,758 2,546 3,019 ====== ===== =====
Condensed Schedules of Cash Flows (dollars expressed in thousands)
1995 1994 1993 ---- ---- ---- Cash flows from operating activities: Net income $2,758 2,546 3,019 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of Bank of Alton (2,089) (2,461) (2,760) Other, net 313 (24) (96) ------ ------ ------ Net cash provided by operating activities 982 61 163 Cash flows from financing activities - cash dividends paid on common stock (1,034) (150) - ------ ----- ----- Net increase (decrease) in cash and cash equivalents (52) (89) 163 Cash and cash equivalents at beginning of year 106 195 32 ------ ----- ----- Cash and cash equivalents at end of year $ 54 106 195 ====== ===== =====
NOTE 12 -- UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The unaudited consolidated financial statements as of and for the nine months ended September 30, 1996 and 1995 and years ended December 31, 1994 and 1993 include the accounts of Regional Bancshares, Inc. and its subsidiary after elimination of material intercompany transactions. This unaudited data, in the opinion of the management of the Company, includes all adjustments necessary for the fair presentation thereof. All adjustments made were of a normal and recurring nature. NOTE 13 -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT On August 23, 1996, the Company entered into an Agreement and Plan of Merger with Mercantile Bancorporation Inc. (MBI) to merge (the Merger) the Company into a wholly owned subsidiary of MBI (the Merger Agreement). As of September 30, 1996, MBI, which is headquartered in St. Louis, Missouri, had total assets of approximately $18.2 billion. The Merger Agreement with MBI will be effected by converting the Company's common stock into the right to receive as consideration in the Merger, on a per share basis, an amount in cash equal to $485.76; 23.7123 shares of MBI common stock; and 0.4838 of a share of West Pointe Bank And Trust Company common stock. The Merger is contingent upon approval of various regulatory agencies and the affirmative vote of the holders of at least two-thirds of the outstanding Company common stock. F-14 94 ANNEX A ------- Following is the text of the statutory dissenters' right as set forth at Section 11.70 of the Illinois Business Corporation Act of 1983, as amended: 5/11.70 PROCEDURE TO DISSENT. (a) If the corporate action giving rise to the right to dissent is to be approved at a meeting of shareholders, the notice of meeting shall inform the shareholders of their right to dissent and the procedure to dissent. If, prior to the meeting, the corporation furnishes to the shareholders material information with respect to the transaction that will objectively enable a shareholder to vote on the transaction that will objectively enable a shareholder to vote on the transaction and to determine whether or not to exercise dissenters' rights, a shareholder may assert dissenters' rights only if the shareholder delivers to the corporation before the vote is taken a written demand for payment for his or her shares if the proposed action is consummated, and the shareholder does not vote in favor of the proposed action. (b) If the corporate action giving rise to the right to dissent is not to be approved at a meeting of shareholders, the notice to shareholders describing the action taken under Section 11.30 or Section 7.10 shall inform the shareholders of their right to dissent and the procedure to dissent. If, prior to or concurrently with the notice, the corporation furnishes to the shareholders material information with respect to the transaction that will objectively enable a shareholder to determine whether or not to exercise dissenters' rights, a shareholder may assert dissenter's rights only if he or she delivers to the corporation within 30 days from the date of mailing the notice a written demand for payment for his or her shares. (c) Within 10 days after the date on which the corporate action giving rise to the right to dissent is effective or 30 days after the shareholder delivers to the corporation the written demand for payment, whichever is later, the corporation shall send each shareholder who has delivered a written demand for payment a statement setting forth the opinion of the corporation as to the estimated fair value of the shares, the corporation's latest balance sheet as of the end of a fiscal year ending not earlier than 16 months before the delivery of the statement, together with the statement of income for that year and the latest available interim financial statements, and either a commitment to pay for the shares of the dissenting shareholder at the estimated fair value thereof upon transmittal to the corporation of the certificate or certificates, or other evidence of ownership, with respect to the shares, or instructions to the dissenting shareholder to sell his or her shares within 10 days after delivery of the corporation's statement to the shareholder. The corporation may instruct the shareholder to sell only if there is a public market for the shares at which the shares may be readily sold. If the shareholder does not sell within that 10 day period after being so instructed by the corporation, for purposes of this Section the shareholder shall be deemed to have sold his or her shares at the average closing price of the shares, if listed on a national exchange, or the average of the bid and asked price with respect to the shares quoted by a principal market maker, if not listed on a national exchange, during that 10 day period. (d) A shareholder who makes written demand for payment under this Section retains all other rights of a shareholder until those rights are cancelled or modified by the consummation of the proposed corporate action. Upon consummation of that action, the corporation shall pay to each dissenter who transmits to the corporation the certificate or other evidence of ownership of the shares the amount the corporation estimates to be the fair value of the shares, plus accrued interest, accompanied by a written explanation of how the interest was calculated. A-1 95 (e) If the shareholder does not agree with the opinion of the corporation as to the estimated fair value of the shares or the amount of interest due, the shareholder, within 30 days from the delivery of the corporation's statement of value, shall notify the corporation in writing of the shareholder's estimated fair value and amount of interest due and demand payment for the difference between the shareholder's estimate of fair value and interest due and the amount of the payment by the corporation or the proceeds of sale by the shareholder, whichever is applicable because of the procedure for which the corporation opted pursuant to subjection (c). (f) If, within 60 days from the delivery to the corporation of the shareholder notification of estimate of fair value of the shares and interest due, the corporation and the dissenting shareholder have not agreed in writing upon the fair value of the shares and interest due, the corporation shall either pay the difference in value demanded by the shareholder, with interest, or file a petition in the circuit court of the county in which either the registered office or the principal office of the corporation is located, requesting the court to determine the fair value of the shares and interest due. The corporation shall make all dissenters, whether or not residents of this State, whose demands remain unsettled parties to the proceeding as an action against their shares and all parties shall be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. Failure of the corporation to commence an action pursuant to this Section shall not limit or affect the right of the dissenting shareholders to otherwise commence an action as permitted by law. (g) The jurisdiction of the court in which the proceeding is commenced under subsection (f) by a corporation is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the power described in the order appointing them, or in any amendment to it. (h) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds that the fair value of his or her shares, plus interest, exceeds the amount paid by the corporation or the proceeds of sale by the shareholder, whichever amount is applicable. (i) The court, in a proceeding commenced under subsection (f), shall determine all costs of the proceeding, including the reasonable compensation and expenses of the appraisers, if any, appointed by the court under subsection (g), but shall exclude the fees and expenses of counsel and experts for the respective parties. If the fair value of the shares as determined by the court materially exceeds the amount which the corporation estimated to be the fair value of the shares or if no estimate was made in accordance with subsection (c), then all or any part of the costs may be assessed against the corporation. If the amount which any dissenter estimated to be the fair value of the shares materially exceeds the fair value of the shares as determined by the court, then all or any part of the costs may be assessed against that dissenter. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable, as follows: (1) Against the corporation and in favor of any or all dissenters if the court finds that the corporation did not substantially comply with the requirements of subsections (a), (b), (c), (d) or (f). (2) Against either the corporation or a dissenter and in favor of any other party if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Section. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated and that the fees for those services should not be assessed against the A-2 96 corporation, the court may award to that counsel reasonable fees to be paid out of the amounts awarded to the dissenters who are benefited. Except as otherwise provided in this Section, the practice, procedure, judgment and costs shall be governed by the Code of Civil Procedure. (j) As used in this section: (1) "Fair value", with respect to a dissenter's shares, means the value of the shares immediately before the consummation of the corporate action to which the dissenter objects excluding any appreciation or depreciation in anticipation of the corporate action, unless exclusion would be inequitable. (2) "Interest" means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances. A-3 97 REGIONAL BANCSHARES, INC. 1520 WASHINGTON AVENUE ALTON, ILLINOIS FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD - ---------------------------, 1997 THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS The undersigned shareholder(s) of REGIONAL BANCSHARES, INC. ("Regional"), 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 Regional standing in the name of the undersigned on its books at the close of business on - ------------------, 1996 at the Special Meeting of Shareholders to be held at the offices of Bryan Cave LLP, 211 North Broadway, Suite 3600, St. Louis, Missouri, on ------------------, - ----------------, 1997, at --------- ---.m., Central Time, and at any adjournments or postponements thereof, with all the powers the undersigned would possess if personally present, as follows: 1. A proposal to approve the Agreement and Plan of Merger dated as of August 23, 1996 (the "Merger Agreement"), and each of the transactions contemplated thereby, pursuant to which Regional will be merged with and into a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI") and whereby, upon consummation of the merger, each share (other than shares owned by MBI or as to which a Regional shareholder has perfected dissenters' rights) of Regional common stock will be converted into the following as consideration in the merger: (i) an amount in cash equal to $485.76; (ii) 23.7123 shares of MBI common stock; and (iii) 0.4838 shares of West Pointe Bank And Trust Company common stock, all as determined by the election procedures and exchange ratio set forth in detail in the accompanying Proxy Statement/Prospectus, and subject to certain adjustments as provided 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. / / FOR / / AGAINST / / ABSTAIN 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" EACH OF THE PROPOSALS 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 the Registrant provides that the Registrant shall extend to its directors and executive officers the indemnification specified in subsections (1) and (2) and the additional indemnification authorized in subsection (7) and that it may extend to other officers, employees and agents such indemnification and additional indemnification. Pursuant to directors' and officers' liability insurance policies, with total annual limits of $30,000,000, the Registrant's directors and officers are insured, subject to the limits, retention, exceptions and other terms and conditions of such policy, against liability for any actual or alleged error, misstatement, misleading statement, act or omission, or neglect or breach of duty by the directors or officers of the Registrant, individually or collectively, or any matter claimed against them solely by reason of their being directors or officers of the Registrant. Item 21. Exhibits and Financial Statement Schedules - ---------------------------------------------------- A. Exhibits. See Exhibit Index. --------- B. Financial Statement Schedules. Not Applicable. ----------------------------- II-1 99 Item 22. Undertakings - ---------------------- (1) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (2) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (4) The Registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415 (Section 230.415 of this chapter), will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in the documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. (6) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. II-2 100 (7) The undersigned Registrant hereby undertakes: (a) To file during any period in which offers and sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof), which individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (b) That for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-3 101 SIGNATURES ---------- Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement relating to the acquisition of Regional Bancshares, Inc. to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri, on December 12, 1996. MERCANTILE BANCORPORATION INC. By /s/ Thomas H. Jacobsen ---------------------------------------- Thomas H. Jacobsen Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY ----------------- We, the undersigned officers and directors of Mercantile Bancorporation Inc., hereby severally and individually constitute and appoint Thomas H. Jacobsen and John Q. Arnold, and each of them, the true and lawful attorneys and agents of each of us to execute in the name, place and stead of each of us (individually and in any capacity stated below) any and all amendments to this Registration Statement on Form S-4, registering the issuance by Mercantile Bancorporation Inc. of shares of its common stock, and the preferred share purchase rights which trade therewith, in connection with the acquisition of Regional Bancshares, Inc., 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 December 12, 1996 - ------------------------------ President, Chief Executive Thomas H. Jacobsen Officer and Director Principal Executive Officer /s/ John Q. Arnold Senior Executive Vice President and December 12, 1996 - ------------------------------ Chief Financial Officer John Q. Arnold Principal Financial Officer II-4 102 Signature Title Date --------- ----- ---- /s/ Michael T. Normile Senior Vice President - Finance December 12, 1996 - ------------------------------ and Control Michael T. Normile Principal Accounting Officer /s/ Harry M. Cornell, Jr. Director December 12, 1996 - ------------------------------ Harry M. Cornell, Jr. /s/ William A. Hall Director December 12, 1996 - ------------------------------ William A. Hall /s/ Thomas A. Hays Director December 12, 1996 - ------------------------------ Thomas A. Hays /s/ Frank Lyon, Jr. Director December 12, 1996 - ------------------------------ Frank Lyon, Jr. /s/ Edward A. Mueller Director December 12, 1996 - ------------------------------ Edward A. Mueller /s/ Robert W. Murray Director December 12, 1996 - ------------------------------ Robert W. Murray /s/ Harvey Saligman Director December 12, 1996 - ------------------------------ Harvey Saligman /s/ Craig D. Schnuck Director December 12, 1996 - ------------------------------ Craig D. Schnuck /s/ Robert L. Stark Director November 23, 1996 - ------------------------------ Robert L. Stark /s/ Patrick T. Stokes Director December 12, 1996 - ------------------------------ Patrick T. Stokes /s/ John A. Wright Director November 22, 1996 - ------------------------------ John A. Wright
II-5 103 EXHIBIT INDEX -------------
Exhibit Number Description Page - ------ ----------- ---- 2.1 Agreement and Plan of Merger, dated as of August 23, 1996, by and among MBI, Ameribanc and Regional. 2.2 Form of Voting Agreement, dated as of August 23, 1996, executed by MBI and certain of the shareholders of Regional. 3.1 MBI's Restated Articles of Incorporation, as amended and currently in effect, filed as Exhibit 3(i) to MBI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, 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 Annual Report on Form 10-K for the year ended December 31, 1995, 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. 5.1 Opinion of Thompson Coburn as to the legality of the securities being registered. 8.1 Opinion of Thompson Coburn regarding certain tax matters in the Merger. 10.1 The Mercantile Bancorporation Inc. 1987 Stock Option Plan, as amended, filed as Exhibit 10-3 to MBI's Report on Form 10-K for the year ended December 31, 1989 (File No. 1- 11792), is incorporated herein by reference. 10.2 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. 10.3 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. 10.4 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. 10.5 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. II-6 104 Exhibit Number Description Page - ------ ----------- ---- 10.6 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. 10.7 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan for Non-Employee Directors, filed as Appendix E to MBI's definitive Proxy Statement for the 1994 Annual Meeting of Shareholders, is incorporated herein by reference. 10.8 The Mercantile Bancorporation Inc. 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. 10.9 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. 10.10 Form of Change of Control Employment Agreement for John W. McClure, W. Randolph Adams, John Q. Arnold and Certain Other Executive Officers, filed as Exhibit 10-10 to MBI's Report on Form 10-K for the year ended December 31, 1989 (File No. 1-11792), is incorporated herein by reference. 10.11 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. 10.12 Agreement and Plan of Reorganization dated August 4, 1995, by and between MBI and Hawkeye Bancorporation, filed as Exhibit 2.1 to MBI's Registration Statement No. 33-63609, is incorporated herein by reference. 10.13 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. 10.14 Agreement and Plan of Merger, dated October 27, 1996, among MBI, Ameribanc and Mark Twain Bancshares, Inc., filed as Exhibit 2.1 to MBI's Current Report on Form 8-K, dated November 6, 1996, is incorporated herein by reference. 23.1 Consent of Thompson Coburn (included in Exhibit 5.1). 23.2 Consent of KPMG Peat Marwick LLP with regard to the use of its reports on MBI's financial statements. 23.3 Consent of KPMG Peat Marwick LLP with regard to the use of its reports on Regional's financial statements. 23.4 Consent of Ernst & Young LLP with regard to the use of its reports on Mark Twain's financial statements. II-7 105 Exhibit Number Description Page - ------ ----------- ---- 24.1 Power of Attorney (included on signature page).
II-8 EX-2.1 2 AGREEMENT AND PLAN OF MERGER 1 [Exhibit 2.1] AGREEMENT AND PLAN OF MERGER BY AND AMONG REGIONAL BANCSHARES, INC. MERCANTILE BANCORPORATION INC. AND AMERIBANC, INC. 2 TABLE OF CONTENTS ARTICLE 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . .1 ARTICLE 2 MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2.1 The Merger. . . . . . . . . . . . . . . . . . . . . .3 2.2 Conversion of Securities. . . . . . . . . . . . . . .3 2.3 Parent Stock Adjustment . . . . . . . . . . . . . . .4 2.4 Closings; Effective Times . . . . . . . . . . . . . .4 2.5 Effect of Merger. . . . . . . . . . . . . . . . . . .5 2.6 Exchange of Shares. . . . . . . . . . . . . . . . . .5 2.7 Funding of Exchange Agent.. . . . . . . . . . . . . .8 2.8 Charter and Bylaws. . . . . . . . . . . . . . . . . .8 2.9 Directors and Officers. . . . . . . . . . . . . . . .8 2.10 Tax Free Reorganization.. . . . . . . . . . . . . . .8 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF REGIONAL BANCSHARES . . .9 3.1 Organization, Good Standing and Capital Stock . . . .9 3.2 Regional Bancshares Subsidiaries. . . . . . . . . . 10 3.3 Bank of Alton Subsidiaries. . . . . . . . . . . . . 10 3.4 Corporate Authorizations. . . . . . . . . . . . . . 10 3.5 Corporate Documents . . . . . . . . . . . . . . . . 10 3.6 Regulatory Reports. . . . . . . . . . . . . . . . . 10 3.7 Governmental Regulation . . . . . . . . . . . . . . 11 3.8 Compliance with Laws. . . . . . . . . . . . . . . . 11 3.9 Regional Bancshares and Bank of Alton Consolidated Financial Statements. . . . . . . . . . . . . . . . 11 3.10 Title to Properties . . . . . . . . . . . . . . . . 12 3.11 Use and Condition of Property . . . . . . . . . . . 13 3.12 Loans; Loan Loss Reserve. . . . . . . . . . . . . . 13 3.13 Employees. . . . . . . . . . . . . . . . . . . . . 15 3.14 Indebtedness to and from Officers, Directors and Others. . . . . . . . . . . . . . . . . . . . . . . 15 3.15 Absence of Conflicts. . . . . . . . . . . . . . . . 16 3.16 Litigation. . . . . . . . . . . . . . . . . . . . . 16 3.17 Contracts . . . . . . . . . . . . . . . . . . . . . 16 3.18 Insurance . . . . . . . . . . . . . . . . . . . . . 17 3.19 Conduct . . . . . . . . . . . . . . . . . . . . . . 17 3.20 Fiduciary Responsibilities. . . . . . . . . . . . . 18 3.21 FDIC Insurance. . . . . . . . . . . . . . . . . . . 18 3.22 Large Deposits. . . . . . . . . . . . . . . . . . . 18 3.23 Broker. . . . . . . . . . . . . . . . . . . . . . . 19 3.24 Labor . . . . . . . . . . . . . . . . . . . . . . . 19 i 3 3.25 Intellectual or Other Intangible Property.. . . . . 19 3.26 Environmental Matters . . . . . . . . . . . . . . . 20 3.27 Tax Matters . . . . . . . . . . . . . . . . . . . . 20 3.28 Employee Benefit Plans. . . . . . . . . . . . . . . 22 3.29 Alien Employment Eligibility. . . . . . . . . . . . 25 3.30 Material Adverse Change.. . . . . . . . . . . . . . 25 3.31 Absence of Undisclosed Liabilities. . . . . . . . . 25 3.32 Interest Rate Risk Management Instruments.. . . . . 26 3.33 West Pointe Common. . . . . . . . . . . . . . . . . 26 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF MERCANTILE . . . . . . . 26 4.1 Mercantile Organization, Good Standing and Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 26 4.2 Merger Sub Organization, Good Standing and Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 28 4.3 Authorization . . . . . . . . . . . . . . . . . . . 28 4.4 Consolidated Financial Statements of Mercantile . . 29 4.5 Mercantile Reports. . . . . . . . . . . . . . . . . 29 4.6 Compliance with Laws and Agreements . . . . . . . . 30 4.7 Shares to be Issued in Merger . . . . . . . . . . . 30 4.8 Litigation. . . . . . . . . . . . . . . . . . . . . 30 4.9 Information in Proxy Statement and Registration Statement . . . . . . . . . . . . . . . . . . . . . 31 4.10 Material Adverse Change . . . . . . . . . . . . . . 31 ARTICLE 5 COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . 31 5.1 Joint Covenants . . . . . . . . . . . . . . . . . . 31 5.1(a) Truth and Completeness of Representations and Warranties. . . . . . . . . . . . . . . . . . . . 31 5.1(b) Best Efforts. . . . . . . . . . . . . . . . 32 5.1(c) Cooperation/Inspection. . . . . . . . . . . 32 5.1(d) Consents. . . . . . . . . . . . . . . . . . 32 5.1(e) Access and Information. . . . . . . . . . . 32 5.2 Expenses. . . . . . . . . . . . . . . . . . . . . . 33 5.3 Covenants of Regional Bancshares. . . . . . . . . . 34 5.3(a) Regional Bancshares Shareholder Approval. . 34 5.3(b) Conduct of Business Pending Merger. . . . . 34 5.3(c) Implementation of Policies. . . . . . . . . 38 5.3(d) Financial Statements to be Delivered. . . . 38 5.3(e) Financial and Call Reports. . . . . . . . . 38 5.3(f) Environmental Matters . . . . . . . . . . . 39 5.3(g) Conforming Entries. . . . . . . . . . . . . 40 5.3(h) Additional Actions. . . . . . . . . . . . . 41 5.4 Covenants of Mercantile and Merger Sub. . . . . . . 41 5.4(a) Approval. . . . . . . . . . . . . . . . . . 41 ii 4 5.4(b) Payment of Consideration. . . . . . . . . . 41 5.4(c) Registration of Securities and Preparation of Proxy Statement. . . . . . . . . . . . . . 41 5.4(d) Other Filings and Appeals.. . . . . . . . . 42 5.4(e) Employee Benefit Plans. . . . . . . . . . . 43 5.4(f) Directors' and Officers' Indemnity. . . . . 43 ARTICLE 6 CONDITIONS PRECEDENT TO THE MERGER . . . . . . . . . . . . 44 6.1 Conditions and Obligations of Mercantile, Merger Sub and Regional Bancshares to the Merger . . . . . . . 44 6.1(a) Approval by Regional Bancshares Stockholders. . . . . . . . . . . . . . . ..44 6.1(b) Regulatory Authority Approval . . . . . . . 44 6.1(c) No Proceedings, Etc.. . . . . . . . . . . . 45 6.1(d) Registration Statement. . . . . . . . . . . 45 6.1(e) Listing on Stock Exchange.. . . . . . . . . 45 6.1(f) Tax Opinion.. . . . . . . . . . . . . . . . 45 6.2 Conditions to Obligations of Mercantile to the Merger. . . . . . . . . . . . . . . . . . . . . . . 45 6.2(a) Representations, Warranties and Covenants . 45 6.2(b) Officers' Certificates. . . . . . . . . . . 46 6.2(c) No Material Adverse Change. . . . . . . . . 46 6.2(d) Legal Opinion.. . . . . . . . . . . . . . . 46 6.3 Conditions to Obligations of Regional Bancshares to the Merger. . . . . . . . . . . . . . . . . . . . . 46 6.3(a) Representations, Warranties and Covenants.. 46 6.3(b) Officers' Certificates. . . . . . . . . . . 46 6.3(c) No Material Adverse Change. . . . . . . . . 46 6.3(d) Legal Opinion.. . . . . . . . . . . . . . . 47 6.3(e) Effective Registration Statement. . . . . . 47 ARTICLE 7 ABANDONMENT AND TERMINATION OF THE MERGER. . . . . . . . . 47 7.1 Termination . . . . . . . . . . . . . . . . . . . . 47 7.2 Procedure for Termination . . . . . . . . . . . . . 48 7.3 Return of Information . . . . . . . . . . . . . . . 48 7.4 Effect of Termination . . . . . . . . . . . . . . . 48 ARTICLE 8 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 49 8.1 Notice. . . . . . . . . . . . . . . . . . . . . . . 49 8.2 Amendments. . . . . . . . . . . . . . . . . . . . . 50 8.4 Benefit and Binding Effect. . . . . . . . . . . . . 50 8.5 Governing Law . . . . . . . . . . . . . . . . . . . 50 8.6 Whole Agreement . . . . . . . . . . . . . . . . . . 50 8.7 Counterparts. . . . . . . . . . . . . . . . . . . . 51 8.8 Reliance on Headings. . . . . . . . . . . . . . . . 51 iii 5 GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . 55 EXHIBIT A OPINION OF COUNSEL FOR REGIONAL BANCSHARES. . . . . . . . . . . . . . . . . . 58 EXHIBIT B OPINION OF COUNSEL . . . . . . . . . . . . . . . . . . . . 58 iv 6 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of the 23rd day of August, 1996, is made among Mercantile Bancorporation Inc., a Missouri corporation ("Mercantile"), Ameribanc, Inc. a Missouri corporation and wholly owned subsidiary of Mercantile ("Merger Sub"), and Regional Bancshares, Inc. ("Regional Bancshares"), an Illinois corporation. W I T N E S S E T H: WHEREAS, subject to the terms and conditions herein, the parties deem it advisable and in the best interests of their respective stockholders that Regional Bancshares be merged into Merger Sub with Merger Sub as the Surviving corporation (the "Merger"), with all issued and outstanding Regional Bancshares common stock being converted into the right to receive the Merger Consideration (as defined herein); WHEREAS, the parties hereto have agreed upon the terms and provisions of such transaction and desire to provide for certain undertakings, conditions, representations, warranties and covenants in connection with the transactions contemplated hereby; NOW, THEREFORE, for and in consideration of the premises and mutual covenants and agreements herein contained, the parties hereto do agree each with the other as follows: ARTICLE 1 DEFINITIONS 1.1 "Benefit Plan" shall constitute (i) an employee benefit plan as defined in Section 3(3) of ERISA, together with all regulations thereunder, even if, because of some other provision of ERISA, such plan is not subject to any or all of ERISA's provisions, and (ii) whether or not described in the preceding clause, (a) any pension, profit sharing, stock bonus, deferred or supplemental compensation, retirement, thrift, stock purchase or stock option plan, or any other compensation, welfare, fringe benefit or retirement plan, program, policy, understanding or arrangement of any kind whatsoever, whether formal or informal, oral or written, providing for benefits for or the welfare of any or all of the current or former employees or agents of Regional Bancshares, Bank of Alton or any affiliates thereof or their beneficiaries or dependents, (b) a multi- employer plan as defined in Section 3(37) of ERISA, or (c) a multiple employer plan as defined in Section 413 of the Code. 7 1.2 "Business Day" means any day which is not a Saturday, Sunday or a day on which banking institutions in Illinois or Missouri are authorized or obligated by law or executive order to close. 1.3 "Environmental Claim" means any written notice from any governmental authority or third party alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on, or resulting from the presence, or release into the environment, of any Materials of Environmental Concern. 1.4 "Environmental Laws" means any current federal, state or local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity relating to (1) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface soil, subsurface soil, plant and animal life or any other natural resource), and/or (2) the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Materials of Environmental Concern. The term Environmental Law includes without limitation: (1) the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. Sec. 9601, et seq; the Resource Conservation and Recovery Act, as - -- --- amended, 42 U.S.C. Sec. 6901, et seq; the Clean Air Act, -- --- as amended, 42 U.S.C. Sec. 7401, et seq; the Federal -- --- Water Pollution Control Act, as amended, 33 U.S.C. Sec. 1251, et seq; the Toxic Substances Control Act, as amended, 15 - -- --- U.S.C. Sec. 2601, et seq; the Emergency Planning and -- --- Community Right to Know Act, 42 U.S.C. Sec. 11001, et seq; -- --- the Safe Drinking Water Act, 42 U.S.C. Sec. 300f, et seq; -- --- and all comparable state and local laws; and (2) any common law (including without limitation common law that may impose strict liability) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Materials of Environmental Concern. 1.5 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.6 "Intellectual Property" means patents, trademarks, trade names, corporate names, service marks, copyrights, and copyrighted works; registrations thereof and applications therefor; trade secrets, software, firmware, programs, inventions, processes, and items of proprietary know-how, information or data; and licenses, sublicenses, assignments, and agreements in respect of any of the foregoing; in each case as used by or licensed or assigned by or to Regional Bancshares or Bank of Alton. 2 8 1.7 "Materials of Environmental Concern" means pollutants, contaminants, wastes, radioactive materials or wastes, hazardous wastes, hazardous substances, asbestos and any material containing asbestos, medical wastes, toxic substances, petroleum products and wastes, and any other materials regulated under Environmental Laws. 1.8 "Taxes" means all taxes, charges, fees, levies, or other like assessments, including without limitation income, gross receipts, ad valorem, value added, premium, excise, real property, personal property, windfall profit, sales, use, transfer, license, withholding, employment, payroll, bank, and franchise taxes imposed by: the United States or any other nation, state, or bilateral or multilateral governmental authority, any local governmental unit or subdivision thereof, or any branch, agency, or judicial body thereof; and shall include any interest, fines, penalties, assessments, or additions to tax resulting from, attributable to, or incurred in connection with any such Taxes or any contest or dispute thereof. ARTICLE 2 MERGER 2.1 The Merger. Subject to the satisfaction of the ---------- terms and conditions of this Agreement, including, without limitation, receipt of all requisite governmental and stockholder approvals, at the Merger Effective Time (as defined below), subject to the satisfaction of the terms and conditions of this Agreement, Regional Bancshares shall be merged with and into Merger Sub in accordance with the provisions of the general corporation laws of the States of Missouri and Illinois with Merger Sub as the surviving corporation ("Surviving Corporation"); each share of the common stock of Regional Bancshares, $10.00 par value ("Regional Bancshares Common") issued and outstanding immediately prior to the Merger Effective Time shall thereupon and without further action be converted into the right to receive the Merger Consideration (as defined below) in the manner specified herein. As of the Merger Effective Time, the separate existence of Regional Bancshares shall cease. 2.2 Conversion of Securities. At the Merger ------------------------ Effective Time, by virtue of the Merger and without any action on the part of Mercantile, Merger Sub, Regional Bancshares 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 Merger Effective Time shall remain outstanding and shall be unchanged after the Merger and shall thereafter constitute all of the issued and outstanding capital stock of the Surviving Corporation; and 3 9 (b) Subject to Sections 2.3 and 2.5(d) hereof, each share of common stock, $10.00 par value of Regional Bancshares ("Regional Bancshares Common") issued and outstanding at the Merger Effective Time shall cease to be outstanding and shall be converted into the following: (i) the right to receive an amount in cash (the "Cash Distribution") equal to $485.76; (ii) the right to receive 23.7123 shares of Mercantile common stock, $5.00 par value, and the associated "Rights" under the "Rights Agreement," as those terms are defined in Section 4.1 hereof (collectively, "Mercantile Common") (the "Stock Distribution" ; and (iii) the right to receive 0.4838 shares of the Common Stock of West Pointe Bank & Trust Company ("West Point Common") held of record by Regional Bancshares as of the date hereof (the "West Pointe Consideration" and collectively with the Cash Consideration and Stock Consideration, the "Merger Consideration"). 2.3 Parent Stock Adjustment. If prior to the Merger ----------------------- Effective Time Mercantile and/or West Pointe Bank & Trust Company shall declare a stock dividend or make distributions upon or subdivide, split up, reclassify or combine Mercantile Common and/or West Pointe Common, as appropriate, or declare a dividend or make a distribution on Mercantile Common in any security convertible into Mercantile Common and/or West Pointe Common, as appropriate, adjustment or adjustments will be made to the Stock Distribution and/or West Pointe Consideration, as appropriate. 2.4 Closings; Effective Times. A closing for the ------------------------- Merger (the "Merger Closing") shall take place at 10:00 a.m. on a day within forty-five (45) days, as mutually agreed by the parties, following the satisfaction or waiver, to the extent permitted hereunder, of the conditions to the consummation of the Merger specified in Article 6 of this Agreement at the offices of Bryan Cave LLP, 211 North Broadway, St. Louis, Missouri 63102 or at such other place, at such other time, or on such other date as the parties may mutually agree upon. At the Merger Closing, there shall be delivered to Regional Bancshares and Mercantile the opinions, certificates and other documents required to be delivered under Article 6 hereof. At the Merger Closing, the parties shall exchange the certificates specified in Article 6 and shall execute an appropriate certificate of merger and such other documents as may be deemed necessary or advisable in the opinion of Mercantile to effectuate the Merger as promptly as practicable. At or after the Merger Closing, the parties shall cause their representatives to file the Agreement or such certificate of merger with the appropriate authority and shall take such other actions as may be deemed necessary or advisable in the opinion of Mercantile to 4 10 effectuate the Merger. The "Merger Effective Time" shall occur upon the issuance of the certificate of merger by the Secretaries of the States of Missouri and Illinois. 2.5 Effect of Merger. The Surviving Corporation ----------------- shall have the name "Ameribanc, Inc." and shall possess all rights, privileges, powers and franchises and shall be subject to all restrictions, liabilities and duties of Merger Sub and Regional Bancshares; and the rights, privileges, powers and franchises of Merger Sub and Regional Bancshares, and all property, real, personal and mixed, and all debts due Merger Sub or Regional Bancshares, as well as for all other things in action or belonging to Merger Sub and Regional Bancshares, shall be vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter the property of the Surviving Corporation as they were of Merger Sub and Regional Bancshares, and the title to any real estate vested by deed or otherwise, under the laws of any state or jurisdiction, in Merger Sub or Regional Bancshares, shall not revert or be in any way impaired by reason of the Merger; but all rights of creditors and all liens upon any property of Merger Sub or Regional Bancshares shall be preserved unimpaired, and all respective debts, liabilities and duties of Merger Sub or Regional Bancshares shall thenceforth attach to the Surviving Corporation, and may be enforced against it to the same extent as if such debts, liabilities and duties had been incurred or contracted by it. If at any time the Surviving Corporation shall consider or be advised that any further assignments, conveyances or assurances in law are necessary or desirable to vest, perfect or confirm of record in the Surviving Corporation the title to any property or rights of Regional Bancshares or otherwise to carry out the provisions hereof, the proper officers and directors of Regional Bancshares immediately prior to the Merger Effective Time (or their successors in office) shall execute and deliver any and all proper deeds, assignments and assurances in law, and do all things necessary or proper, to vest, perfect or confirm title to such property or rights in the Surviving Corporation and otherwise to carry out the provisions hereof. The Surviving Corporation shall be governed by the laws of the State of Missouri. 2.6 Exchange of Shares. From and after the Merger ------------------- Effective Time and as and when required by the provisions of this Agreement, Mercantile shall issue the Merger Consideration in the form of cashand shares of Mercantile Common to stockholders of Regional Bancshares pursuant to the provisions hereinafter set forth. The manner of converting the shares of Regional Bancshares Common shall be as follows: 2.6(a) At the Merger Effective Time, each share of Regional Bancshares Common outstanding immediately prior to the Merger Effective Time (other than (i) any Regional Bancshares Common shares held by Mercantile or any corporate affiliate, with the exception of shares held in a fiduciary capacity or in satisfaction of a debt previously contracted in good faith or (ii) shares held by a holder who has made a demand for appraisal and payment in accordance with 5 11 applicable law and who has not voted for the Merger) shall thereupon, and without further action on the part of the holder thereof, be converted into the right to receive the Merger Consideration, as set forth in Section 2.2 hereof. Each share of Regional Bancshares Common held in the treasury of Regional Bancshares or owned by Mercantile at the Merger Effective Time (other than those specifically described in (i) and (ii) of the immediately preceding sentence) shall be cancelled. 2.6(b) Within 2 Business Days after the Merger Effective Time, the Surviving Corporation or an exchange agent appointed by the Surviving Corporation (the "Exchange Agent") shall send or cause to be sent to each holder of record of a certificate or certificates which as of the Merger Effective Time represented outstanding shares of Regional Bancshares Common (the "Certificates") a form letter of transmittal which shall specify instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon the surrender of a Certificate for cancellation to the Exchange Agent (or a lost certificate affidavit or bond in a form reasonably acceptable to the Exchange Agent), together with such letter of transmittal duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor (w) the Cash Distribution multiplied by the number of shares of Regional Bancshares Common theretofore represented by the Certificate so surrendered, (x) a certificate or certificates representing the Stock Distribution multiplied by the number of shares of Regional Bancshares Common theretofore represented by the Certificate so surrendered, (y) a certificate or certificates representing the West Pointe Consideration multiplied by the number of shares of Regional Bancshares Common theretofore represented by the Certificate so surrendered, plus (z) an amount of cash as provided in subsection (d) below for any fractional shares of Mercantile Common and/or West Pointe Common, as appropriate, which such holder would otherwise be entitled to receive, and the Certificate so surrendered shall forthwith be cancelled. 2.6(c) No dividends or other distributions declared after the Merger Effective Time with respect to Mercantile Common payable to holders of record after the Merger Effective Time shall be paid to the holder of any unsurrendered Certificate evidencing ownership of shares of Regional Bancshares Common represented thereby until the holder of record shall surrender such Certificate. Until so surrendered and exchanged, each such outstanding Certificate shall, for all purposes, other than the payment of dividends or other distributions, if any, to holders of record of shares of Mercantile Common, evidence the right to ownership of the shares of Mercantile Common into and for which such shares have been so converted; provided, however, that upon surrender of a Certificate, there shall be paid to the record holder or holders of such Certificate, the amount, without interest thereon, of such dividends and other distributions, if any, which theretofore have become payable with respect to the number of whole shares of Mercantile Common represented by such Certificate. 6 12 2.6(d) No fractional shares of Mercantile Common shall be issued upon the surrender or exchange of Certificates which prior to the Merger Effective Time shall have represented any shares of Regional Bancshares Common; no dividend or distribution of Mercantile shall relate to any fractional share interest; and fractional share interests shall not entitle the owner thereof to vote or to any rights of a stockholder of Mercantile. Instead, each holder of shares of Regional Bancshares Common having a fractional interest arising upon the conversion or exchange of such shares pursuant to the Merger shall, at the time of surrender of the Certificate or Certificates theretofore representing Regional Bancshares Common, be paid by Mercantile an amount in cash (without interest) determined by multiplying the fractional share interest to which such holder otherwise would be entitled by the average of the closing stock price of Mercantile Common on The New York Stock Exchange Composite Tape as reported in The Wall Street Journal ----------------------- for the five trading days prior to the date on which this Agreement is executed. The fractional share interests of each stockholder will be aggregated such that no stockholder will receive cash in lieu of fractional share interests in an amount greater than one full share of Mercantile Common. In the event West Pointe Bank & Trust Company shall not issue certificates representing fractional shares of West Pointe Common upon the request of the Exchange Agent therefore, the holder of Regional Bancshares Common entitled to such fractional interest shall, at the time of surrender of the Certificate or Certificates theretofore representing Regional Bancshares Common, be paid by Mercantile an amount in cash (without interest) determined by multiplying the fractional share interest to which such holder otherwise would be entitled by $30.00. The fractional share interests of each stockholder will be aggregated such that no stockholder will receive cash in lieu of fractional shares interests in an amount greater than one full share of West Pointe Common. 2.6(e) All rights to receive (i) shares of Mercantile Common into and for which shares of Regional Bancshares Common shall have been converted and exchanged pursuant to this Agreement, (ii) cash , and (iii) West Pointe Common shall be deemed to have been issued or paid, as the case may be, in full satisfaction of all rights pertaining to such converted and exchanged shares of Regional Bancshares Common. 2.6(f) At the Merger Effective Time, Regional Bancshares shall deliver a certified copy of a list of its stockholders to Mercantile, after which there shall be no further registration of transfers on the stock transfer books of Regional Bancshares of the shares of Regional Bancshares Common which were outstanding immediately prior to the Merger Effective Time. If, after the Merger Effective Time, Certificates representing such shares of Regional Bancshares Common are presented to Mercantile, they shall be cancelled and exchanged for cash and certificates representing shares of Mercantile Common as provided in this Agreement. 7 13 2.6(g) If any cash and any certificate representing shares of Mercantile Common or West Pointe Common is to be paid to or issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of the payment or issuance thereof that the Certificate so surrendered shall be properly endorsed, accompanied by all documents required to evidence and effect such transfer and otherwise in proper form for transfer. 2.6(h) If there are appraisal rights available under applicable law with respect to shares of Regional Bancshares Common as a result of the Merger, then each such share of Regional Bancshares Common as to which a legally sufficient demand for appraisal has been made in accordance with the applicable law and which was not voted in favor of, or the record holder of which did not consent in writing to, the Merger, shall not be converted into or represent a right to receive the Merger Consideration pursuant to this Agreement unless and until the holder of such share shall have failed to perfect or shall have effectively withdrawn or lost the right to appraisal of and payment for such shares, at which time such holder's shares shall be converted into the right to receive the Merger Consideration in accordance with the terms of this Agreement and the applicable law. 2.7 Funding of Exchange Agent. Mercantile shall -------------------------- deliver to the Exchange Agent from time to time as needed by the Exchange Agent an amount in cash necessary to pay the cash portion of the Merger Consideration and to pay the cash in lieu of fractional shares payable for certificates theretofore representing shares of Regional Bancshares Common. 2.8 Charter and Bylaws. On and after the Merger ------------------- Effective Time, the Articles of Incorporation and Bylaws of the Surviving Corporation shall remain the Articles of Incorporation and Bylaws of Merger Sub immediately prior to the Merger Effective Time until further amended in accordance with applicable law. 2.9 Directors and Officers. On and after the Merger ----------------------- Effective Time, the officers and directors of the Surviving Corporation shall remain the officers and directors of Merger Sub in office as of the Merger Effective Time, and shall hold such offices in the Surviving Corporation which they held in Merger Sub as of the Merger Effective Time, until their successors are elected or appointed in accordance with the Bylaws of the Surviving Corporation and shall have been duly qualified. On and after the Merger Effective Time, the directors and officers of the Surviving Corporation shall have the right to act in any respect as directors and officers for Regional Bancshares or Merger Sub in order to perfect in the Surviving Corporation the effects of the Merger set forth in Section 2.5 hereof. 8 14 2.10 Tax Free Reorganization. The parties intend to ------------------------ adopt this Agreement and the Merger as a tax-free plan of reorganization under Section 368(a)(1)(A) of the Code by virtue of the provisions of Section 368(a)(2)(D) of the Code. The parties shall not take a position on any tax return inconsistent with this Section 2.10. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF REGIONAL BANCSHARES Regional Bancshares represents and warrants to Mercantile as of the date first written above, and continuing to the Merger Closing, as follows: 3.1 Organization, Good Standing and Capital Stock. --------------------------------------------- Regional Bancshares is a corporation and Bank of Alton is a banking corporation, in each case duly organized, validly existing and in good standing under the laws of the State of Illinois and have all requisite power and authority (corporate or other) to (i) enter into this Agreement and to perform the obligations hereunder and thereunder on its part to be performed and (ii) own, operate and lease their properties and carry on their businesses as they are now being conducted in each jurisdiction where their business is being conducted. Regional Bancshares and Bank of Alton are duly qualified and in good standing in each jurisdiction where the character of the properties owned or leased by them or the nature of the business transacted by them requires that they be qualified to do business. Regional Bancshares is a bank holding company duly registered with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the "Act"). The authorized capital stock of Regional Bancshares consists entirely of 30,000 shares of Common Stock, par value $10.00 per share, of which 25,321 shares are issued and outstanding. All of such shares are validly issued, fully paid and nonassessable. The authorized capital stock of Bank of Alton consists entirely of 30,000 shares of Common Stock, par value $12.00 per share ("Bank of Alton Common"), of which 30,000 shares are issued and outstanding. All of such shares are validly issued, fully paid and nonassessable. Regional Bancshares owns 100% of the outstanding shares of Bank of Alton Common of record and beneficially, free and clear of any liens, pledges, security interests, charges or other encumbrances. Neither Regional Bancshares or Bank of Alton have any authorized shares of preferred stock. Neither Regional Bancshares Common or Bank of Alton Common is subject to any restriction on transfer under their respective Certificates or Articles of Incorporation or Bylaws or any contract, indenture, agreement or instrument by which they are bound. Neither Regional Bancshares nor Bank of Alton has issued or granted nor is either a party to any outstanding warrants, options, rights, calls or commitments of any kind relating to, or any presently effective agreements or understandings with respect to, the capital stock of Regional Bancshares or Bank of Alton, whether issued or unissued, or securities convertible into capital stock of Regional Bancshares or Bank of Alton, whether issued or unissued. Neither Regional Bancshares or Bank of Alton is a party to, or bound by, any contract, indenture, 9 15 agreement or instrument or any note, debenture, bond or other security, under the terms of which, or pursuant to which, their right to declare or pay dividends on its capital is restricted. 3.2 Regional Bancshares Subsidiaries. Except for -------------------------------- Bank of Alton, Regional Bancshares does not own or control, directly or indirectly, a 5% or more equity interest in any corporation, bank or other entity. 3.3 Bank of Alton Subsidiaries. Bank of Alton does -------------------------- not own or control, directly or indirectly, a 5% or more equity interest in any corporation, bank or other entity. 3.4 Corporate Authorizations. Except for the ------------------------ shareholder vote provided for in Section 5.3(a), the execution, delivery and performance of this Agreement have been duly and validly authorized by all necessary corporate action on the part of Regional Bancshares. This Agreement has been duly executed and delivered by Regional Bancshares. Assuming due authorization, execution and delivery by Mercantile and Merger Sub, this Agreement constitutes the valid, binding and enforceable obligation of Regional Bancshares, except as limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights and remedies generally from time to time in effect and by applicable law which may affect the availability of equitable remedies. 3.5 Corporate Documents. True and correct copies of ------------------- the Certificate or Articles of Incorporation and Bylaws of Regional Bancshares and Bank of Alton, certified by the appropriate officer of Regional Bancshares or Bank of Alton, as the case may be, have been delivered to Mercantile prior to the date hereof and except as set forth in the such documents, have not been amended since such certification. The corporate record books, transfer books and stock ledgers of Regional Bancshares and Bank of Alton are complete and accurate in all material respects. 3.6 Regulatory Reports. Regional Bancshares and Bank ------------------ of Alton have filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file with (i) the Federal Reserve Board, (ii) the Federal Depository Insurance Company (the "FDIC") and (iii) the Commissioner of Banks and Real Estate of the State of Illinois (the "Commissioner") and all other material reports and statements required to be filed by them, including, without limitation, any report or statement required to be filed pursuant to the laws, rules or regulations of the Federal Reserve Board, the FDIC or the State of Illinois (collectively, the "Regional Bancshares Reports") and have paid all fees or assessments due and payable in connection therewith. The Regional Bancshares Reports comply in all material respects as to form and content with applicable law. To the extent permitted by law, Mercantile has been furnished with a copy of any report or statement by any federal, state or local government 10 16 agency, commission or other entity available to Regional Bancshares relating to an examination of Bank of Alton within the past five years. Except as set forth on Schedule 3.6 (Regulatory ------------ Matters), there is no unresolved violation, criticism or exception of a material nature by the Federal Reserve Board, the FDIC, the Commissioner, or other agency, commission or entity with respect to any report or statement referred to in this Section. 3.7 Governmental Regulation. Regional Bancshares and ----------------------- Bank of Alton hold all licenses, certificates, permits, franchises, patents, trademarks, service marks, trade names, copyrights or rights thereto, and adequate authorizations, approvals, consents, licensing, clearances and orders of and registrations with all appropriate federal, state or other authorities necessary for the conduct of their business as now conducted and as presently proposed to be conducted. 3.8 Compliance with Laws and Agreements. Neither ------------------------------------ Regional Bancshares nor Bank of Alton is in violation of any provision of its Articles or Certificate of Incorporation, Articles of Association or Bylaws or any note, bond, indenture, mortgage, deed of trust, loan agreement, or any other agreement to which it is a party or by which it is bound or to which any of its properties or assets is subject, other than such defaults or violations as would not (singly or in the aggregate) have a material adverse effect on the business, operations, prospects or financial condition of Regional Bancshares or Bank of Alton, taken as a whole, nor is Regional Bancshares or Bank of Alton, in violation of any statute, rule, regulation, order, writ, decree, or injunction of any court or governmental agency or any body having jurisdiction over them or any of their respective properties (collectively "Laws") which, if enforced, could have (singly or in the aggregate) a material adverse effect on the business, operations, prospects or financial condition of Regional Bancshares and Bank of Alton taken as whole. Except as set forth on Schedule 3.8 (Compliance with Laws and ------------ Agreements), neither Regional Bancshares nor Bank of Alton has received any inquiry or statement from any regulatory agency or other governmental official relating to its compliance with any of the Laws. 3.9 Regional Bancshares and Bank of Alton Consolidated -------------------------------------------------- Financial Statements - -------------------- 3.9(a) Attached hereto as Schedule 3.9 (Regional ------------ Financial Statements) are copies of the following financial statements: 3.9(a)(i) Audited, consolidated balance sheet of Regional Bancshares as of December 31, 1995, related consolidated statements of income, changes in shareholders' equity and cash flows for the year then ended, together with the notes thereto certified by Regional Bancshares's independent auditors; 3.9(a)(ii) Audited, balance sheets of Bank of Alton as of December 31, 1994 and 1993 and related statements of income, changes in 11 17 shareholders' equity and cash flows for the two-year period ended December 31, 1994; 3.9(a)(iii) Unaudited, consolidated balance sheets of Regional Bancshares as of June 30, 1996 and 1995, and related consolidated statements of income and cash flows for the six- month periods ended June 30, 1996 and 1995; 3.9(a)(iv) Form FR Y-6 reports of Regional Bancshares as of December 31, 1995, 1994 and 1993 and all Forms FR Y-6A, FR Y-9LP, FR Y-9SP and FR Y-9C, as appropriate, filed with the Federal Reserve Board during the period beginning January 1, 1993, and ending on the date hereof; and 3.9(a)(v) Consolidated Reports of Condition and Income for Bank of Alton for the fiscal years ended December 31, 1995, 1994 and 1993 and for the six-month period ended June 30, 1996. 3.9(b) The financial statements document referenced in Schedule 3.9 are referred to collectively as the "Regional Financial Statements." The Regional Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") or, as to the financial statements referenced in subsections (a) (iv) and (v) above, regulatory accounting principles, consistently applied during the periods involved, and present fairly in all material respects the consolidated financial positions of Regional Bancshares and Bank of Alton, as the case may be, at the dates thereof and the consolidated results of operations and cash flows of Regional Bancshares and Bank of Alton, as the case may be, for the periods stated therein. 3.9(c) Regional Bancshares and Bank of Alton 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 conditionsand results of operations and cash flows. 3.10 Title to Properties. Except as set forth in -------------------- Schedule 3.10 (Real Property), Regional Bancshares and Bank - ------------- of Alton have good and marketable title to all of their respective properties and assets, tangible and intangible, real and personal, free and clear of all mortgages, liens, pledges, security interests, charges or encumbrances. There exists no restriction on the transfer of any such properties or assets other than any restrictions resulting from investments being designated as "Held to Maturity." Included in Schedule 3.10 ------------- is a complete and accurate list, with legal description, of each parcel of real estate owned or leased by Regional Bancshares and Bank of Alton. Neither Regional Bancshares nor Bank of Alton has any obligation to acquire any interest in any real property other than those described in Schedule 3.10. The real and personal ------------- properties and assets held under lease by Regional Bancshares and Bank of Alton are held by them under valid, subsisting and enforceable leases with such exceptions as do not interfere 12 18 with the use made and proposed to be made of such properties and assets by Regional Bancshares and Bank of Alton. No consent is necessary under the terms of any such lease in connection with the consummation of the transactions contemplated hereby. 3.11 Use and Condition of Property and Assets. All of --------------------------------------- the property and assets of Regional Bancshares and Bank of Alton are in suitable operating condition and repair as required for their current use and conform to all applicable laws, and no notice of any violation of any law, statute, ordinance, or regulation relating to any of such property or assets has been received by Regional Bancshares or Bank of Alton except such as have been fully complied with. All improvements located on, and the use presently being made of all real property materially comply with all applicable zoning and building code ordinances and all applicable fire, occupational safety and health standards and similar rules established by law or regulation and the same use thereof by Mercantile or Merger Sub will not result in any violation of any such code, ordinance, or standard. There is no pending or, to Regional Bancshares' knowledge, threatened condemnation proceeding or similar action affecting the property of Regional Bancshares or Bank of Alton or with respect to any streets or public amenities appurtenant thereto or in the vicinity thereof which would adversely affect the business or assets of Regional Bancshares or Bank of Alton. 3.12 Loans; Loan Loss Reserve. All loans and loan ------------------------- commitments extended by Regional Bancshares or Bank of Alton (collectively, the "Regional Bancshares Loans") were made in accordance with customary lending standards of Bank of Alton in the ordinary course of business, which standards have been disclosed to Mercantile. The consolidated loan loss reserve as of June 30, 1996 (as defined in the instructions for the Call Reports) of Bank of Alton is at least $1,467,000. Set forth in Schedule 3.12 (Loans and Investments), is a true, correct and - ------------- complete listing, as of the date hereof, by account of (i) all Regional Bancshares Loans in excess of $50,000 which have been accelerated during the past twelve months; (ii) all loans commitments or lines of credit in excess of $50,000 which have been terminated by Regional Bancshares or Bank of Alton during the past twelve months by reason of default or adverse developments in the condition of the borrower or other events or circumstances affecting the credit of the borrower; (iii) all loan commitments and lines of credit in excess of $50,000 as to which Regional Bancshares or Bank of Alton has given written notice of its intent to terminate during the past twelve months; (iv) with respect to all Regional Bancshares Loans in excess of $50,000, all notification letters and other written communications from Regional Bancshares or Bank of Alton to any of their respective borrowers, customers or other parties during the past twelve months wherein Regional Bancshares or Bank of Alton 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 Regional Bancshares 13 19 or Bank of Alton during the past twelve months of, or has asserted against, in writing, any "lender liability" or similar claim, and, to the best knowledge of Regional Bancshares, each borrower, customer or other party which has given any oral notification of, or orally asserted against Regional Bancshares or Bank of Alton, any such claim; (vi) all Regional Bancshares Loans in excess of $50,000 (A) that are contractually past due 90 days or more in the payment of principal and/or interest, (B) that are on non-accrual status, (C) that have been classified "doubtful," or "loss" or the equivalent thereof by any regulatory agency, (D) where a reasonable doubt exists as to the timely future collectibility of principal and/or interest, whether or not interest is still accruing or the loan is less than 90 days past due, (E) where the interest rate terms have been reduced and/or the maturity dates have been extended subsequent to the agreement under which the loan was originally created due to concerns regarding the borrower's ability to pay in accordance with such initial terms, or (F) where a specific reserve allocation exists in connection therewith; (vii) all Regional Bancshares Loans payable or owing by any executive officer or director of Regional Bancshares or Bank of Alton or any other person or entity deemed a "related interest" of any of the foregoing, as such terms are defined in Regulation O of the Federal Reserve Board; and (viii) all assets classified as real estate acquired through foreclosure, including in-substance foreclosed real estate. The aggregate amounts of all Regional Bancshares Loans of the type identified in subsections (vi)(A), (B), (C) and (E), plus all assets classified by ---- Regional Bancshares or Bank of Alton as real estate acquired through foreclosure or in lieu of foreclosure, including in- substance foreclosures, does not as of the date hereof and shall not at the Merger Effective Time exceed $4,000,000. The Regional Bancshares Loans are evidenced by appropriate and sufficient documentation and constitute valid and binding obligations of the obligors and any guarantor named therein, enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights and remedies generally from time to time in effect and by applicable law which may affect the availability of equitable remedies. All the Regional Bancshares Loans are, and at the Merger Effective Time will be, free and clear of any security interest, lien, encumbrance or other charge, except such as exist in favor of Regional Bancshares or Bank of Alton and Regional Bancshares or Bank of Alton has complied, and at the Merger Effective Time will have complied, in all respects with all laws and regulations relating to such Regional Bancshares Loans. The Regional Bancshares Loans are not subject to any defenses, counterclaims, offsets or claims of offset which taken as a whole would be material to Regional Bancshares and Bank of Alton taken as a whole and, to the best knowledge of Regional Bancshares, as of June 30, 1996, 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 Regional Financial Statements and the collection experience of Regional Bancshares and Bank of Alton since June 30, 1996 to the date hereof has not 14 20 been materially adverse to the credit and collection experience of Regional Bancshares and Bank of Alton, taken as a whole, in the six-months ended June 30, 1996. Except as set forth on Schedule 3.12A (Allowance for -------------- Loan and Lease Losses), the allowances for loan losses contained in the Regional Financial Statements were established in accordance with the past practices and experiences of Regional Bancshares and Bank of Alton, and the allowance for loan and lease losses shown on the consolidated condensed balance sheets of Regional Bancshares and Bank of Alton as of June 30, 1996 were adequate in all material respects under the requirements of GAAP or regulatory accounting principles, as the case may be, to provide for possible losses on loans and leases (including without limitation accrued interest receivable) and credit commitments (including without limitation stand-by letters of credit) as of the date of such balance sheet. Except as set forth in Schedule 3.12B (Restricted -------------- Investments) and except for pledges to secure public and trust deposits, none of the investments reflected in the consolidated balance sheet of Regional Bancshares as of June 30, 1996 under the heading "Investment Securities," and none of the investments made by Regional Bancshares or Bank of Alton since June 30, 1996 is subject to any restriction, whether contractual or statutory, which materially impairs the ability of Regional Bancshares or Bank of Alton freely to dispose of such investment at any time other than any restriction resulting from the designation of such securities as "Held to Maturity." With respect to all reverse repurchase agreements to which Regional Bancshares or Bank of Alton is a party, Regional Bancshares or Bank of Alton has a valid, perfected first lien or security interest in the government securities or other collateral securing the repurchase agreement, and the value of the collateral securing each such repurchase agreement equals or exceeds the amount of the debt secured by such collateral under such agreement. Except as set forth in Schedule 3.12C (Obligations to -------------- Acquire Assets), neither Regional Bancshares nor Bank of Alton has sold or otherwise disposed of any assets in a transaction in which the acquiror of such assets or other person has the right, either conditionally or absolutely, to require Regional Bancshares or Bank of Alton to repurchase or otherwise reacquire any such assets. (The foregoing is not intended to include certificates of deposit or repurchase agreements by Bank of Alton.) 3.13 Employees. Set forth on Schedule 3.13 --------- ------------- (Employees) is a complete list of all officers of Regional Bancshares and Bank of Alton. 3.14 Indebtedness to and from Officers, Directors and ------------------------------------------------ Others. Except as set forth on Schedule 3.14 (Indebtedness - ------ ------------- to and from Officers, Directors and Others), Regional Bancshares and Bank of Alton are not indebted to any of their shareholders, directors, officers, employees or agents except for amounts due as 15 21 normal salaries, wages and bonuses and in reimbursement of ordinary expenses on a current basis, and except as set forth on Schedule 3.14, no such shareholder, director, officer, - ------------- employee or agent is indebted to Regional Bancshares or Bank of Alton except for advancements for ordinary business expenses in a normal amount. 3.15 Absence of Conflicts. The execution and delivery -------------------- by Regional Bancshares of this Agreement and the consummation of the transactions herein contemplated do not and will not violate or conflict with any statute, regulation, judgment, order, writ, decree or injunction applicable to Regional Bancshares or Bank of Alton or any of their respective properties or assets. Except as set forth in Schedule 3.15 (Conflicts) (as to which all ------------- appropriate consents, waivers or approvals have been or will be obtained by Regional Bancshares prior to the Merger Closing), the execution and delivery by Regional Bancshares of this Agreement and the consummation of the transactions herein contemplated do not and will not violate, conflict with, result in a breach of, constitute a default (or an event which with due notice or lapse of time or both would constitute a default) under, result in the termination of, accelerate the performance required by, or result in the creation of any lien, pledge, security interest, charge or other encumbrance upon any of the properties or assets of Regional Bancshares or Bank of Alton under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, or loan agreement or other agreement, instrument or obligation to which Regional Bancshares or Bank of Alton is a party, or by which either of them or any of their respective properties or assets may be bound or affected. 3.16 Litigation. Except as set forth in Schedule 3.16 ---------- ------------- (Regional Bancshares Litigation), neither Regional Bancshares nor Bank of Alton is engaged in, or party to or (to the knowledge of Regional Bancshares) threatened with, any legal action or other proceeding or investigation before any court, arbitrator or governmental agency, the outcome of which could result in a judgment that (singly or in the aggregate) could materially affect the business, properties, assets, prospects or condition of Regional Bancshares and Bank of Alton taken as a whole. Except as set forth in Schedule 3.16, there are no ------------- outstanding orders, rulings, decrees, judgments or stipulations to which Regional Bancshares or Bank of Alton is a party or by which either is bound by or with any court, arbitrator or governmental agency which could result in a judgment, order or award that (singly or in the aggregate) could materially affect the business, properties, assets, prospects or condition of Regional Bancshares and Bank of Alton taken as a whole. 3.17 Contracts. Except as set forth in Schedule 3.17 --------- ------------- (Contracts), (i) there are no employment, management, consulting, deferred compensation, severance or other similar agreements or any union or collective bargaining agreements or any contracts or agreements with any labor organizations (collectively, "Employment Agreements") binding upon Regional Bancshares or Bank of Alton, (ii) there is no deferred compensation, savings, profit sharing, severance pay, pension or retirement plan or arrangement; (iii) there is no material lease or license with 16 22 respect to any property, real or personal, whether as landlord, tenant, licensor or licensee; (iv) there is no agreement, contract, or indenture relating to the borrowing of money by Regional Bancshares or Bank of Alton, excluding endorsements made for collection and guarantees made in the ordinary course of business, and (v) there is no other contract, agreement, arrangement, understanding or other obligation, to or by which Regional Bancshares or Bank of Alton is subject or bound, which requires any payment of $100,000 or more or is otherwise material to Regional Bancshares or Bank of Alton taken as a whole. (The foregoing is not intended to include certificates of deposit or loan commitments issued in the ordinary course of business). 3.18 Insurance. Each of Regional Bancshares and Bank --------- of Alton maintains and has maintained continuously since January 1, 1993 insurance with insurers that in the best judgment of management of Regional Bancshares are sound and reputable, on its assets, and upon its business and operations, against loss or damage, risks, hazards and liabilities of the kinds customarily insured against by prudent corporations engaged in the same or similar businesses. Each of Regional Bancshares and Bank of Alton maintains in effect all insurance required to be carried by it by law or by any agreement by which either is bound. All material claims under any policies of insurance maintained by Regional Bancshares have been filed in due and timely fashion; in the best judgment of the management of Regional Bancshares, such insurance coverage is adequate. Schedule 3.18 (Insurance ------------- Policies) contains a complete and accurate list and brief description of Regional Bancshares' and Bank of Alton's business and property insurance policies and of life insurance policies maintained by Regional Bancshares or Bank of Alton on the lives of certain of its officers and employees. To the best of Regional Bancshares' knowledge, Regional Bancshares and Bank of Alton have each 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 Merger Effective Time that are known to Regional Bancshares, 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 financial condition of Regional Bancshares and Bank of Alton, taken as a whole. 3.19 Conduct. Since June 30, 1996, Regional ------- Bancshares and Bank of Alton have not: 3.19(a) conducted their business or entered into any transaction otherwise than in the ordinary course; 17 23 3.19(b) discharged or satisfied any lien or encumbrance or paid any obligation or liability other than those shown on the June 30, 1996 Regional Financial Statements or incurred after the date thereof in the ordinary course of business; 3.19(c) purchased or otherwise acquired assets, or mortgaged, pledged, or subjected to lien, charge or other encumbrance any of their assets, or sold or transferred any such assets, except in the ordinary course of business; 3.19(d) declared, agreed to declare, set aside or paid any dividend or other distribution in respect of their capital stock (except regular cash dividends of Regional Bancshares on its capital stock of the character, amount and frequency theretofore paid or dividends to Regional Bancshares from Bank of Alton) or, directly or indirectly purchased, redeemed, or otherwise acquired or agreed to purchase or redeem or otherwise acquire any shares of such stock. (The foregoing shall not prevent any dividend made in accordance with Section 5.3((b)(xiii)).) 3.19(e) except as set forth in Schedule 3.19(e) ---------------- (Bonuses), made any accrual or arrangement for or payment of bonuses or special compensation of any kind or any severance or termination pay to any of their present employees, except for bonuses in accordance with the normal and usual practice of Regional Bancshares and Bank of Alton, increased the rate of compensation payable or to become payable by them to any of their employees, except in accordance with the normal and usual practice of Regional Bancshares and Bank of Alton, or instituted or made any material increase in any employee welfare, retirement or similar plan or arrangement; 3.19(f) entered into any other transaction other than in the ordinary course of business; or 3.19(g) agreed to take any of the foregoing actions. 3.20 Fiduciary Responsibilities. Regional Bancshares, -------------------------- to its knowledge, represents that Bank of Alton has performed all of its duties in its capacity as trustee, executor, administrator, registrar, guardian, custodian, escrow agent, receiver or any other fiduciary in a manner which complies in all material respects with all applicable laws, regulations, orders, agreements, wills, instruments and common law standards. 3.21 FDIC Insurance. The deposits of Bank of Alton -------------- are insured by the FDIC in accordance with the Federal Depository Insurance Act ("FDIA"), and Bank of Alton has paid all assessments and filed all reports required under the FDIA. 3.22 Large Deposits. Except as set forth in Schedule -------------- 3.22 (Large Deposits), (which sets forth the amount of deposits over $250,000 maintained by any 18 24 depositor, without naming such depositors), no person, corporation, partnership, trust, estate or other entity, either alone or together with such person's or entity's affiliates, has deposits in certificates of deposits or checking, savings or other accounts of Bank of Alton in any amount aggregating more than $500,000. Schedule 3.22 sets forth the total dollar amount of all ------------- deposits in certificates of deposits or checking, savings or other accounts of Bank of Alton by directors and executive officers of Regional Bancshares and Bank of Alton and their affiliates as a group as of June 30, 1996. As used in this Section 3.22 an "affiliate" of a person or entity includes such person's ------------ spouse and minor children and any entity ten or more percent of whose voting securities or other ownership interests are known by Regional Bancshares, to be owned, directly or indirectly, by such person, his spouse and/or minor children or by such entity. 3.23 Broker. No broker or finder has acted on behalf ------ of Regional Bancshares or Bank of Alton in connection with this Agreement (or the consummation of the transactions contemplated herein) or is entitled to any commission or finder's fee based upon agreements or understandings made by Regional Bancshares or Bank of Alton in connection with this Agreement (or the consummation of the transactions contemplated herein). 3.24 Labor. No work stoppage involving Regional ----- Bancshares or Bank of Alton is pending or, to the best knowledge of Regional Bancshares, threatened. Neither Regional Bancshares nor Bank of Alton is involved in, or to the best knowledge of Regional Bancshares, threatened with or affected by, any labor dispute, arbitration, lawsuit or administrative proceeding involving the employees of Regional Bancshares or Bank of Alton. Employees of Regional Bancshares and Bank of Alton are not represented by any labor union nor are any collective bargaining agreements otherwise in effect with respect to such employees, and to the best of Regional Bancshares' knowledge, there have been no efforts to unionize or organize any employees of Regional Bancshares or Bank of Alton during the past five years. 3.25 Intellectual or Other Intangible Property. To ------------------------------------------ the best of Regional Bancshares' knowledge, (a) all Intellectual Property or other intangible property used by Regional Bancshares or Bank of Alton is valid and existing, (b) good and marketable title to all such items together with all common law rights to the subject matter thereof is held by Regional Bancshares or Bank of Alton, free and clear of liens; (c) there exists no restriction on the use or transfer of any such item; (d) there are no interferences, challenges, proceedings or infringement suits pending or threatened with respect to any such item; and (e) neither Regional Bancshares nor Bank of Alton has granted a license to any other party with respect to any such item. To the best of Regional Bancshares' knowledge, neither Regional Bancshares nor Bank of Alton is infringing and has not infringed upon the right of any other person under any Intellectual Property or other intangible property right 19 25 and no other person is infringing upon any Intellectual Property or other intangible property right held by Regional Bancshares or Bank of Alton. 3.26 Environmental Matters --------------------- 3.26(a) Regional Bancshares and Bank of Alton are in material compliance with all Environmental Laws. Neither Regional Bancshares or Bank of Alton has received any communication alleging that Regional Bancshares or Bank of Alton is not in such compliance and, to the best knowledge of Regional Bancshares, there are no present circumstances that would prevent or interfere with the continuation of such compliance. 3.26(b) To the best of Regional Bancshares' knowledge, there are no past or current operations, conditions, activities, practices or circumstances on any of the properties owned, leased or operated by Regional Bancshares or Bank of Alton which have been or are in material violation of, or may give rise to a material liability, loss or expense under any Environmental Law. To the best of Regional Bancshares' knowledge, there has been no material disposal or release of any Materials of Environmental Concern on, under or from such properties. 3.26(c) To the best of Regional Bancshares' knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents that could reasonably form the basis of any material Environmental Claim or other claim or action or governmental investigation under any Environmental Law against Regional Bancshares or Bank of Alton or against any person or entity whose liability for any material Environmental Claim Regional Bancshares or Bank of Alton has or may have retained or assumed either contractually or by operation of law. 3.26(d) Regional Bancshares has disclosed any environmental studies conducted by it or Bank of Alton during the past five years with respect to any properties owned, leased or operated by it as of the date hereof. 3.26(e) To the best knowledge of Regional Bancshares, there have been no Materials of Environmental Concern disposed or released on, under or from any real property which Regional Bancshares Bank has a security interest in, nor is there any Environmental Claim in connection with such properties. 3.27 Tax Matters ----------- 3.27(a) Regional Bancshares and Bank of Alton have timely filed or caused to be filed with the appropriate Government entity all tax returns and reports required to be filed, including income, withholding, employment, and estimated tax and informational returns ("Tax Returns") and no Tax Returns have been amended. There are no grounds for assertion of any understatement penalty 20 26 under Section 6661 (prior to repeal) of the Internal Revenue Code of 1986, as amended (the "Code") or Section 6662 of the Code. 3.27(b) All Taxes (whether or not reflected in Tax Returns as filed) payable by Regional Bancshares or Bank of Alton with respect to all periods reflected on Tax Returns have been timely and fully paid, and to the best knowledge of Regional Bancshares, there are no grounds for the assertion or assessment of any additional Taxes against Regional Bancshares or Bank of Alton or their assets with respect to such periods. There is no waiver of any statute of limitations in effect with respect to any Tax Returns. 3.27(c) The consolidated balance sheets of Regional Bancshares as of June 30, 1996 provide an adequate reserve, computed in accordance with GAAP as applicable to Regional Bancshares for the year-to-date period, for all Taxes up to and including the dates of such balance sheets, whether or not a Tax Return has been filed for such period. 3.27(d) Copies of all U.S. federal income Tax Returns, tax examination reports and statements of deficiencies assessed against, or agreed to with respect to Regional Bancshares or Bank of Alton with respect to the last three (3) years have been made available to Mercantile. 3.27(e) Regional Bancshares and Bank of Alton are not and never have been members of an "affiliated group" within the meaning of Section 1504 of the Code other than the affiliated group of which Regional Bancshares is the common parent. 3.27(f) Regional Bancshares and Bank of Alton have materially complied with all laws relating to the withholding of Taxes and the payment thereof (including, without limitation, withholding of Taxes under Section 1441 and 1442 of the Code, or any similar provision under foreign laws), and have timely and properly withheld from employee wages and paid over to the proper Government authority all amounts required to be withheld and paid over under applicable law. 3.27(g) Neither Regional Bancshares nor Bank of Alton are a party to any safe harbor lease within the meaning of Section 168(f)(8) of the Code, as in effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982. None of the assets of Regional Bancshares or Bank of Alton have been financed with or directly or indirectly secures any industrial revenue bonds or debt the interest on which is tax-exempt under Section 103(a) of the Code. Neither Regional Bancshares nor Bank of Alton is a borrower or guarantor of any outstanding industrial revenue bonds, and are not a tenant, principal user or related person to any principal user (within the meaning of Section 144(a) of the Code) of any property which has been financed or improved with the proceeds of any industrial revenue bonds. 21 27 3.27(h) Regional Bancshares is not a United States Real Property Holding Company within the meaning of Section 897(c) of the Code and Treasury Regulations thereunder. 3.27(i) None of the property owned by Regional Bancshares or Bank of Alton is tax-exempt use property within the meaning of Section 168(h) of the Code. 3.27(j) No consent has been filed relating to Regional Bancshares or Bank of Alton pursuant to Section 341(f) of the Code. 3.27(k) As of the Merger Effective Time, neither Regional Bancshares or Bank of Alton is a partner in any joint venture, partnership or other arrangement or contract that could be treated as a partnership for federal income tax purposes. 3.27(l) Neither Regional Bancshares nor Bank of Alton has any unused net operating loss, unused net capital loss, unused credit, unused foreign tax credit, or excess charitable contribution for federal income tax purposes as of the Merger Effective Time. 3.28 Employee Benefit Plans ---------------------- 3.28(a) Set forth in Schedule 3.28 (Benefit ------------- Plans) is a schedule of all Regional Bancshares or Bank of Alton stock option, employee stock purchase and stock bonus plans, stock appreciation rights or phantom stock plans, qualified pension or profit-sharing plans, any deferred compensation, bonus or group insurance contract, any plan or policy providing for "fringe benefits" to its employees (including but not limited to, vacation, disability, sick leave, medical, hospitalization, life insurance and other insurance plans and related benefits), any employment agreement and any other incentive, welfare or employee benefit plan or agreement maintained for the benefit of directors, former directors, employees or former employees of Regional Bancshares or Bank of Alton, and has furnished to Mercantile accurate and complete copies of the same together with (i) the most recent actuarial and financial reports prepared with respect to any qualified plans, (ii) the most recent annual reports filed with any governmental agency, and (iii) all rulings and determination letters and any open requests for rulings or letters that pertain to any qualified plan, and (iv) general notification to employees of their rights under Code Section 4980B and form of letter(s) distributed upon the occurrence of a qualifying event described in Code Section 4980B, in the case of a Plan that is a "group health plan" as defined in Code Section 162(i). There are no negotiations, demands or proposals which are pending or have been made which concern matters now covered, or that would be covered, by the employee benefit plans. 22 28 3.28(b) None of Regional Bancshares, Bank of Alton, any pension plan maintained by any of them and qualified under Section 401 of the Code or, to the best of Regional Bancshares' knowledge, any fiduciary of such plan has incurred any material liability to the Pension Benefit Guaranty Corporation (the "PBGC") or the Internal Revenue Service with respect to any employees of Regional Bancshares or Bank of Alton, except liabilities to the PBGC pursuant to Section 4007 of ERISA, all of which have been fully paid. To the best of Regional Bancshares' knowledge, no reportable event, except reportable events for which the 30-day notice requirement has been waived by PBGC Regulation 2615, under Section 4043(b) of ERISA has occurred with respect to any such pension plan. 3.28(c) Neither Regional Bancshares nor Bank of Alton (i) participates in or has ever participated in a multi- employer plan (as such term is defined in ERISA), (ii) has been a member of a controlled group which contributed to a multi- employer plan, or (iii) has been under common control with an employer which contributed to a multi-employer plan. 3.28(d) A favorable determination letter has been issued by the Internal Revenue Service with respect to each "employee pension plan" (as defined in Section 3(2) of ERISA) of Regional Bancshares or Bank of Alton which is intended to qualify under Section 401 of the Code to the effect that such plan is qualified under Section 401 of the Code and the trust associated with such employee pension plan is tax exempt under Section 501 of the Code. No such letter has been revoked or, to the best of Regional Bancshares' knowledge, is threatened to be revoked and Regional Bancshares does not know of any ground on which such a revocation could be based. Neither Regional Bancshares nor Bank of Alton has any material liability under any such plan that is not reflected on the consolidated balance sheet of Regional Bancshares at June 30, 1996 included in the Regional Financial Statements, other than liabilities incurred in the ordinary course of business in connection therewith subsequent to the date thereof. 3.28(e) To the best of Regional Bancshares' knowledge, no prohibited transaction (which shall mean any transaction prohibited by Section 406 of ERISA and not exempt under Section 408 of ERISA or Section 4975 of the Code) has occurred with respect to any employee benefit plan maintained by Regional Bancshares or Bank of Alton. 3.28(f) Except as set forth in Schedule 3.28, ------------- neither Regional Bancshares nor Bank of Alton maintains any defined benefit plans or other plans subject to Section 412 of the Code or Title IV of ERISA. 3.28(g) Each employee benefit plan of Regional Bancshares and Bank of Alton complies and has been operated in compliance in all material respects with the applicable provisions of ERISA, the Code, all regulations, rulings and 23 29 announcements promulgated or issued thereunder and all other applicable governmental laws and regulations. 3.28(h) There are no pending or, to the best knowledge of Regional Bancshares, threatened or anticipated claims, actions, proceedings or investigations or facts which would give rise to claims, actions, proceedings or investigations (other than routine claims for benefits) by, on behalf of or against any of the employee benefit plans maintained by Regional Bancshares or Bank of Alton or any trust related thereto or any fiduciary thereof. 3.28(i) All required reports and descriptions of each employee benefit plan (including IRS Form 5500 Annual Reports, Summary Annual Reports and Summary Plan Descriptions) have been timely filed and distributed. 3.28(j) Any notices required by ERISA or the Code or any other state or federal law or any ruling or regulation of any state or federal administrative agency with respect to each employee benefit plan have been appropriately given. 3.28(k) All contributions for all periods ending prior to the Merger Closing (including periods from the first day of the current plan year to the Merger Closing) will be made prior to the Merger Closing by Regional Bancshares or Bank of Alton and all members of the controlled group in accordance with past practice and the recommended contribution in the applicable actuarial report. 3.28(l) All insurance premiums (including premiums to the PBGC) have been paid in full, subject only to normal retrospective adjustments in the ordinary course, with regard to the plans for policy years or other applicable policy periods ending on or before the Merger Closing. 3.28(m) All of the employee benefit plans, to the extent applicable, are in compliance with Section 1862(b)(4)(A)(i) of the Social Security Act and Regional Bancshares does not have any liability for any excise tax imposed by Code Section 5000. 3.28(n) With respect to any employee benefit plan which is an employee welfare benefit plan (within the meaning of ERISA Section 3(1)) (a "Welfare Plan"): (i) each such Welfare Plan which is intended to meet the requirements for tax-favored treatment under Subchapter B of Chapter 1 of the Code meets such requirements; (ii) there is no disqualified benefit (as such term is defined in Code Section 4976(b)) which would subject Regional Bancshares or Bank of Alton or any affiliate to a tax under Code Section 4976(a); (iii) each and every such Welfare Plan which is a group health plan (as such term is defined in Code Section 162(i)(3)) complies and in each and every case has complied with the applicable requirements of Code Section 4980B, Title XXII of the Public Health Service Act and the applicable provisions of the Social Security Act; and (iv) each 24 30 such Welfare Plan (including any such plan covering former employees of Regional Bancshares or Bank of Alton) may be amended or terminated by Regional Bancshares or Bank of Alton. 3.28(o) Neither Regional Bancshares nor Bank of Alton has any liability for any post-retirement health, medical or similar benefit of any kind whatsoever, except as required by statute or regulation. 3.28(p) All expenses and liabilities relating to all of the plans have been, and will upon the Merger Closing be fully and properly accrued on Regional Bancshares' books and records and the Regional Financial Statements reflect all of such liabilities in a manner satisfying the requirements of Financial Accounting Standards 87 and 88. 3.29 Alien Employment Eligibility. With respect to ---------------------------- each person employed by Regional Bancshares or Bank of Alton, on or after May 1, 1987, and who actually commenced such employment on or after November 6, 1986: (a) Regional Bancshares or Bank of Alton hired such person in compliance with the Immigration Reform and Control Act of 1986 and the rules and regulations thereunder ("IRCA"); and (b) Regional Bancshares and Bank of Alton have complied with all recordkeeping and other regulatory requirements under IRCA. 3.30 Material Adverse Change. Except as otherwise ----------------------- disclosed in any of the Schedules referenced herein, since June 30, 1996, there has been no material adverse change in the financial condition, of Regional Bancshares and Bank of Alton, taken as a whole, except as may have resulted or may result from changes to laws and regulations, GAAP or regulatory accounting principles, interpretations thereof, other conditions that affect the banking industry generally, or changes in the general level of interest rates. 3.31 Absence of Undisclosed Liabilities. ---------------------------------- 3.31(a) As of the date of this Agreement, neither Regional Bancshares nor Bank of Alton has any debts, liabilities or obligations, whether accrued, absolute, contingent or otherwise and whether due or to become due, which are required to be reflected in the Regional Financial Statements or the notes thereto in accordance with GAAP, except: 3.31(b) liabilities and obligations reflected on the Regional Financial Statements; 3.31(c) operating leases reflected on Schedule 3.31(a) ---------------- (Undisclosed Liabilities); and 25 31 3.31(d) debts, liabilities or obligations incurred since June 30, 1996 in the ordinary and usual course of their respective businesses, none of which are for breach of contract, breach of warranty, torts, infringements or lawsuits and none of which have a material adverse effect on the financial condition to Regional Bancshares and Bank of Alton, taken as a whole. 3.31(e) To the best of Regional Bancshares' knowledge, neither Regional Bancshares nor Bank of Alton was as of June 30, 1996 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 financial condition or business of Regional Bancshares and Bank of Alton, taken as a whole. 3.32 Interest Rate Risk Management Instruments. ----------------------------------------- Neither Regional Bancshares nor Bank of Alton 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. 3.33 West Pointe Common. Regional Bancshares owns, as ------------------ of the date hereof, 12,250 shares of West Pointe Common. West Pointe Bank & Trust Company is not an "affiliate" of Regional Bancshares, as that term is defined in Rule 144 under the 1933 Act. West Pointe Common held of record by Regional Bancshares was acquired by Regional Bancshares as of a date at least three years prior to the date hereof. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF MERCANTILE AND MERGER SUB Mercantile and Merger Sub, jointly and severally, represent and warrant to Regional Bancshares as follows: 4.1 Mercantile Organization, Good Standing and Capital -------------------------------------------------- Stock. Mercantile is a corporation duly organized, validly - ----- existing and in good standing under the laws of the State of Missouri and each Significant Subsidiary (as defined herein) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization. Mercantile has all requisite power and authority (corporate and other) to (i) enter into this Agreement and to perform the obligations hereunder and thereunder to be performed by it, and (ii) own, operate and lease its properties and carry on its business as it is now being conducted in each jurisdiction where its business is being conducted. Mercantile is duly qualified to do business and is in good standing in each jurisdiction where the character of the properties owned or leased by it or the nature of the business transacted by it requires that it be so qualified, except where the failure to so qualify would not have a material adverse effect on the business, operations or financial condition of Mercantile. Mercantile is a bank holding company duly 26 32 registered with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") under the Act. Mercantile owns in excess of 99% of the issued and outstanding shares of capital stock of each of the Significant Subsidiaries (other than directors' qualifying shares). A "Significant Subsidiary" shall mean a Subsidiary (as defined herein), the total assets of which comprise 10% or more of the total assets of Mercantile and its Subsidiaries taken as a whole, and regardless of such definition shall include Merger Sub. A "Subsidiary" means a corporation, bank or other entity of which a 25% equity interest is owned or controlled, directly or indirectly, by Mercantile. The authorized capital stock of Mercantile consists of (i) 100,000,000 shares of Mercantile Common, of which, as of June 30, 1996, 63,278,793 shares were issued and 62,673,041 were outstanding and (ii) 5,000,000 shares of preferred stock, no par value ("Mercantile Preferred Stock"), issuable in series, of which, as of the date hereof, no shares are issued and outstanding. Mercantile has designated 1,000,000 shares of Mercantile Preferred Stock as "Series A Junior Participating Preferred Stock" and has reserved such shares for issuance upon exercise of Preferred Stock Purchase Rights (the "Rights") under a Rights Agreement dated May 23, 1988 (the "Rights Agreement") between Mercantile and Mercantile Bank of St. Louis National Association, as Rights Agent. As of June 30, 1996, Mercantile had reserved: (i) 4,112,103 shares of Mercantile Common for issuance under various Mercantile employee and/or director stock option, incentive and/or benefit plans ("Mercantile Employee/Director Stock Grants"); (ii) 325,843 shares of Mercantile Common for issuance upon the acquisition of Peoples State Bank ("Peoples Bank") pursuant to the Agreement and Plan of Reorganization dated as of December 19, 1995, by and among Peoples Bank, Mercantile, Merger Sub, and Peoples State Bankshares, Inc.; (iii) 1,177,066 shares of Mercantile Common for issuance upon the acquisition of TODAY'S BANCORP, INC. ("Today's") pursuant to the Agreement and Plan of Merger dated as of March 19, 1996, by and among Today's, Mercantile and Merger Sub; and (iv) 258,753 shares of Mercantile Common for issuance upon the acquisition of First Financial Corporation of America ("First Financial") pursuant to Agreement and Plan of Merger dated as of July 9, 1996, by and among First Financial, Mercantile and Merger Sub. From June 30, 1996 through the date of this Agreement, no shares of Mercantile Common have been issued, excluding any such shares which may have been issued in connection with Mercantile Employee/Director Stock Grants. Mercantile continually evaluates possible acquisitions and may prior to the Merger 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 Merger 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) 27 33 materially impede or delay receipt of any approval required hereunder or the consummation of the transactions 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 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 Merger Effective Time, the Mercantile Common 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. 4.2 Merger Sub Organization, Good Standing and Capital -------------------------------------------------- Stock. Merger Sub is a corporation duly organized, validly - ----- existing and in good standing under the laws of the State of Missouri, and has all requisite power and authority (corporate and other) to enter into this Agreement and to perform the obligations hereunder and thereunder to be performed by it. The authorized capital stock of Merger Sub is 30,000 shares Common Stock, par value $1.00 per share ("Merger Sub Common"). As of the date hereof, all outstanding shares of Merger Sub Common are validly issued, outstanding, fully paid and nonassessable and owned of record and beneficially by Mercantile. 4.3 Authorization. ------------- 4.3(a) The execution, delivery and performance of this Agreement have been duly and validly authorized by all necessary corporate action on the parts of Mercantile and Merger Sub. This Agreement has been duly executed and delivered by Mercantile and Merger Sub. Assuming due authorization, execution and delivery by Regional Bancshares and subject to receipt of such approvals of regulatory authorities as may be required by applicable law or regulation, this Agreement constitutes valid, binding and enforceable obligations of Mercantile and Merger Sub, except as limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights and remedies generally from time to time in effect and by applicable law which may affect the availability of equitable remedies. 4.3(b) Neither the execution, delivery and performance by Mercantile and Merger Sub of this Agreement, nor the consummation by Mercantile and Merger Sub of the transactions contemplated hereby, nor compliance by Mercantile and Merger Sub with any of the provisions hereof, will (i) violate, conflict with or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any lien upon any of the properties or assets of Mercantile or Merger Sub under any of the terms, conditions or provisions of (x) their respective Articles of Incorporation or Bylaws, or (y) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other 28 34 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 Section 4.3(a), violate any judgment, ruling, order, writ, injunction, decree, statute, rule or regulation applicable to Mercantile or Merger Sub or any of their respective properties or assets; other than violations, conflicts, breaches, defaults, terminations, accelerations or Liens which would not have a material adverse effect on Mercantile and its Subsidiaries, taken as a whole. 4.3(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 Bank Holding Company Act of 1954, as amended, the Federal Deposit Insurance Act, as amended, or any required approvals of any regulatory authority, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any public body or authority is necessary for the consummation by Mercantile and Merger Sub of the transactions contemplated by this Agreement. 4.4 Consolidated Financial Statements of Mercantile. ----------------------------------------------- Each of the consolidated balance sheets of Mercantile in or incorporated by reference into the Mercantile Reports (as defined below), including any related notes and schedules, fairly presents the financial position of Mercantile and its ------------------ Subsidiaries, taken as a whole, as of its date and each of the - ------------------------------- consolidated statements of income, changes in shareholders' equity and cash flows or equivalent statements in the Mercantile Reports, including any related notes and schedules, fairly presents the results of operations, shareholders' equity and cash flows, as the case may be, of Mercantile and its Subsidiaries, taken as a whole, for the periods set forth therein, in each case in accordance with GAAP consistently applied during the period involved, except as may be noted therein. 4.5 Mercantile Reports. ------------------ 4.5(a) Mercantile has filed all its reports and other documents required to be filed by it under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the Securities Act of 1933, as amended (the "1933 Act") and has delivered to Regional Bancshares copies of all such reports and other documents filed by Mercantile since December 31, 1993. Mercantile's Annual Report on Form 10-K for the year ended December 31, 1995, its Quarterly Reports on Form 10-Q for the periods ended March 31, 1996 and June 30, 1996, and any other reports and documents filed by Mercantile under the 1934 Act since December 31, 1995 and all documents filed by Mercantile under the 1933 Act since December 31, 1993 (collectively, the "Mercantile Reports") comply in all 29 35 material respects as to form and content with the 1934 Act or the 1933 Act, as the case may be. 4.5(b) Mercantile and each Significant Subsidiary which is a bank ("Significant Banking Subsidiary") have filed all material reports, registrations and statements, together with any amendments required to be made with respect thereto, that it was required to file with (i) the Federal Reserve Board, (ii) the Office of the Comptroller of the Currency, (iii) the FDIC and (iv) any applicable state banking regulatory authorities and all other material reports and statements required to be filed by it, including, without limitation, any report or statement required to be filed pursuant to the laws, rules or regulations of the Federal Reserve Board, the Office of the Comptroller of the Currency, the FDIC or applicable state banking regulatory authorities and have paid all fees or assessments due and payable in connection therewith. 4.6 Compliance with Laws and Agreements. Neither ----------------------------------- Mercantile nor any of its Subsidiaries is in default under or in violation of any provision of its Articles or Certificate of Incorporation, Articles of Association or Bylaws or any note, bond, indenture, mortgage, deed of trust, loan agreement, or any other agreement to which it is a party or by which it is bound or to which any of its properties or assets is subject, other than such defaults or violations as would not (singly or in the aggregate) have a material adverse effect on the business, operations, prospects or financial condition of Mercantile and its Subsidiaries taken as a whole, nor is Mercantile or any of its Subsidiaries in violation of any statute, rule, regulation, order, writ, decree or injunction of any court or governmental agency or any body having jurisdiction over them or any of their properties which, if enforced, would have (singly or in the aggregate) a material adverse effect on the business, operations, prospects or financial condition of Mercantile and its Subsidiaries, taken as a whole. 4.7 Shares to be Issued in Merger. The Mercantile ----------------------------- Common which the holders of Regional Bancshares Common will be entitled to receive upon consummation of the Merger will, at the Merger Effective Time, be duly authorized and will, when issued pursuant to this Agreement, be validly issued and outstanding, fully paid and nonassessable. In accordance with the provisions of Section 5.4(c) hereof, Mercantile has agreed to use its reasonable best efforts to file as soon as practicable with the Securities and Exchange Commission, and to cause to become effective, a Registration Statement (as defined in Section 5.4(c)) concerning the shares of Mercantile Common to be received in the merger by holders of Regional Bancshares Common, and to cause such shares to be listed for trading on The New York Stock Exchange. 4.8 Litigation. Neither Mercantile nor any ---------- Subsidiary is engaged in, or party to, or (to the knowledge of Mercantile) threatened with, any legal action or other proceeding or investigation before any court, arbitrator or governmental 30 36 agency, and neither Mercantile nor any Subsidiary (to the knowledge of Mercantile) is subject to any potential adverse claim, the outcome of which could result in a nonmonetary judgment, order or award that (singly or in the aggregate) could materially adversely affect the business, properties, assets, prospects or conditions of Mercantile and its Subsidiaries taken as a whole. Except as set forth in Schedule 4.8, there are ------------ no outstanding orders, rulings, decrees, judgments or stipulations to which Mercantile or any Subsidiary is a party or by which it is bound or with any court, arbitrator or governmental agency which could result in a nonmonetary judgment, order or award that (singly or in the aggregate) could materially adversely affect the business, properties, assets, prospects or condition of Mercantile and its Subsidiaries, taken as a whole. 4.9 Information in Proxy Statement and Registration ----------------------------------------------- Statement. None of the information which will be included or - --------- incorporated by reference into the Registration Statement related to Mercantile and any amendments thereto and none of the information provided in writing by Mercantile to Regional Bancshares for inclusion in the proxy statement to be furnished to the stockholders of Regional Bancshares in connection with the transactions contemplated herein is or will be false or misleading in any material respect or omits or will omit to state any fact necessary to make the statements therein, in light of the circumstances under which they are or will be made, not false or misleading in any material respect. 4.10 Material Adverse Change. Since June 30, 1996, ----------------------- there has been no material adverse change in the financial condition, of Mercantile and its Subsidiaries, taken as a whole, except as may have resulted or may result from changes to laws and regulations, GAAP, interpretations thereof, other conditions that affect the banking industry generally, or changes in the general level of interest rates. ARTICLE 5 COVENANTS 5.1 Joint Covenants. Mercantile and Merger Sub --------------- covenant and agree with Regional Bancshares, and Regional Bancshares covenants and agrees with Mercantile and Merger Sub, as follows: 5.1(a) Truth and Completeness of Representations ----------------------------------------- and Warranties. In the event that either party becomes aware - -------------- of the occurrence or impending occurrence of any event which would constitute or cause a breach by it of any of the representations and warranties herein, or would have constituted or caused a breach by it of the representations and warranties herein, had such an event occurred or been known prior to the date hereof, said party shall immediately give detailed and written notice thereof to the other party, and shall, unless the same has been waived in writing by the other party, use its reasonable efforts to remedy 31 37 the same, provided that such efforts, if not successful, shall not be deemed to satisfy any condition precedent to the Merger. 5.1(b) Best Efforts. Subject to the terms and ------------ conditions herein provided, each of the parties hereto agrees to use its respective best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as expeditiously as possible, including, without limitation, using its respective best efforts to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby. Each party shall, and shall cause each of its respective Subsidiaries to, use its best efforts to obtain consents of all third parties and regulatory authorities necessary or, in the opinion of Mercantile, desirable for the consummation of the transactions contemplated by this Agreement. 5.1(c) Cooperation/Inspection. Each party shall ---------------------- cooperate fully with the other in carrying out the transactions contemplated herein, including without limitation obtaining all the necessary approvals, regulatory or otherwise, needed to consummate all such transactions. Each party shall advise each other of the text of, and shall consult with each other concerning, any news release proposed to be issued. Neither party shall issue any such news release to which the other reasonably objects unless such release is required by law. Mercantile will timely file with the Securities and Exchange Commission and promptly deliver thereafter to the other, copies of all reports or other documents required to be filed under the 1934 Act by each beginning on the date hereof and terminating at the Merger Effective Time. 5.1(d) Consents. Each party shall use its best -------- efforts to obtain as promptly as practicable (and in any event prior to the Merger Closing) all consents or waivers that may be required under any loan or other agreement or document to which it or any of its Subsidiaries is a party, or by which it or any of its Subsidiaries, is bound, and such other consents as are necessary or advisable in connection with the Merger. 5.1(e) Access and Information. ---------------------- 5.1(e)(i) Mercantile and Regional Bancshares shall each afford to the other, and to the other's accountants, counsel and other representatives, full access during normal business hours, during the period prior to the Merger Effective Time, to all their respective properties, books, contracts, commitments and records and, during such period, each shall furnish promptly to the other (A) 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 (B) all other information concerning its business, properties and personnel as the 32 38 other may reasonably request. Each party shall, and shall cause its advisors and representatives to, (A) hold confidential all information obtained in connection with any transaction contemplated hereby with respect to the other party and its Subsidiaries which is not otherwise public knowledge, (B) 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. The availability or actual delivery of information shall not affect the covenants, representations and warranties of the party providing such information that are contained in this Agreement or in any certificates or other documents delivered pursuant hereto. 5.1(e)(ii) Mercantile shall promptly following the date of this Agreement, commence its review of Regional Bancshares and Bank of Alton and their respective operations, business affairs, prospects and financial condition, including, without limitation, those matters which are the subject of the Regional Bancshares' representations and warranties (the "Mercantile Due Diligence Review"). Mercantile shall conclude such review by no later than fifteen (15) Business Days after the date of this Agreement (the "Mercantile Due Diligence Review Period"), but the pendency of such Mercantile Due Diligence Review shall not delay Mercantile's obligation pursuant to this Agreement to file a Registration Statement with the Securities and Exchange Commission and all other necessary applications and filings with the appropriate Regulatory Authorities. Mercantile shall advise Regional Bancshares of any situation, event, circumstance or other matter which comes to the attention of Mercantile during the Mercantile Due Diligence Review which could potentially result in the termination of this Agreement by Mercantile pursuant to Section 7.1(f) hereof, or, if applicable, the absence of any situation, event, circumstance or other matter, it being the intention of Mercantile to provide notice to Regional Bancshares, as promptly as possible, of any perceived impediment to the consummation of the Merger. Notwithstanding anything hereinabove contained or implied to the contrary, the Mercantile Due Diligence Review shall not limit, restrict or preclude Mercantile, at any time or from time to time thereafter, from conducting further such reviews or from exercising any rights available to it hereunder as a result of the existence or occurrence prior to the Mercantile Due Diligence Period of any event or condition which was not detected in the Mercantile Due Diligence Review by Mercantile and which constitutes a breach of any representation, warranty or agreement of Regional Bancshares under this Agreement. 5.2 Expenses. Each party hereto shall bear its own -------- expenses incident to preparing, entering into and carrying out this Agreement and to consummating the Merger, except Mercantile or Merger Sub shall pay all printing and filing fees incurred in connection with the Registration Statement (as hereinafter defined) and the Proxy Statement (as hereinafter defined). 33 39 5.3 Covenants of Regional Bancshares. Regional -------------------------------- Bancshares covenants and agrees with Mercantile and Merger Sub as follows: 5.3(a) Regional Bancshares Shareholder Approval. ----------------------------------------- Regional Bancshares will, at a meeting of its stockholders duly called by its Board of Directors (the "Stockholder Meeting"), present for the authorization and approval of its stockholders, this Agreement. The Proxy Statement for such meeting shall include the materials which constitute the prospectus of Mercantile and is contained in the Registration Statement on Form S-4 as described in Section 5.4(c). Regional Bancshares -------------- agrees that its Board of Directors will, consistent with its fiduciary duties, at such stockholder meeting and in the proxy material used in connection therewith, recommend to its stockholders and request that the Merger be approved and this Agreement be adopted. 5.3(b) Conduct of Business Pending Merger. From ---------------------------------- and after the date hereof until the Merger Effective Time, and except as consented to by Mercantile in writing, Regional Bancshares will and will cause Bank of Alton to: 5.3(b)(i) maintain their tangible property and assets in the present state of repair, order and condition, reasonable wear and tear excepted; 5.3(b)(ii) maintain their books, accounts and records in accordance with GAAP or regulatory accounting principles, as the case may be, consistently applied; 5.3(b)(iii) comply in all material respects with all laws applicable to the conduct of their business; 5.3(b)(iv) conduct their business only in the usual, regular and ordinary course consistent with prior practice, and will not make any purchase or sale or introduce any method of management or operation in respect of such business or property, except in a manner consistent with prior practice; 5.3(b)(v) make no change in their Articles of Incorporation, Charter or Bylaws; 5.3(b)(vi) maintain and keep in full force and effect all fire and other insurance on property and assets, all of the liability and other casualty insurance, and all bonds on personnel, presently carried by them; 5.3(b)(vii) duly and timely file all reports, tax returns and other documents required to be filed with federal, state, and local and other authorities; and 34 40 5.3(b)(viii) unless they are contesting the same in good faith and have established reasonable reserves therefor, pay when required to pay all Taxes indicated by such tax returns or otherwise lawfully levied or assessed upon them, or any of their properties or assets, or which they are otherwise legally obligated to pay and withhold or collect and pay to the proper governmental authorities or hold in separate bank accounts for such payment all Taxes and other assessments which they believe in good faith to be required by law to be so withheld or collected; 5.3(b)(ix) not sell, mortgage, subject to lien, pledge or encumber or otherwise dispose of any of their assets otherwise than in the ordinary course of business; 5.3(b)(x) not redeem, retire or otherwise acquire or agree to redeem or otherwise acquire any of their capital stock or any option, warrant or right to acquire shares of its capital stock or any security convertible into its capital stock, or redeem or otherwise acquire any notes, or make any prepayment on account of or in respect of any indebtedness for any borrowed money; 5.3(b)(xi) make no change in the number of shares of their capital stock issued and outstanding, and grant no option or commitment relating to their capital stock or any security convertible into their capital stock or any security the value or return of which is measured by capital stock or any security subordinated to the claims of their general creditors; 5.3(b)(xii) except as otherwise specifically provided herein, not enter into or amend any employment or severance contract or agreement with or Employee Plan covering, or grant any salary or wage increase to, any director, officer, employee or agent of Regional Bancshares or Bank of Alton except for normal increases in compensation to individual non-officer employees in accordance with past practice, and will not increase in any amount the benefits or compensation, if any, of any such directors, officers, employees or agents under any Benefit Plan or other contract or commitment, and will not pay nor agree to pay any bonus or commission to any such director, officer, employee or agent; 5.3(b)(xiii) not declare, set aside or pay any dividends or other distributions, directly or indirectly, in respect of its capital stock (other than dividends from Bank of Alton to Regional Bancshares), except that Regional Bancshares may pay its regular quarterly dividend of $10.00 per share, in accordance with its past practice; provided however, that if the Merger Effective Time shall not have occurred prior to March 10, 1997, Regional Bancshares may declare, set aside or pay a dividend for each share of Regional Bancshares Common for each quarter thereafter in which the Mercantile Board of Directors shall declare a dividend on shares of Mercantile Common in an amount that equals the product of (i) 164% of the Stock Distribution, and (ii) the amount of the dividend per share 35 41 declared by the Board of Directors of Mercantile; provided further, however, that Regional Bancshares shall not declare or pay any such regular quarterly dividend for any quarter in which Regional Bancshares shareholders who will receive the Stock Distribution in the Merger will be entitled to receive a regular quarterly dividend on the shares of Mercantile Common to be issued in the Merger; 5.3(b)(xiv) not merge or consolidate with any other corporation or other entity, acquire any stock (except in a fiduciary capacity or to realize upon collateral obtained in the ordinary course of business), effect any reorganization or recapitalization involving Regional Bancshares or Bank of Alton; not acquire any assets of any other person, corporation or business organization except in the ordinary course of business, or acquire any assets (including without limitation deposits) of, or make any investment in, any financial institution; 5.3(b)(xv) not lease, sell or dispose of any material part of their assets, make capital or fixed asset expenditures in excess of $100,000 for any single item or $250,000 in the aggregate, enter into any leases of fixed assets, purchase any data processing equipment, waive or release any right or cancel or compromise any debt or claim except in the ordinary course of business, enter into any management, maintenance, servicing or similar contracts having a term of more than one year or providing for fees in excess of a rate of $250,000 per year, or otherwise enter into any material contract, transaction or commitment except in the ordinary course of business; 5.3(b)(xvi) not make any loans, discounts or commitments to loan or discount in excess of the applicable legal lending limits; 5.3(b)(xvii) not (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 equal to or in excess of $200,000; (ii) without first consulting with and obtaining the written consent of Mercantile, Lend to any person or entity in an amount equal to or in excess of $400,000; (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) through (iii) Regional Bancshares or Bank of Alton may make any such loan in the event (A) Regional Bancshares or Bank of Alton has delivered to Mercantile or its designated representative a notice of its intention to make such loan and such information as Mercantile or its designated representative may reasonably require in respect thereof and (B) Mercantile or its designated representative shall not have reasonably objected to such loan by giving written or facsimile notice of such objection within two business days following the delivery to Mercantile or its 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 36 42 which or investments in which are on a "watch list" or similar internal report of Regional Bancshares or Bank of Alton (except those denoted "pass" thereon), in an amount equal to or in excess of $50,000; provided, however, that nothing in this Section 5.3(b)(xvii) shall prohibit Regional Bancshares or Bank of Alton from honoring any contractual obligation in existence on the date of this Agreement or, with respect to loans made in compliance with clauses (i) through (iii) above, making such loans after consulting with Mercantile. Notwithstanding clauses (i) and (ii) of this Section 5.3(b)(xvii), Regional Bancshares or Bank of Alton shall be authorized without first consulting with Mercantile or obtaining Mercantile's prior written consent, to increase the aggregate amount of any credit facilities theretofore established in favor of any person or entity (each a "Pre-Existing Facility"), provided that the aggregate amount of any and all such increases shall not be in excess of $25,000. 5.3(b)(xviii) not, 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 Mercantile) relating to the disposition of any significant portion of the business or assets of Regional Bancshares or Bank of Alton or the acquisition of equity securities of Regional Bancshares or Bank of Alton or the merger of Regional Bancshares or Bank of Alton with any person (other than Mercantile) 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 Regional Bancshares shall promptly notify Mercantile 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; 5.3(b)(xix) not take any action that would (A) materially impede or delay the consummation of the transactions contemplated by this Agreement or the ability of Mercantile or Regional Bancshares 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 reorganization within the meaning of Section 368 of the Code; 5.3(b)(xx) not 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 or Federal Agency Securities and $100,000 for all other investment instruments; or 5.3(b)(xxi) not 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 action which would make any of the 37 43 representations and warranties in Article 3 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. 5.3(c) Implementation of Policies. Regional -------------------------- Bancshares, prior to the Merger Effective Time, shall (i) consult and cooperate with Mercantile regarding the implementation of those policies and procedures established by Mercantile for its governance and that of its Subsidiaries and not otherwise referenced in Section 5.3(h) herein, including, without limitation, policies and procedures pertaining to the accounting, asset/liability management, audit, credit, human resources, treasury and legal functions, and (ii) at the reasonable request of Mercantile, conform Regional Bancshares' and Bank of Alton's existing policies and procedures in respect of such matters to Mercantile's policies and procedures or, in the absence of any existing Regional Bancshares or Bank of Alton policy or procedure regarding any such function, introduce Mercantile's policies or procedures in respect thereof, unless to do so would cause Regional Bancshares or Bank of Alton to be in violation of any law, rule or regulation of any Regulatory Authority having jurisdiction over Regional Bancshares and/or Bank of Alton affected thereby. 5.3(d) Financial Statements to be Delivered. ------------------------------------ All financial statements contained in the reports to be delivered to Mercantile pursuant to this Agreement will have been prepared in accordance with GAAP or regulatory accounting principles, as the case may be, consistently applied or other standards as specifically stated herein, or in conformity with the instructions to such reports, and fairly present the consolidated financial condition of Regional Bancshares and/or Bank of Alton, (as the case may be), as of the date thereof or the results of operations for the period then ended. 5.3(e) Financial and Call Reports. Regional -------------------------- Bancshares shall deliver to Mercantile monthly Reports of Condition and Reports of Income and Dividends of Bank of Alton (certified by an officer of Bank of Alton) and shall deliver to Mercantile each quarter the Call Reports for Bank of Alton as filed with the FDIC (collectively, the "Regional Reports"). The Regional Reports: (i) in the case of the Call Reports, shall have been prepared in conformity with the rules and regulations therefor, and in the case of the other Regional Reports shall have been prepared in accordance with GAAP or regulatory accounting principles, as the case may be (subject, in the case of the unaudited interim financial statements, to normal year-end and audit adjustments and any other adjustments described therein); (ii) shall present fairly in accordance with GAAP or regulatory accounting principles, as the case may be, consistently applied (subject to adjustments that would be revealed by an audit, none of which is believed to be material in the aggregate) the financial position of Regional Bancshares or Bank of Alton (as the case may be) as of the date thereof and the results of operations for the period then ended. 38 44 5.3(f) Environmental Matters. Mercantile may --------------------- obtain, at its option and expense, on or prior to 60 days following the date hereof, a phase one environmental audit ("Environmental Audit") by Environmental Operations, Inc. or other firm selected by it, of all the properties and assets which are, or have in the past been, owned, operated or leased by Regional Bancshares or Bank of Alton, including, but not limited to, all real estate and fixtures appurtenant thereto (the "Properties"). The auditors shall be selected by Mercantile. The purpose of the Environmental Audit shall be to determine whether Materials of Environmental Concern exist (i) on or under any of the Properties, (ii) on or under any other property or in any natural resources which originated on, under or from the Properties either prior to, during or after Regional Bancshares' or Bank of Alton's ownership thereof. The Environmental Audit shall assess the Properties' compliance with any and all Environmental Laws. In the event that such Environmental Audit discloses the existence of any material liability ("Environmental Liability") for damages, penalties, fines, charges, interest, judgments, remedial action, public or private, arising directly or indirectly, in whole or in part, out of (x) the presence or release of Materials of Environmental Concern on, under or from the Properties in amounts or concentrations in excess of those permitted under applicable law or regulation, or (y) any unlawful activity carried on or undertaken on or off the Properties either prior to or after the date hereof, whether by Regional Bancshares, Bank of Alton or any predecessor in title to any of the Properties or any employees, agents, affiliates, contractors or subcontractors of Regional Bancshares, Bank of Alton or of any such predecessors in title, or any third person arising out of any Environmental Law or involving the unlawful use, handling, treatment, removal, storage, decontamination, clean up, release, transport or disposal of any Materials of Environmental Concern at any time located or present on, under or from the Properties, which liability exists against Regional Bancshares or Bank of Alton or affects in a material and adverse way the Properties, or Regional Bancshares' or Bank of Alton's rights, or business or the right to carry on or conduct their respective businesses as presently conducted, Mercantile shall notify Regional Bancshares of such Environmental Liability. If Regional Bancshares does not choose to remediate or correct the condition leading to such Environmental Liability and to otherwise fully protect and indemnify Mercantile from such Environmental Liability on terms and conditions reasonably acceptable to Mercantile, and Mercantile reasonably believes the cost of such remediation or potential liability exceeds $250,000, Mercantile shall have the right to terminate this Agreement under Article VII hereof, thereby relieving Mercantile of all its obligations hereunder, including the obligation to cause or engage in the Merger. 5.3(g) Conforming Entries. ------------------ 5.3(g)(i) Notwithstanding that Regional Bancshares believes that Regional Bancshares and Bank of Alton have established all reserves and taken all 39 45 provisions for possible loan losses required by GAAP and applicable laws, rules and regulations, Regional Bancshares recognizes that Mercantile may have adopted different loan, accrual and reserve policies (including loan classifications and levels of reserves for possible loan losses). From and after the Mercantile Due Diligence Review Period to the Merger Effective Time, Regional Bancshares and Mercantile shall consult and cooperate with each other with respect to conforming the loan, accrual and reserve policies of Regional Bancshares and the Bank of Alton to those policies of Mercantile, as specified in each case in writing to Regional Bancshares, based upon such consultation and as hereinafter provided. 5.3(g)(ii) In addition, from and after the Mercantile Due Diligence Review Period to the Merger Effective Time, Regional Bancshares and Mercantile shall consult and cooperate with each other with respect to determining appropriate Regional Bancshares accruals, reserves and charges to establish and take in respect of excess equipment write-off or write-down of various assets and other appropriate charges and accounting adjustments taking into account the parties' business plans following the Merger, as specified in each case in writing to Regional Bancshares, based upon such consultation and as hereinafter provided. 5.3(g)(iii) From and after the Mercantile Due Diligence Review Period to the Merger Effective Time, Regional Bancshares and Mercantile shall consult and cooperate with each other with respect to determining the amount and the timing for recognizing for financial accounting purposes Regional Bancshares' expenses of the Merger and the restructuring charges related to or to be incurred in connection with the Merger. 5.3(g)(iv) Subject to subsection (v) below, Regional Bancshares shall (i) establish and take such reserves and accruals to conform Regional Bancshares' loan accrual and reserve policies to Mercantile's policies, (ii) establish and take such accruals, reserves and charges in order to implement such policies in respect of excess facilities and equipment capacity, severance costs, litigation matters, write-off or write-down of various assets and other appropriate accounting adjustments, and to recognize for various accounting purposes such expenses of the Merger and restructuring charges related to or to be incurred in connection with the Merger, and (iii) effecting such divestitures or otherwise implement such restructuring in respect of its investment securities portfolio to conform Regional Bancshares' investment securities portfolio policies to Mercantile's policies. 5.3(g)(v) With respect to clauses (i) through (vi) of this Section 5.3(g), it is the objective of Mercantile and Regional Bancshares that such reserves, accruals, charges and divestitures, if any, to be taken shall be consistent with GAAP and taken only after the approval conditions set forth in Section 6.1 hereof have been satisfied or waived (except to the extent that any waiting period associated therewith may then have commenced but not expired) and Mercantile has informed Regional Bancshares that it is not aware of any facts which would 40 46 indicate that the other Merger Closing conditions in Article 6 herein cannot be met at Merger Closing. 5.3(g)(vi) No reserves, accruals or charges taken in accordance with this Section 5.3(h) may be a basis to assert (i) a violation of a breach of a representation, warranty or covenant of Regional Bancshares herein, or (ii) the non- satisfaction of any condition to the obligation of Mercantile to cause the Merger to be consummated. 5.3(h) Additional Actions. If, at any time ------------------ after the Merger Effective Time, Mercantile 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, all right, title or interest in, to or under any of the rights, properties or assets of Regional Bancshares or Merger Sub or (b) otherwise carry out the purposes of this Agreement, Regional Bancshares 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 Regional Bancshares or otherwise to take any and all such action. 5.4 Covenants of Mercantile and Merger Sub. --------------------------------------- Mercantile and Merger Sub hereby covenant and agree with Regional Bancshares as follows: 5.4(a) Approval. Mercantile will authorize and -------- approve the Merger and this Agreement, and as sole stockholder of Merger Sub by its execution hereof authorizes and approves the Merger and this Agreement. 5.4(b) Payment of Consideration. Mercantile ------------------------ represents, warrants and agrees that as and when required by the provisions of this Agreement, Mercantile will pay the consideration for which the shares of Regional Bancshares Common issued and outstanding immediately prior to the Merger Effective Time are to be converted and exchanged as provided in this Agreement. 5.4(c) Registration of Securities and Preparation ------------------------------------------ of Proxy Statement. Mercantile agrees to use its reasonable - ------------------ best efforts to file as soon as practicable with the Securities and Exchange Commission and to cause to become effective a Registration Statement on Form S-4 under the 1933 Act ("Registration Statement") registering the issuance and resale of the Mercantile Common to be received by holders of Regional Bancshares Common, and shall use reasonable efforts to make all proper filings under any applicable state securities laws. The prospectus which forms a part of the Registration Statement will also constitute the Proxy Statement 41 47 for solicitation of proxies in connection with the Stockholder Meeting referred to in Section 5.3(a). The Registration Statement will comply -------------- in all material respects with the rules and regulations of the Securities and Exchange Commission. Each of the parties hereto will cooperate fully with each other in preparation of the Registration Statement and Proxy Statement (and any and all amendments thereto) and supply all information necessary, in the opinion of their respective counsel, in order to complete the preparation of the Registration Statement and Proxy Statement. Mercantile will cause the Mercantile Common to be received by the holders of Regional Bancshares Common to be listed for trading on the New York Stock Exchange. 5.4(d) Other Filings and Appeals. Mercantile ------------------------- shall have primary responsibility for preparation of all applications for regulatory approval of the Merger including but not limited to the preparation of (a) an application or any amendment thereto filed or to be filed by any party with the Federal Reserve Board under the Act for authority to consummate the transactions contemplated by this Agreement; (b) an application or any amendment thereto filed or to be filed with the Commissioner for authority to consummate the transactions contemplated by this Agreement; and (c) any application or statements to be made by any party to any governmental body in connection with such matters and in connection with agreements and plans of reorganization and merger agreements heretofore or hereafter entered into between the parties hereto. Mercantile shall deliver copies of all applications to Regional Bancshares and Bank of Alton prior to filing, keep Regional Bancshares and Bank of Alton apprised of the status of all applications and file such applications as promptly as practicable following the date of this Agreement. Each of the parties hereto shall use its reasonable best efforts, separately and jointly with the other parties, in good faith to take or cause to be taken all such steps as shall be necessary or advisable to obtain all consents and approvals of governmental authorities as are required by law or otherwise to effect the Merger; provided, however, that Mercantile and Merger Sub shall have no obligation to accept conditions or restrictions with respect to the aforesaid approvals of governmental authorities if Mercantile shall reasonably determine that such conditions or restrictions would have a material adverse effect on the business, operations, prospects or financial condition of Regional Bancshares or Bank of Alton or Mercantile or its Subsidiaries or would be materially burdensome to Regional Bancshares or Bank of Alton or Mercantile or its Subsidiaries. In the event of an adverse or unfavorable determination by any regulatory authority, or should the Merger be challenged or opposed by any administrative or legal proceeding, whether by the United States Department of Justice or otherwise, the determination of whether and to what extent to seek appeal or review, administrative or otherwise, or other appropriate remedies shall be made by Mercantile with the concurrence of Regional Bancshares, which concurrence shall not be unreasonably withheld, and Mercantile agrees to be fully responsible for the conduct of such review or other proceeding. 42 48 5.4(e) Employee Benefit Plans. Following the ---------------------- Merger Effective Time, Mercantile shall cause the Surviving Corporation to honor in accordance with their terms all provisions for vested benefits or other vested amounts earned or accrued through the Merger Effective Time under the Benefit Plans of Regional Bancshares or Bank of Alton. 5.4(e)(i) 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 Regional Bancshares or Bank of Alton, including, without limitation, any stock appreciation rights or phantom stock plan, shall be deleted and terminated as of the date of this Agreement. 5.4(e)(ii) The Benefit Plans of Regional Bancshares and/or Bank of Alton 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 Regional Bancshares and Bank of Alton are integrated in Mercantile's employee benefit plans that are available to other employees of Mercantile and its Subsidiaries, subject to the terms and conditions specified in such plans and to such changes therein as may be necessary to reflect the consummation of the Merger. Mercantile shall take such steps as are necessary or required to integrate the employees of Regional Bancshares and Bank of Alton in Mercantile's employee benefit plans available to other employees of Mercantile and its Subsidiaries as soon as practicable after the Merger Effective Time, with (A) full credit for prior service with Regional Bancshares and Bank of Alton for purposes of vesting and eligibility for participation (but not benefit accruals under any defined benefit plan), and co-payments and deductibles, and (B) waiver of all waiting periods and, to the extent met or satisfied by an affected employee of Regional Bancshares or Bank of Alton under the Regional Bancshares Benefit Plans, all pre-existing condition exclusions or penalties. 5.4(f) Directors' and Officers' Indemnity. From ---------------------------------- and after the Merger Effective Time, Mercantile or Merger Sub, as applicable, shall, subject to any limitations or other provisions of applicable Law or action of the FDIC, to the full extent provided in Regional Bancshares' or Bank of Alton's Articles of Incorporation or Agreement as the case may be, Bylaws and applicable indemnification agreements as in effect on the date hereof, as the case may be, indemnify and hold harmless each present and former director, officer, employee and agent of Regional Bancshares or Bank of Alton (each, together with such person's heirs, executors and administrators, an "Indemnified Party" and collectively, the "Indemnified Parties") against any costs or expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation, whether civil, administrative or investigative, arising out of, relating to or in connection with any action or omission occurring prior to the Merger Effective Time (including, without limitation, acts or omissions in connection with such persons' serving as an officer, director or other fiduciary in 43 49 any entity if such service was at the request or for the benefit of Regional Bancshares or Bank of Alton) and otherwise observe all of Regional Bancshares' or Bank of Alton's obligations under their respective Articles of Incorporation or Agreement, Bylaws or agreements. Mercantile shall make advances of expenses, including attorneys' fees, incurred prior to the final disposition of a civil, administrative or investigative action, suit proceeding or claim (including an action by or in the right of Regional Bancshares or Bank of Alton) to any person to whom indemnification is or may be available under Regional Bancshares' or Bank of Alton's Articles of Incorporation or Agreement as the case may be, Bylaws and applicable indemnification agreements, provided, however, that prior to making any advances, Mercantile shall receive a written undertaking by or on behalf of such person to repay such amounts advanced in the event that it shall be ultimately determined that such person is not entitled to such indemnification. In the event Mercantile, Merger Sub or any of their successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers all or substantially all of its properties and assets to any person, then and in each such case, proper provisions shall be made so that the successors and assigns of Mercantile or Merger Sub, as applicable, shall also agree to assume the obligations set forth in this Section 5.4(f). ARTICLE 6 CONDITIONS PRECEDENT TO THE MERGER 6.1 Conditions and Obligations of Mercantile, Merger ------------------------------------------------ Sub and Regional Bancshares to the Merger. The obligations of - ----------------------------------------- Mercantile, Merger Sub and Regional Bancshares to cause the Merger to be consummated shall be subject to the satisfaction on or before the Merger Closing of all of the following conditions, except as such parties may waive such conditions in writing: 6.1(a) Approval by Regional Bancshares Stockholders. At the Stockholder Meeting, the Merger and this Agreement shall have been duly approved by the stockholders of Regional Bancshares. 6.1(b) Regulatory Authority Approval. Orders, ------------------------------ consents and approvals, in form and substance reasonably satisfactory to the parties hereto, shall have been entered by all applicable regulatory authority and shall remain in force, granting the authority necessary: (i) for consummation of the transactions contemplated by this Agreement pursuant to the provisions of the Act and other applicable laws, and (ii) to satisfy all other requirements prescribed by applicable laws and the rules and regulations of any regulatory authority. 6.1(c) No Proceedings, Etc. No judgment, order ------------------- or decree of any court and no order, notice, statute or regulation of any government or governmental 44 50 agency having jurisdiction or authority over Regional Bancshares, Bank of Alton, Mercantile or Merger Sub shall be in effect which shall restrain or prohibit, and no litigation, proceeding or investigation shall be pending or threatened by or before any such court or governmental agency attempting to restrain or prohibit: (i) consummation of the transactions contemplated by this Agreement, or (ii) the exercise of control by Mercantile or Merger Sub over Regional Bancshares or Bank of Alton following the Merger. 6.1(d) Registration Statement. The Registration ---------------------- Statement on Form S-4 as described in Section 4(c) shall have become effective under the 1933 Act and as of the Merger Closing no stop order suspending the effectiveness thereof shall have been issued or threatened. 6.1(e) Listing on Stock Exchange. The -------------------------- Mercantile Common is listed for trading on The New York Stock Exchange. 6.1(f) Tax Opinion. Mercantile shall have ----------- delivered to Regional Bancshares an opinion of Thompson Coburn dated as of the Merger Closing or a mutually agreeable earlier date, reasonably satisfactory in form and substance to Regional Bancshares and its legal counsel to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Code and that no gain or loss will be recognized by Regional Bancshares or the shareholders of Regional Bancshares or Bank of Alton to the extent that each received shares of Mercantile Common solely in exchange for shares of Regional Bancshares Common in the Merger, which opinion shall not have been withdrawn at or prior to the Merger Effective Time. 6.2 Conditions to Obligations of Mercantile to the Merger. ----------------------------------------------------- The obligations of Mercantile to cause the Merger to be consummated also shall be subject to the satisfaction on or before the Merger Closing of all of the following conditions, except as Mercantile may waive such conditions in writing: 6.2(a) Representations, Warranties and Covenants. ----------------------------------------- All representations and warranties of Regional Bancshares contained in this Agreement shall be true and correct in all material respects on and as of the date of the Merger Closing as if such representations and warranties were made on and as of the date of the Merger Closing, and Regional Bancshares shall have performed in all material respects all agreements and covenants required by this Agreement to be performed by it on or prior to the date of the Merger Closing. 6.2(b) Officers' Certificates. Regional ---------------------- Bancshares shall have furnished to Mercantile a certificate dated as of the date of the Merger Closing, signed by an executive officer of Regional Bancshares to the effect that, to his knowledge, the representations and warranties of Regional Bancshares contained in this Agreement are true and correct in all material respects as of the date of the Merger Closing 45 51 and Regional Bancshares has performed all agreements, covenants and obligations hereunder required to be performed by it in all material respects. 6.2(c) No Material Adverse Change. Since the --------------------------- date of this Agreement, there shall have been no material adverse change in the financial condition of Regional Bancshares and Bank of Alton, taken as a whole, except as may have resulted from changes to laws and regulations, GAAP or regulatory accounting principles, interpretations thereof, other conditions that affect the banking industry generally, or changes in the general level of interest rates. 6.2(d) Legal Opinion. Mercantile shall have ------------- received from Bryan Cave LLP an opinion of counsel for Regional Bancshares substantially in the form attached hereto as Exhibit A. 6.3 Conditions to Obligations of Regional Bancshares to --------------------------------------------------- the Merger. The obligations of Regional Bancshares to cause - ---------- the Merger to be consummated shall be subject to the satisfaction on or before the Merger Closing of all of the following conditions, except as Regional Bancshares may waive such conditions in writing: 6.3(a) Representations, Warranties and Covenants. ----------------------------------------- All representations and warranties of Mercantile and Merger Sub contained in this Agreement shall be true and correct in all material respects on and as of the date of the Merger Closing as if such representations and warranties were made on and as of the Merger Closing, and Mercantile shall have performed in all material respects all agreements and covenants required by this Agreement to be performed by it on or prior to the date of the Merger Closing. 6.3(b) Officers' Certificates. Mercantile shall ---------------------- have furnished to Regional Bancshares a certificate, dated as of the Merger Closing, signed by an executive officer of Mercantile to the effect that, to the knowledge of such officer, the representations and warranties of Mercantile and Merger Sub contained in this Agreement are true and correct in all material respects as of the date of the Merger Closing and Mercantile and Merger Sub have performed all agreements, covenants and obligations hereunder required to be performed by them. 6.3(c) No Material Adverse Change. Since the --------------------------- date of this Agreement, there shall have been no material adverse change in the financial condition of Mercantile or its Subsidiaries, taken as a whole, except as may have resulted from changes to laws and regulations, GAAP, interpretations thereof, other conditions that affect the banking industry generally, or changes in the general level of interest rates. 6.3(d) Legal Opinion. Regional Bancshares shall ------------- have received from Thompson Coburn an opinion of counsel for Mercantile and Merger Sub substantially in the form attached hereto as Exhibit B. 46 52 6.3(e) Effective Registration Statement. The --------------------------------- Registration Statement as described in Section 5.4(c) shall have become effective under the 1933 Act and as of the Merger Effective Time no stop order suspending the effectiveness thereof shall have been issued or threatened. ARTICLE 7 ABANDONMENT AND TERMINATION OF THE MERGER 7.1 Termination. This Agreement may be abandoned and ----------- terminated at any time before the Merger Effective Time, whether before or after any stockholder action as follows: 7.1(a) At any time prior to the Merger Closing, by the mutual consent of the Boards of Directors of Regional Bancshares and Mercantile; 7.1(b) At any time prior to the Merger Closing, by Regional Bancshares or Mercantile if there shall have been a final judicial or regulatory determination (as to which all periods for appeal shall have expired and no appeal shall be pending) that any material provisions of this Agreement are illegal, invalid, or unenforceable or denying any regulatory application the approval of which is a condition precedent to such party's obligations hereunder; 7.1(c) At any time on or after the date which is twelve (12) months following the date of this Agreement by Regional Bancshares or Mercantile if the Merger Closing shall have not then occurred, provided that Regional Bancshares or Mercantile, as the case may be, shall not have the right to terminate this Agreement pursuant to this Section 7.1(c) if the Merger Closing shall not have occurred because of the failure of any of the conditions set forth in Article 6 hereof as a result of any willful and deliberate breach, through action or failure to act, of any representation, warranty, covenant or agreement hereunder by Regional Bancshares or Mercantile, respectively; 7.1(d) By either party at any time after the stockholders of Regional Bancshares fail to approve the Agreement or the Merger in a vote taken at the Stockholder Meeting duly convened for that purpose; 7.1(e) By either party hereto, if the Executive Committee of the Board of Directors of Mercantile or the Board of Directors of Regional Bancshares so determines by vote of a majority of their members, in the event of a material breach by the other party of any representation, warranty, covenant or agreement herein that cannot be or is not cured within thirty days after written notice of such breach is given to the party committing such breach, provided that the departure of any Executive Officer from the employ of Regional Bancshares shall not be deemed a material breach of its Agreement. 47 53 7.1(f) By the Executive Committee of the Board of Directors of Mercantile in the event (i) any situation, event, circumstance or other matter shall come to the attention of Mercantile during the course of the Mercantile Due Diligence Review conducted pursuant to Section 5.1(e)(ii) hereof which Mercantile 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 Regional Bancshares, (B) to be of such significance as to materially and adversely affect the financial condition and/or business of Regional Bancshares and Bank of Alton, taken as a whole, or (C) to deviate materially and adversely from the Regional Financial Statements as of and for the six-months ended June 30, 1996, and (ii) Mercantile notifies Regional Bancshares of such matters within five business days after the end of the Mercantile Due Diligence Review Period and such matters are not capable of being cured or have not been cured within 30 days after written notice thereof to Regional Bancshares. 7.1(g) By the Executive Committee of the Board of Directors of Mercantile pursuant to and in accordance with the provisions of Section 5.3(f) hereof. 7.2 Procedure for Termination. In the event a party -------------------------- elects to effect any termination pursuant to Sections 7.1(b) through 7.1(g) above, it shall give written notice to the other party hereto specifying the basis for such termination. 7.3 Return of Information. In the event that this ---------------------- Agreement is terminated, each party shall return all nonpublic documents furnished hereunder, shall destroy all documents or portions thereof prepared by such a party that contain nonpublic information furnished by the other party pursuant hereto and, in any event, shall hold all nonpublic information received pursuant hereto in the same degree of confidentiality with which it maintains its own like information unless or until such information is or becomes known to the party receiving such information through persons other than the party providing such information, which persons do not have an obligation to such party not to disclose such information. 7.4 Effect of Termination. In the event of ---------------------- termination of this Agreement as provided in Section 7.1 hereof, this Agreement shall forthwith become void and there shall be no continuing obligations on the part of Mercantile, Merger Sub or Regional Bancshares or their respective officers or directors except as set forth in (i) the second sentence of Section 5.1(e)(i), (ii) Section 5.2, and (iii) except that no termination of this Agreement pursuant to Section 7.1(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 7.1(e). 48 54 ARTICLE 8 MISCELLANEOUS 8.1 Notice. All notices, requests, demands, and ------- other communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or delivered by reliable overnight courier (and shall be deemed delivered upon delivery) or mailed, first class postage prepaid (in which case it shall be deemed delivered three days after deposit in the mail) as follows: To Regional Bancshares: 94 Fairmount Alton, Illinois 62002 Attention: Paul E. Utterback with copies to: Bryan Cave LLP One Metropolitan Square 211 North Broadway Suite 3300 St. Louis, Missouri 63102 Attention: James H. Erlinger III To Mercantile or Merger Sub: Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, Missouri 63166-0524 Attention: John W. Rowe, Executive Vice President - Mercantile Bank of St. Louis National Association with copies to: Jon W. Bilstrom General Counsel and Secretary Mercantile Bancorporation Inc. Mercantile Tower P.O. Box 524 St. Louis, Missouri 63166-0524 and to: Robert M. LaRose, Esq. Thompson Coburn 49 55 One Mercantile Center St. Louis, Missouri 63101 or such other address as the parties hereto may designate in writing. 8.2 Amendments. This Agreement may be amended by a ----------- subsequent writing signed by each of the parties hereto upon the approval of the Board of Directors of each of the parties hereto; provided, however, that the provisions of Article 2 of this Agreement relating to the consideration to be paid for the shares of Regional Bancshares Common shall not be amended after the transactions hereby have been approved by the stockholders of Regional Bancshares so as to modify either the amount or the form of such consideration or to otherwise materially adversely affect the stockholders of Regional Bancshares without the approval of the stockholders of Regional Bancshares who are so affected. 8.3 Third Party Beneficiaries. This Agreement shall -------------------------- grant no rights and is intended to confer no benefit to any party other than the undersigned parties to this Agreement. 8.4 Benefit and Binding Effect. This Agreement shall -------------------------- be binding upon and inure to the benefit of the parties named herein and their respective successors and assigns only and no other person or entity not a party hereto shall have any rights hereunder. This Agreement and the rights, interests or obligations hereunder may not be assigned by any of the parties hereto without the prior written consent of the other parties hereto. 8.5 Governing Law. This Agreement shall be construed ------------- and interpreted according to the laws of the State of Missouri without regard to conflicts of laws principles thereof, except as otherwise provided herein. 8.6 Whole Agreement. This Agreement, and the --------------- agreements to be entered into pursuant hereto, embody the entire contact between the parties with respect to their respective subject matters and no understandings or agreements, verbal or otherwise, with respect to the subject matter hereof or thereof exists between the parties, except as expressly set forth herein and in such other agreements. 8.7 Counterparts. This Agreement may be executed in ------------- any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 50 56 8.8 Reliance on Headings. Article and section headings -------------------- contained in this Agreement are inserted for convenience of reference only and shall not form any part of the agreement between the parties hereto or affect in any way the meaning or interpretation of this Agreement. 51 57 IN WITNESS WHEREOF, Regional Bancshares, Mercantile, and Merger Sub have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. Regional Bancshares, Inc. By: /s/ David Utterback ---------------------------- Name: David Utterback Title: President Mercantile Bancorporation Inc. By: /s/ John W. Rowe --------------------------- Name: John W. Rowe Title: Executive Vice President - Mercantile Bank of St. Louis National Association, Authorized Officer Ameribanc, Inc. By: /s/ John W. Rowe --------------------------- Name: John W. Rowe Title: Vice President 52 58 GLOSSARY Page ---- 1933 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1934 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Bank of Alton. . . . . . . . . . . . . . . . . . . . . . . . . 1 Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . 1 Buyer Bancorp. . . . . . . . . . . . . . . . . . . . . . . . . 1 Buyer Bancorp Reports. . . . . . . . . . . . . . . . . . . . . 30 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 6 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Commissioner . . . . . . . . . . . . . . . . . . . . . . . . . 10 Company Merger Closing . . . . . . . . . . . . . . . . . . . . 4 Employment Agreements. . . . . . . . . . . . . . . . . . . . . 16 Environmental Claim. . . . . . . . . . . . . . . . . . . . . . 2 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . 2 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . 6 FDIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Federal Reserve Board. . . . . . . . . . . . . . . . . . . . . 27 Government . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Held to Maturity . . . . . . . . . . . . . . . . . . . . . . . 12 Indemnified Parties. . . . . . . . . . . . . . . . . . . . . . 43 Indemnified Party. . . . . . . . . . . . . . . . . . . . . . . 43 Intellectual Property. . . . . . . . . . . . . . . . . . . . . 2 IRCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Materials of Environmental Concern . . . . . . . . . . . . . . 3 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Merger Effective Time. . . . . . . . . . . . . . . . . . . . . 4 Newco. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 PBGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Regional Bancshares. . . . . . . . . . . . . . . . . . . . . . 1 Regional Bancshares Common . . . . . . . . . . . . . . . . . . 3 Regional Reports . . . . . . . . . . . . . . . . . . . . . . . 38 Registration Statement . . . . . . . . . . . . . . . . . . . . 41 Significant Banking Subsidiary . . . . . . . . . . . . . . . . 30 Significant Subsidiary . . . . . . . . . . . . . . . . . . . . 27 Stockholder Meeting. . . . . . . . . . . . . . . . . . . . . . 34 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Surviving Corporation. . . . . . . . . . . . . . . . . . . . . 3 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . 20 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 53 59 SCHEDULES Schedule 3.6 (Regulatory Matters) Schedule 3.8 (Compliance with Laws and Agreements) Schedule 3.9 (Regional Financial Statements) Schedule 3.10 (Real Property) Schedule 3.12 (Loans and Investments) Schedule 3.12A (Allowance for Loan and Lease Losses) Schedule 3.12B (Restricted Investments) Schedule 3.12C (Obligations to Acquire Assets) Schedule 3.13 (Employees) Schedule 3.14 (Indebtedness to and from Officers, Directors and Others) Schedule 3.15 (Conflicts) Schedule 3.16 (Regional Bancshares Litigation) Schedule 3.18 (Insurance Policies) Schedule 3.19(e) (Bonuses) Schedule 3.22 (Large Deposits) Schedule 3.28 (Benefit Plans) Schedule 3.31(a) (Undisclosed Liabilities) 54 60 EXHIBIT A OPINION OF COUNSEL FOR REGIONAL BANCSHARES a. Regional Bancshares, Inc. is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois, is duly qualified to do business and is in good standing in all jurisdictions where the ownership or leasing of its properties or the conduct of its business require Regional Bancshares, Inc. to be so qualified. Regional Bancshares, Inc. is registered as a bank holding company with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended. b. Bank of Alton is an Illinois chartered banking corporation validly existing and in good standing under the laws of the State of Illinois. c. Regional Bancshares, Inc. and Bank of Alton each possesses all power and authority (corporate and other) to own, operate and lease its respective properties and to carry out its respective business as it is now being conducted in each jurisdiction where its business is being conducted. d. Regional Bancshares, Inc. has the power and authority (corporate and other) to enter into and deliver the Agreement and to carry out its obligations thereunder. e. The execution, delivery and performance of the Agreement has been duly and validly authorized by all necessary corporate action of Regional Bancshares, Inc., and, assuming due authorization, execution and delivery of the Agreement by Mercantile and Merger Sub, such Agreement constitutes a valid and binding obligation of Regional Bancshares, Inc. that is enforceable against Regional Bancshares, Inc. in accordance with its terms, except as may be limited by bankruptcy, insolvency, moratorium, reorganization 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. f. Neither Regional Bancshares, Inc. nor Bank of Alton is in default under or in violation of any provision of its Articles of Incorporation, Articles of Agreement or ByLaws or any note, bond, indenture, mortgage, deed of trust, loan agreement or any other agreement to which it is a party or by which it is bound or to which any of its properties or assets is subject, other than such defaults or violations as would not (singly or in the aggregate) have a material adverse effect on the business, operation, prospects or financial condition of Regional Bancshares, Inc. and Bank of Alton taken as a whole, nor is Regional Bancshares, Inc. or Bank of Alton in violation of any statute, rule, regulation, order, writ, decree or injunction of any court or governmental agency or any body having jurisdiction over them or 55 61 any of their properties which, if enforced, would have (singly or in the aggregate) a material adverse effect on the business, operations, prospects or financial condition of Regional Bancshares, Inc. and Bank of Alton taken as a whole. g. 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 consummation by Regional Bancshares, Inc. of the Merger as contemplated by the Agreement. h. The authorized and issued capital of Regional Bancshares, Inc. conforms to the description thereof contained in Section 3.1 of the Agreement. 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 Regional Bancshares, Inc., or contracts, commitments, understandings or arrangements by which Regional Bancshares, Inc. 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 Regional Bancshares, Inc.. To the best of our knowledge, all of the issued and outstanding shares of Regional Bancshares, Inc. Common Stock are validly issued, fully paid and nonassessable by Regional Bancshares, Inc. and none of such shares have been issued in violation of any preemptive or similar right of any shareholder of Regional Bancshares, Inc. i. Regional Bancshares, Inc. is the owner of record of all of the issued and outstanding shares of Common Stock of Bank of Alton, other than directors' qualifying shares.Regional Bancshares, Inc. has no direct or indirect Subsidiaries other than Bank of Alton 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 Bank of Alton, or contracts, commitments, understandings or arrangements by which Bank of Alton 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 such entity. To the best of our knowledge, all of the issued and outstanding shares of common stock of Bank of Alton are validly issued, fully paid and nonassessable by Bank of Alton and none of such shares have been issued in violation of any preemptive or similar right of any stockholder of Bank of Alton. j. To the best of our knowledge, neither Regional Bancshares, Inc. nor Bank of Alton 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 56 62 local, pending or threatened, that is likely to have a material and adverse effect on the business, results of operations or financial condition of Regional Bancshares, Inc. and Bank of Alton, taken as a whole. 57 63 EXHIBIT B OPINION OF COUNSEL a. Each of Mercantile and Merger Sub 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 respective properties or the conduct of its business requires it to be so qualified, except where the failure to so qualify would not have a material adverse effect on the business, operations or financial condition of Mercantile and Merger Sub, taken as a whole. Mercantile and Merger Sub 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 Merger Sub each possesses all power and authority (corporate and other) to own, operate and lease its respective properties and to carry out its respective business as it is now being conducted in each jurisdiction where its business is being conducted. c. Mercantile and Merger Sub each have the power and authority (corporate and other) to enter into and deliver the Agreement and to carry out its respective obligations thereunder. d. The execution, delivery and performance of the Agreement has been duly and validly authorized by all necessary corporate action of Mercantile and Merger Sub, respectively, and, assuming due authorization, execution and delivery of the Agreement by Regional Bancshares, Inc., such Agreement constitutes a valid and binding obligation of Mercantile and Merger Sub that is enforceable against Mercantile and Merger Sub, as the case may be, in accordance with its terms, except as may be limited by bankruptcy, insolvency, moratorium, reorganization 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. Neither Mercantile nor any of its Significant Subsidiaries is in default under or in violation of any provision of its Articles of Incorporation, Articles of Association or By- Laws or any note, bond, indenture, mortgage, deed of trust, loan agreement or any other agreement to which it is a party or by which it is bound or to which any of its properties or assets is subject, other than such defaults or violations as would not (singly or in the aggregate) have a material adverse effect on the business, operation, prospects or financial condition of Mercantile and its Subsidiaries taken as a whole, nor is Mercantile or any of its Significant Subsidiaries in violation of any statute, rule, regulation, order, writ, decree or injunction of any court or governmental agency or any body having jurisdiction over them or any of their properties which, if enforced, would have (singly or in the 58 64 aggregate) a material adverse effect on the business, operations, prospects or financial condition of 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 consummation by Mercantile or Merger Sub of the Merger as contemplated by the Agreement. g. To the best of our knowledge, the authorized and issued capital of Mercantile conforms to the description thereof contained in Section 4.1 of the Agreement. To the best of our knowledge, except as set forth in the 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 issued pursuant to the Agreement are duly authorized, validly issued, fully paid and nonassessable by Mercantile, and none of such shares are subject to preemptive or other similar rights. h. To the best of our knowledge, neither Mercantile nor Merger Sub 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. 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 its Subsidiaries, taken as a whole. 59 EX-2.2 3 FORM OF VOTING AGREEMENT 1 [Exhibit 2.2] VOTING AGREEMENT This Voting Agreement dated as of August 23, 1996, is entered into between MERCANTILE BANCORPORATION INC. ("Mercantile), and Paul E. Utterback ("Stockholder"). WHEREAS, Regional Bancshares, Inc. ("Regional Bancshares) 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 Regional Bancshares by means of a merger between Regional Bancshares and Mercantile's subsidiary, Ameribanc, Inc. (the "Merger"); and WHEREAS, Stockholder is the beneficial owner in excess of seventy percent (70%) of the issued and outstanding Common Stock of Regional Bancshares (the "Shares"), the certificate(s) in respect of which is held pursuant to Voting Trust Agreement dated as of November 21, 1994, by and between Stockholder and Billy R. Summers, as Trustee (the "Voting Trust Agreement"), a copy of which is attached hereto as Exhibit A; and WHEREAS, Mercantile is willing to expend the substantial time, effort and expense necessary to implement the Merger only if Stockholder enters into this Voting Agreement. NOW, THEREFORE, in consideration of the premises, Stockholder hereby agrees as follows: 1. Voting Agreement. Stockholder shall vote the ---------------- shares, or, as holder of the Trust Certificate issued under the Voting Trust Agreement in respect of the Shares, cause the trustee of the Voting Trust Agreement pursuant to Section 6 of the Voting Trust Agreement, 2 to vote all of the Shares and any additional shares of Regional Bancshares Stock hereafter beneficially owned by Stockholder in favor of the approval of the Agreement and the Merger at the meeting of stockholders of Regional Bancshares to be called for the purpose of approving the Agreement and the Merger (the "Meeting"). 2. No Competing Transaction. Stockholder shall not ------------------------ vote or cause to be voted any of the Shares in favor of the approval of any other agreement relating to the merger or sale of all or substantially all the assets of Regional Bancshares 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 Regional Bancshares and Mercantile, whichever comes first. 3. Transfers Subject to Agreement. Stockholder ------------------------------ shall not transfer or cause the transfer of any of the Shares 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 of the Shares. All rights, ownership and economic benefits of and relating to the shares of Regional Bancshares Stock covered by this Voting Agreement shall remain and belong to Stockholder and/or the trustee under the Voting Trust Agreement and Mercantile shall have no authority to manage, direct, superintend, restrict, regulate, govern or administer any of the policies or operations of Regional Bancshares or exercise any power or authority to direct Stockholder in the voting of any of the Shares, except as otherwise expressly provided herein. 2 3 5. Evaluation of Investment. Stockholder, by reason ------------------------ of his knowledge and experience in financial and business matters and in his capacity as a former 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. Transfers to Family Members. Subject to the --------------------------- provisions of Section 3 hereof, Stockholder may transfer or cause the transfer of the Shares to affiliates or family members of Stockholder, including, without limitation a partnership of which Stockholder and his family members constitute all the partners. 7. Documents Delivered. Stockholder acknowledges ------------------- that he has 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 Regional Bancshares. (a) Mercantile's Annual Report on Form 10-K for the year ended December 31, 1995; (b) Mercantile's Annual Report to Stockholders for the year ended December 31, 1995; (c) Mercantile's Current Reports on Form 8-K dated January 16, 1996 and March 11, 1996; and (d) Mercantile's Quarterly Report on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996. 3 4 8. 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 Stockholder and Mercantile. 9. 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 Regional Bancshares and Stockholder concerning the voting of the shares of Regional Bancshares Stock covered by this Voting Agreement for the approval of the Agreement and the Merger or the disposition or control of such shares of Regional Bancshares Stock. 10. 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 to the extent consistent with the intent of the parties, and the rights and obligations of the parties shall be construed and enforced accordingly. 11. Counterparts. This Voting Agreement may be ------------ executed in more than one counterpart, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12. Governing Law. The validity, construction, ------------- enforcement and effect of this Voting Agreement shall be governed by the internal laws of the State of Missouri. 4 5 13. 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. 14. Termination. This Voting Agreement shall ----------- terminate upon the consummation of the Merger, abandonment of the Merger by the mutual agreement of Regional Bancshares and Mercantile or termination of the Agreement, whichever comes first. 15. Successors. This Voting Agreement shall be ---------- binding upon and inure to the benefit of Mercantile and its successors, and Stockholder, such Stockholder's respective executors, personal representatives, administrators, heirs, legatees, guardians and other legal representatives. This Voting Agreement shall survive the death or incapacity of Stockholder. This Voting Agreement may be assigned by Mercantile only to an affiliate of Mercantile. MERCANTILE BANCORPORATION INC. By: /s/ John W. Rowe -------------------------------------- John W. Rowe Executive Vice President Mercantile Bank of St. Louis National Association, Authorized Officer STOCKHOLDER /s/ Paul E. Utterback -------------------------------------- Paul E. Utterback 5 EX-5.1 4 OPINION RE LEGALITY 1 [Exhibit 5.1] [Letterhead of Thompson Coburn] December 12, 1996 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 December 12, 1996 (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 600,419 shares of the Company's common stock, $5.00 par value (the "Shares"), in connection with the acquisition of Regional Bancshares, Inc. ("Regional") pursuant to the Agreement and Plan of Merger, dated as of August 23, 1996 (the "Merger Agreement"), by and among the Company, Ameribanc, Inc. and Regional, 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 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 Coburn EX-8.1 5 OPINION RE TAX MATTERS 1 [Exhibit 8.1] December 12, 1996 Board of Directors Regional Bancshares, Inc. 94 Fairmount Alton, Illinois 62002 Ladies and Gentlemen: You have requested our opinion with regard to certain federal income tax consequences of the proposed merger (the "Merger") of Regional Bancshares, Inc. ("Regional") 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 Regional, MBI and Ameribanc dated August 23, 1996, including the schedules and exhibits thereto (the "Agreement"); (ii) MBI's Registration Statement on Form S-4, including the Proxy Statement/Prospectus contained therein, filed with the Securities and Exchange Commission on * , 1996 (the --------- "Registration Statement"); (iii) The representations and undertaking of MBI substantially in the form of Exhibit A hereto; (iv) The representations and undertakings of Regional and the majority holder of Regional common stock, par value $10.00 per share ("Regional Common Stock"), substantially in the forms of Exhibit B and Exhibit C hereto; and (v) The Rights Plan between MBI and Mercantile Bank of St. Louis 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. We have also assumed that Regional has earnings and profits for federal income tax purposes in an amount equal to or exceeding its current retained earnings. 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 2 Regional Bancshares, Inc. December 12, 1996 Page 2 may be inapplicable. Capitalized terms not otherwise defined herein have the meaning ascribed to them in the Agreement. OPINIONS Subject to the foregoing, to the conditions and limitations expressed elsewhere herein, and assuming that the Merger is consummated in accordance with the Agreement, we are of the opinion that the Merger will constitute a reorganization within the meaning of section 368 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"). Accordingly, pursuant to the provisions and limitations of section 356 of the Code, Regional shareholders will recognize no gain or loss as a result of the exchange of Regional Common Stock solely for MBI Common Stock in the Merger; provided, however, that (i) gain will be recognized in accordance with the provisions and limitations of section 356 of the Code in respect of the Cash Distribution received, and (ii) gain will be recognized in accordance with the provisions and limitations of section 356 of the Code, or dividend income will be recognized under section 301 of the Code, with respect to the West Pointe Consideration received (i.e., shares of West Pointe Common and cash in lieu of ---- fractional shares thereof). We emphasize that, among other requirements that must be satisfied in order for the Merger to qualify as a reorganization under section 368 of the Code, the historic shareholders of Regional must, as a group, retain approximately 405,000 of the shares of MBI Common Stock received in the Merger (or more, if the fair market value of the MBI Common Stock is less than $46.00 per share at the Merger Effective Time) for a period of at least five years or, in the event of early disposition, demonstrate that the early disposition was not pursuant to a plan or arrangement in place at the time of the Merger (Treas. Reg. Sec.1.368-1; Rev. Rul. 66-23, 1966-1 C.B. 67; Penrod v. Commissioner, 88 ---------------------- T.C. 1415 (1987)). For ruling purposes, the Internal Revenue Service (the "Service") treats stock as fungible such that, in determining whether 405,000 shares out of the 600,419 shares of MBI Common Stock to be issued in the Merger are retained by the Regional shareholders, the Service treats shares of MBI Common Stock which are owned by Regional shareholders before the Merger and disposed of after the Merger as dispositions of the 600,419 shares of MBI Common Stock received in the Merger (Rev. Proc. 86-42, Section 7.02, 1986-2 C.B. 722). Regional is unable to make certain standard representations regarding the continuity of shareholder interest requirement as interpreted by the Service, and Regional's shareholders have refused to make certain representations requested by Thompson Coburn. However, Regional's majority shareholder has represented, in accordance with Exhibit C hereto, that he alone has no plan or arrangement to dispose of MBI Common Stock currently owned or to be received in the Merger. With your consent, we have assumed for all purposes of this opinion that if such shareholder disposes of any MBI Common Stock owned prior to or received in the Merger, such shareholder will be able to demonstrate that the early disposition was not pursuant to a plan or arrangement in place at the time of the Merger. * * * * * * * * * * * * 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, 3 Regional Bancshares, Inc. December 12, 1996 Page 3 to those shareholders of Regional who acquired shares of Regional 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 described herein may become inapplicable. The foregoing opinion reflects our legal judgment solely on the issues presented and discussed herein. This opinion has no official status or binding effect of any kind. Accordingly, we cannot assure you that the Service or any court of competent jurisdiction will agree with this opinion. We hereby consent to the filing of this letter as an exhibit to the Registration Statement and to all references made to this letter and to this firm in the Registration Statement. Very truly yours, /s/ Thompson Coburn 4 Exhibit A CERTIFICATE ----------- The undersigned, * , [Undersigned's Title] of Mercantile ----------- Bancorporation Inc., a Missouri corporation ("MBI"), HEREBY CERTIFIES that (a) I am familiar with the terms and conditions of the Agreement and Plan of Merger by and among Regional Bancshares, Inc., an Illinois corporation ("Regional"), MBI, and Ameribanc, Inc., a Missouri corporation ("Ameribanc"), dated August 23, 1996, including the schedules and exhibits thereto (the "Agreement"), and (b) I am aware that (i) this Certificate will be relied on by Thompson Coburn, counsel for MBI, in rendering its opinion to Regional that the merger of Regional 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 (the "Code"), and (ii) the representations and undertaking recited herein will survive the Merger. The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF MBI, that: (1) The terms of the exchange of Regional common stock, par value $10.00 per share ("Regional Common Stock"), in return for the MBI common stock, par value $5.00 per share ("MBI Common Stock"), the West Pointe Bank And Trust Company common stock ("West Pointe Common Stock"), and the cash to be received by each Regional shareholder in the Merger (including cash to be received in lieu of fractional shares of MBI Common Stock and West Pointe Common Stock, if any) (such MBI Common Stock, West Pointe Common Stock and cash are collectively referred to herein as the "Merger Consideration"), were arrived at in arm's length negotiations between MBI, Ameribanc and Regional. (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 Regional 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. After the Merger, (a) Ameribanc will not issue additional shares of its stock that 5 would result in MBI losing control of Ameribanc within the meaning of section 368(c) of the Code, and (b) neither Ameribanc nor any other member of MBI's "affiliated group" (as the quoted term is defined in Code section 1504, the "MBI Affiliated Group") will 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 Ameribanc will be issued in connection with the Merger. (4) In the Merger, MBI and Ameribanc will tender no consideration for Regional Common Stock other than the "Merger Consideration" (as the quoted term is defined in the Agreement) and cash in lieu of fractional shares of MBI Common Stock. (5) 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 of whether by dividend distribution or otherwise 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 in writing by Thompson Coburn, to cause, suffer, or permit Ameribanc to sell or otherwise dispose of (whether by dividend distribution or otherwise) (i) any assets of Regional acquired in the Merger, or (ii) any assets of any other member of Regional's "affiliated group" (as the quoted term is defined in Code section 1504, the "Regional Affiliated Group"). (6) After the Merger, Ameribanc will continue the historic businesses of Regional and the other members of the Regional Affiliated Group, or will use a significant portion of the historic business assets of the members of the Regional Affiliated Group in a business (no stock of any member of the Regional's Affiliated Group shall be treated as a business asset for purposes of this representation). (7) MBI, Ameribanc, Regional, and the shareholders of Regional 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 Regional 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 expenses and filing fees described in Section 5.2 of the Agreement. 6 (8) 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 Regional in connection with the Merger, and no liability to which Regional 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 Regional 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 Regional shareholders with respect to the Merger Consideration to be delivered in the Merger, (ii) to dissenters, if any, (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 (7) above, and (v) as compensation to any employee of MBI or Regional or of any other member of the MBI Affiliated Group or the Regional Affiliated Group for services rendered in the ordinary course of his or her employment. (9) No indebtedness between Regional or any other member of the Regional Affiliated Group, on the one hand, and Ameribanc, 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, (b) will be settled, as a result of the Merger, at a discount, or (c) will result in the recognition of gain under Treasury Regulation Sec. 1.1502-13. No "installment obligation" (as the quoted term is defined for purposes of Code section 453B), between Regional, 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. (10) 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 Regional 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 Regional shareholders in exchange for their shares of Regional Common Stock. The fractional share interests of each Regional shareholder will be aggregated, and no Regional shareholder will receive cash 7 in lieu of fractional share interests in an amount equal to or greater than the value of one full share of MBI Common Stock. (11) 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 assets of Ameribanc or Regional. (12) Neither MBI nor any other member of the MBI Affiliated Group has any plan or intention to redeem or otherwise reacquire any of the MBI Common Stock issued to the shareholders of Regional in the Merger. (13) None of the compensation to be paid or accrued after the Merger to or for the benefit of any shareholder-employee of Regional will be separate consideration for, or allocable to, any of his or her shares of Regional Common Stock; none of the shares of MBI Common Stock received in the Merger by any Regional 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 Regional 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. (14) With regard to the Rights Plan between MBI and Mercantile Bank of St. Louis 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. (15) Neither MBI nor any other member of the MBI Affiliated Group has owned, directly or indirectly, any stock of Regional within the last five years. (16) No terms or conditions of the Agreement (including the schedules and exhibits thereto) have been waived or modified. The Agreement represents the complete understanding and agreement by and among MBI, Ameribanc and Regional regarding the Merger. 8 The undersigned HEREBY AGREES to immediately communicate in writing to Thompson Coburn 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 again immediately before the Merger. IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of MBI this ----- day of ------------, 1996. ------------------------------------ 9 Exhibit B CERTIFICATE ----------- The undersigned, * , [Undersigned's Title] of Regional ------------- Bancshares, Inc., an Illinois corporation ("Regional"), HEREBY CERTIFIES that (a) I am familiar with the terms and conditions of the Agreement and Plan of Merger by and among Regional, Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), and Ameribanc, Inc., a Missouri corporation ("Ameribanc"), dated August 23, 1996, including the schedules and exhibits thereto (the "Agreement"), and (b) I am aware that (i) this Certificate will be relied on by Thompson Coburn, counsel for MBI, in rendering its opinion to Regional that the merger of Regional 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 (the "Code"), and (ii) the representations and undertaking recited herein will survive the Merger. The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF Regional, that: (1) The terms of the exchange of Regional common stock, par value $10.00 per share ("Regional Common Stock"), in return for the MBI common stock, par value $5.00 per share ("MBI Common Stock"), the West Pointe Bank And Trust Company common stock ("West Pointe Common Stock"), and the cash to be received by each Regional shareholder in the Merger (including cash to be received in lieu of fractional shares of MBI Common Stock and West Pointe Common Stock, if any) (such MBI Common Stock, West Pointe Common Stock and cash are collectively referred to herein as the "Merger Consideration"), were arrived at in arm's length negotiations between Regional, MBI and Ameribanc. (2) Regional 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 Regional immediately prior to the Merger. For purposes of this representation, Regional assets used to pay shareholders who receive cash, and Regional 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 Regional held immediately prior to the Merger. For purposes of this representation, (i) any asset of Regional or any other member of Regional's "affiliated group" (as the quoted term is defined in Code section 1504, the "Regional 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 Regional held immediately prior to the Merger; 10 and (ii) the 12,250 shares of West Pointe Common Stock presently held by Regional shall be treated as not transferred to Ameribanc in the Merger. (3) At the time of the Merger and except with regard to Transaction Costs (as defined below), each liability of Regional and each liability to which an asset of Regional is subject will have been incurred by Regional 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, Regional 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 Regional shareholder in connection with the Merger. For purposes of this representation, (a) the term "Regional" shall be deemed also to refer to each other member of the Regional 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 Regional 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 Regional or to any other member of the Regional Affiliated Group, if any, and (iii) as compensation to any employee of Regional or of any other member of the Regional Affiliated Group for services rendered in the ordinary course of his or her employment. (4) Before the Merger, Regional 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 Regional 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) Expenses, if any, that are incurred in connection with the Merger and are properly attributable to Regional's shareholders will be paid by those shareholders and not by Regional. With the exception of those printing expenses and filing fees described in Section 5.2 of the Agreement, Regional will pay its own expenses that are incurred in connection with the Merger. (6) No indebtedness between Regional or any other member of the Regional Affiliated Group, on the one hand, and Ameribanc, MBI or any other member of MBI's "affiliated group" (as the quoted term is defined in Code section 1504), on the other hand, exists or will exist prior to the Merger that (a) was issued or acquired at a discount, (b) will be settled, as a result of the Merger, at a discount, or (c) will result in the recognition of gain under Treasury Regulation Sec. 1.1502-13(g). No "installment 11 obligation" (as the quoted term is defined for purposes of Code section 453B), between Regional, 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. (7) The fair market value of the assets of Regional 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. (8) The payment of cash in lieu of fractional shares of MBI Common Stock will be solely for the purpose of avoiding the expense and inconvenience to MBI of issuing fractional shares and will not represent separately bargained-for consideration. The total cash consideration that will be paid in the Merger to the Regional 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 Regional shareholders in exchange for their shares of Regional Common Stock. The fractional share interests of each Regional shareholder will be aggregated, and no Regional 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. (9) None of the compensation paid or accrued before the Merger to or for the benefit of any Regional shareholder-employee will be separate consideration for, or allocable to, any of his or her shares of Regional Common Stock; none of the shares of MBI Common Stock received in the Merger by any Regional 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 Regional 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. (10) To the best knowledge of the undersigned, (i) 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, and (ii) no such payments will be funded with Regional assets. (11) Regional meets the requirements of Code section 368(a)(2)(F) or is not an investment company as defined in Code section 368(a)(2)(F)(iii) and (iv). (12) No terms or conditions of the Agreement (including the schedules and exhibits thereto) have been waived or modified. The Agreement represents the complete understanding and agreement by and among MBI, Ameribanc and Regional regarding the Merger. 12 The undersigned HEREBY AGREES to immediately communicate in writing to Thompson Coburn 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 again immediately before the Merger. IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of Regional this ----- day of ---------------, 1996. ------------------------------------------- 13 Exhibit C SHAREHOLDER CERTIFICATE ----------------------- The undersigned shareholder of Regional Bancshares, Inc., an Illinois corporation ("Regional"), HEREBY CERTIFIES that (a) I own or have the sole right to make investment decisions with regard to * shares Regional ------- common stock, par value $10.00 per share ("Regional Common Stock"), (b) I am familiar with the terms and conditions of the Agreement and Plan of Merger by and among Regional, Mercantile Bancorporation Inc., a Missouri corporation ("MBI"), and Ameribanc, Inc., a Missouri corporation ("Ameribanc"), dated August 23, 1996, and (c) I am aware that (i) this Certificate will be relied on by MBI and by Thompson Coburn, counsel for MBI, in rendering its opinion to Regional that the merger of Regional 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 to Dispose of any MBI common stock, par value $5.00 per share ("MBI Common Stock"), currently owned or to be received as consideration in the Merger, with the exception of any fractional share of MBI Common Stock to be exchanged for cash pursuant to the Merger. For purposes of this representation, "Dispose" (and with correlative meaning, "Disposition") means to sell, exchange or otherwise dispose (including any option and any pledge intended to result in a disposition), or enter into any transaction that reduces the risk of loss (whether by short sale, hedging, equity swap or otherwise). The undersigned understands that Dispositions which occur after the Merger may have the effect of rendering the Merger taxable under federal income tax law, and that if the Merger were to become taxable, MBI and the former shareholders of Regional each would become liable for significant amounts of federal and state income taxes (and possibly other taxes, as well). If, on or before the date of the Merger, the undersigned forms any plan, intention or arrangement to Dispose of any MBI Common Stock currently owned or to be received as consideration in the Merger, the undersigned HEREBY AGREES to immediately communicate the same in writing to Thompson Coburn at One Mercantile Center, St. Louis, Missouri 63101, to the attention of Charles H. Binger. IN WITNESS WHEREOF, the undersigned has executed this Certificate, or caused this certificate to be executed by its duly authorized representative, this ----- day of ---------------, 1996. ------------------------------------- Signature of Shareholder EX-23.2 6 CONSENT OF EXPERT 1 [Exhibit 23.2] 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 December 12, 1996 EX-23.3 7 CONSENT OF EXPERT 1 [Exhibit 23.3] Independent Auditors' Consent ----------------------------- The Board of Directors and Stockholders Regional Bancshares, 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 December 12, 1996 EX-23.4 8 CONSENT OF EXPERT 1 [Exhibit 23.4] Consent of Ernst & Young LLP We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 16, 1996, with respect to the financial statements and schedules of Mark Twain Bancshares, Inc. included in the Registration Statement (Form S-4) and related Prospectus of Mercantile Bancorporation Inc. for the registration of 600,419 shares of its common stock. /s/ Ernst & Young LLP December 11, 1996 St. Louis, Missouri -----END PRIVACY-ENHANCED MESSAGE-----