<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1994
Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------------
MERCANTILE BANCORPORATION INC.
(Exact name of registrant as specified in its charter)
MISSOURI 6712 43-0951744
(State or other 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)
--------------------------
RALPH W. BABB, JR.
Vice Chairman
Mercantile Bancorporation Inc.
P.O. Box 524
St. Louis, Missouri 63166-0524
(314) 425-2525
(Name, address, including ZIP code, and telephone number, including area
code, of agent for service)
--------------------------
Copy to:
JON W. BILSTROM, ESQ. ROBERT M. LaROSE, ESQ. ROBIN V.W. FOSTER, ESQ.
General Counsel and Thompson & Mitchell Blackwell Sanders Matheny
Secretary One Mercantile Center Weary & Lombardi
Mercantile Bancorporation St. Louis, Missouri Two Pershing Square,
Inc. 63101 Ste. 1100
P.O. Box 524 (314) 231-7676 Kansas City, Missouri
St. Louis, Missouri 64108
63166-0524 (816) 274-6800
(314) 425-2525
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effective date of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. / /
------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
<CAPTION>
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per Aggregate offering price<F2> registration fee
unit<F2>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $5.00 par value <F1> 2,625,533 $18.38 $80,832,979 $27,873.64
shares
====================================================================================================================================
<FN>
<F1> Includes one attached Preferred Share Purchase Right per share.
<F2> Estimated solely for purposes of computing the Registration Fee pursuant to the provisions of Rule 457(f), and based upon
the average of the high and low sale prices of the Common Stock, $1.00 par value, of Central Mortgage Bancshares, Inc. as
reported by Nasdaq on November 18, 1994, of which up to 4,397,877 shares will be cancelled or received by the registrant
in the exchange.
</TABLE>
--------------------
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.
===============================================================================
<PAGE> 2
MERCANTILE BANCORPORATION INC.
<TABLE>
CROSS REFERENCE SHEET FURNISHED PURSUANT TO ITEM 501(b)
OF REGULATION S-K SHOWING HEADING OR LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-4
-----------------------------------------------------------
<CAPTION>
Form S-4 Item Number and Caption Heading or Location in Prospectus
- -------------------------------- ---------------------------------
<S> <C>
A. Information about the Transaction
1. Forepart of Registration Facing Page; Cross Reference Sheet; Outside
Statement and Outside Front Front Cover Page of Prospectus
Cover Page of Prospectus>>
2. Inside Front and Outside Back Available Information; Incorporation of
Cover Pages of Prospectus Certain Information by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings Summary Information; Pro Forma Financial
to Fixed Charges and Other Information
Information
4. Terms of the Transaction Summary Information; Incorporation of
Certain Information by Reference; Terms of
the Proposed Merger; Certain Federal
Income Tax Consequences of the Merger;
Information Regarding MBI Common Stock
5. Pro Forma Financial Pro Forma Financial Information
Information
6. Material Contacts with the Summary Information; Terms of the
Company Being Acquired Proposed Merger
7. Additional Information Required Not Applicable
for Reoffering by Persons and
Parties Deemed to be
Underwriters
8. Interests of Named Experts and Legal Matters
Counsel
9. Disclosure of Commission Not Applicable
on Indemnification for
Securities Act Liabilities
- i -
<PAGE> 3
<CAPTION>
Form S-4 Item Number and Caption Heading or Location in Prospectus
- -------------------------------- ---------------------------------
<S> <C>
B. Information About the Registrant
10. Information with Respect to S-3 Incorporation of Certain Information by
Registrants Reference; Summary Information;
Information Regarding MBI Common Stock
11. Incorporation of Certain Incorporation of Certain Information by
Information by Reference Reference
12. Information with Respect to S-2 Not Applicable
or S-3 Registrants
13. Incorporation of Certain Not Applicable
Information by Reference
14. Information with Respect to Not Applicable
Registrants Other Than S-2 or
S-3 Registrants
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Not Applicable
Companies
16. Information with Respect to S-2 Not Applicable
or S-3 Companies
17. Information with Respect to Summary Information; Information
Companies Other Than S-2 or Regarding Central Mortgage
S-3 Companies
D. Voting and Management Information
18. Information if Proxies, Consents Information Regarding Special Meeting;
or Authorizations are to be Incorporation of Certain Information by
Solicited Reference; Rights of Dissenting Shareholders
of Central Mortgage; Information Regarding
Central Mortgage
19. Information if Proxies, Consents Not Applicable
or Authorizations are not to be
Solicited in an Exchange Offer
</TABLE>
- ii -
<PAGE> 4
[CENTRAL MORTGAGE BANCSHARES, INC.]
---------------, 1995
Dear Fellow Shareholder:
The Board of Directors cordially invites you to attend a Special
Meeting of Shareholders of Central Mortgage Bancshares, Inc. ("Central
Mortgage") to be held at ----- -.-., Central Time, on ---------,
- -------------, at Blue Springs Country Club, 1600 North Circle Drive, Blue
Springs, Missouri (the "Special Meeting"). At this important meeting, you
will be asked to consider and vote upon the Amended and Restated Agreement
and Plan of Merger dated as of November 1, 1994 (the "Merger Agreement"),
pursuant to which Central Mortgage will be merged with and into a wholly
owned subsidiary of Mercantile Bancorporation Inc. ("MBI").
I have enclosed the following items relating to the Special Meeting
and the merger:
1. Proxy Statement/Prospectus;
2. Proxy card; and
3. A pre-addressed return envelope to Central Mortgage 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 Central Mortgage 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 CENTRAL MORTGAGE CAREFULLY CONSIDERED AND
APPROVED THE TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST INTEREST OF
CENTRAL MORTGAGE AND ITS SHAREHOLDERS. THE CENTRAL MORTGAGE BOARD RECOMMENDS
THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
---
APPROVAL OF THE MERGER AGREEMENT BY THE CENTRAL MORTGAGE
SHAREHOLDERS IS A CONDITION TO THE CONSUMMATION OF THE MERGER. Accordingly,
it is important that your shares be represented at the Special Meeting,
whether or not you plan to attend the Special Meeting in person. Please
complete, date and sign the enclosed proxy card and return it to Central
Mortgage in the enclosed pre-addressed envelope, which requires no postage if
mailed within the United States. If you later decide to attend the Special
Meeting and vote in person, or if you wish to revoke your proxy for any
reason prior to the vote at the Special Meeting, you may do so and your proxy
will have no further effect. You may revoke your proxy by delivering to the
Secretary of Central Mortgage a written notice of revocation or another proxy
relating to the same shares bearing a later date than the proxy being revoked
or by attending the Special Meeting and voting in person. Attendance at the
Special Meeting will not in itself constitute a revocation of an earlier
dated proxy.
If you need assistance in completing your proxy card or if you have
any questions about the Proxy Statement/Prospectus, please feel free to
contact -------------------- at (816) ------------.
Sincerely,
Lynn A. Harmon
Chairman and Chief Executive Officer
<PAGE> 5
CENTRAL MORTGAGE BANCSHARES, INC.
4435 Main Street, Suite 100
Kansas City, Missouri 64111-1856
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held
------------, 1995
TO THE SHAREHOLDERS OF CENTRAL MORTGAGE:
Notice is hereby given that a Special Meeting of Shareholders of
CENTRAL MORTGAGE BANCSHARES, INC., a Missouri corporation ("Central
Mortgage"), will be held at Blue Springs Country Club, 1600 North Circle
Drive, Blue Springs, Missouri on --------, ------------, 1995, at ---------
Central Time, for the following purposes:
(1) To consider and vote upon the adoption and approval of the
Amended and Restated Agreement and Plan of Merger dated as of November 1,
1994, pursuant to which Central Mortgage will be merged (the "Merger") with
and into Ameribanc, Inc., a Missouri corporation and wholly owned subsidiary
of Mercantile Bancorporation Inc. ("MBI"), in a transaction which would
result in the business and operations of Central Mortgage being continued
through such wholly owned subsidiary, and whereby, upon the consummation of
the Merger, each share of Central Mortgage Common Stock will be converted
into the right to receive .5970 of a share of MBI Common Stock, as set forth
in detail in the attached Proxy Statement/Prospectus.
(2) To transact such other business as may properly come before
the Special Meeting or any adjournments or postponements thereof.
The record date for determining the shareholders entitled to
receive notice of, and to vote at, the Special Meeting or any adjournments or
postponements thereof has been fixed as of the close of business on
- ----------------.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE
VOTE AT THE SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
Tom D. Harmon
Secretary
Kansas City, Missouri
- ----------, 1994
<PAGE> 6
SUBJECT TO COMPLETION DATED NOVEMBER 21, 1994
MERCANTILE BANCORPORATION INC.
PROSPECTUS
------------------
CENTRAL MORTGAGE BANCSHARES, INC.
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ------------, 1995
This Prospectus of Mercantile Bancorporation Inc. ("MBI") relates
to up to 2,625,533 shares of Common Stock, $5.00 par value, and attached
Preferred Share Purchase Rights (the "Rights"), of MBI (the Common Stock and
Rights are collectively referred to herein as the "MBI Common Stock"), to be
issued to the shareholders of Central Mortgage Bancshares, Inc., a Missouri
corporation ("Central Mortgage"), upon consummation of the proposed merger
(the "Merger") of Central Mortgage with and into Ameribanc, Inc., a Missouri
corporation ("ABNK") which is a wholly owned subsidiary of MBI. Upon receipt
of the requisite shareholder and regulatory approvals, the Merger will be
consummated pursuant to the terms of the Agreement and Plan of Merger dated
as of September 21, 1994, as amended and restated as of November 1, 1994
(the "Merger Agreement"), by and among MBI, ABNK and Central Mortgage.
This Prospectus also serves as the Proxy Statement of Central Mortgage for
use in connection with the Special Meeting of Shareholders of Central
Mortgage (the "Special Meeting"), which will be held on ------------, 1995,
at the time and place and for the purposes stated in the Notice of Special
Meeting of Shareholders accompanying this Proxy Statement/Prospectus.
Pursuant to the Merger, MBI will issue up to an aggregate of
2,625,533 shares of MBI Common Stock. Upon consummation of the Merger, the
business and operations of Central Mortgage will be continued through ABNK
and each share of Central Mortgage common stock, $1.00 par value ("Central
Mortgage Common Stock") will be converted into the right to receive .5970 of
a share of MBI Common Stock. The fair market value of MBI Common Stock to be
received pursuant to the Merger may fluctuate and at the consummation of the
Merger may be more or less than the current fair market value of such shares.
See "TERMS OF THE PROPOSED MERGER - General Description of the Merger." No
fractional shares of MBI Common Stock will be issued in the Merger, but cash
will be paid in lieu of such fractional shares. See "TERMS OF THE PROPOSED
MERGER - Fractional Shares."
The transaction is intended to qualify as a tax-deferred
reorganization under the Internal Revenue Code of 1986, as amended (the
"Code"). The Merger generally is intended to achieve certain tax-deferral
benefits for federal income tax purposes for Central Mortgage shareholders.
See "SUMMARY INFORMATION - Federal Income Tax Consequences in General" and
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
MBI Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "MTL." On ----------, 1994 the closing sale price
for MBI Common Stock as reported on the NYSE Composite Tape was $-----.
This Proxy Statement/Prospectus, the Notice of Special Meeting and
the form proxy were first mailed to the shareholders of Central Mortgage on
or about ----------, 1994.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is ----------, 1994.
<PAGE> 7
AVAILABLE INFORMATION
---------------------
MBI and Central Mortgage are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, file reports,
proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed by MBI and
Central Mortgage with the Commission can be inspected and copied at
the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at Suite 1300, Seven World Trade Center,
New York, New York 10048 and Room 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago, Illinois 60661. MBI Common Stock
is listed on the NYSE, and such reports, proxy statements and other
information concerning MBI are available for inspection and copying
at the offices of the NYSE, 20 Broad Street, New York, New York
10005. Central Mortgage Common Stock is quoted on the Nasdaq
National Market System ("Nasdaq"), and such reports, proxy
statements and other information concerning Central Mortgage are
available for inspection and copying at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, Washington,
D.C. 20006.
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 DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
DOCUMENTS RELATING TO MBI, EXCLUDING EXHIBITS UNLESS SPECIFICALLY
INCORPORATED THEREIN, ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN
OR ORAL REQUEST TO JON W. BILSTROM, GENERAL COUNSEL AND SECRETARY,
MERCANTILE BANCORPORATION INC., P.O. BOX 524, ST. LOUIS, MISSOURI
63166-0524, TELEPHONE (314) 425-2525. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
- ----------, 1994.
The following documents filed with the Commission by MBI
under the Exchange Act are incorporated herein by reference:
(a) MBI's Report on Form 10-K for the year ended
December 31, 1993.
(b) MBI's Reports on Form 10-Q for the quarters ended
March 31, June 30, and September 30, 1994.
(c) MBI's Current Reports on Form 8-K dated February
11, 1994, June 17, 1994 and October 3, 1994.
(d) The description of MBI's Common Stock set forth in
Item 1 of MBI's Registration Statement on Form 8-A,
dated March 5, 1993, and any amendment or report
filed for the purpose of updating such description.
- 2 -
<PAGE> 8
(e) The description of MBI's Preferred Share Purchase
Rights set forth in Item 1 of MBI's Registration
Statement on Form 8-A, dated March 5, 1993, and any
amendment or report filed for the purpose of
updating such description.
All documents filed by MBI pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date hereof and
until the date of the Special Meeting shall be deemed to be
incorporated by reference herein and made a part hereof from the
date any such document is filed. The information relating to MBI
contained in this Proxy Statement/Prospectus does not purport to be
complete and should be read together with the information in the
documents incorporated by reference herein. Any statement
contained herein or in a document incorporated herein by reference
shall be deemed to be modified or superseded for purposes hereof to
the extent that a subsequent statement contained herein or in any
other subsequently filed document incorporated by reference herein
modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part hereof.
Any statements contained in this Proxy Statement/Prospectus
involving matters of opinion, whether or not expressly so stated, are
intended as such and not as representations of fact.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
MBI OR CENTRAL MORTGAGE. 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 CENTRAL MORTGAGE OR ANY OF THEIR
SUBSIDIARIES OR IN THE INFORMATION SET FORTH HEREIN SUBSEQUENT TO
THE DATE HEREOF.
- 3 -
<PAGE> 9
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE. . . . . . . . . . . . . . . . . . . . 2
SUMMARY INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Business of MBI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Business of ABNK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Business of Central Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Proposed Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Special Meeting of Central Mortgage Shareholders . . . . . . . . . . . . . . . . . 9
Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Opinion of Financial Advisor to Central Mortgage . . . . . . . . . . . . . . . . . 10
Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Federal Income Tax Consequences in General . . . . . . . . . . . . . . . . . . . . 11
Regulatory Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Markets and Market Prices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Comparative Unaudited Per Share Data . . . . . . . . . . . . . . . . . . . . . . . 13
Summary Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
INFORMATION REGARDING SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . 17
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Date, Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Record Date; Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Voting and Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 17
Solicitation of Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
TERMS OF THE PROPOSED MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
General Description of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . 19
Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Background of and Reasons for the Merger; Board Recommendations. . . . . . . . . . 22
Opinion of Financial Advisor to Central Mortgage . . . . . . . . . . . . . . . . . 24
Conditions of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Termination of the Merger Agreement. . . . . . . . . . . . . . . . . . . . . . . . 29
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Surrender of Central Mortgage Stock Certificates and Receipt of MBI
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Regulatory Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Business Pending the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . 34
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. . . . . . . . . . . . . . . . . . 35
- 4 -
<PAGE> 10
<CAPTION>
Page
----
<S> <C>
RIGHTS OF DISSENTING SHAREHOLDERS OF CENTRAL MORTGAGE. . . . . . . . . . . . . . . . . . 38
PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Comparative Unaudited Per Share Data . . . . . . . . . . . . . . . . . . . . . . . 39
Pro Forma Combined Consolidated Financial Statements (Unaudited) . . . . . . . . . 40
INFORMATION REGARDING CENTRAL MORTGAGE . . . . . . . . . . . . . . . . . . . . . . . . . 49
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Results of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Financial Condition, Capital Resources and Liquidity . . . . . . . . . . . . . . . 60
Impact of Future Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . 72
Results of Operation (Third Quarter Comparison). . . . . . . . . . . . . . . . . . 72
Financial Condition (Third Quarter Comparison) . . . . . . . . . . . . . . . . . . 74
Liquidity and Capital Resources (Third Quarter Comparison) . . . . . . . . . . . . 75
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . 75
INFORMATION REGARDING MBI STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Description of MBI Common Stock and Attached Preferred Share
Purchase Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Restrictions on Resale of MBI Stock by Affiliates. . . . . . . . . . . . . . . . . 78
Comparison of the Rights of Shareholders of MBI and Central
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SUPERVISION AND REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Certain Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . 82
Payment of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
FDIC Insurance Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Support of Subsidiary Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
FIRREA and FDICIA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Depositor Preference Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
The Interstate Banking and Community Development Legislation . . . . . . . . . . . 86
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . . 87
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
- 5 -
<PAGE> 11
<CAPTION>
Page
----
<S> <C>
ANNEXES
Annex A -- Opinion of Stifel, Nicolaus & Company, Incorporated. . . . . . . . . . . .A-1
Annex B -- Dissenters' Rights Provisions of The Missouri General Business
Corporation Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-1
- 6 -
<PAGE> 12
SUMMARY INFORMATION
-------------------
The following is a summary of the important terms of the proposed
Merger and related information discussed elsewhere in this Proxy
Statement/Prospectus but does not purport to be complete and is qualified in
its entirety by reference to the more detailed information which appears
elsewhere in this Proxy Statement/Prospectus and the documents incorporated
by reference herein. Shareholders of Central Mortgage are urged to read this
Proxy Statement/Prospectus in its entirety. All MBI per share data reflect
a three-for-two stock split distributed in the form of a dividend on
April 11, 1994.
BUSINESS OF MBI
MBI, a Missouri corporation, was organized in 1970 and is a
registered bank holding company under the federal Bank Holding Company Act of
1956, as amended (the "BHCA"). At September 30, 1994, MBI owned, directly or
indirectly, all of the capital stock of Mercantile Bank of St. Louis National
Association ("Mercantile Bank") and 40 other commercial banks which operate
from 244 banking offices and 241 Fingertip Banking automated teller machines,
including 26 off-premises machines, located throughout Missouri, southern
Illinois, eastern Kansas and Iowa. MBI's services concentrate in four major
lines of business -- consumer, corporate, investment banking and trust
services. MBI also operates non-banking subsidiaries which provide related
financial services, including investment management, brokerage services and
asset-based lending. As of September 30, 1994, MBI had 43,234,757 shares of
its Common Stock issued and outstanding. As of September 30, 1994, MBI
reported, on a consolidated basis, total assets of $12.2 billion, total
deposits of $8.9 billion, total loans of $7.9 billion and shareholders'
equity of $1.0 billion.
In the first quarter of 1994, MBI completed the acquisition of
United Postal Bancorp, Inc. ("UPB"), a Missouri-based holding company for
United Postal Savings Association, which as of December 31, 1993 reported
total assets of $1.3 billion and total deposits of $1.0 billion. Also during
the first quarter of 1994, MBI acquired Metro Bancorporation, which as of
December 31, 1993 reported total assets of $370 million and total deposits of
$333 million. The acquisition of these entities was accounted for under the
pooling-of-interests method of accounting and, accordingly, MBI has restated
its consolidated financial statements for all periods reported herein. MBI
has filed supplemental financial statements as of and for the years ended
December 31, 1993, 1992 and 1991 in a Current Report on Form 8-K, dated June
17, 1994, which has been incorporated by reference into this Proxy Statement/
Prospectus. On July 6, 1994, MBI entered into an agreement to acquire Wedge
Bank ("Wedge"), located in Alton, Illinois. Wedge is an Illinois state-
chartered bank which reported, as of September 30, 1994, total assets of $205
million, total deposits of $153 million, total loans of $113 million and
shareholders' equity of $19 million. On July 12, 1994, MBI entered into an
agreement to acquire UNSL Financial Corp. ("UNSL"), located in Lebanon,
Missouri. UNSL, a Delaware corporation, is a savings and loan holding
company under the Home Owners Loan Act which owns United Savings Bank. As of
September 30, 1994, UNSL reported total assets of $488 million, total
deposits of $381 million, total loans of $444 million and shareholders'
equity of $39 million.
MBI's principal executive offices are located at One Mercantile
Center, St. Louis, Missouri 63101 and its telephone number is (314)
425-2525.
BUSINESS OF ABNK
ABNK, a Missouri corporation, is a wholly owned subsidiary of MBI
which was organized in 1991. ABNK is a registered bank holding company under
the BHCA. ABNK currently owns all of the capital stock of 14 banks and 1
trust company which operate from 117 locations in
- 7 -
<PAGE> 13
Missouri. ABNK, which will continue to be a subsidiary of MBI, will be the
surviving corporation upon consummation of the Merger with Central
Mortgage.
BUSINESS OF CENTRAL MORTGAGE
Central Mortgage, a Missouri corporation, commenced operations in
1960 and is a registered bank holding company under the BHCA. Central
Mortgage currently owns all of the issued and outstanding shares of capital
stock of three Missouri-chartered state banks (collectively, the "Banks")
which operate from 18 locations in the greater Kansas City, Missouri area and
certain southwestern Missouri communities. As of December -----, 1994,
4,251,177 shares of Central Mortgage Common Stock were issued and outstanding,
and stock options to purchase 146,700 shares of Central Mortgage Common
Stock were outstanding, including options for 144,300 shares exercisable
prior to the consummation of the Merger. All of the outstanding options will
be exercisable upon approval of the Merger Agreement by the shareholders of
Central Mortgage. As of September 30, 1994, Central Mortgage reported, on a
consolidated basis, total assets of $626 million, total deposits of $538
million, total loans of $381 million and shareholders' equity of $52.5
million. See "INFORMATION REGARDING CENTRAL MORTGAGE."
Central Mortgage's principal executive offices are located at 4435
Main Street, Suite 100, Kansas City, Missouri and its telephone number is
(816) 561-3387.
THE PROPOSED MERGER
Subject to the satisfaction of the terms and conditions set forth
in the Merger Agreement described below, Central Mortgage will be merged with
and into ABNK. Upon consummation of the Merger, Central Mortgage's corporate
existence will terminate and ABNK will continue as the surviving entity.
Simultaneously with the effectiveness of the Merger, each share of Central
Mortgage Common Stock will be converted into the right to receive .5970 of a
share of MBI Common Stock. Such consideration is subject to certain anti-
dilution protections but is not adjustable based upon the operating results,
financial condition or other factors affecting either MBI or Central Mortgage
prior to the consummation of the Merger. The fair market value of MBI Common
Stock to be received pursuant to the Merger may fluctuate and at the
consummation of the Merger may be more or less than the current fair market
value of such shares.
KeyCorp Shareholder Services, Inc., the transfer agent for MBI
Common Stock, has been selected as the Exchange Agent (the "Exchange Agent")
for purposes of effecting the conversion of Central Mortgage Common Stock
into MBI Common Stock.
The Merger Agreement provides that the consummation of the Merger
is subject to certain terms and conditions, including the approval of the
Merger Agreement by the affirmative vote of the holders of at least two-
thirds of the outstanding shares of Central Mortgage Common Stock and receipt
of the requisite regulatory approvals and an opinion of counsel regarding
certain federal income tax aspects of the transaction. For a discussion of
each of the conditions to the Merger, see "TERMS OF THE PROPOSED MERGER -
Conditions of the Merger." The Merger will be consummated and become
effective on the date and at the time (the "Effective Time") that the
certificate of merger is issued by the Missouri Secretary of State.
Unless the parties otherwise agree, the date of the closing of the
Merger (the "Closing Date") shall be no later than the first business day of
the month immediately succeeding the month in which the last of the following
events occurs (i) the approval of the Merger Agreement by the shareholders of
Central Mortgage and (ii) the thirtieth day after the approval of the Merger
by the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). The Merger Agreement may be terminated at any time prior to the
Closing Date by the mutual consent of the
- 8 -
<PAGE> 14
parties or, unilaterally, by either party upon the occurrence of certain
events or if the Merger is not consummated by June 30, 1995; provided,
however, such date shall automatically be extended to August 31, 1995 if
the cause of the failure to consummate the Merger by such date is the
result of regulatory delay not due to the fault or failure of MBI, ABNK or
Central Mortgage. See "TERMS OF THE PROPOSED MERGER - Conditions of the
Merger" and "- Termination of the Merger Agreement."
OTHER AGREEMENTS
In addition to and contemporaneously with the Merger Agreement, MBI
and Central Mortgage executed an Investment Agreement (the "Investment
Agreement") and MBI and three of the nine directors of Central Mortgage
executed separate Voting Agreements (the "Voting Agreements"). The following
are summaries of the material terms of the Investment Agreement and the
Voting Agreements.
Investment Agreement. Concurrent with the execution of the Merger
Agreement, MBI and Central Mortgage entered into the Investment Agreement
pursuant to which Central Mortgage has issued MBI an option (the "Option") to
purchase up to 736,667 shares of Central Mortgage Common Stock (or 19.9% of
the outstanding shares of Central Mortgage Common Stock as of August 31,
1994) at an exercise price of $18.50 per share. The Option is exercisable
upon the occurrence of certain events generally relating to the failure of
Central Mortgage to consummate the Merger because of a material change or
potential material change in the ownership of Central Mortgage, all as set
forth in the Investment Agreement. None of such events has occurred as of
the date hereof. Central Mortgage granted the Option as a condition of and
in consideration for MBI's entering into the Merger Agreement. See "TERMS OF
THE PROPOSED MERGER - Other Agreements - Investment Agreement."
Voting Agreements. Concurrent with the execution of the Merger
Agreement, MBI and each of Margaret K. Harmon, C. Adrian Harmon and Lynn A.
Harmon, three of the nine directors of Central Mortgage, executed separate
Voting Agreements by which each such director agreed that he or she will vote
all of the shares of Central Mortgage Common Stock then owned or subsequently
acquired in favor of the approval of the Merger Agreement at the Special
Meeting. In addition, until the earliest to occur of the Effective Time of
the Merger, the termination of the Voting Agreement or the termination of the
Merger Agreement, each director further agreed he or she will not vote any
such shares in favor of the approval of any other competing acquisition
proposal involving Central Mortgage and a third party. Each director also
agreed that he or she will not transfer shares of Central Mortgage Common
Stock unless, prior to such transfer, the transferee executes a Voting
Agreement in substantially the same form. As of the Record Date (as defined
below), such three directors owned beneficially an aggregate of 820,028
shares of Central Mortgage Common Stock, or approximately 19.29% of the
issued and outstanding shares.
SPECIAL MEETING OF CENTRAL MORTGAGE SHAREHOLDERS
The Special Meeting will be held on ------------, 1995, at -----
- -.-. Central Time, at Blue Springs Country Club, 1600 North Circle Drive,
Blue Springs, Missouri. Approval by the Central Mortgage shareholders of the
Merger Agreement requires the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Central Mortgage Common Stock. Only
holders of record of Central Mortgage Common Stock at the close of business
on --------------, 1994 (the "Record Date") will be entitled to notice of,
and to vote at, the Special Meeting. At such date, there were 4,251,177
shares of Central Mortgage Common Stock outstanding.
- 9 -
<PAGE> 15
As of the Record Date, directors and officers of Central Mortgage
and their affiliates owned beneficially an aggregate of 1,426,574 shares of
Central Mortgage Common Stock, or approximately 33.56% of the shares entitled
to vote at the Special Meeting. All of Central Mortgage's directors and
officers and their affiliates have indicated their intention to vote their
shares for the approval of the Merger Agreement. Additionally, each of
Margaret K. Harmon, C. Adrian Harmon and Lynn S. Harmon, directors of Central
Mortgage, pursuant to the terms of his or her respective Voting Agreement,
has committed to vote his or her shares of Central Mortgage Common Stock for
approval of the Merger Agreement. As of the Record Date, such three
directors owned beneficially an aggregate of 820,028 shares of Central
Mortgage Common Stock, or approximately 19.29% of the issued and outstanding
shares.
THE BOARD OF DIRECTORS OF CENTRAL MORTGAGE CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AS BEING IN THE BEST INTEREST OF
CENTRAL MORTGAGE AND ITS SHAREHOLDERS. THE CENTRAL MORTGAGE BOARD
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE
---
MERGER AGREEMENT.
REASONS FOR THE MERGER
The Board of Directors of Central Mortgage believes that the Merger
is in the best interest of Central Mortgage and its shareholders. In the
course of reaching its determination to approve the Merger and recommend it
to the shareholders of Central Mortgage, the Board of Directors, without
assigning any relative or specific weights, considered a number of factors,
including (i) the exchange ratio and other terms of the Merger Agreement,
(ii) the tax-free nature of the Merger for the shareholders of Central
Mortgage, (iii) the benefits expected to result from the combination of
Central Mortgage and MBI, (iv) information concerning the financial
condition, results of operations and prospects of Central Mortgage and MBI on
a combined basis, (v) the market prices of and dividend policies in respect
of Central Mortgage Common Stock, (vi) results of due diligence
investigations of MBI by Central Mortgage, (vii) recent federal and state
legislative changes affecting the banking industry in general and (viii) the
fairness opinion of Stifel, Nicolaus & Company, Incorporated ("Stifel"). See
"TERMS OF THE PROPOSED MERGER - Background of and Reasons for the Merger;
Board Recommendations."
MBI's Board of Directors believes that the Merger will enable MBI
to (i) take advantage of an opportunity for MBI to increase its presence in
the regional banking market in the greater Kansas City, Missouri area and in
certain southwestern Missouri communities, through the acquisition of an
established banking organization, and (ii) enhance MBI's ability to compete
in the increasingly competitive banking and financial services industry. See
"TERMS OF THE PROPOSED MERGER - Background of and Reasons for the Merger;
Board Recommendations."
OPINION OF FINANCIAL ADVISOR TO CENTRAL MORTGAGE
Stifel has served as financial advisor to Central Mortgage and its
Board of Directors and has rendered an opinion to Central Mortgage's Board of
Directors that the consideration to be offered to Central Mortgage's
shareholders in the Merger is fair to Central Mortgage's shareholders from a
financial point of view. A copy of such opinion is attached hereto as Annex A
-------
and should be read in its entirety with respect to the assumptions made,
other matters considered and limitations on the reviews undertaken. See
"TERMS OF THE PROPOSED MERGER - Opinion of Financial Advisor to Central
Mortgage."
- 10 -
<PAGE> 16
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to the
former shareholders of Central Mortgage in connection with the Merger. Each
former holder of Central Mortgage Common Stock who otherwise would have been
entitled to receive a fraction of a share of MBI Common Stock shall receive
in lieu thereof cash, without interest, in an amount equal to the holder's
fractional share interest multiplied by the closing stock price of MBI Common
Stock on the NYSE Composite Tape as reported in The Wall Street Journal on
the Closing Date of the Merger. Cash received by Central Mortgage
shareholders in lieu of fractional shares may give rise to taxable income.
See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
WAIVER AND AMENDMENT
Any provision of the Merger Agreement, including, without
limitation, the conditions to the consummation of the Merger and the
restrictions described under the caption "TERMS OF THE PROPOSED MERGER -
Business Pending the Merger," may be (i) waived in writing at any time by the
party that is, or whose shareholders are, entitled to the benefits thereof or
(ii) amended at any time by written agreement of the parties approved by or
on behalf of their respective Boards of Directors, whether before or after
the Special Meeting; provided, however, that after approval of the Merger
Agreement by the shareholders of Central Mortgage at the Special Meeting no
such modification may alter or change any of the terms of the Merger
Agreement if such alteration would (i) change the amount or kind of the
consideration to be received by the Central Mortgage shareholders in the
Merger or (ii) adversely affect the Central Mortgage shareholders.
FEDERAL INCOME TAX CONSEQUENCES IN GENERAL
Thompson & Mitchell, MBI's legal counsel, has delivered its opinion
to the effect that, assuming the Merger occurs in accordance with the Merger
Agreement and conditioned on the accuracy of certain representations made by
MBI and Central Mortgage, the Merger will constitute a "reorganization" for
federal income tax purposes and that, accordingly, no gain or loss will be
recognized by Central Mortgage shareholders who exchange their shares of
Central Mortgage Common Stock solely for shares of MBI Common Stock in the
Merger. However, cash received in lieu of fractional shares may give rise to
taxable income. EACH CENTRAL MORTGAGE SHAREHOLDER IS URGED TO CONSULT HIS OR
HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER
TO SUCH SHAREHOLDER. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER."
REGULATORY APPROVAL
An application regarding the Merger has been filed with the Federal
Reserve Board. The Merger cannot be consummated until receipt of approval
from such agency. In reviewing the Merger, the Federal Reserve Board will
consider various factors, including possible anticompetitive effects of the
Merger, and will examine the financial and managerial resources and future
prospects of the combined organization. There can be no assurance that the
necessary regulatory approval will be received or as to the timing of such
approval. See "TERMS OF THE PROPOSED MERGER - Regulatory Approval" and
"SUPERVISION AND REGULATION."
- 11 -
<PAGE> 17
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for under the
pooling-of-interests method of accounting. See "TERMS OF THE PROPOSED
MERGER - Accounting Treatment."
DISSENTERS' RIGHTS
Under Missouri law, a holder of Central Mortgage Common Stock may
dissent from the Merger and receive payment of the "fair value" of such
shares in cash if the Merger is consummated by following certain procedures
set forth in Section 351.455 of The General and Business Corporation Law of
Missouri (the "Missouri Act"), the text of which is attached hereto as Annex B.
--------
Failure to follow such procedures may result in the loss of dissenters'
rights. Any Central Mortgage shareholder returning an executed proxy card
which does not provide instructions to vote against the Merger will be deemed
to have approved the Merger Agreement, thereby waiving any such dissenters'
rights. See "RIGHTS OF DISSENTING SHAREHOLDERS OF CENTRAL MORTGAGE."
Consummation of the Merger is contingent upon the holders of less
than ten percent (10%) of the holders of Central Mortgage Common Stock
exercising their dissenters' rights under Missouri law.
MARKETS AND MARKET PRICES
MBI Common Stock is currently traded on the NYSE under the symbol
"MTL." Prior to March 25, 1993, MBI Common Stock was quoted on Nasdaq under
the symbol "MTRC." The last sale price reported for MBI Common Stock on
September 21, 1994, the last trading date preceding the public announcement
of the Merger, was $37.75. Central Mortgage Common Stock is quoted on Nasdaq
under the symbol "CMBI." Prior to October 23, 1992, Central Mortgage Common
Stock was not traded in any established public trading market, although there
had been limited numbers of transactions effected privately and through a
Kansas City broker. Based solely on information made available to Central
Mortgage from a limited number of buyers and sellers in private transactions,
Central Mortgage believes the selling prices for the Central Mortgage Common
Stock in such transactions during 1992 (to October 23) ranged from $8.50 to
$10.00. There may have been, however, other transactions at other prices not
known to Central Mortgage. The last sale price reported for Central Mortgage
Common Stock on September 21, 1994, was $18.50.
- 12 -
<PAGE> 18
</TABLE>
<TABLE>
<CAPTION>
MBI<F1> Central Mortgage
---------------------------------- -------------------------------------
Sales Price Cash Sales Price Cash
----------------- Dividend ------------------- Dividend
High Low Declared High Low Declared
---- --- -------- ---- --- --------
1992
- ----
<S> <C> <C> <C> <C> <C> <C>
First Quarter $27.375 $23.125 $ .2325 $ -- $ -- $ .04
Second Quarter 29.500 25.625 .2325 -- -- .05
Third Quarter 29.375 25.375 .2325 -- -- .05
Fourth Quarter 32.125 25.875 .2325 11.750 9.750 .09
<CAPTION>
1993
- ----
<S> <C> <C> <C> <C> <C> <C>
First Quarter $35.625 $30.625 $ .2475 $14.750 $11.000 $ .09
Second Quarter 37.625 29.375 .2475 14.250 12.000 .09
Third Quarter 34.375 31.625 .2475 14.500 12.000 .09
Fourth Quarter 34.625 29.125 .2475 15.250 13.750 .10
<CAPTION>
1994
- ----
<S> <C> <C> <C> <C> <C> <C>
First Quarter $34.125 $29.875 $ .28 $14.750 $12.500 $ .10
Second Quarter 38.125 31.125 .28 15.750 12.500 .10
Third Quarter 39.250 34.875 .28 21.063 14.750 .12
Fourth Quarter (through
November 18, 1994)<F1> 35.000 31.625 .28 20.750 18.250 --
<FN>
- -----------------
<F1> For a recent sale price of MBI Common Stock, see the cover of this Proxy Statement/Prospectus.
</TABLE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of MBI and Central Mortgage and the corresponding
pro forma and pro forma equivalent per share amounts giving effect to the
proposed Merger, the proposed acquisitions of UNSL and of Wedge and the
acquisition of ABNK, which was completed on April 30, 1992. The data
presented is based upon the consolidated financial statements and related
notes of MBI and Central Mortgage, UNSL and Wedge included in this Proxy
Statement/Prospectus or in documents incorporated herein by reference, and
the pro forma combined consolidated balance sheet and income statements,
including the notes thereto, appearing elsewhere herein. This information
should be read in conjunction with such historical and pro forma financial
statements and related notes thereto. The assumptions used in the
preparation of this table appear in the notes to the pro forma financial
information appearing elsewhere in this Proxy Statement/Prospectus. See "PRO
FORMA FINANCIAL INFORMATION." These data are not necessarily indicative of
the results of the future operations of the combined organization or the
actual results that would have occurred if the Merger, the completed merger
of ABNK or the proposed mergers of UNSL and Wedge had been consummated prior
to the periods indicated.
- 13 -
<PAGE> 19
<TABLE>
<CAPTION>
MBI/Central Central Central Mortgage/
Central Mortgage Mortgage MBI/All Entities All Entities
MBI Mortgage Pro Forma Pro Forma Pro Forma Pro Forma
Reported Reported Combined<F1> Equivalent<F2> Combined<F3> Equivalent<F2>
-------- -------- ------------ -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
September 30, 1994 $ 24.12 $ 12.10 $ 23.89 $ 14.29 $ 23.82 $ 14.22
December 31, 1993 22.40 11.20 22.17 13.24 22.16 13.23
Cash Dividends Declared per Share:
Nine months ended September 30, 1994 $ .84 $ .32 $ .84 $ .50 $ .84 $ .50
Year ended December 31, 1993 .99 .37 .99 .59 .99 .59
Year ended December 31, 1992 .93 .23 .93 .56 .93 .56
Year ended December 31, 1991 .93 .16 .93 .56 .93 .56
Earnings per Share:
Nine months ended September 30, 1994 $ 2.79 $ 1.38 $ 2.75 $ 1.64 $ 2.70 $ 1.61
Year ended December 31, 1993 2.80 1.54 2.77 1.65 2.79 1.67
Year ended December 31, 1992 2.36 1.79 2.33 1.39 2.37 1.41
Year ended December 31, 1991 2.37 1.57 2.26 1.35 2.21 1.32
Market Price per Share:
At September 21, 1994 <F4> $ 37.75 $ 18.50 n/a $ 22.54 n/a $ 22.54
At November 18, 1995 <F4> 31.63 18.25 n/a 18.88 n/a 18.88
<FN>
- ---------------------
<F1> Includes the effect of pro forma adjustments for Central Mortgage and ABNK, as appropriate. See "PRO FORMA
FINANCIAL INFORMATION."
<F2> Based on the pro forma combined per share amounts multiplied times .5970, the conversion ratio applicable to one
share of Central Mortgage Common Stock. Further explanation of the assumptions used in the preparation of the pro
forma combined consolidated financial statements is included in the notes to pro forma financial statements. See
"PRO FORMA FINANCIAL INFORMATION."
<F3> Includes the effect of pro forma adjustments for Central Mortgage, ABNK, UNSL and Wedge, as appropriate. See
"PRO FORMA FINANCIAL INFORMATION."
<F4> The market value of MBI and Central Mortgage Common Stock was determined as of the last trading day preceding the
public announcement of the proposed acquisition and as of the latest available date prior to the filing of the
Proxy Statement/Prospectus, based on the last sale price as reported on the NYSE Composite Tape and Nasdaq,
respectively.
</TABLE>
SUMMARY FINANCIAL DATA
The following table sets forth for the periods indicated certain
summary historical consolidated financial information for MBI and Central
Mortgage. The balance sheet data and income statement data included in the
summary financial data for the five years ended December 31, 1993 are taken
from audited consolidated financial statements of MBI and Central Mortgage as
of the end of and for such years. The balance sheet data and income
statement data included in the summary financial data as of and for the nine
months ended September 30, 1994 and 1993 are taken from the unaudited
consolidated financial statements of MBI and Central Mortgage as of, and for
the nine months ended, September 30, 1994 and 1993. These data include all
adjustments which are, in the opinion of the respective managements of MBI
and Central Mortgage, necessary to present a fair statement of these periods
and are of a normal recurring nature. Results for the nine months ended
September 30, 1994 are not necessarily indicative of results for the entire
year. The following information should be read in conjunction with the
consolidated financial statements of MBI and Central Mortgage, and the
related notes thereto, included herein or in documents incorporated herein by
reference, and in conjunction with the unaudited pro forma combined
consolidated financial information, including the notes thereto, appearing
elsewhere in this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL INFORMATION."
- 14 -
<PAGE> 20
MERCANTILE BANCORPORATION INC.
<TABLE>
SUMMARY FINANCIAL DATA
<CAPTION>
Nine Months Ended
September 30 Year Ended December 31
---------------------- ----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income <F1>. . . . . . . . . . . $ 2.79 $ 2.42 $ 2.80 $ 2.36 $ 2.37 $ 2.18 $ .29
Dividends declared . . . . . . . . . .84 .74 1/4 .99 .93 .93 .93 .93
Book value at period end . . . . . . 24.12 22.19 22.40 20.25 18.86 17.14 15.86
Average common shares outstanding
(thousands). . . . . . . . . . . . 43,034 42,339 42,439 39,492 31,791 30,144 29,092
EARNINGS (THOUSANDS)
Interest income. . . . . . . . . . . $613,521 $626,939 $829,930 $873,447 $879,471 $882,148 $836,446
Interest expense . . . . . . . . . . 231,785 251,542 328,734 417,358 506,916 552,231 528,008
-------- -------- -------- -------- -------- -------- --------
Net interest income. . . . . . . . . 381,736 375,397 501,196 456,089 372,555 329,917 308,438
Provision for possible loan losses 24,909 41,440 61,013 74,579 58,076 50,886 104,708
Other income . . . . . . . . . . . . 142,789 148,935 199,158 183,944 155,696 137,356 150,038
Other expense. . . . . . . . . . . . 310,003 321,433 444,909 418,068 383,348 318,887 335,266
Income taxes (benefit) . . . . . . . 69,512 58,986 75,568 52,346 18,673 27,658 (1,804)
-------- -------- -------- -------- -------- -------- --------
Net income . . . . . . . . . . . . . $120,101 $102,473 $118,864 $ 95,040 $ 68,154 $ 69,842 $ 20,306
======== ======== ======== ======== ======== ======== ========
ENDING BALANCE SHEET (MILLIONS)
Total assets . . . . . . . . . . . . $ 12,238 $ 11,896 $ 12,141 $ 12,273 $ 10,765 $ 10,137 $ 9,536
Earning assets . . . . . . . . . . . 11,247 10,937 11,114 11,186 9,827 9,016 8,477
Investment securities. . . . . . . . 3,148 3,376 3,401 3,401 2,475 1,886 1,904
Loans and leases,
net of unearned income . . . . . . 7,873 7,370 7,382 7,499 6,946 6,884 6,358
Deposits . . . . . . . . . . . . . . 8,946 9,360 9,602 9,928 8,776 8,278 7,601
Long-term debt . . . . . . . . . . . 288 274 273 299 203 233 308
Shareholders' equity . . . . . . . . 1,043 947 959 851 690 581 536
Reserve for possible loan losses 172 160 169 166 146 149 149
SELECTED RATIOS
Return on average assets . . . . . . 1.32% 1.12% .97% .80% .67% .73% .23%
Return on average equity . . . . . . 15.95 15.18 13.00 11.95 10.52 12.51 3.81
Net interest rate margin . . . . . . 4.68 4.58 4.59 4.33 4.12 3.97 4.09
Equity to assets . . . . . . . . . . 8.52 7.96 7.90 6.94 6.41 5.73 5.62
Reserve for possible loan losses to:
Outstanding loans. . . . . . . . . 2.18 2.17 2.28 2.21 2.10 2.16 2.35
Non-performing loans . . . . . . . 585.44 286.22 293.39 156.85 113.14 119.68 121.55
<FN>
<F1> Based on weighted average common shares outstanding.
</TABLE>
- 15 -
<PAGE> 21
CENTRAL MORTGAGE BANCSHARES, INC.
<TABLE>
SUMMARY FINANCIAL DATA
<CAPTION>
Nine Months Ended
September 30 Year Ended December 31
---------------------- ----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income - primary . . . . . . . . $ 1.38 $ 1.15 $ 1.54 $ 1.79 $ 1.57 $ 1.44 $ 1.11
Net income - fully diluted . . . . . 1.24 1.01 1.36 1.51 1.35 1.29 1.03
Dividends declared . . . . . . . . . .32 .27 .37 .23 .16 .15 .13
Book value at period end . . . . . . 12.10 10.87 11.20 10.10 9.49 8.27 7.00
Average common shares outstanding
(thousands). . . . . . . . . . . . 3,791 3,030 3,221 1,931 1,648 1,666 1,677
EARNINGS (THOUSANDS)
Interest income. . . . . . . . . . . $ 32,483 $ 23,739 $ 34,452 $ 28,577 $ 25,706 $ 26,389 $ 23,948
Interest expense . . . . . . . . . . 13,570 9,951 14,194 13,616 13,260 14,699 13,136
-------- -------- -------- -------- -------- -------- --------
Net interest income. . . . . . . . . 18,913 13,788 20,258 14,961 12,446 11,690 10,812
Provision for possible loan losses 919 668 956 913 870 523 414
Other income . . . . . . . . . . . . 5,774 3,988 5,869 4,792 4,252 3,853 3,742
Other expense. . . . . . . . . . . . 16,113 12,131 18,127 13,854 11,933 11,188 10,996
Income taxes . . . . . . . . . . . . 2,266 1,364 1,913 1,245 924 962 797
Minority interest. . . . . . . . . . -- -- 1 -- 6 11 16
-------- -------- -------- -------- -------- -------- --------
Net income . . . . . . . . . . . . . $ 5,389 $ 3,613 $ 5,130 $ 3,741 $ 2,965 $ 2,859 $ 2,331
======== ======== ======== ======== ======== ======== ========
ENDING BALANCE SHEET (THOUSANDS)
Total assets . . . . . . . . . . . . $626,476 $604,278 $622,635 $413,807 $293,889 $272,385 $261,468
Earning assets . . . . . . . . . . . 576,143 554,870 568,791 384,734 266,677 249,960 236,701
Investment securities. . . . . . . . 187,191 184,110 184,226 143,096 69,031 68,204 62,966
Loans and leases, net of
unearned income. . . . . . . . . . 380,773 344,887 357,107 214,896 177,858 163,700 145,918
Deposits . . . . . . . . . . . . . . 537,623 520,831 537,751 352,303 261,587 242,544 236,916
Long-term debt . . . . . . . . . . . 5,219 7,721 7,519 2,321 3,393 3,962 4,472
Shareholders' equity . . . . . . . . 52,504 47,055 48,522 34,365 20,885 18,244 15,614
Reserve for possible loan losses 6,396 5,978 4,693 2,648 2,282 2,058 1,872
SELECTED RATIOS
Return on average assets . . . . . . 1.13% 1.08% 1.05% 1.01% 1.06% 1.06% .96%
Return on average equity . . . . . . 14.93 13.68 13.59 14.85 14.41 14.75 13.28
Net interest rate margin . . . . . . 4.51 4.56 4.61 4.48 4.94 4.80 4.92
Equity to assets . . . . . . . . . . 8.38 7.79 7.79 8.30 7.11 6.70 5.97
Reserve for possible loan losses to:
Outstanding loans. . . . . . . . . 1.68 1.73 1.31 1.23 1.28 1.26 1.28
Non-performing loans . . . . . . . 337.72 293.30 528.49 328.13 182.85 129.84 134.77
</TABLE>
- 16 -
<PAGE> 22
INFORMATION REGARDING SPECIAL MEETING
-------------------------------------
GENERAL
This Proxy Statement/Prospectus is being furnished to
holders of Central Mortgage Common Stock in connection with the
solicitation of proxies by the Board of Directors of Central
Mortgage for use at the Special Meeting and any adjournments or
postponements thereof at which the shareholders of Central Mortgage
will consider and vote upon a proposal to approve the Merger
Agreement and consider and vote upon any other business which may
properly be brought before the Special Meeting or any adjournments
or postponements thereof. Each copy of this Proxy
Statement/Prospectus is accompanied by the Notice of Special
Meeting of Shareholders of Central Mortgage, a proxy card and
related instructions and a self-addressed return envelope to
Central Mortgage for the proxy card.
This Proxy Statement/Prospectus is also furnished by MBI
to each holder of Central Mortgage Common Stock as a prospectus in
connection with the issuance by MBI of shares of MBI Common Stock
upon the consummation of the Merger. This Proxy
Statement/Prospectus and the Notice of Special Meeting, proxy card
and related materials are being first mailed to shareholders of
Central Mortgage on ---------------, 1994.
DATE, TIME AND PLACE
The Special Meeting will be held at Blue Springs Country
Club, 1600 North Circle Drive, Blue Springs, Missouri, on
- --------------, ------------, 1995, at ----------- Central Time.
RECORD DATE; VOTE REQUIRED
On the Record Date, there were 4,251,177 shares of
Central Mortgage 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 Central Mortgage Common Stock is required to
approve the Merger Agreement.
As of the Record Date, directors and officers of Central
Mortgage and their affiliates owned beneficially an aggregate of
1,426,574 shares of Central Mortgage Common Stock, or approximately
33.56% of the outstanding shares of Central Mortgage Common Stock
entitled to vote at the Special Meeting. All directors and
officers of Central Mortgage and their affiliates have indicated
their intention to vote their shares for the approval of the Merger
Agreement at the Special Meeting. Additionally, each of Margaret
K. Harmon, C. Adrian Harmon and Lynn A. Harmon, directors of
Central Mortgage, pursuant to the terms of his or her respective
Voting Agreement, have committed to vote his or her shares of
Central Mortgage Common Stock for approval of the Merger Agreement.
As of the Record Date, such three directors owned beneficially an
aggregate of 820,028 shares of Central Mortgage Common Stock, or
approximately 19.29% of the issued and outstanding shares.
VOTING AND REVOCATION OF PROXIES
Shares of Central Mortgage Common Stock which are
represented by a properly executed proxy received prior to the vote
at the Special Meeting will be voted at such Special Meeting in the
manner directed on the proxy card, unless such proxy is revoked in
the manner set forth herein in advance of such vote. ANY CENTRAL
MORTGAGE SHAREHOLDER RETURNING AN EXECUTED PROXY CARD WHICH DOES NOT
- 17 -
<PAGE> 23
PROVIDE INSTRUCTIONS TO VOTE AGAINST THE MERGER 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 Merger
Agreement.
Shares subject to abstentions, broker "non-votes" (i.e.,
proxies from brokers or nominees indicating that such persons have
not received instructions from the beneficial owners or other
persons entitled to vote shares with respect to which the brokers
or nominees do not have discretionary power to vote without such
instructions) and votes withheld will be treated as shares that are
present at the Special Meeting for purposes of determining the
presence of a quorum. Such shares will have the effect of votes
against adoption of the Merger Agreement.
Any shareholder of Central Mortgage giving a proxy may
revoke it at any time prior to the vote at the Special Meeting.
Shareholders of Central Mortgage wishing to revoke a proxy prior to
the vote may do so by delivering to the Secretary of Central
Mortgage at 4435 Main Street, Suite 100, Kansas City, Missouri
64111 a written notice of revocation bearing a later date than the
proxy or a later dated proxy relating to the same shares, or by
attending the Special Meeting and voting such shares in person.
Attendance at the Special Meeting will not in itself constitute the
revocation of a proxy.
The Board of Directors of Central Mortgage 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 Central
Mortgage.
SOLICITATION OF PROXIES
Central Mortgage 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 Central
Mortgage may also solicit proxies in person or by telephone.
Directors, executive officers and any other employees of Central
Mortgage 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 CENTRAL MORTGAGE COMMON STOCK ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
TERMS OF THE PROPOSED MERGER
----------------------------
The following is a summary of the material terms and
conditions of the Merger Agreement, which document is incorporated
by reference herein. This summary is qualified in its entirety by
the full text of the Merger Agreement. MBI, upon written or oral
request, will furnish a copy of the Merger Agreement, without
charge, to any person who receives a copy of this Proxy
Statement/Prospectus. Such requests should be directed to Jon W.
Bilstrom, General Counsel and Secretary, Mercantile Bancorporation
Inc., P.O. Box 524, St. Louis, Missouri 63166-0524, telephone (314)
425-2525.
- 18 -
<PAGE> 24
GENERAL DESCRIPTION OF THE MERGER
Pursuant to the Merger Agreement, Central Mortgage, a
Missouri corporation, will be merged on the Closing Date with and
into ABNK, a Missouri corporation which is a wholly owned
subsidiary of MBI. Upon consummation of the Merger, Central
Mortgage's corporate existence will terminate and ABNK will
continue as the surviving entity. Simultaneously with the
effectiveness of the Merger, each share of Central Mortgage Common
Stock will be converted into the right to receive .5970 of a share
of MBI Common Stock. Such consideration is subject to certain
anti-dilution protections but is not adjustable based upon the
operating results, financial condition or other factors affecting
either MBI or Central Mortgage prior to the consummation of the
Merger. The fair market value of MBI Common Stock received
pursuant to the Merger may fluctuate and at the consummation of the
Merger may be more or less than the current fair market value of
such shares.
The amount and nature of the consideration was
established through arm's-length negotiations between MBI and
Central Mortgage, and reflects the balancing of a number of
countervailing factors. The total amount of the consideration
reflects a price both parties concluded was appropriate. See
"- Background of and Reasons for the Merger; Board
Recommendations." The fact that the consideration is payable in
shares of MBI Common Stock reflects the potential for change in the
value of the MBI Common Stock and the desire to have the favorable
tax attributes of a "reorganization" for federal income tax
purposes. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER."
NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET
VALUE OF MBI COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET
VALUE OF MBI COMMON STOCK ON THE DATE SUCH STOCK IS RECEIVED BY A
CENTRAL MORTGAGE SHAREHOLDER OR AT ANY OTHER TIME. THE FAIR MARKET
VALUE OF MBI COMMON STOCK RECEIVED BY A CENTRAL MORTGAGE
SHAREHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET
VALUE OF MBI COMMON STOCK DUE TO NUMEROUS MARKET FACTORS.
Following the Closing Date, each shareholder of Central
Mortgage will be required to submit to the Exchange Agent a
properly executed letter of transmittal and surrender to the
Exchange Agent the stock certificate(s) formerly representing the
shares of Central Mortgage Common Stock in order to obtain issuance
of a new stock certificate evidencing the shares of MBI Common
Stock to which such shareholder is entitled. Within five business
days following the Closing Date, the Exchange Agent will mail to
each Central Mortgage shareholder a notice of consummation of the
Merger and a form of letter of transmittal, together with
instructions and a return envelope to facilitate the exchange of
such holder's certificate(s) formerly representing Central Mortgage
Common Stock for certificate(s) evidencing MBI Common Stock. No
dividends or other distributions will be paid to a former Central
Mortgage shareholder with respect to shares of MBI Common Stock
until such shareholder's letter of transmittal and stock
certificates formerly representing Central Mortgage Common Stock,
or documentation reasonably acceptable to the Exchange Agent in
lieu of lost or destroyed certificates, is delivered to the
Exchange Agent. See "TERMS OF THE PROPOSED MERGER - Surrender of
Central Mortgage Stock Certificates and Receipt of MBI Common
Stock." No fractional shares of MBI Common Stock will be issued in
the Merger, but cash will be paid in lieu of such fractional
shares, such cash being calculated by multiplying the holder's
fractional share interest by the closing stock price of MBI Common
Stock on the NYSE Composite Tape as reported in The Wall Street
Journal on the Closing Date of the Merger. See "Fractional
Shares." The shares of MBI Common Stock to be issued pursuant to
the Merger will be freely transferable except by certain
shareholders of Central Mortgage who are deemed to be "affiliates"
of Central Mortgage. The shares of MBI Common Stock issued to such
affiliates will be restricted in their
- 19 -
<PAGE> 25
transferability in accordance with the rules and regulations promulgated by
the Commission. See "INFORMATION REGARDING MBI STOCK - Restrictions on
Resale of MBI Stock by Affiliates."
OTHER AGREEMENTS
In addition to and contemporaneously with the Merger
Agreement, MBI and Central Mortgage executed the Investment
Agreement and MBI and three of the nine directors of Central
Mortgage executed separate Voting Agreements. The following are
summaries of the material terms of the Investment Agreement and
the Voting Agreements:
Investment Agreement. Concurrent with the execution of
the Merger Agreement, MBI and Central Mortgage entered into the
Investment Agreement pursuant to which Central Mortgage issued
the Option to MBI. The Option was granted by Central Mortgage as
a condition of and in consideration for MBI's entering into the
Merger Agreement. The following description does not purport to be
complete and is qualified in its entirety by reference to the
Investment Agreement, which is attached as an exhibit to the
Registration Statement and is incorporated herein by reference.
The shares issued pursuant to an exercise of the Option
(the "Option Shares") would represent 19.9% of the number of shares
of Central Mortgage Common Stock issued and outstanding as of
August 31, 1994.
The Option is exercisable (after receipt of the required
regulatory approval) upon the occurrence of any of the following
Triggering Events:
(i) the failure of the shareholders of Central Mortgage
to approve the Merger Agreement or, if not previously held, the
failure of Central Mortgage to promptly hold the Special Meeting
and the failure of the shareholders of Central Mortgage to
thereafter approve the Merger Agreement, in each case, after
(a) any person (other than MBI or any subsidiary of
MBI) makes a public announcement of an offer to acquire
10% or more of the Central Mortgage Common Stock, or to
acquire, merge or consolidate with Central Mortgage or
any subsidiary of Central Mortgage or to purchase all or
any substantial part of the assets of Central Mortgage or
any subsidiary of Central Mortgage,
(b) any person (other than MBI, any subsidiary of
MBI, the persons who executed the Voting Agreements or
Central Mortgage's Employee Stock Option Plan) shall have
acquired beneficial ownership or the right to acquire
beneficial ownership of 10% or more of the outstanding
shares of Central Mortgage Common Stock,
(c) any person shall have commenced a bona fide
tender offer or exchange offer to purchase shares of
Central Mortgage Common Stock such that, upon
consummation of said offer, said person would own or
control 25% or more of the outstanding shares of Central
Mortgage Common Stock, or
(d) any person shall have solicited proxies in a
proxy solicitation in opposition to approval of the
Merger Agreement by the shareholders of Central Mortgage;
or
- 20 -
<PAGE> 26
(ii) Central Mortgage shall have entered into an
agreement with a person (other than MBI or a subsidiary of MBI) for
such person to acquire, merge or consolidate with Central Mortgage
or to purchase all or any substantial part of the assets of either
Central Mortgage or any subsidiary of Central Mortgage (except for
the merger of Barton County State Bank with Citizens State Bank of
Nevada, which was consummated on November 1, 1994).
The Option terminates on the earlier of:
(a) the termination of the Merger Agreement by
(1) the mutual consent of each party (a
"Party") thereto,
(2) by any Party if the Merger is not
consummated by June 30, 1995, or by August 31, 1995
in the event the cause of the failure to consummate
the Merger by such date is the result of regulatory
delay not due to the fault or failure of any Party,
(3) any Party if the Federal Reserve Board or
any other federal and/or state regulatory agency
whose approval is required for the Merger shall
have issued a final nonappealable denial of such
approval,
(4) Central Mortgage where MBI has materially
breached the Merger Agreement and failed to cure
such breach within 45 days after notice thereof
from Central Mortgage, or
(5) MBI based upon a non-volitional breach by
Central Mortgage of certain representations,
warranties or agreements contained in the Merger
Agreement, which breach is not cured within 45 days
after notice thereof from MBI; or
(b) twelve months after termination of the Merger
Agreement by MBI if Central Mortgage shall have
materially breached the Merger Agreement and failed to
cure such breach within 45 days after notice thereof from
MBI, except for a termination of the Merger Agreement by
MBI based upon a non-volitional breach of selected
provisions of the Merger Agreement which Central Mortgage
has used its best efforts to cure after notice from MBI
prior to such termination.
Provided, however, if a Triggering Event occurs prior to the
termination of the Option, the Option will terminate twelve months
after the date on which the first Triggering Event occurred.
From and after the date on which a Triggering Event
occurs until the termination of the Option in accordance with its
terms, and subject to applicable regulatory restrictions, MBI will
be entitled, in lieu of exercising the Option, to require Central
Mortgage to purchase the Option for cash at a purchase price equal
to the higher of (i) the number of shares of Central Mortgage
Common Stock then subject to the Option multiplied by the highest
price per share paid for shares of Central Mortgage Common Stock by
a third party in a tender or exchange offer or pursuant to an
agreement with Central Mortgage less the then current exercise
price per share under the Option (the "Exercise Price"), and (ii)
in the event of the sale of all or any substantial part of the
assets of Central Mortgage, the number of shares of Central
Mortgage Common Stock for which the Option is then exercisable (the
"Conversion Number") multiplied by the excess of (x) (I) the sum of
(a) the price paid for such assets, (b) the current market value of the
- 21 -
<PAGE> 27
remaining assets of Central Mortgage and (c) the Exercise Price
multiplied by the Conversion Number, divided by (II) the sum of the
number of shares of Central Mortgage Common Stock then outstanding
and the Conversion Number (the "Sales Price"), over (y) the
Exercise Price. In the event a transaction is consummated in which
a Market/Offer Price (as defined below) or a Sale Price is
established, MBI will be entitled to require Central Mortgage to
repurchase any shares previously purchased pursuant to the Option
on or prior to termination of the Option, at a purchase price equal
to the highest of (i) the highest of (a) the highest price per
share paid for shares of Central Mortgage Common Stock by a third
party in a tender or exchange offer or (b) the highest price per
share paid by any third party pursuant to an agreement with Central
Mortgage (the "Market/Offer Price"), multiplied by the number of
shares of Central Mortgage Common Stock to be repurchased, or (ii)
in the event of a sale of all or any substantial part of the assets
of Central Mortgage, the Sale Price multiplied by the number of
such shares to be repurchased. In addition, on or prior to the
termination of the Option, MBI will be entitled to require Central
Mortgage to repurchase any shares previously purchased pursuant to
the Option at a price equal to the exercise price per share
multiplied by the number of such shares.
In the event of any change in Central Mortgage Common
Stock by reason of stock dividends, split-ups, recapitalizations or
the like, the type and number of shares subject to the Option, and
the purchase price per share, as the case may be, will be adjusted
appropriately. In the event that any additional shares of Central
Mortgage Common Stock are issued after the date of the Investment
Agreement (other than pursuant to an event described in the
preceding sentence or pursuant to the Investment Agreement),
Central Mortgage shall issue additional options to MBI (on the same
terms and conditions as the Option), such additional options to be
exercisable for a number of shares of Central Mortgage Common Stock
equal to 19.9% of the number of additional shares of Central
Mortgage Common Stock so issued.
To the best of MBI's and Central Mortgage's knowledge, no
Triggering Event has occurred as of the date of this Proxy
Statement/Prospectus.
Voting Agreements. Concurrent with the execution of the
Merger Agreement, MBI and each of Margaret K. Harmon, C. Adrian
Harmon and Lynn A. Harmon, three of the nine directors of Central
Mortgage, executed separate Voting Agreements by which each such
director agreed that he or she will vote all of the shares of
Central Mortgage Common Stock that he or she then owned or
subsequently acquires in favor of the Merger Agreement at the
Special Meeting. In addition, until the earliest to occur of the
Effective Time of the Merger, the termination of the Voting
Agreements or the abandonment of the Merger, each such director
further agreed that he or she will not vote any such shares in
favor of the approval of any other competing acquisition proposal
involving Central Mortgage and a third party. Each such director
also agreed that he or she will not transfer shares of Central
Mortgage Common Stock owned by him or her unless, prior to such
transfer, the transferee executes a Voting Agreement in
substantially the same form. As of the Record Date, such three
directors owned beneficially an aggregate of 820,028 shares of
Central Mortgage Common Stock, or approximately 19.29% of the
issued and outstanding shares.
BACKGROUND OF AND REASONS FOR THE MERGER; BOARD RECOMMENDATIONS
Central Mortgage's Reasons and Board Recommendation. The
Board of Directors of Central Mortgage has periodically evaluated
Central Mortgage's corporate strategy based upon general conditions
in the banking industry, legislative changes and other developments
affecting the industry in general and Central Mortgage
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.
- 22 -
<PAGE> 28
In August 1994, senior executive officers of Central
Mortgage and MBI held discussions concerning a possible merger of
Central Mortgage with MBI or a subsidiary of MBI. During that
time, Central Mortgage senior executives also had contact with
several other regional bank holding companies concerning possible
business combinations with those companies.
On August 17, 1994, the Board appointed a special
committee consisting of three directors to review and evaluate
possible business combinations of Central Mortgage with other
parties. The special committee met on August 29, 1994, and
reviewed potential business combinations of the company, including
the possibility of a transaction with MBI. The special committee
reviewed proposals from MBI, as well as several other regional bank
holding companies. The committee determined that MBI's proposal
was the most advantageous to the shareholders of Central Mortgage,
and authorized formal negotiations with MBI. During the first part
of September 1994, representatives of Central Mortgage and MBI met
to negotiate the terms of a definitive agreement between Central
Mortgage and a subsidiary of MBI. The Merger consideration and
other terms and conditions of the Merger Agreement and the
Investment Agreement were established through arms-length
negotiations between Central Mortgage and MBI and their respective
advisors. Central Mortgage's Board of Directors sought a stock-
for-stock transaction so that the Merger would be accounted for on
a pooling-of-interests accounting basis and would constitute a
"reorganization" for federal income tax purposes.
On September 19, 1994, the special committee of Central
Mortgage's Board of Directors held a second meeting at which it
reviewed the terms and conditions proposed for the Merger Agreement
and the Investment Agreement. This meeting resulted in the special
committee's recommendation to the full board that the Merger
Agreement and the Investment Agreement be approved. The full Board
of Directors of Central Mortgage met on September 21, 1994, in a
meeting attended by Central Mortgage's legal and financial
advisors. After carefully considering the terms in the Merger
Agreement and the Investment Agreement, the full Board of Directors
unanimously approved the Merger Agreement and Investment Agreement
as being in the best interests of Central Mortgage and its
shareholders.
The recommendation of Central Mortgage's Board of
Directors is based upon a number of factors, including the exchange
ratio and other terms of the Merger Agreement, the tax-free nature
of the Merger for Central Mortgage's shareholders, the benefits
expected to result from the combination of Central Mortgage and
MBI, information concerning the financial condition, results of
operations and prospects of Central Mortgage and MBI on a combined
basis, the market prices of and dividend policies with respect to
Central Mortgage Common Stock and MBI Common Stock, results of due
diligence investigations of MBI by Central Mortgage, recent federal
and state legislative changes affecting the banking industry in
general and the fairness opinion of Stifel.
THE BOARD OF DIRECTORS OF CENTRAL MORTGAGE UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS OF CENTRAL MORTGAGE 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
Central Mortgage and projected synergies which are anticipated to
result from the Merger. The Executive Committee concluded that the
Merger presents an unique opportunity for MBI to increase its
presence in the greater Kansas City, Missouri area and certain
southwestern Missouri communities through the acquisition of an
established banking organization having significant operations in
the targeted area. MBI's decision to pursue discussions with
Central Mortgage was primarily a result of MBI's assessment of the
value of Central Mortgage's banking franchise, its substantial
asset base within that area and the compatibility of the businesses
of the two banking organizations.
- 23 -
<PAGE> 29
OPINION OF FINANCIAL ADVISOR TO CENTRAL MORTGAGE
Pursuant to an engagement letter dated September 21, 1994 (the
"Engagement Letter"), Central Mortgage retained Stifel to act as its
financial advisor in connection with the consideration by Central Mortgage's
Board of Directors of the transaction contemplated by the Merger Agreement.
Stifel is a nationally recognized investment banking and securities firm and,
as part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with merger
transactions and other types of acquisitions, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Central Mortgage selected
Stifel as its financial advisor on the basis of its experience and expertise
in transactions similar to the Merger and its reputation in the banking and
investment communities. The terms of the Merger Agreement, including the
consideration to be received by Central Mortgage shareholders, were
negotiated by Central Mortgage.
At the September 21, 1994 meeting of Central Mortgage's Board of
Directors, Stifel delivered its oral opinion, subsequently confirmed in
writing as of September 21, 1994, that the consideration to be received by
the Central Mortgage shareholders in the Merger is fair to the Central
Mortgage shareholders from a financial point of view. No limitations were
imposed by Central Mortgage on Stifel with respect to the investigations made
or procedures followed in rendering its opinion. THE FULL TEXT OF STIFEL'S
WRITTEN OPINION TO CENTRAL MORTGAGE'S BOARD OF DIRECTORS IS ATTACHED HERETO
AS ANNEX A AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ
-------
CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT/PROSPECTUS. THE FOLLOWING SUMMARY OF STIFEL'S OPINION IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. STIFEL'S
OPINION IS ADDRESSED ONLY TO CENTRAL MORTGAGE'S BOARD OF DIRECTORS AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY CENTRAL MORTGAGE SHAREHOLDER AS TO HOW
SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING.
Stifel reviewed with Central Mortgage's directors the general analysis
performed by Stifel in reaching its opinion. In connection with its opinion,
Stifel, among other things: (i) reviewed certain publicly available financial
and other data with respect to Central Mortgage and MBI, including the
consolidated financial statements for the last five years and for the six
months ended June 30, 1994 and certain other relevant financial operating
data relating to Central Mortgage and MBI made available to Stifel from
published sources; (ii) reviewed the Merger Agreement; (iii) reviewed certain
historical market prices and trading volumes of Central Mortgage Common Stock
and MBI Common Stock as reported by Nasdaq and the NYSE, respectively; (iv)
compared Central Mortgage and MBI from a financial point of view with certain
other companies in the banking industry that Stifel deemed to be relevant;
(v) considered the financial terms, to the extent publicly available, of
selected recent acquisitions of bank holding companies that Stifel deemed to
be reasonably similar, in whole or in part, to the Merger and Central
Mortgage; (vi) reviewed and discussed with representatives of the management
of Central Mortgage and MBI certain information of a business and financial
nature regarding Central Mortgage and MBI, furnished to Stifel by Central
Mortgage and MBI, including financial forecasts and related assumptions of
Central Mortgage; (vii) made inquiries regarding and discussed the Merger and
the Merger Agreement and other matters related thereto with Central
Mortgage's counsel; and (viii) performed such other analyses and examinations
as Stifel deemed appropriate.
In connection with its review, Stifel did not independently verify any
of the foregoing information and relied on such information and assumed such
information was complete and accurate in all material respects. With respect
to the financial forecasts of Central Mortgage provided to Stifel by Central
Mortgage's management, Stifel assumed for purposes of its opinion that they
were reasonably prepared on bases reflecting the best available estimates and
judgments of Central Mortgage's management at the time of preparation as to
the future financial performance of Central Mortgage and that, in preparing
such forecasts, Central Mortgage's management took into account all factors
that were reasonably required to be taken into account by management in
order to prepare such forecasts.
- 24 -
<PAGE> 30
Stifel also assumed that there were no material changes in Central
Mortgage's or MBI's assets, financial condition, results of operations,
business or prospects since the date of the last financial statements made
available to Stifel. Stifel relied on advice of counsel to Central Mortgage
as to all legal matters with respect to Central Mortgage, the Merger and
the Merger Agreement. In addition, Stifel did not make or obtain an
independent evaluation, appraisal or physical inspection of the assets,
individual properties or liabilities of Central Mortgage or MBI, nor was
Stifel furnished with any such appraisal. Further, Stifel's opinion was
based on economic, monetary, market and other conditions existing as of the
date of its opinion. No opinion was expressed as to the prices at which
Central Mortgage Common Stock or MBI Common Stock might trade in the
future.
The following is a summary of the financial analyses performed by Stifel
in connection with providing its oral advice to Central Mortgage's Directors
on September 21, 1994 and the written confirmation of that advice contained
in its written opinion, dated as of September 21, 1994.
Contribution Analysis
---------------------
<TABLE>
Stifel reviewed certain historical and estimated fiscal 1994 operating
and financial information including net revenues (before and after provision
for loan losses), net income (before extraordinary items and preferred
dividends), assets, loans, deposits and total equity, and compared the
contribution of Central Mortgage to the pro forma combined figures for
Central Mortgage and MBI to the percentage of total outstanding MBI Common
Stock that would be owned by the Central Mortgage shareholders as a result of
the Merger. The analysis showed the following percentage contribution of
Central Mortgage to the pro forma combined equity:
<CAPTION>
PERCENTAGE CONTRIBUTION
-----------------------
Year Ended Six Months Ended Fiscal 1994
12/31/93 6/30/94 Estimate
---------- ---------------- -----------
<S> <C> <C> <C>
Common Stock Ownership 5.7% 5.7% 5.7%
Net Revenues<F1> (Before
Provision for Loan Loss) 3.3 3.7 3.7
Net Revenues<F1> (After
Provision for Loan Loss) 3.7 3.7 3.7
Net Income Before
Extraordinary Items and
Preferred Dividend 4.2 4.1 4.1
Assets 5.6 5.0 5.1
Loans 5.6 4.7 4.7
Deposits 6.1 5.6 5.6
Total Equity 5.5 4.8 4.8
<FN>
- ---------------------
<F1> Net revenues include net interest income plus noninterest income net of
noninterest expense.
</TABLE>
Accretion/Dilution Summary
--------------------------
Stifel reviewed certain financial information for the pro forma
combined entity resulting from the Merger for the year ended December 31,
1993, and the six months ended June 30, 1994, and estimated future operating
and financial information developed by both Central Mortgage and MBI for
- 25 -
<PAGE> 31
the year ended December 31, 1994. Based on this analysis, Stifel compared
Central Mortgage's actual per share earnings, book value, tangible book value
and common stock dividends for the relevant periods with such figures for the
pro forma combined entity. [The Merger is accretive on a pro forma basis
with respect to per share earnings, book value, tangible book value and
common stock dividends per share of Central Mortgage Common Stock and is
projected to be accretive for the year ended December 31, 1994.]
Trading Liquidity Analysis
--------------------------
Stifel prepared an analysis comparing the trading liquidity of
Central Mortgage Common Stock relative to MBI Common Stock. The analysis
found there to be substantially greater liquidity in MBI Common Stock in
terms of total shares traded, approximate market value of shares traded,
average daily volume and annual trading volume as a percentage of common
stock outstanding.
Present Value Analysis
----------------------
Applying discounted cash flow analysis to the theoretical future
earnings and dividends of Central Mortgage and MBI, Stifel compared the
calculated theoretical future value of a share of Central Mortgage to the
calculated theoretical future value of the fractional share of the combined
entity receivable in exchange for a share of Central Mortgage Common Stock
pursuant to the Merger Agreement. The analysis was based upon a range of
assumed returns on assets, a 5% annual asset growth, current dividend rates,
a range of assumed price/earnings ratios and a 12% discount rate. Based on
this analysis, Stifel concluded that the Merger increases the value of a
share of Central Mortgage Common Stock.
Summary Analysis of Bank Merger Transactions
--------------------------------------------
<TABLE>
Stifel analyzed certain information relating to transactions in the
banking industry, including median information for 391 acquisitions announced
in the U.S. between September 14, 1993 and September 14, 1994, as well as for
130 bank acquisitions announced in the Midwest between September 14, 1993 and
September 14, 1994 (the "Selected Transactions"). Stifel calculated the
following ratios with respect to the Merger and the Selected Transactions:
<CAPTION>
Central
Mortgage/ U.S. Midwest
Ratios MBI Merger<F1> Median Median
- ------ -------------- ------ -------
<S> <C> <C> <C>
Deal Price per Share/Book Value 192% 167% 163%
Deal Price per Share/
Tangible Book Value 232 170 164
Deal Price per Share/
Trailing 4 Quarters
Earnings' per Share 15.4 14.3 14.1
Deal Price/Assets 16.7 14.6 14.2
Premium over Tangible
Book Value/Deposits 10.6 6.6 5.7
Deal Price/Deposits 19.4 16.8 16.5
<FN>
- ------------------------
<F1> Central Mortgage ratios based on estimated exchange ratio and
pre-announcement price for MBI Common Stock.
</TABLE>
The summary set forth above does not purport to be a
complete description of the presentation by Stifel to the Central
Mortgage Board of Directors or of the analyses performed by Stifel.
The preparation of a fairness opinion is not necessarily
susceptible to partial analysis or summary
- 26 -
<PAGE> 32
description. Stifel believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its
analyses and of the factors considered, without considering all analyses
and factors, would create an incomplete view of the process underlying
the analyses set forth in its presentation to the Central Mortgage
Board of Directors. In addition, Stifel may have given various
analyses more or less weight than other analyses, and may have
deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be
Stifel's view of the actual value of Central Mortgage or the
combined companies. The fact that any specific analysis has been
referred to in the summary above is not meant to indicate that such
analysis was given greater weight than any other analysis.
In performing its analyses, Stifel made numerous
assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond
the control of Central Mortgage or MBI. The analyses performed by
Stifel are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable
than suggested by such analyses. Such analyses were prepared
solely as part of Stifel's analysis of the fairness of the Merger
consideration to be received by the Central Mortgage shareholders
from a financial point of view and were provided to the Central
Mortgage Board of Directors in connection with the delivery of
Stifel's opinion. The analyses do not purport to be appraisals or
to reflect the prices at which a company might actually be sold or
the prices at which any securities may trade at the present time or
at any time in the future. Stifel used in its analyses various
projections of future performance prepared by the managements of
Central Mortgage and MBI. The projections are based on numerous
variables and assumptions which are inherently unpredictable and
must not be considered certain of occurrence as projected.
Accordingly, actual results could vary significantly from those set
forth in such projections.
As described above, Stifel's opinion and presentation to
the Central Mortgage Board of Directors were among the many factors
taken into consideration by the Central Mortgage Board in making
its determination to approve the Merger.
For Stifel's services in connection with the Merger,
Central Mortgage has paid Stifel $40,000 and will pay Stifel
$185,000 upon the closing of the Merger pursuant to the terms of
the Engagement Letter and has agreed to reimburse Stifel for
certain out-of-pocket expenses. Pursuant to the Engagement Letter,
the Company has agreed to indemnify Stifel, its affiliates and
their respective partners, directors, officers, agents,
consultants, employees and controlling persons against certain
liabilities, including liabilities under the federal securities
laws.
In the ordinary course of its business, Stifel actively
trades equity securities of Central Mortgage for its own account
and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
CONDITIONS OF THE MERGER
The respective obligations of MBI and Central Mortgage to
consummate the Merger are subject to the satisfaction of certain
mutual conditions, including the following:
(1) The Merger Agreement shall be approved by the
holders of at least two-thirds of the outstanding shares
of Central Mortgage Common Stock at the Special Meeting.
(2) The Merger Agreement and the transactions
contemplated therein shall have been approved by the
Federal Reserve Board and any other federal and/or state
- 27 -
<PAGE> 33
regulatory agency whose approval is required for the
consummation of the transactions contemplated therein.
(3) The Registration Statement of which this Proxy
Statement/Prospectus is a part, registering shares of MBI
Common Stock to be issued in the Merger, shall have been
declared effective and not be subject to a stop order or
any threatened stop order.
(4) Neither Central Mortgage, MBI nor ABNK shall be
subject to any order, decree or injunction of a court or
agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger.
The obligation of MBI and ABNK to consummate the Merger
is subject to the satisfaction, unless waived, of certain other
conditions, including the following:
(1) The representations and warranties of Central
Mortgage made in the Merger Agreement shall be true and
correct in all material respects, except for inaccuracies
therein that are not of a magnitude as to have a material
adverse effect on Central Mortgage and its subsidiaries,
taken as a whole, as of September 21, 1994 and as of the
Effective Time, and all obligations required to be
performed by Central Mortgage prior to or at the Closing
Date shall have been performed in all material respects,
and MBI shall have received an officers' certificate from
Central Mortgage to that effect.
(2) Central Mortgage shall have obtained any and
all material permits, authorizations, consents, waivers
and approvals required of Central Mortgage for the lawful
consummation of the Merger.
(3) Since September 21, 1994, there shall have been
no material adverse change in the business, financial
condition or results of operations of Central Mortgage or
its subsidiaries, taken as a whole.
(4) Unless otherwise waived by MBI and ABNK in
their sole discretion, holders of less than ten percent
(10%) of the total value of shares of Central Mortgage
Common Stock outstanding shall have taken such steps as
are then possible to dissent from the Merger pursuant to
Missouri law.
(5) MBI and ABNK shall have received an opinion of
KPMG Peat Marwick LLP, satisfactory to MBI, that the
Merger will qualify for pooling-of-interests accounting
treatment, which opinion shall not have been withdrawn.
Baird, Kurtz and Dobson, independent auditors for Central
Mortgage, shall have provided to Central Mortgage
assurance that it knows of no facts that would prevent
pooling-of-interests accounting treatment.
(6) Blackwell Sanders Matheny Weary & Lombardi,
counsel to Central Mortgage, shall have delivered to MBI
an opinion regarding certain legal matters.
Central Mortgage's obligation to consummate the Merger is
subject to the satisfaction, unless waived, of certain other
conditions, including the following:
(1) The representations and warranties of MBI and
ABNK made in the Merger Agreement shall be true and
correct in all material respects, except for
- 28 -
<PAGE> 34
inaccuracies therein that are not of a magnitude as to have a
material adverse effect on MBI and its subsidiaries, taken as a
whole, as of September 21, 1994 and as of the Effective
Time, and all obligations required to be performed by MBI
and ABNK prior to or at the Effective Time shall have
been performed in all material respects, and Central
Mortgage shall have received an officer's certificate
from MBI to that effect.
(2) MBI and ABNK shall have obtained any and all
material permits, authorizations, consents, waivers and
approvals required of MBI or ABNK for the lawful
consummation of the Merger.
(3) Since September 21, 1994, there shall have been
no material adverse change in the business, financial
condition or results of operations of MBI on a
consolidated basis taken as a whole.
(4) Thompson & Mitchell, counsel to MBI, shall have
delivered to Central Mortgage an opinion regarding
certain legal matters.
(5) Central Mortgage shall have received from
Thompson & Mitchell an opinion to the effect that the
Merger will constitute a reorganization within the
meaning of Section 368 of the Code and to the effect
that, as a result of the Merger, except with respect to
fractional share interests, holders of Central Mortgage
Common Stock who receive MBI Common Stock in the Merger
will not recognize gain or loss for federal income tax
purposes, the basis of such MBI Common Stock will equal
the basis of the Common Stock for which it is exchanged,
and the holding period of such MBI Common Stock will
include the holding period of the Central Mortgage Common
Stock for which it is exchanged, assuming that such
Central Mortgage Common Stock is a capital asset in the
hands of the holder thereof as of the Effective Time.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior
to the Closing Date, whether before or after approval by the
shareholders of Central Mortgage, by mutual consent of the
Executive Committee of the Board of Directors of MBI and the Boards
of Directors of Central Mortgage and ABNK, or unilaterally by the
Executive Committee of the Board of Directors of MBI or the Boards
of Directors of Central Mortgage or ABNK: (i) at any time after
June 30, 1995, if the Merger has not been consummated by such date;
provided, however, such date will be automatically extended to
August 31, 1995 if the cause of the failure to consummate the
Merger by such date is the result of regulatory delay not due to
the fault or failure of Central Mortgage, MBI or ABNK; (ii) if the
Federal Reserve Board or any other federal and/or state regulatory
authority whose approval is required for consummation of the Merger
shall have issued a final nonappealable denial of such approval; or
(iii) in the event of a breach by the other of any representation,
warranty or agreement contained in the Merger Agreement, which
breach is of such a magnitude as to be materially adverse to the
financial condition, results of operations, business, assets,
prospects or operations of the breaching party and its subsidiaries
taken as a whole and is not cured after 45 days' written notice
thereof is given to the party committing such breach or waived by
such other party. No assurance can be given that the Merger will
be consummated on or before June 30, 1995 (or, if extended as
described above, August 31, 1995) or that MBI, ABNK or Central
Mortgage will not elect to terminate the Merger Agreement if the
Merger has not been consummated on or before June 30, 1995 or
August 31, 1995, as the case may be.
- 29 -
<PAGE> 35
In the event of the termination of the Merger Agreement,
it shall become void and there shall be no liability on the part of
any party except, that (i) confidentiality and indemnification
obligations shall survive termination; (ii) MBI shall pay all
printing, mailing and filing expenses with respect to the
Registration Statement and this Proxy Statement/Prospectus and
(iii) in the case of termination due to continued material breach
after notice and opportunity to cure, the breaching party shall not
be relieved of liability to the nonbreaching party arising from the
willful nonperformance of any covenant in the Merger Agreement. In
addition, as described above under "- Other Agreements - Investment
Agreement," in the case of certain terminations of the Merger
Agreement, the Investment Agreement will become exercisable and
Central Mortgage may be obligated to repurchase the Option and any
Option Shares.
INDEMNIFICATION
Central Mortgage, MBI and ABNK have agreed to indemnify
each other against any claims or liabilities to which any such party
may become subject under federal or state securities laws or
regulations, to the extent that such claim or liability arises out
of information furnished to the party subject to such liability by
the other party, or out of an omission by such other party to state
a necessary or material fact in the Registration Statement of which
this Proxy Statement/Prospectus is a part.
CLOSING DATE
The Merger will be consummated and become effective on
the Closing Date upon issuance of a certificate of merger by the
Missouri Secretary of State. Under the Merger Agreement, unless
the parties otherwise agree, the Closing Date shall be the first
business day of the month immediately succeeding the month in which
the last of the following events occurs: (i) the receipt of the
requisite approval of the Merger Agreement by the shareholders of
Central Mortgage; (ii) the thirtieth day after the approval of the
Merger by the Federal Reserve Board; and (iii) the approval of the
Merger by any other bank regulatory agency that may be necessary or
appropriate.
SURRENDER OF CENTRAL MORTGAGE STOCK CERTIFICATES AND RECEIPT OF MBI
COMMON STOCK
At the Effective Time of the Merger, each outstanding
share of Central Mortgage Common Stock will be converted into the
right to receive .5970 of a share of MBI Common Stock. See "TERMS
OF THE PROPOSED MERGER - General Description of the Merger." Each
holder of Central Mortgage Common Stock, upon submission to the
Exchange Agent of a properly executed letter of transmittal and
surrender to the Exchange Agent of the stock certificate(s)
formerly representing shares of Central Mortgage Common Stock, will
be entitled to receive a stock certificate evidencing the shares of
MBI Common Stock to which such shareholder is entitled.
Within five business days after the Effective Time of the
Merger, the Exchange Agent will mail to each former Central
Mortgage shareholder of record as of the Effective Time
notification of the consummation of the Merger. The Exchange Agent
will also provide a letter of transmittal and instructions as to
the procedure for the surrender of the stock certificates
evidencing the Central Mortgage Common Stock and the receipt of
shares of MBI Common Stock.
Following the Effective Time of the Merger, it will be
the responsibility of each former holder of Central Mortgage shares
to submit all certificates evidencing that former holder's shares
of Central Mortgage Common Stock to the Exchange Agent. No
dividends or other distribution will be paid to a former Central
Mortgage shareholder with respect to shares of MBI Common Stock
until such shareholder's properly completed letter of transmittal
and stock certificates formerly representing Central Mortgage
Common Stock, or, in lieu thereof, such evidence of a lost, stolen
or destroyed certificate and/or
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<PAGE> 36
such surety bond as the Exchange Agent may reasonably require in accordance
with customary exchange practices, are delivered to the Exchange Agent.
All dividends or other distributions on the MBI Common Stock declared
between the Closing Date of the Merger and the date of the surrender of a
Central Mortgage stock certificate will be held for the benefit of
the shareholder and will be paid to the shareholder, without
interest thereon, upon the surrender of such stock certificate or
documentation and/or insurance bond in lieu thereof.
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued
to the former shareholders of Central Mortgage in connection with
the Merger. Each former holder of Central Mortgage Common Stock
who otherwise would have been entitled to receive a fraction of a
share of MBI Common Stock shall receive in lieu thereof cash,
without interest, in an amount equal to the holder's fractional
share interest multiplied by the closing stock price of MBI Common
Stock on the NYSE Composite Tape as reported in The Wall Street
Journal on the Closing Date of the Merger. Cash received by
Central Mortgage shareholders in lieu of fractional shares may give
rise to taxable income. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER."
REGULATORY APPROVAL
In addition to the approval of the Merger Agreement by
the shareholders of Central Mortgage, the obligations of the
parties to effect the Merger are subject to prior approval of the
Federal Reserve Board. As a bank holding company, MBI is subject
to regulation under the BHCA. The Merger is subject to prior
approval by the Federal Reserve Board under Section 3 and Section
4 of the BHCA. Under the BHCA, the Federal Reserve Board may
withhold approval of the Merger if, among other things, it
determines that the effect of the Merger would be to substantially
lessen competition in the relevant markets. In addition, the
Federal Reserve Board must consider whether the combined
organization meets the requirements of the Community Reinvestment
Act of 1977, as amended, by assessing the involved entities'
respective records of meeting the credit needs of the local
communities in which they are chartered, consistent with the safe
and sound operation of such institutions. In its review, the
Federal Reserve Board must also examine the financial and
managerial resources and future prospects of the combined
organization and analyze the capital structure and soundness of the
resulting entity. The Federal Reserve Board has the authority to
deny an application if it concludes that the combined organization
would have inadequate capital.
Applications for such approval have been filed with the
Federal Reserve Board. MBI and Central Mortgage are not aware of
any governmental approvals or actions that may be required for
consummation of the Merger other than as described above. Should
any other approval or action be required, it is presently
contemplated that such approval or action would be sought. There
can be no assurance that any necessary regulatory approvals or
actions will be timely received or taken, that no action will be
brought challenging such approval or action or, if such a challenge
is brought, as to the result thereof, or that any such approval or
action will not be conditioned in a manner that would cause the
parties to abandon the Merger. See "SUPERVISION AND REGULATION."
- 31 -
<PAGE> 37
BUSINESS PENDING THE MERGER
The Merger Agreement provides that, during the period
from September 21, 1994 to the Effective Time, Central Mortgage
will conduct its business according to the ordinary and usual
course consistent with past and current practices and use its best
efforts to maintain and preserve its business organization,
employees and advantageous business relationships and retain the
services of its officers and key employees.
Furthermore, from the date of the Merger Agreement to the
Closing Date, except as provided in the Merger Agreement, Central
Mortgage will not, and will cause each of its subsidiaries not to,
without the prior written consent of MBI, which consent will not be
unreasonably withheld:
(1) declare, set aside or pay any dividends or
other distributions, directly or indirectly, in respect
of its capital stock (other than dividends from any of
the Central Mortgage subsidiaries to Central Mortgage),
except that Central Mortgage may declare and pay regular
quarterly cash dividends in amounts not to exceed (i) the
amount determined pursuant to Section 7.3 of the Articles
of Incorporation of Central Mortgage on the Central
Mortgage Series A Preferred Stock, $10.00 par value (the
"Central Mortgage Preferred Stock"), and (ii) $0.12 per
share on the Central Mortgage Common Stock; provided,
however, no dividend will be paid to a Central Mortgage
shareholder for any quarter in which such Central
Mortgage shareholder will be entitled to receive a
regular quarterly dividend on the shares of MBI Common
Stock to be issued in the Merger;
(2) enter into or amend any employment, severance
or similar agreement or arrangement with any director or
officer or employee, or materially modify any of the
Central Mortgage employee plans or policies or grant any
salary or wage increase or materially increase any
employee benefit (including incentive or bonus payments),
except normal individual increases in compensation to
employees consistent with past practice, or as required
by law or contract, and except for such increases of
which Central Mortgage notifies MBI in writing and which
MBI does not disapprove within ten days of the receipt of
such notice;
(3) propose or adopt any amendments to the Articles
of Incorporation or the Articles of Association of
Central Mortgage or any subsidiary of Central Mortgage,
as the case may be, or its respective by-laws;
(4) issue any shares of capital stock, except with
respect to the issuance of Central Mortgage Common Stock
upon the exercise or conversion of employee stock options
or Central Mortgage Preferred Stock outstanding as of
September 21, 1994, or effect any stock split or
otherwise change its capitalization as it existed on
September 21, 1994;
(5) grant, confer or award any options, warrants,
conversion rights or other rights not existing on
September 21, 1994 to acquire any shares of its capital
stock;
(6) purchase or redeem any shares of its capital
stock, except, in the case of Central Mortgage, the
redemption of any or all shares of Central Mortgage
Preferred Stock, and in the case of Cenco Insurance
Company, Inc. (an Arizona corporation of
- 32 -
<PAGE> 38
which Central Mortgage owns approximately 79.9% of the issued
and outstanding shares of capital stock ("Cenco")), capital
stock held by persons other than Central Mortgage;
(7) enter into or increase any loan or credit
commitment (including stand-by letters of credit but
excluding commitments in respect of the packaging of
mortgages for sale in the ordinary course of business)
to, or invest or agree to invest in any person or entity
(i) in an amount in excess of $750,000, without first
consulting with MBI, and, in the case of persons or
entities to which it has outstanding aggregate credit
commitments and loans exceeding $750,000, subject to (ii)
below, increase or agree to increase the loan or credit
commitment to, or invest or agree to invest in, such
person or entity by more than twenty-five percent (25%)
of the amount of such loan, credit commitment or
investment, without first consulting with MBI, and (ii)
in an amount in excess of $1,000,000, without first
obtaining the prior written consent of MBI, which consent
will not be unreasonably withheld; provided, however,
notwithstanding (i) and (ii), Central Mortgage and/or any
subsidiary of Central Mortgage shall not be prohibited
from honoring any contractual and legally binding
obligation in existence on September 21, 1994;
(8) agree in writing or otherwise to take any of
the foregoing actions or engage in any activity, enter
into any transaction or take or omit to take any other
action which would make any of the representations and
warranties in the Merger Agreement untrue or incorrect in
any respect if made anew after engaging in such activity,
entering into such transaction or taking or omitting such
other act; or
(9) take any action (i) that would (a) materially
impede or delay the consummation of the transactions
contemplated by the Merger Agreement or the ability of
MBI or Central Mortgage to obtain any necessary approvals
of any regulatory authority required for the transactions
contemplated by the Merger Agreement or to perform its
covenants and agreements under the Merger Agreement, or
(b) prevent or impede the Merger from qualifying as a
pooling-of-interests for accounting purposes or as a
reorganization within the meaning of Section 368 of the
Code, or (ii) that is not in the ordinary course of
business consistent with past practices unless otherwise
expressly permitted by the Merger Agreement;
(10) directly or indirectly, including through its
officers, directors, employees or other representatives:
(i) initiate, solicit or encourage any
discussions, inquiries or proposals with any third
party (other than MBI or ABNK) relating to the
disposition of any significant portion of the
business or assets of Central Mortgage or any of
its subsidiaries or the acquisition of the capital
stock (or rights or options exercisable for, or
securities convertible or exchangeable into,
capital stock) of Central Mortgage or any of its
subsidiaries or the merger of Central Mortgage or
any of its subsidiaries with any person (other than
MBI or ABNK) or any similar transaction (each such
transaction being referred to herein as an
"Acquisition Transaction"), or
(ii) provide any third party with information
or assistance or negotiate with any third party
with respect to an Acquisition Transaction, and
Central Mortgage shall promptly notify MBI orally
of all the relevant details relating to
- 33 -
<PAGE> 39
all inquiries, indications of interest and proposals
which it or any of its subsidiaries may receive
with respect to any Acquisition Transaction.
On November 11, 1994, Central Mortgage, in accordance
with the provisions of its Articles of Incorporation, issued a
notice of redemption of all shares of Central Mortgage Preferred
Stock then outstanding. As of the Record Date, all issued and
outstanding shares of Central Mortgage Preferred Stock had been
converted into shares of Central Mortgage Common Stock.
WAIVER AND AMENDMENT
Any provision of the Merger Agreement, including, without
limitation, the conditions to the consummation of the Merger and
the restrictions described under "- Business Pending the Merger,"
may be (i) waived in writing at any time by the party that is, or
whose shareholders are, entitled to the benefits thereof, or
(ii) amended at any time by written agreement of the parties
approved by or on behalf of their respective Boards of Directors
(in the case of Central Mortgage) or Executive Committees, whether
before or after the Special Meeting; provided, however, that after
approval of the Merger Agreement by the shareholders of Central
Mortgage at the Special Meeting no such modification may alter or
change the amount or form of consideration to be received by the
Central Mortgage shareholders in the Merger, or adversely affect
the Central Mortgage shareholders. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER" of this Proxy Statement/Prospectus.
ACCOUNTING TREATMENT
The Merger is intended to be accounted for under the
pooling-of-interests method of accounting. Data regarding the
financial condition and results of operations of Central Mortgage
will be included in MBI's consolidated financial statements for all
periods presented by MBI as if the Merger had occurred on the first
day of the earliest period presented. It is a condition to MBI's
and ABNK's consummation of the Merger that KPMG Peat Marwick LLP,
MBI's independent accountants, deliver to MBI and ABNK an opinion
that the Merger will qualify for pooling-of-interests accounting
treatment.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Central Mortgage has entered into change of control
agreements with each of Lynn A. Harmon, Edward A. Mangone, Tom D.
Harmon, Michael R. Rankin, Thomas R. Main, Stephen D. Taylor and
Dean Derks (the "Executives"). The agreements provide that each
Executive will receive compensation in an amount determined by
multiplying three times 98% of the annual average compensation
(annualized for any partial year) received by such Executive for
the last five years. At the Effective Time, MBI shall pay to
each Executive the amount due to such Executive under his
respective agreement, without regard to any notice or waiting
periods set forth in such change of control agreement. Based upon
compensation received by the Executives for the years 1990-1994,
the estimated aggregate present value of amounts presently payable
to the Executives upon consummation of the Merger would be
approximately $4,000,000.
MBI has agreed to assume all outstanding stock options to
purchase Central Mortgage Common Stock held by Central Mortgage
employees. Each such option outstanding at the Effective Time,
whether or not exercisable or vested, shall, at the Effective Time,
be converted into an option to purchase such number of shares of
MBI Common Stock as is equal to the number of shares of Central
Mortgage Common Stock subject to such option multiplied by .5970,
and at a per share exercise price which shall equal the per share
exercise price under such option divided by .5970, subject to
adjustment as appropriate to reflect any stock split, stock
dividend, capitalization or similar transaction subsequent to the
Effective
- 34 -
<PAGE> 40
Time. With respect to options which qualify as "incentive stock options"
under Section 422 of the Code, any adjustment is intended to satisfy the
requirements of Section 422.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
-----------------------------------------------------
The following is a discussion of the material federal
income tax consequences of the Merger to certain Central Mortgage
shareholders and does not purport to be a complete analysis or
listing of all potential tax effects relevant to a decision whether
to vote for the approval of the Merger. The discussion does not
address all aspects of federal income taxation that may be
applicable to Central Mortgage shareholders subject to special
federal income tax treatment including (without limitation) foreign
persons, insurance companies, tax-exempt entities, retirement
plans, dealers in securities and persons who acquired their Central
Mortgage Common Stock pursuant to the exercise of employee stock
options or otherwise as compensation. The discussion addresses
neither the effect of any applicable state, local or foreign tax
laws, nor the effect of any federal tax laws other than those
pertaining to the federal income tax. IN VIEW OF THE INDIVIDUAL
NATURE OF FEDERAL INCOME TAX CONSEQUENCES, EACH CENTRAL MORTGAGE
SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO
DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
SHAREHOLDER.
The discussion is based on the Code, regulations and
rulings now in effect or proposed thereunder, current
administrative rulings and practice, and judicial precedent, all of
which are subject to change. Any such change, which may or may not
be retroactive, could alter the tax consequences discussed herein.
The discussion is also based on certain assumptions regarding the
factual circumstances that will exist at the Effective Time of the
Merger, including certain representations of MBI, Central Mortgage
and certain shareholders of Central Mortgage. If any of these
factual assumptions is inaccurate, the tax consequences of the
Merger could differ from those described herein. The discussion
assumes that shares of Central Mortgage Common Stock are held as
capital assets (within the meaning of Section 1221 of the Code) at
the Effective Time.
Assuming the Merger occurs in accordance with the Merger
Agreement, the Merger will constitute a "reorganization" for
federal income tax purposes under Section 368(a)(1)(A) of the Code,
by reason of the application of Section 368(a)(2)(D) of the Code,
with the following federal income tax consequences:
(1) Central Mortgage shareholders will recognize no
gain or loss as a result of the exchange of their Central
Mortgage Common Stock solely for shares of MBI Common
Stock pursuant to the Merger, except with respect to cash
received in lieu of fractional shares, if any, as
discussed below.
(2) The aggregate adjusted tax basis of the shares
of MBI Common Stock received by each Central Mortgage
shareholder in the Merger (including any fractional share
of MBI Common Stock deemed to be received, as described
in paragraph (4) below) will be equal to the aggregate
adjusted tax basis of the shares of Central Mortgage
Common Stock surrendered.
(3) The holding period of the shares of MBI Common
Stock received by each Central Mortgage shareholder in
the Merger (including any fractional share of MBI Common
Stock deemed to be received, as described in paragraph 4
below) will include the holding period of the shares of
Central Mortgage Common Stock exchanged therefor.
- 35 -
<PAGE> 41
(4) A Central Mortgage shareholder who receives
cash in the Merger in lieu of a fractional share of MBI
Common Stock will be treated as if the fractional share
had been received 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 interest.
(5) A Central Mortgage shareholder who receives
only cash as a result of the exercise of dissenters'
rights will realize gain or loss for federal income tax
purposes (determined separately as to each block of
Central Mortgage Common Stock exchanged) in an amount
equal to the difference between (x) the amount of cash
received by such shareholder, and (y) such shareholder's
tax basis for the shares of Central Mortgage Common Stock
surrendered in exchange therefor, provided that the cash
payment does not have the effect of the distribution of
a dividend. Any such gain or loss will be recognized for
federal income tax purposes and will be treated as
capital gain or loss. However, if the cash payment does
have the effect of the distribution of a dividend, the
amount of taxable income recognized generally will equal
the amount of cash received; such income generally will
be taxable as a dividend; and no loss (or other recovery
of such shareholder's tax basis for the shares of Central
Mortgage Common Stock surrendered in the exchange)
generally will be recognized by such shareholder. The
determination of whether a cash payment has the effect of
the distribution of a dividend will be made pursuant to
the provisions and limitations of Section 302 of the
Code, taking into account the constructive stock
ownership rules of Section 318 of the Code. See "Impact
of Section 302 of the Code," below.
Impact of Section 302 of the Code. With regard to
dissenters, the determination of whether a cash payment has the
effect of the distribution of a dividend generally will be made
pursuant to the provisions of Section 302 of the Code. A cash
payment to a Central Mortgage shareholder will be considered not to
have the effect of the distribution of a dividend under Section 302
of the Code and such shareholder will recognize capital gain or
loss only if the cash payment (i) results in a "complete
redemption" of such shareholder's actual and constructive stock
interest, (ii) results in a "substantially disproportionate"
reduction in such shareholder's actual and constructive stock
interest or (iii) is "not essentially equivalent to a dividend."
A cash payment will result in a "complete redemption" of
a shareholder's stock interest and such shareholder will recognize
capital gain or loss if such shareholder does not actually or
constructively own any stock after the receipt of the cash payment.
A reduction in a shareholder's stock interest will be
"substantially disproportionate" and such shareholder will
recognize capital gain or loss if (i) the percentage of outstanding
shares actually and constructively owned by such shareholder after
the receipt of the cash payment is less than four-fifths (80%) of
the percentage of outstanding shares actually and constructively
owned by such shareholder immediately prior to the receipt of the
cash payment and (ii) such shareholder actually and constructively
owns less than 50 percent of the number of shares outstanding after
the receipt of the cash payment. A cash payment will qualify as
"not essentially equivalent to a dividend" and a shareholder will
recognize capital gain or loss if it results in a meaningful
reduction in the percentage of outstanding shares actually and
constructively owned by such shareholder. No specific tests apply
to determine whether a reduction in a shareholder's ownership
interest is meaningful; rather, such determination will be made
based on all the facts and circumstances applicable to such Central
Mortgage 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
- 36 -
<PAGE> 42
minimal in relation to the number of shares outstanding) generally is
treated as having had a "meaningful reduction" in interest if a cash
payment reduces such holder's actual and constructive stock ownership to
any extent.
Under the traditional analysis (which apparently
continues to be used by the Service), Section 302 of the Code will
apply as though the cash payment were made by Central Mortgage in
a hypothetical redemption of Central Mortgage Common Stock
immediately prior to, and in a transaction separate from, the
Merger (a "deemed Central Mortgage redemption"). Thus, under the
traditional analysis, the determination of whether a cash payment
results in a complete redemption of interest, qualifies as a
substantially disproportionate reduction of interest, or is not
essentially equivalent to a dividend will be made by comparing (x)
the shareholder's actual and constructive stock interest in Central
Mortgage before the deemed Central Mortgage redemption, with (y)
such shareholder's actual and constructive stock interest in
Central Mortgage after the deemed Central Mortgage redemption (but
before the Merger). However, the law is unclear regarding whether
the deemed redemption approach of the Service is correct, and
Counsel has rendered no opinion on the correctness of the Service's
approach. Counsel has noted in its opinion that some tax
practitioners believe that the determination of whether a cash
payment has the effect of a distribution of a dividend should be
made as if the Central Mortgage Common Stock exchanged for cash in
the Merger had instead been exchanged in the Merger for shares of
MBI Common Stock followed immediately by a redemption of such
shares by MBI for the cash payment (a "deemed MBI redemption").
Under this analysis, the determination of whether a cash payment
satisfies any of the foregoing tests would be made by comparing (i)
the shareholder's actual and constructive stock interest in MBI
before the deemed MBI redemption (determined as if such shareholder
had received solely MBI Common Stock in the Merger) with (ii) such
shareholder's actual and constructive stock interest in MBI after
the deemed MBI redemption. Because this analysis is more likely to
result in capital gain treatment than the traditional analysis,
each Central Mortgage shareholder who receives solely cash in
exchange for all of the Central Mortgage Common Stock he or she
actually owns should consult his or her own tax advisor with regard
to the proper treatment of such cash.
The determination of ownership for purposes of the three
foregoing tests will be made by taking into account both shares
owned actually by such shareholder and shares owned constructively
by such shareholder pursuant to Section 318 of the Code. Under
Section 318 of the Code, a shareholder will be deemed to own stock
that is actually or constructively owned by certain members of his
or her family (spouse, children, grandchildren and parents) and
other related parties including, for example, certain entities in
which such shareholder has a direct or indirect interest (including
partnerships, estates, trusts and corporations), as well as shares
of stock that such shareholder (or a related person) has the right
to acquire upon exercise of an option or conversion right. Section
302(c)(2) of the Code provides certain exceptions to the family
attribution rules for the purpose of determining whether a complete
redemption of a shareholder's interest has occurred for purposes of
Code section 302.
Because the determination of whether a payment will be
treated as having the effect of the distribution of a dividend will
generally depend upon the facts and circumstances of each Central
Mortgage shareholder, Central Mortgage shareholders are strongly
advised to consult their own tax advisors regarding the tax
treatment of cash received in the Merger.
Central Mortgage has received from Thompson & Mitchell,
counsel for MBI, an opinion to the effect that the Merger will be
a "reorganization" for federal income tax purposes under Section
368(a)(1)(A) of the Code, by reason of Section 368(a)(2)(D) of the
Code, and that the federal income tax consequences of the Merger
are in all material respects as described in this section. The
opinion is available without charge upon written request to Jon W.
Bilstrom, General Counsel and Secretary, Mercantile Bancorporation
Inc., P.O. Box 524, St. Louis, Missouri 63166-0524. Such opinion
is subject to the conditions and assumptions stated therein and
relies on various representations made by MBI,
- 37 -
<PAGE> 43
Central Mortgage and certain shareholders of Central Mortgage. Pursuant to
the terms of the Merger Agreement, Central Mortgage shall receive an update
of such opinion dated as of the Closing Date. An opinion of counsel,
unlike a private letter ruling from the Service, has no binding
effect on the Service. The Service could take a position contrary
to counsel's opinion and, if the matter is litigated, a court may
reach a decision contrary to the opinion. The Service is not
expected to issue a ruling on the tax effects of the Merger, and no
such ruling has been requested.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR
GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE
INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH CENTRAL
MORTGAGE SHAREHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE
FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING
DISCUSSION MAY NOT APPLY TO EACH CENTRAL MORTGAGE SHAREHOLDER. IN
VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX CONSEQUENCES, EACH
CENTRAL MORTGAGE SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO
SUCH SHAREHOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN FEDERAL AND OTHER TAX LAWS.
RIGHTS OF DISSENTING SHAREHOLDERS OF CENTRAL MORTGAGE
-----------------------------------------------------
Each holder of Central Mortgage Common Stock has the
right to dissent from the Merger and receive the fair value of such
shares of Central Mortgage in cash if the shareholder follows the
procedures set forth under Section 351.455 of the Missouri Act set
forth as Annex B hereto and the material provisions of which are
-------
summarized below. Under Section 351.455 of the Missouri Act, a
holder of Central Mortgage Common Stock may dissent and ABNK, as
the surviving corporation, will pay to such shareholder the fair
value of such shareholder's shares of Central Mortgage Common Stock
as of the day prior to the Special Meeting if such shareholder (1)
files with Central Mortgage prior to or at the Special Meeting a
written objection to the Merger; (2) does not vote in favor
thereof; and (3) within 20 days after the Effective Date of the
---
Merger makes written demand on ABNK for payment of the fair value
of the shares held by such shareholder as of the day prior to the
date of the Special Meeting. MBI will include notice of the
Effective Date of the Merger in its letter to all shareholders of
Central Mortgage notifying them of the procedures to exchange their
shares for those of MBI. Such letter will be sent promptly
following the Effective Date of the Merger. Such demand by a
dissenting shareholder shall state the number of shares owned by
such dissenting shareholder. Any shareholder failing to make
demand within the 20-day period shall be conclusively presumed to
have consented to the Merger and shall be bound by the terms
thereof. A PROXY OR VOTE AGAINST THE MERGER WILL NOT, BY ITSELF,
BE REGARDED AS A WRITTEN OBJECTION FOR PURPOSES OF ASSERTING
DISSENTERS' RIGHTS.
If within 30 days after the Effective Date of the Merger,
the value of such shares is agreed upon between the dissenting
shareholder and ABNK, payment therefor shall be made within 90 days
after the Effective Date of the Merger, upon the surrender by such
shareholder of the certificate or certificates representing said
shares. Upon payment of the agreed value, the dissenting
shareholder shall cease to have any interest in such shares or in
ABNK or MBI.
If within 30 days after the Effective Date of the Merger,
the shareholder and ABNK do not agree as to value, then the
dissenting shareholder may, within 60 days after the expiration of
the 30-day period, file a petition in any court of competent
jurisdiction asking for a finding and determination
- 38 -
<PAGE> 44
of the fair value of such shares, and shall be entitled to judgment against
ABNK for the amount of such fair value as of the day prior to the
date of the Special Meeting with interest thereon to the date of
such judgment. The "fair value" determined by the court may be
more or less than the amount offered to Central Mortgage
shareholders under the Merger Agreement. The judgment shall be
payable only upon and simultaneously with the surrender to ABNK of
the certificate or certificates representing said shares. Upon the
payment of the judgment, the dissenting shareholder shall cease to
have any interest in such shares or in ABNK or MBI. Unless a
dissenting shareholder shall file such petition within such 60-day
period, such shareholder and all persons claiming under such
shareholder shall be conclusively presumed to have approved and
ratified the Merger, and shall be bound by the terms thereof.
THE ABOVE SUMMARY OF THE PROVISIONS REGARDING DISSENTERS'
RIGHTS UNDER THE MISSOURI ACT IS QUALIFIED IN ITS ENTIRETY BY THE
TEXT OF SECTION 351.455 OF THE MISSOURI ACT WHICH IS ATTACHED
HERETO AS ANNEX B.
-------
Central Mortgage shareholders who are interested in
perfecting dissenters' rights pursuant to Section 351.455 of the
Missouri Act in connection with the Merger should consult with
their counsel for advice as to the procedures required to be
followed.
PRO FORMA FINANCIAL INFORMATION
-------------------------------
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated
selected historical per share data of MBI and Central Mortgage and
the corresponding pro forma and pro forma equivalent per share
amounts giving effect to the proposed Merger, the proposed
acquisitions of UNSL and of Wedge and the acquisition of Ameribanc,
Inc. by merger with and into a wholly owned subsidiary of MBI,
which was completed on April 30, 1992 (ABNK is the surviving entity
from that merger). The data presented is based upon the
consolidated financial statements and related notes of MBI and
Central Mortgage, UNSL and Wedge included in this Proxy Statement/
Prospectus or in documents incorporated herein by reference, and
the pro forma combined consolidated balance sheet and income
statements, including the notes thereto, appearing elsewhere
herein. This information should be read in conjunction with such
historical and pro forma financial statements and related notes
thereto. The assumptions used in the preparation of this table
appear in the notes to the pro forma financial information
appearing elsewhere in this Proxy Statement/Prospectus. See "PRO
FORMA FINANCIAL INFORMATION." This data is not necessarily
indicative of the results of the future operations of the combined
organization or the actual results that would have occurred if the
Merger, the completed merger of ABNK or the proposed mergers of
UNSL and Wedge had been consummated prior to the periods indicated.
- 39 -
<PAGE> 45
<TABLE>
<CAPTION>
MBI/Central Central Central Mortgage/
Central Mortgage Mortgage MBI/All Entities All Entities
MBI Mortgage Pro Forma Pro Forma Pro Forma Pro Forma
Reported Reported Combined<F1> Equivalent<F2> Combined<F3> Equivalent<F2>
-------- -------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
September 30, 1994 $24.12 $ 12.10 $ 23.89 $ 14.29 $ 23.82 $ 14.22
December 31, 1993 22.40 11.20 22.17 13.24 22.16 13.23
Cash Dividends Declared per Share:
Nine months ended September 30, 1994 $ .84 $ .32 $ .84 $ .50 $ .84 $ .50
Year ended December 31, 1993 .99 .37 .99 .59 .99 .59
Year ended December 31, 1992 .93 .23 .93 .56 .93 .56
Year ended December 31, 1991 .93 .16 .93 .56 .93 .56
Earnings per Share:
Nine months ended September 30, 1994 $ 2.79 $ 1.38 $ 2.75 $ 1.64 $ 2.70 $ 1.61
Year ended December 31, 1993 2.80 1.54 2.77 1.65 2.79 1.67
Year ended December 31, 1992 2.36 1.79 2.33 1.39 2.37 1.41
Year ended December 31, 1991 2.37 1.57 2.26 1.35 2.21 1.32
Market Price per Share:
At September 21, 1994<F4> $37.75 $ 18.50 n/a $ 22.54 n/a $ 22.54
At November 18, 1994<F4> 31.63 18.25 n/a 18.88 n/a 18.88
<FN>
- --------------------
<F1> Includes the effect of pro forma adjustments for Central Mortgage and
ABNK, as appropriate. See "PRO FORMA FINANCIAL INFORMATION."
<F2> Based on the pro forma combined per share amounts multiplied times
.5970, the conversion ratio applicable to one share of Central Mortgage
Common Stock. Further explanation of the assumptions used in the
preparation of the pro forma combined consolidated financial statements
is included in the notes to pro forma financial statements. See "PRO
FORMA FINANCIAL INFORMATION."
<F3> Includes the effect of pro forma adjustments for Central Mortgage,
ABNK, UNSL and Wedge, as appropriate. See "PRO FORMA FINANCIAL
INFORMATION."
<F4> The market value of MBI and Central Mortgage Common Stock was
determined as of the last trading day preceding the public announcement
of the proposed acquisition and as of the latest available date prior
to the filing of the Proxy Statement/Prospectus, based on the last sale
price as reported on the NYSE Composite Tape and Nasdaq, respectively.
</TABLE>
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma combined consolidated balance
sheet gives effect to the Merger and the proposed acquisitions of UNSL and of
Wedge, as if each of the mergers were consummated on September 30, 1994.
MBI acquired ABNK on April 30, 1992, which acquisition was
accounted for under the purchase method of accounting. Accordingly, the
historical results of operations of MBI include the results of operations of
ABNK from May 1, 1992 forward. The following pro forma combined consolidated
income statements include the results of operations of ABNK from January 1,
1991 through the date of acquisition.
The following pro forma combined consolidated income statements for
the nine months ended September 30, 1994 and 1993 and for the years ended
December 31, 1993, 1992 and 1991 set forth the results of operations of MBI
combined with the results of operations of Central Mortgage, UNSL and Wedge
as if the Merger and the proposed acquisitions of UNSL and of Wedge had
occurred as of the first day of the period presented. As stated above, the
pro forma combined consolidated income statements for the years ended
December 31, 1992 and 1991 include the results of operations of ABNK from
January 1, 1991 through the date of acquisition.
- 40 -
<PAGE> 46
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, Central Mortgage, UNSL, Wedge and ABNK. The historical
interim financial information for the nine months ended September 30, 1994
and 1993, used as a basis for the pro forma combined consolidated financial
statements, include all necessary adjustments, which, in management's
opinion, are necessary to present the data fairly. These pro forma combined
consolidated financial statements may not be indicative of the results of
operations that actually would have occurred if the completed and proposed
mergers had been consummated on the dates assumed above or of the results of
operations that may be achieved in the future.
- 41 -
<PAGE> 47
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1994
(THOUSANDS)
(UNAUDITED)
<CAPTION>
Central Mortgage
Central Pro Forma
Central Mortgage Combined
MBI Mortgage Adjustments<F1> Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . $ 667,577 $ 28,502 $ $ 696,079
Due from banks - interest bearing . . . . . . . 231 200 431
Federal funds sold and repurchase agreements. . 225,472 2,400 227,872
Investments in debt and equity securities
Trading. . . . . . . . . . . . . . . . . . 17,290 -- 17,290
Available-for-sale . . . . . . . . . . . . 271,709 38,028 309,737
Held-to-maturity . . . . . . . . . . . . . 2,859,335 149,163 3,008,498
----------- -------- -------- -----------
Total . . . . . . . . . . . . . . . . 3,148,334 187,191 -- 3,335,525
Loans and leases. . . . . . . . . . . . . . . . 7,873,054 386,352 8,259,406
Reserve for possible loan losses. . . . . . . . (171,691) (6,396) (178,087)
----------- -------- -------- -----------
Net Loans and Leases . . . . . . . . . . . 7,701,363 379,956 -- 8,081,319
Bank premises and equipment . . . . . . . . . . 202,372 11,686 214,058
Due from customers on acceptances . . . . . . . 5,928 -- 5,928
Intangibles . . . . . . . . . . . . . . . . . . 65,510 8,561 74,071
Other assets. . . . . . . . . . . . . . . . . . 220,885 7,980 52,504 <F2> 228,865
(52,504)<F3>
----------- -------- -------- -----------
Total Assets. . . . . . . . . . . . . . . . . $12,237,672 $626,476 $ -- $12,864,148
=========== ======== ======== ===========
LIABILITIES
Deposits
Non-interest bearing . . . . . . . . . . . $ 1,456,287 $ 80,347 $ $ 1,536,634
Interest bearing . . . . . . . . . . . . . 7,397,091 457,276 7,854,367
Foreign. . . . . . . . . . . . . . . . . . 92,704 -- 92,704
----------- -------- -------- -----------
Total Deposits. . . . . . . . . . . . . 8,946,082 537,623 -- 9,483,705
Federal funds purchased and repurchase
agreements. . . . . . . . . . . . . . . . . . 1,455,765 23,574 1,479,339
Other short-term borrowings . . . . . . . . . . 338,362 1,100 339,462
Long-term debt. . . . . . . . . . . . . . . . . 288,447 3,400 291,847
Bank acceptances outstanding. . . . . . . . . . 5,928 -- 5,928
Other liabilities . . . . . . . . . . . . . . . 160,098 8,275 168,373
----------- -------- -------- -----------
Total Liabilities . . . . . . . . . . . 11,194,682 573,972 -- 11,768,654
SHAREHOLDERS' EQUITY
Preferred stock . . . . . . . . . . . . . . . . -- 430 (430)<F3> --
Common stock. . . . . . . . . . . . . . . . . . 216,175 3,735 12,690 <F2> 228,865
(3,735)<F3>
Capital surplus . . . . . . . . . . . . . . . . 168,974 24,376 15,675 <F2> 184,649
(24,376)<F3>
Retained earnings . . . . . . . . . . . . . . . 657,841 24,139 24,139 <F2> 681,980
(24,139)<F3>
Treasury stock. . . . . . . . . . . . . . . . . -- (176) 176 <F3> --
----------- -------- -------- -----------
Total Shareholders' Equity . . . . . . . . 1,042,990 52,504 -- 1,095,494
----------- -------- -------- -----------
Total Liabilities and Shareholders' Equity $12,237,672 $626,476 $ -- $12,864,148
=========== ======== ======== ===========
<CAPTION>
All Entities
Pro Forma
UNSL & Wedge Combined
UNSL Wedge Adjustments<F1> Consolidated
-------- --------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . $ 2,438 $ 7,495 $ $ 706,012
Due from banks - interest bearing . . . . . . . 20,577 157 21,165
Federal funds sold and repurchase agreements. . -- -- 227,872
Investments in debt and equity securities
Trading. . . . . . . . . . . . . . . . . . -- -- 17,290
Available-for-sale . . . . . . . . . . . . -- 54,771 364,508
Held-to-maturity . . . . . . . . . . . . . 14,814 24,029 3,047,341
-------- -------- -------- -----------
Total . . . . . . . . . . . . . . . . 14,814 78,800 -- 3,429,139
Loans and leases. . . . . . . . . . . . . . . . 443,799 113,154 8,816,359
Reserve for possible loan losses. . . . . . . . (3,665) (1,208) (182,960)
-------- -------- -------- -----------
Net Loans and Leases . . . . . . . . . . . 440,134 111,946 -- 8,633,399
Bank premises and equipment . . . . . . . . . . 6,250 3,672 223,980
Due from customers on acceptances . . . . . . . -- -- 5,928
Intangibles . . . . . . . . . . . . . . . . . . 159 -- 74,230
Other assets. . . . . . . . . . . . . . . . . . 4,044 3,385 39,225 <F4> 236,294
(39,225)<F5>
18,607 <F6>
(18,607)<F7>
-------- -------- -------- -----------
Total Assets. . . . . . . . . . . . . . . . . $488,416 $205,455 $ -- $13,558,019
======== ======== ======== ===========
LIABILITIES
Deposits
Non-interest bearing . . . . . . . . . . . $ 11,113 $ 21,650 $ $ 1,569,397
Interest bearing . . . . . . . . . . . . . 367,117 131,832 8,353,316
Foreign. . . . . . . . . . . . . . . . . . -- -- 92,704
-------- -------- -------- -----------
Total Deposits. . . . . . . . . . . . . 378,230 153,482 -- 10,015,417
Federal funds purchased and repurchase
agreements. . . . . . . . . . . . . . . . . . -- 17,180 1,496,519
Other short-term borrowings . . . . . . . . . . 65,000 14,715 419,177
Long-term debt. . . . . . . . . . . . . . . . . -- -- 291,847
Bank acceptances outstanding. . . . . . . . . . -- -- 5,928
Other liabilities . . . . . . . . . . . . . . . 5,961 1,471 175,805
-------- -------- -------- -----------
Total Liabilities . . . . . . . . . . . 449,191 186,848 -- 12,404,693
SHAREHOLDERS' EQUITY
Preferred stock . . . . . . . . . . . . . . . . --
Common stock. . . . . . . . . . . . . . . . . . 1,744 1,443 7,892 <F4> 241,607
(1,744)<F5>
4,850 <F6>
(1,443)<F7>
Capital surplus . . . . . . . . . . . . . . . . 7,179 5,057 (2,582)<F4> 183,717
(7,179)<F5>
1,650 <F6>
(5,057)<F7>
Retained earnings . . . . . . . . . . . . . . . 33,915 12,107 33,915 <F4> 728,002
(33,915)<F5>
12,107 <F6>
(12,107)<F7>
Treasury stock. . . . . . . . . . . . . . . . . (3,613) 3,613 <F5> --
-------- -------- -------- -----------
Total Shareholders' Equity . . . . . . . . 39,225 18,607 -- 1,153,326
-------- -------- -------- -----------
Total Liabilities and Shareholders' Equity $488,416 $205,455 $ $13,558,019
======== ======== ======== ===========
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 42 -
<PAGE> 48
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
Central Mortgage All Entities
Pro Forma Pro Forma
Central Combined Combined
MBI Mortgage Consolidated UNSL Wedge Consolidated
-------- -------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . . . . . . . . . $613,521 $32,483 $646,004 $21,684 $ 10,501 $ 678,189
Interest Expense . . . . . . . . . . . . . 231,785 13,570 245,355 11,564 4,142 261,061
-------- ------- -------- ------- -------- ---------
Net Interest Income. . . . . . . . . . . 381,736 18,913 400,649 10,120 6,359 417,128
Provision for Possible Loan Losses . . . . 24,909 919 25,828 90 115 26,033
-------- ------- -------- ------- -------- ---------
Net Interest Income after Provision
for Possible Loan Losses. . . . . . . 356,827 17,994 374,821 10,030 6,244 391,095
Other Income
Trust. . . . . . . . . . . . . . . . . . 45,844 -- 45,844 -- 337 46,181
Investment banking . . . . . . . . . . . 6,459 -- 6,459 -- -- 6,459
Service charges. . . . . . . . . . . . . 43,810 2,318 46,128 706 720 47,554
Credit card fees . . . . . . . . . . . . 17,918 -- 17,918 -- -- 17,918
Securities gains . . . . . . . . . . . . 380 450 830 20 171 1,021
Other. . . . . . . . . . . . . . . . . . 28,378 3,006 31,384 1,585 737 33,706
-------- ------- -------- ------- -------- ---------
Total Other Income. . . . . . . . . 142,789 5,774 148,563 2,311 1,965 152,839
Other Expense
Salaries and employee benefits . . . . . 165,832 8,185 174,017 3,759 3,176 180,952
Net occupancy and equipment. . . . . . . 44,330 2,029 46,359 824 919 48,102
Other. . . . . . . . . . . . . . . . . . 99,841 5,899 105,740 2,968 1,801 110,509
-------- ------- -------- ------- -------- ---------
Total Other Expense . . . . . . . . 310,003 16,113 326,116 7,551 5,896 339,563
-------- ------- -------- ------- -------- ---------
Income Before Income Taxes. . . . . 189,613 7,655 197,268 4,790 2,313 204,371
Income Taxes . . . . . . . . . . . . . . . 69,512 2,266 71,778 1,727 635 74,140
-------- ------- -------- ------- -------- ---------
Net Income. . . . . . . . . . . . . $120,101 $ 5,389 $125,490 $ 3,063 $ 1,678 $ 130,231
======== ======= ======== ======= ======== =========
Per Share Data
Average Common Shares Outstanding 43,034,158 45,625,734 48,173,147
Net Income . . . . . . . . . . . . . . . $2.79 $2.75 $2.70
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 43 -
<PAGE> 49
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
Central Mortgage All Entities
Pro Forma Pro Forma
Central Combined Combined
MBI Mortgage Consolidated UNSL Wedge Consolidated
-------- -------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . . . . . . . . . $626,939 $23,739 $650,678 $20,946 $ 11,214 $ 682,838
Interest Expense . . . . . . . . . . . . . 251,542 9,951 261,493 10,530 4,229 276,252
-------- ------- -------- ------- -------- ---------
Net Interest Income. . . . . . . . . . . 375,397 13,788 389,185 10,416 6,985 406,586
Provision for Possible Loan Losses . . . . 41,440 668 42,108 290 202 42,600
-------- ------- -------- ------- -------- ---------
Net Interest Income after Provision
for Possible Loan Losses. . . . . . . 333,957 13,120 347,077 10,126 6,783 363,986
Other Income
Trust. . . . . . . . . . . . . . . . . . 45,723 -- 45,723 -- 306 46,029
Investment banking . . . . . . . . . . . 6,653 -- 6,653 -- -- 6,653
Service charges. . . . . . . . . . . . . 43,367 1,485 44,852 655 833 46,340
Credit card fees . . . . . . . . . . . . 17,550 -- 17,550 -- -- 17,550
Securities gains . . . . . . . . . . . . 3,589 -- 3,589 -- 187 3,776
Other. . . . . . . . . . . . . . . . . . 32,053 2,503 34,556 1,570 1,508 37,634
-------- ------- -------- ------- -------- ---------
Total Other Income. . . . . . . . . . 148,935 3,988 152,923 2,225 2,834 157,982
Other Expense
Salaries and employee benefits . . . . . 159,807 6,442 166,249 3,686 3,148 173,083
Net occupancy and equipment. . . . . . . 45,613 1,354 46,967 754 821 48,542
Other. . . . . . . . . . . . . . . . . . 116,013 4,335 120,348 2,596 1,932 124,876
-------- ------- -------- ------- -------- ---------
Total Other Expense . . . . . . . . . 321,433 12,131 333,564 7,036 5,901 346,501
-------- ------- -------- ------- -------- ---------
Income Before Income Taxes. . . . . . 161,459 4,977 166,436 5,315 3,716 175,467
Income Taxes . . . . . . . . . . . . . . . 58,986 1,364 60,350 1,958 967 63,275
-------- ------- -------- ------- -------- ---------
Net Income Before Change in
Accounting Principle. . . . . . . . . $102,473 $ 3,613 $106,086 $ 3,357 $ 2,749 $ 112,192
======== ======= ======== ======= ======== =========
Per Share Data
Average Common Shares Outstanding. . . . 42,338,859 44,475,466 47,038,323
Net Income Before Change in Accounting
Principle . . . . . . . . . . . . . . $2.42 $2.39 $2.39
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 44 -
<PAGE> 50
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
Central Mortgage All Entities
Pro Forma Pro Forma
Central Combined Combined
MBI Mortgage Consolidated UNSL Wedge Consolidated
-------- -------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . . . . . . . . . $829,930 $34,452 $864,382 $27,834 $ 15,258 $ 907,474
Interest Expense . . . . . . . . . . . . . 328,734 14,194 342,928 14,071 5,505 362,504
-------- ------- -------- ------- -------- ---------
Net Interest Income. . . . . . . . . . . 501,196 20,258 521,454 13,763 9,753 544,970
Provision for Possible Loan Losses . . . . 61,013 956 61,969 320 240 62,529
-------- ------- -------- ------- -------- ---------
Net Interest Income after Provision
for Possible Loan Losses. . . . . . . 440,183 19,302 459,485 13,443 9,513 482,441
Other Income
Trust. . . . . . . . . . . . . . . . . . 61,138 -- 61,138 -- 409 61,547
Investment banking . . . . . . . . . . . 8,486 -- 8,486 -- -- 8,486
Service charges. . . . . . . . . . . . . 58,511 2,254 60,765 908 1,300 62,973
Credit card fees . . . . . . . . . . . . 24,060 -- 24,060 -- -- 24,060
Securities gains . . . . . . . . . . . . 3,742 -- 3,742 -- 195 3,937
Other. . . . . . . . . . . . . . . . . . 43,221 3,615 46,836 2,261 948 50,045
-------- ------- -------- ------- -------- ---------
Total Other Income. . . . . . . . . . 199,158 5,869 205,027 3,169 2,852 211,048
Other Expense
Salaries and employee benefits . . . . . 215,333 9,161 224,494 4,995 5,286 234,775
Net occupancy and equipment. . . . . . . 62,638 2,162 64,800 1,037 822 66,659
Other. . . . . . . . . . . . . . . . . . 166,938 6,805 173,743 3,714 1,810 179,267
-------- ------- -------- ------- -------- ---------
Total Other Expense . . . . . . . . . 444,909 18,128 463,037 9,746 7,918 480,701
-------- ------- -------- ------- -------- ---------
Income Before Income Taxes. . . . . . 194,432 7,043 201,475 6,866 4,447 212,788
Income Taxes . . . . . . . . . . . . . . . 75,568 1,913 77,481 2,549 964 80,994
-------- ------- -------- ------- -------- ---------
Net Income Before Change in
Accounting Principle. . . . . . . . . $118,864 $ 5,130 $123,994 $ 4,317 $ 3,483 $ 131,794
======== ======= ======== ======= ======== =========
Per Share Data
Average Common Shares Outstanding. . . . 42,439,298 44,690,298 47,248,436
Net Income Before Change in Accounting
Principle . . . . . . . . . . . . . . $2.80 $2.77 $2.79
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 45 -
<PAGE> 51
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(THOUSANDS EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<CAPTION>
ABNK Central Mortgage All Entities
ABNK Pro Forma Pro Forma Pro Forma
1/1/92- ABNK Combined Central Combined Combined
MBI 4/30/92<F8> Adjustments<F8> Consolidated Mortgage Consolidated UNSL Wedge Consolidated
-------- ------- ----------- ------------ -------- ------------ ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . . $873,447 $30,729 $(1,692)<F9> $902,395 $28,577 $930,972 $32,332 $15,931 $979,235
(89)<F10>
Interest Expense . . . . . . 417,358 16,549 433,907 13,616 447,523 18,517 6,875 472,915
-------- ------- ------- -------- ------- -------- ------- ------- --------
Net Interest Income. . . . 456,089 14,180 (1,781) 468,488 14,961 483,449 13,815 9,056 506,320
Provision for Possible Loan
Losses . . . . . . . . . . 74,579 1,913 76,492 913 77,405 296 191 77,892
-------- ------- ------- -------- ------- -------- ------- ------- --------
Net Interest Income after
Provision for Possible
Loan Losses. . . . . . . 381,510 12,267 (1,781) 391,996 14,048 406,044 13,519 8,865 428,428
Other Income
Trust. . . . . . . . . . . 57,501 613 58,114 -- 58,114 -- 444 58,558
Investment banking . . . . 8,918 136 9,054 -- 9,054 -- -- 9,054
Service charges. . . . . . 55,399 2,143 57,542 1,559 59,101 908 1,228 61,237
Credit card fees . . . . . 21,487 87 21,574 -- 21,574 -- -- 21,574
Securities gains . . . . . 5,518 -- 5,518 -- 5,518 -- 439 5,957
Other. . . . . . . . . . . 35,121 1,130 36,251 3,233 39,484 2,221 574 42,279
-------- ------- ------- -------- ------- -------- ------- ------- --------
Total Other Income . . . 183,944 4,109 -- 188,053 4,792 192,845 3,129 2,685 198,659
Other Expense
Salaries and employee
benefits . . . . . . . . 192,015 7,199 199,214 7,617 206,831 4,521 5,123 216,475
Net occupancy and
equipment. . . . . . . . 55,588 2,027 (31)<F11> 57,584 1,630 59,214 944 771 60,929
Other. . . . . . . . . . . 170,465 5,339 (93)<F12> 175,711 4,607 180,318 3,415 2,218 185,951
-------- ------- ------- -------- ------- -------- ------- ------- --------
Total Other Expense. . . 418,068 14,565 (124) 432,509 13,854 446,363 8,880 8,112 463,355
-------- ------- ------- -------- ------- -------- ------- ------- --------
Income Before Income
Taxes. . . . . . . . . 147,386 1,811 (1,657) 147,540 4,986 152,526 7,768 3,438 163,732
Income Taxes . . . . . . . . 52,346 513 (595)<F13> 52,264 1,245 53,509 2,540 1,025 57,074
-------- ------- ------- -------- ------- -------- ------- ------- --------
Net Income . . . . . . . $ 95,040 $ 1,298 $(1,062) $ 95,276 $ 3,741 $ 99,017 $ 5,228 $ 2,413 $106,658
======== ======= ======= ======== ======= ======== ======= ======= ========
Per Share Data
Average Common Shares
Outstanding. . . . . . . 39,492,237 40,188,849 41,669,849 44,255,654
Net Income . . . . . . . . $2.36 $2.32 $2.33 $2.37
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 46 -
<PAGE> 52
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
(THOUSANDS EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<CAPTION>
ABNK Central Mortgage All Entities
Pro Forma Pro Forma Pro Forma
ABNK Combined Central Combined Combined
MBI ABNK<F8> Adjustments<F8> Consolidated Mortgage Consolidated UNSL Wedge Consolidated
-------- ---- ----------- ------------ -------- ------------ ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . . $879,471 $103,630 $(5,075)<F9> $977,760 $25,706 $1,003,466 $39,191 $16,461 $1,059,118
(266)<F10>
Interest Expense . . . . . . 506,916 63,042 569,958 13,260 583,218 26,417 8,882 618,517
-------- -------- ------- -------- ------- ---------- ------- ------- ----------
Net Interest Income. . . . 372,555 40,588 (5,341) 407,802 12,446 420,248 12,774 7,579 440,601
Provision for Possible Loan
Losses . . . . . . . . . . 58,076 2,477 60,553 870 61,423 1,263 1,132 63,818
-------- -------- ------- -------- ------- ---------- ------- ------- ----------
Net Interest Income after
Provision for Possible
Loan Losses. . . . . . . 314,479 38,117 (5,341) 347,249 11,576 358,825 11,511 6,447 376,783
Other Income
Trust. . . . . . . . . . . 49,400 1,860 51,260 -- 51,260 -- 442 51,702
Investment banking . . . . 7,463 -- 7,463 -- 7,463 -- -- 7,463
Service charges. . . . . . 47,504 6,008 53,512 1,458 54,970 952 1,051 56,973
Credit card fees . . . . . 20,636 -- 20,636 -- 20,636 -- -- 20,636
Securities gains . . . . . 4,334 4 4,338 -- 4,338 244 493 5,075
Other. . . . . . . . . . . 26,359 3,389 29,748 2,794 32,542 1,705 393 34,640
-------- -------- ------- -------- ------- ---------- ------- ------- ----------
Total Other Income . . . 155,696 11,261 -- 166,957 4,252 171,209 2,901 2,379 176,489
Other Expense
Salaries and employee
benefits . . . . . . . . 172,155 21,245 193,400 6,494 199,894 3,895 3,846 207,635
Net occupancy and
equipment. . . . . . . . 50,098 6,102 (92)<F11> 56,108 1,549 57,657 973 754 59,384
Other. . . . . . . . . . . 161,095 16,150 (280)<F12> 176,965 3,896 180,861 5,263 2,347 188,471
-------- -------- ------- -------- ------- ---------- ------- ------- ----------
Total Other Expense. . . 383,348 43,497 (372) 426,473 11,939 438,412 10,131 6,947 455,490
-------- -------- ------- -------- ------- ---------- ------- ------- ----------
Income Before Income
Taxes. . . . . . . . . 86,827 5,875 (4,969) 87,733 3,889 91,622 4,281 1,879 97,782
Income Taxes . . . . . . . . 18,673 1,466 (1,785)<F13> 18,354 924 19,278 1,767 679 21,724
-------- -------- ------- -------- ------- ---------- ------- ------- ----------
Net Income . . . . . . . $ 68,154 $ 4,409 $(3,184) $ 69,379 $ 2,965 $ 72,344 $ 2,514 $ 1,200 $ 76,058
======== ======== ======= ======== ======= ========== ======= ======= ==========
Per Share Data
Average Common Shares
Outstanding. . . . . . . 31,790,914 33,867,754 35,179,754 37,748,653
Net Income . . . . . . . . $2.37 $2.26 $2.26 $2.21
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 47 -
<PAGE> 53
MERCANTILE BANCORPORATION INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The acquisitions of Central Mortgage, UNSL and Wedge will be
accounted for as poolings-of-interests.
(2) Acquisition of Central Mortgage with 2,625,533 shares of MBI
Common Stock, based on exchange ratio of .5970 of a share of
MBI Common Stock per share of Central Mortgage Common Stock.
As of December 16, 1994, all issued and outstanding shares
of Central Mortgage Preferred Stock had been converted to a
total of 549,328 shares of Central Mortgage Common Stock.
(3) Elimination of MBI's investment in Central Mortgage.
(4) Acquisition of UNSL with 1,578,445 shares of MBI Common
Stock, based on the exchange ratio of 1.0604 of a share of
MBI Common Stock per share of UNSL Common Stock.
(5) Elimination of MBI's investment in UNSL.
(6) Acquisition of Wedge with 970,000 shares of MBI Common
Stock.
(7) Elimination of MBI's investment in Wedge.
(8) The acquisition of ABNK by MBI, on April 30, 1992, was
accounted for as a purchase transaction. The MBI historical
financial data includes ABNK from the date of acquisition.
The results of operations of ABNK were included in the MBI
pro forma combined income statement from January 1, 1991.
(9) Amortization of purchase price adjustment of $7,690,000 on
investment securities portfolio.
(10) Interest income, at an estimated short-term interest rate of
3%, lost on cash of $8,851,000 paid to ABNK's shareholders.
(11) Reduced depreciation and amortization of bank premises and
equipment as a result of the valuation adjustment of
$1,102,000.
(12) Goodwill of $2,285,000 amortized under the straight line
method over a period of 15 years, net of the elimination of
ABNK's annual goodwill amortization of $432,000.
(13) Tax effect of pro forma adjustments.
- 48 -
<PAGE> 54
INFORMATION REGARDING CENTRAL MORTGAGE
--------------------------------------
BUSINESS
GENERAL. Central Mortgage is a multi-bank holding
company engaged primarily in the banking and mortgage banking
businesses in the greater Kansas City, Missouri area and in certain
southwestern Missouri communities. As of September 30, 1994,
Central Mortgage and its four bank subsidiaries had total assets of
$626 million in 18 locations and Central Mortgage's Mortgage
Division was servicing a mortgage loan portfolio of $579 million.
As of September 30, 1994, Central Mortgage reported total
consolidated shareholders' equity of $52.5 million and book value
per share of $12.10. For the nine-month period ended September 30,
1994, Central Mortgage reported net income of $5.4 million, or
$1.24 per share.
Central Mortgage's lead Bank, Citizens-Jackson County
Bank ("Citizens-Jackson Bank"), had total assets at September 30,
1994 of $504 million (80.5% of Central Mortgage's total assets).
Central Mortgage's other subsidiary banks are Farmers Bank of
Stover ("Stover Bank") and Citizens Bank of Southwest Missouri
("Citizens Bank Southwest").
On November 1, 1994, Citizens State Bank of Nevada, a
wholly owned subsidiary of Central Mortgage ("Nevada Bank"), was
merged with and into Barton County State Bank, a wholly owned
subsidiary of Central Mortgage ("Barton Bank"). Upon consummation
of the merger, the surviving bank was renamed "Citizens Bank of
Southwest Missouri." At September 30, 1994, Nevada Bank, Barton
Bank and Stover Bank had total assets of $50 million, $48 million
and $24 million, respectively. The following discussion does not
reflect the merger of Nevada Bank with Barton Bank.
BANKS AND MARKET AREAS
The Banks are community banks, which target the needs of
their local communities. They are independently managed by boards
of directors and officers who are primarily residents of those
communities. Central Mortgage has historically emphasized single
family real estate lending, both for the construction of new homes
and the resale of existing residences and also makes commercial and
installment loans to local businesses and consumers. The Banks are
located in diverse markets and, as a result, the Banks' loan
portfolio mirrors these markets. These markets include growing
suburban markets in eastern Jackson County, urban markets in
downtown Kansas City, the educational, military and light
industrial markets of Warrensburg, the recreational and resort
markets of the Lake of the Ozarks and the agricultural markets of
southwestern Missouri.
Each of the Banks offers a full range of financial
services to commercial, industrial and individual customers,
including short and medium term loans, real estate loans,
agricultural loans, installment and consumer loans, inventory and
accounts receivable financing, equipment financing, safe deposit
services, savings accounts and various investment programs,
interest and noninterest-bearing checking accounts, cash management
programs for business and commercial customers and federal tax
depository and night depository services. The Banks offer twenty-
four hour automated teller machine ("ATM") services at eighteen
locations and all are members of the CIRRUS network, thereby
providing customers with access to their accounts through ATMs
maintained by other members of the CIRRUS network. Upon request a
Bank will issue credit cards in the Bank's name through a profit
and loss sharing arrangement with Mercantile Trust Company National
Association, a wholly owned subsidiary of MBI. Citizens-Jackson
Bank and Nevada Bank also have trust powers and offer trust
services with trust accounting and bookkeeping being provided by an
independent unaffiliated bank and trust company.
- 49 -
<PAGE> 55
Although primary responsibility for management of the
Banks rests with their officers and directors, Central Mortgage
provides services and assistance to the Banks with respect to
accounting, centralized data processing, personnel, retirement
benefits, lending and investment policies, legal compliance and
other management areas. As part of an affiliated group, the Banks
are better able to satisfy the credit needs of their customers
through loan participations with sister Banks.
Central Mortgage charges each of the Banks for specific
services rendered to the Bank and a pro rata share of Central
Mortgage's overhead and expenses which relate to banking
operations. Dividends are generally paid by each of the Banks
consistent with regulatory requirements relating to required
capital and consistent with their respective earnings, growth, and
capital needs.
The Banks are Missouri-chartered banks, the deposits of
which are insured by the Federal Deposit Insurance Corporation (the "FDIC")
to the full extent provided by applicable laws and regulations. None of the
Banks, other than the Barton Bank, are members of the Federal Reserve
System. All of the Banks are wholly owned by Central Mortgage.
Citizens-Jackson Bank. Citizens-Jackson Bank was
established in Warrensburg, Missouri in 1888 as the Citizens Bank
of Warrensburg, was acquired by the Company in 1960 and is the
successor by merger to Jackson County State Bank of Jackson County
Missouri (1989) and Blue Springs Bank of Blue Springs, Missouri
(1993).
Citizen-Jackson Bank's twelve locations are concentrated
in three relatively contiguous areas: (a) the center of the Kansas
City, Missouri metropolitan area (Plaza, Meyer Boulevard and Waldo
offices); (b) the eastern edge of the Kansas City Metropolitan area
in eastern Jackson County (Blue Springs, Lee's Summit and
Independence offices); and (c) 39 miles further to the east, in
Warrensburg and Chilhowee, Missouri.
Warrensburg has a population of 14,598, is the county
seat of Johnson County, and is the location of Central Missouri
State University ("CMSU"). Although Warrensburg is in the center
of a largely rural economy, the community contains a substantial
amount of light industrial and commercial activities. Whiteman Air
Force Base, which began receiving 20 B-2 "Stealth" bombers in 1993,
is located ten miles east of Warrensburg and has a civilian and
military employment of 3,971.
The eastern Jackson County communities of Blue Springs,
Lee's Summit and Independence are Kansas City suburbs whose
populations have grown from approximately 166,000 to 199,000
between the 1980 and 1990 census. Citizens-Jackson Bank's downtown
Kansas City office is located at the north edge of the Plaza
shopping district along the "Main Street Corridor." The Meyer
Boulevard and Waldo offices are in close proximity to Kansas City's
Research Medical Center, a principal customer of Citizens-Jackson
Bank.
A substantial portion of Citizens-Jackson Bank's December
31, 1993, loan portfolio consisted of single family real estate
loans, including residential construction loans, with the balance
of the portfolio being divided primarily among small business loans
and consumer loans. The real estate loans include loans originated
by the Mortgage Division or by Citizens-Jackson and which are being
held as short-term investments for sale into the secondary market
directly or through the Mortgage Division (see "Mortgage Banking
Operations"). Citizens-Jackson Bank is an active single family
construction lender in the growing eastern Jackson County market.
The bank's commercial loans include loans as a regional McDonald's
lender to franchisees of McDonald's fast food restaurants, and
loans to Research Medical Center and affiliated physicians and
entities. The consumer loans include government guaranteed student
loans made primarily to CMSU students.
- 50 -
<PAGE> 56
Barton Bank. Barton Bank was organized in 1919 and was
acquired by Central Mortgage in 1973. Its main banking house is in
a modern facility on the northwest corner of the square in the
downtown business district of Lamar, Missouri. A second facility
with drive in and ATM services is located on U.S. Highway 160 on
the west edge of Lamar. Lamar, the county seat of Barton County,
is 26 miles due south of Nevada Bank at the intersection of U.S.
Highways 71 and 160. It has a population of 4,090, which is
primarily devoted to agriculture and light industries such as
O'Sullivan Industries, which manufactures furniture and accessories
for computer equipment, Thorpe Manufacturing which manufactures
wire display racks for retail outlets, and Finley Engineering, a
firm that specializes in telecommunications.
Barton Bank has a long history of lending to the
agricultural industry in Southwestern Missouri, with a substantial
portion of its December 31, 1993, loan portfolio devoted to
agriculture or agricultural related loans. Southwestern Missouri
is a major producer of fescue grass seed and Barton Bank has
specialized in lending to seed processors.
Nevada Bank. Nevada Bank was organized in 1959 and
acquired by Central Mortgage in 1984 at a time when the bank was
subject to a Cease and Desist Order issued by the Missouri Division
of Finance (the "Missouri Division"). The order was issued due to
poor asset quality and operating losses. It was lifted in 1986 and
Nevada Bank has been operating profitably since 1987.
Nevada Bank operates a modern facility in the central
business district of Nevada. Nevada, the county seat of Vernon
County, has a population of 8,567 and is located 95 miles due south
of Kansas City at the intersection of two major transportation
routes, U.S. Highways 71 and 54. Major employers in Nevada include
3M Corp., Crane Plumbing L.P. and an automotive filter plant of the
Fram Division of Allied-Signal, Inc. Although agriculture plays an
important role in the community, Nevada Bank's loan portfolio is
concentrated in single family real estate loans, consumer loans
consisting primarily of installment loans for the purchase of
automobiles, commercial real estate loans, including loan
participations and commercial loans to small businesses, with less
than 25% of the portfolio consisting of agriculture and
agricultural related loans. Nevada Bank performs certain
bookkeeping functions for Barton Bank and also operates a small
travel agency.
In June 1993, Nevada Bank acquired $14.1 million of
deposits and the fixed assets of the Butler, Missouri Office of
Mercantile Bank of West Central Missouri in exchange for an
assumption of the deposit liabilities and the payment of a $50,000
premium. Butler, Missouri, the county seat of Bates County,
Missouri, has a population of 4,100 and is located 30 miles north
of Nevada Bank and 50 miles south of Kansas City at the
intersection of U.S. Highway 71 and State Highway 52.
Stover Bank. Stover Bank was organized in 1905 and
acquired by Central Mortgage in 1974. It operates the only banking
facilities in Stover and Gravois Mills, two communities in the
growing Lake of the Ozarks region of Missouri. Stover Bank's main
banking location is in Stover, which has a population of 949.
Stover is located at the junction of State Routes 52 and 135, north
of the Lake of the Ozarks. Gravois Mills is located 16 miles
southeast of Stover on the Gravois arm of the Lake of the Ozarks on
State Highway 5.
Although Stover and Gravois Mills are rural communities,
Stover Bank has focused its lending activities primarily on markets
which serve the needs of Lake of the Ozark tourists and
vacationers. As a consequence, a large portion of Stover Bank's
December 31, 1993, loan portfolio consisted of single family real
estate loans, primarily for lake and vacation homes, loans to small
businesses that serve recreational markets, such as marinas and
lake shops and restaurants, consumer and installment loans
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<PAGE> 57
for automobiles, watercraft and similar uses, and participations in
commercial loans generated by the Banks.
Competition. The activities in which the Banks engage
are highly competitive. Those activities in the geographic markets
served involve primarily competition with other banks, most of
which are affiliated with large bank holding companies.
Competition among financial institutions is based upon interest
rates offered on deposit accounts, interest rates charged on loans
and other credit and service charges, the quality of services
rendered, the convenience of banking facilities and, in the case of
loans to large commercial borrowers, relative lending limits.
In addition to competition with other banks within their
primary service areas, the Banks also compete with other financial
institutions, such as savings and loan associations, credit unions,
industrial loan associations, securities firms, insurance
companies, small loan companies, finance companies, mortgage
companies, real estate investment trusts, certain governmental
agencies, credit organizations and other enterprises. Additional
competition for depositors' funds comes from United States
Government securities, private issuers of debt obligations, mutual
funds and suppliers of other investment alternatives for
depositors. Many of the Banks' non-bank competitors are not
subject to the same extensive federal regulations that govern bank
holding companies and federally insured banks and state regulations
governing state chartered banks. As a result, such non-bank
competitors may have certain advantages over the Banks in providing
some services.
MORTGAGE BANKING OPERATIONS
General. The Mortgage Division is engaged primarily in
originating, selling and servicing mortgage loans which are
principally first-lien mortgage loans secured by single family
residences. The Mortgage Division's principal sources of revenues
consist of (a) mortgage loan servicing fees, (b) loan origination
fees, (c) gain (loss) on the sale of mortgage loans and
(d) commissions from the sale of home owners, credit life and
accident and health insurance in connection with loan origination
activities. Mortgage loans are originated by the Mortgage Division
in markets located primarily in Springfield, Joplin, Blue Springs
and throughout the western half of Missouri. Loans are usually
purchased by Citizens-Jackson Bank for investment pending resale
into the secondary market. Loans are usually sold (normally with
servicing rights retained) to FNMA or FHLMC and also to investment
banking firms and other investors either as whole loans or as
collateral in conjunction with securities sold under guarantee
programs of GNMA, FNMA or FHLMC.
The following table shows the principal sources of the
Mortgage Division's revenues, the amounts of such revenues for each
of the periods indicated, and information concerning the size of
the Mortgage Division's loan servicing portfolio at the end of each of
the periods indicated:
- 52 -
<PAGE> 58
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(Dollars in thousands, except average loan size and loans serviced)
<S> <C> <C> <C> <C> <C>
Loan servicing income and fees $ 2,468 $ 2,282 $ 2,080 $ 1,853 $ 1,574
Loan origination income. . . . . . . . 1,064 872 416 384 478
Gain (loss) on sale of loans . . . . . 456 325 103 25 (12)
Insurance commissions. . . . . . . . . 102 116 95 92 84
Loans originated/purchased
(Mortgage Division Only)
Number of loans . . . . . . . . 2,112 1,490 956 867 1,143
Volume of loans . . . . . . . . $ 123,574 $ 83,589 $ 51,871 $ 46,552 $ 57,601
Average loan size . . . . . . . $ 58,511 $ 58,295 $ 54,259 $ 53,694 $ 50,395
At end of period:
Number of loans serviced 13,607 13,484 11,720 11,273 9,967
Total Servicing Portfolio. . . . . . . $ 561,842 $ 529,602 $ 454,806 $ 424,292 $ 354,659
</TABLE>
The Mortgage Division's principal business strategy is to
replenish and expand its loan servicing portfolio through increased
origination activity and selective acquisitions of loan servicing
rights. It intends to increase origination activity by
strategically increasing the size of origination staff, adding
branches where appropriate and by continuing to seek loan servicing
from sources such as other mortgage bankers and financial
institutions.
Loan Origination. The Mortgage Division originates
mortgage loans primarily through referrals from real estate
brokers, builders, developers, prior customers and media
advertising. The origination of a loan from the date of initial
application to a loan closing normally takes three to eight weeks.
It involves the processing of the borrower's loan application,
evaluating the borrower's credit and other qualifications
consistent with underwriting criteria established by private
institutional investors and insuring or guaranteeing agencies,
obtaining investor approvals, property appraisals and title
insurance, arranging for hazard insurance and handling various
other matters customarily associated with the closing of a
residential loan. For this service the Mortgage Division typically
collects an origination fee of one percent of the principal amount
of the loan. Costs that are incurred in originating mortgage loans
include: overhead, origination commissions paid to Mortgage
Division originators, certain out-of-pocket costs and in some cases
commitment fees where the loans are made subject to a purchase
commitment from wholesale lenders, private investors or
intermediaries like the Missouri Housing Development Commission
("MHDC").
The Mortgage Division originates mortgage loans insured
by the FHA, loans partially guaranteed by the VA and FMHA and
conventional mortgage loans. The preponderance of conventional
loans originated by Central Mortgage qualify for inclusion in
purchase and guarantee programs sponsored by the FHLMC and FNMA.
Sale of Mortgage Loans. Loans originated by the Mortgage
Division are usually sold to Citizens-Jackson Bank, with servicing
retained at competitive rates, as short-term investments pending
resale into the secondary mortgage market through the Mortgage
Division. The sale to Citizens-Jackson Bank must satisfy the
requirements of that Bank's Mortgage Loan Acquisition Policy that
has been approved and monitored by the Federal Reserve Bank of
Kansas City, the FDIC and the Missouri Commissioner of Finance (the
"Policy").
The Mortgage Division customarily sells mortgage loans
that it or Citizens-Jackson Bank originates in the secondary market
(generally retaining the servicing rights on such loans) to
investors such as FNMA and FHLMC. FHA, VA or FMHA insured or
guaranteed loans are normally pooled to form
--------
- 53 -
<PAGE> 59
GNMA securities, issued by the Mortgage Division, which are sold to
investment banking firms that are primary dealers in government
securities. Conventional conforming loans are also occasionally pooled
by the Mortgage Division and sold to FNMA or exchanged for FHLMC
securities, which are then sold.
Sales of loans in the secondary market are generally made
without recourse to Central Mortgage in the event of default by the
borrower, except in the case of GNMA mortgage-backed securities
transactions. In GNMA transactions, the Mortgage Division packages
substantially all of its FHA and FMHA insured and VA guaranteed
first mortgage loans into pools of loans. It then sells the pools
in the form of modified pass-through mortgage-backed securities
guaranteed by GNMA to broker/dealers. With respect to loans
securitized through GNMA programs, GNMA has recourse against
Central Mortgage with respect to the timely payment of principal
and interest on pooled loans. However, Central Mortgage is insured
or guaranteed against certain losses by the FHA, FMHA and VA.
Generally the VA guarantees range from 25% to 60% of VA loans, up
to a maximum amount of $36,000, FMHA insures 90% of FMHA loans, and
the FHA insures 100% of the principal balance of FHA loans plus
certain costs and expenses associated with foreclosure.
The sale of mortgage loans can generate a gain or a loss.
A gain (loss) from the sale of loans may occur if interest rates
fall (rise) between the time the Mortgage Division fixes the
interest rates charged to the borrowers on the loans and the time
the loans are committed to an investor. To reduce the risk of a
loss, the Mortgage Division usually obtains commitments permitting
it to sell loans at predetermined rates. It has in the past and
may from time-to-time in the future use financial futures, options,
or other instruments to attempt to protect against interest rate
fluctuations and the decline in market value of loans originated.
Loan Servicing. When the Mortgage Division sells the
mortgage loans it or Citizens-Jackson Bank has originated, it
generally retains the rights to service those loans and to receive
the related fees.
Loan servicing includes collecting and remitting loan
payments, accounting for principal and interest, holding escrow
funds for payment of mortgage-related expenses such as taxes and
insurance, making advances to cover delinquent payments, making
inspections as required of the mortgage premises, contacting
delinquent mortgagors, supervising foreclosures and property
dispositions in the event of unremedied defaults and generally
administering the loans. Fees received by the Mortgage Division
for servicing mortgage loans generally range from 0.25% to 0.50%
per annum on the declining principal balances of the loans.
Servicing fees are collected by the Mortgage Division monthly from
mortgage payments. Other sources of loan servicing revenues
include late charges, assumption and transfer fees.
Since 1987, the Mortgage Division has substantially
improved its loan servicing efficiency, increasing the average
number of loans serviced per employee from 365 at December 31,
1987, to 619 at December 31, 1993, an increase of 69.6% in loans
serviced per employee. The improved loan servicing efficiency is
due primarily to the use of enhanced data processing equipment and
systems, a reduction in the number of investors serviced and the
continued employment of experienced and effective supervisory
personnel. Furthermore, due to the capacity of such systems and
the Mortgage Division's Springfield offices, the Mortgage Division
believes that it has the capacity to increase by 50% the number of
loans it services without significantly increasing its fixed
operating costs.
The Mortgage Division's loan servicing portfolio is
comprised of retained servicing rights in the mortgage loans it and
Citizens-Jackson have originated and servicing rights that it has
purchased. As of December 31, 1993, approximately 12.2% of the
Mortgage Division's $562 million servicing portfolio consisted of
loan servicing purchased from others.
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<PAGE> 60
Central Mortgage's servicing portfolio is subject to
reduction ("run-off") by normal amortization, by prepayment or by
foreclosure of outstanding loans. Thirty-year mortgage interest
rates in the Mortgage Division's primary markets declined from
nearly 10% to 7 3/8% from January 1, 1991 to December 31, 1993.
Although the lower rates accelerated run off in the portfolio
during that period, the negative effect on the Mortgage Division's
income was more than offset by increased origination income
resulting from refinancing of loans from the Mortgage Division's
loan portfolio as of December 31, 1993 as well as externally
generated mortgage loans.
Mortgage Division Insurance Agency. The Mortgage
Division operates an insurance agency (the "Agency") incidental
to its mortgage banking business. The Agency markets
homeowners, group life, accident and health, disability, accidental death
and, to a lesser extent, auto and boat coverage, primarily, but not
exclusively, to customers of the Mortgage Division. The Agency
collects a percentage of insurance premiums as a commission for
insurance sold.
Competition. The business of mortgage banking is highly
competitive. The Mortgage Division competes with other financial
institutions, such as mortgage bankers, state and national
commercial banks, savings and loan associations, credit unions and
insurance companies for loan originations. Many of the Mortgage
Division's competitors have financial resources that are
substantially greater than those available to Central Mortgage.
The Mortgage Division competes principally by providing competitive
pricing, by motivating its sales force through the payment of
commissions on loans originated and by providing high-quality
service to builders, borrowers and realtors.
REINSURANCE
Central Mortgage owns 79.9% of the capital stock of
Cenco, a small captive life reinsurance company that was organized
by Central Mortgage under Arizona law in 1976, and that had
shareholders' equity at December 31, 1993, of $389,000. The
remaining 20.1% stock interest is owned by officers of the Banks,
some of whom are officers of Central Mortgage, subject to Central
Mortgage's right and obligation to repurchase the stock at book
value upon the officers' request. Cenco has entered into insurance
treaties with life insurance companies pursuant to which Cenco
reinsures the first $15,000 of credit life and the first $5,000 of
credit accident and health insurance sold to customers of the Banks
in connection with an extension of credit to the customer. Cenco
is paid a portion of the premiums paid to the primary carrier. At
December 31, 1993, Cenco had approximately $3.2 million of
reinsurance in force. The activities of Cenco are regulated by
Arizona insurance regulatory authorities and are also restricted by
limitations imposed by the BHCA on activities that may be engaged
in by bank holding companies.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This section presents an analysis of the consolidated
financial condition of Central Mortgage and its subsidiaries at
December 31, 1993 and 1992 and the consolidated results of
operations for the years ended December 31, 1993, 1992 and 1991.
This review should be read in conjunction with the consolidated
financial statements, notes to consolidated financial statements
and other financial data presented elsewhere in this Proxy
Statement/Prospectus. In addition, this review does not reflect
the merger of Nevada Bank with and into Barton Bank on November 1,
1994.
- 55 -
<PAGE> 61
December 31, 1993, 1992 and 1991
RESULTS OF OPERATION
NET INCOME. Net income for the year ended December 31,
1993 was $5.1 million or $1.36 per share, a 37.8% improvement over
net income of $3.7 million or $1.51 per share for the year ended
December 31, 1992. The per share results reflect an increase in
fully diluted shares outstanding due to public offerings in
October, 1992 and August, 1993. The improvement in net income was
primarily due to a $5.3 million increase in net interest income,
and an increase in noninterest income of $1.1 million. Offsetting
the improvement were increased operating expenses of $4.3 million
which were primarily due to increased salaries and employee
benefits of $1.5 million, occupancy expenses of $532,000 and other
noninterest expenses of $2.2 million.
Net income for the year ended December 31, 1992 was $3.7
million or $1.51 per share, a 23% improvement over net income of
$3.0 million or $1.35 per share for the year ended December 31,
1991. The improvement was primarily due to a $2.5 million increase
in net interest income, and an increase in noninterest income of
$540,000 which included an increase in gain on sale of mortgages of
$222,000. Offsetting the improvement were increased noninterest
expenses of $1.9 million which were primarily due to increased
salaries and employee benefits of $1.1 million.
NET INTEREST INCOME. The $5.3 million improvement in net
interest income for the year ended December 31, 1993 as compared to
the year ended December 31, 1992 was primarily due to the $111
million increase in average earning assets for 1993. In addition,
during 1993 Central Mortgage slightly increased the net interest
spread of 4.07% as compared to the 3.91% for 1992. Average earning
assets increased due to two acquisitions completed in 1993, which
resulted in an increase in total assets of $189 million and an
increase in total deposits of $178 million. In addition, the
acquisition of Blue Springs Bank in August, 1993 favorably impacted
the net interest spread by increasing average yield on loans and
increasing noninterest-bearing deposits.
Net interest income increased during the year ended
December 31, 1992 by $2.5 million as compared to 1991. This
improvement was primarily the result of an increase in average
earning assets of $84.9 million for the year 1992 as compared to
1991. The increase in earning assets was due primarily to
Citizens-Jackson Bank's acquisition of $80.2 million of deposits
(after "run-off") from the former Home Federal Savings Association
("Home Federal").
Central Mortgage deployed the growth in average assets by
increasing average loans for the year ended December 31, 1992 by
$28.1 million, investment securities by $50.2 million and other
interest earning assets by $6.6 million. The improvement in net
interest income due to the increased earning assets was partially
offset by a reduction in the net interest spread from 4.12% for the
year ended December 31, 1991 to 3.91% for the year ended December
31, 1992. The reduction in the spread was the result of the
purchases of deposits at higher interest rates and declining yields
on interest earning assets.
The following table sets forth certain information
relating to Central Mortgage's average consolidated statements of
financial condition and reflects the yield on average assets and
cost of average liabilities for the periods indicated. Such yields
and costs are derived by dividing income or expense by the average
balance of assets or liabilities. Average balances are derived from
daily balances.
- 56 -
<PAGE> 62
<TABLE>
AVERAGE BALANCES, YIELDS AND RATES
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1993 1992 1991
-------------------------- --------------------------- ------------------------------
AVERAGE AVERAGE AVERAGE
INTEREST YIELD/ INTEREST YIELD/ INTEREST YIELD/
AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE
BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID
------- ------- ---- ------- ------- ---- ------- ------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (net of unearned interest)<F1> $ 266,676 $ 24,556 9.21% $ 198,368 $ 19,982 10.07% $ 170,291 $ 19,239 11.30%
Investment securities:
Taxable . . . . . . . . . . . . . . . . 129,803 6,729 5.18 99,646 5,955 5.98 53,925 4,070 7.55
Tax exempt<F2>. . . . . . . . . . . . . 33,643 2,430 7.22 18,139 1,537 8.47 13,693 1,211 8.84
Other investments . . . . . . . . . . . 385 22 5.71 557 33 5.92 441 40 9.07
Interest-bearing deposits. . . . . . . . 361 14 3.88 2,326 102 4.39 3,066 187 6.10
Federal funds sold . . . . . . . . . . . 10,517 307 2.92 13,960 523 3.75 7,741 439 5.67
Mortgage loans held for sale . . . . . . 13,065 1,082 8.28 10,509 880 8.38 9,487 859 9.05
-------- ------- -------- ------- -------- -------
Total interest earning assets/interest
income/overall yield<F2>. . . . . . . . 454,450 35,140 7.73 343,505 29,012 8.45 258,644 26,045 10.07
Allowance for loan losses. . . . . . . . (3,621) (2,440) (2,207)
Noninterest-bearing deposits and cash 19,105 14,663 11,218
Other assets . . . . . . . . . . . . . . 18,703 13,142 12,102
-------- -------- --------
Total assets. . . . . . . . . . . . . . $ 488,637 $ 368,870 $ 279,757
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand deposits $ 112,434 $ 2,882 2.56% $ 86,515 $ 2,893 3.34% $ 64,176 $ 2,805 4.37%
Savings deposits . . . . . . . . . . . . 28,741 650 2.26 17,853 579 3.24 13,091 596 4.55
Time deposits. . . . . . . . . . . . . . 218,393 9,524 4.36 180,513 9,330 5.17 136,910 9,252 6.76
Short-term borrowings. . . . . . . . . . 23,872 888 3.72 10,077 417 4.14 4,218 229 5.43
Notes payable. . . . . . . . . . . . . . 4,311 250 5.80 5,103 397 7.78 4,362 378 8.67
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities/
interest expense/overall rate . . . . 387,751 14,194 3.66 300,061 13,616 4.54 222,757 13,260 5.95
Demand deposits. . . . . . . . . . . . . 57,181 39,312 33,503
Other liabilities. . . . . . . . . . . . 4,866 4,294 3,978
-------- -------- --------
Total liabilities . . . . . . . . . . . 449,798 343,667 260,238
Minority interest. . . . . . . . . . . . 87 98 117
Shareholders' equity . . . . . . . . . . 38,752 25,105 19,402
-------- -------- --------
Total liabilities and shareholders'
equity. . . . . . . . . . . . . . . . $ 488,637 $ 368,870 $ 279,757
======== ======== ========
Net interest income/net interest rate
spread. . . . . . . . . . . . . . . . . $ 20,946 4.07% $ 15,396 3.91% $ 12,785 4.12%
======= ==== ======= ==== ======= ====
Net earning assets/net yield on average
interest-earning assets . . . . . . . . $ 66,699 4.61% $ 43,444 4.48% $ 35,887 4.94%
======== ==== ======== ==== ======== ====
<FN>
- ---------------
<F1> Average balance includes nonaccrual loans.
<F2> Interest and yields are presented on a tax-equivalent basis at
a tax rate of 34% and have been adjusted downward by the
disallowance of the interest cost to carry tax exempt loans
and securities.
</TABLE>
The following table sets forth changes in net interest
income attributable to changes in the volume of interest-earning
assets and interest-bearing liabilities compared to changes in
interest rates for the periods indicated. The change in interest
due to both volume and rate has been allocated to the change in
interest due to rate.
- 57 -
<PAGE> 63
<TABLE>
VOLUME AND RATE VARIANCE
<CAPTION>
INCREASE (DECREASE) ATTRIBUTABLE TO CHANGE IN<F1>:
---------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1992
COMPARED TO COMPARED TO
DECEMBER 31, 1992 DECEMBER 31, 1991
--------------------------------- --------------------------------
RATE VOLUME NET RATE VOLUME NET
---- ------ --- ---- ------ ---
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans<F1>. . . . . . . . . . . . . . . $(2,305) $ 6,879 $ 4,574 $(2,430) $3,173 $ 743
Investment securities:
Taxable. . . . . . . . . . . . . . . (1,029) 1,803 774 (1,567) 3,452 1,885
Tax exempt<F2> . . . . . . . . . . . (420) 1,313 893 (67) 393 326
Other investments. . . . . . . . . . (1) (10) (11) (18) 11 (7)
Interest-bearing deposits. . . . . . . (2) (86) (88) (39) (45) (84)
Federal funds sold . . . . . . . . . . (87) (129) (216) (269) 352 83
Mortgage loans held for sale . . . . . (12) 214 202 (71) 92 21
------- ------ ------ ------- ----- ------
Total interest income. . . . . . . . (3,856) 9,984 6,128 (4,461) 7,428 2,967
INTEREST EXPENSE
Interest-bearing demand deposits (877) 866 (11) (888) 976 88
Savings deposits . . . . . . . . . . . (282) 353 71 (234) 217 (17)
Time deposits. . . . . . . . . . . . . (1,764) 1,958 194 (2,870) 2,948 78
Interest on short-term borrowings (100) 571 471 (130) 318 188
Interest on notes payable. . . . . . . (85) (62) (147) (45) 64 19
------- ------- ------- ------- ----- ------
Total interest expense . . . . . . . (3,108) 3,686 578 (4,167) 4,523 356
Net interest income. . . . . . . . . $ (748) $ 6,298 $ 5,550 $ (294) $ 2,905 $ 2,611
======= ====== ====== ======= ====== ======
<FN>
- ----------------------------
<F1> Average balance includes nonaccrual loans.
<F2> Presented on a fully tax-equivalent basis assuming a tax rate
of 34%.
</TABLE>
NONINTEREST INCOME. The following table shows Central
Mortgage's noninterest income for the periods indicated:
<TABLE>
NONINTEREST INCOME
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1993 1992 1991
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Service charges on deposit accounts $2,254 $1,559 $1,458
Loan servicing income . . . . . . . . . . 2,034 1,869 1,725
Gain/Loss on sale of loans. . . . . . . . 456 325 103
Other operating income. . . . . . . . . . 1,125 1,039 966
------ ------ ------
Total noninterest income . . . . . . . $5,869 $4,792 $4,252
====== ====== ======
Noninterest income as a percent
of average total assets . . . . . . . . 1.20% 1.30% 1.52%
</TABLE>
Noninterest income for the year ended December 31, 1993
increased by $1.1 million as compared to the year ended December
31, 1992. The improvement was primarily due to an increase in
service charges on deposit accounts of $695,000, increased Mortgage
Division income on loan servicing of $165,000 and an increase in
gain on sale of loans of $131,000. The increase in service charges is
- 58 -
<PAGE> 64
directly related to the greater volume of accounts acquired in
the Blue Springs Bank acquisition. Loan servicing income increased
due to higher average loan sizes and an increase in the principal
balance of loans serviced by the Mortgage Division. The increase
in gain on sale of mortgages was due to a favorable interest rate
environment and a greater volume of loans sold on a servicing
released basis carried out in the normal course of business.
The sale of mortgage loans can generate a gain or loss.
A gain (loss) from the sale of loans may occur if interest rates
fall (rise) between the time the Mortgage Division fixes the
interest rates charged to the borrowers on the loans and the time
the loans are committed to an investor. To reduce the risk of
loss, the Mortgage Division obtains commitments for a portion of
loans closed and in process, permitting it to sell loans at
predetermined rates. The Mortgage Division has in the past and may
from time-to-time use financial futures, options, or other
instruments to attempt to protect against interest rate
fluctuations and the decline in market value of loans originated.
Noninterest income increased by $540,000 for the year
ended December 31, 1992 as compared to the year ended December 31,
1991. The improvement was primarily due to the increase in the
Mortgage Division's gain on the sale of mortgage loans of $222,000
and an increase in loan servicing income of $144,000. The increase
in gain on sale of mortgage loans was primarily due to declining
interest rates during 1992 resulting in a large volume of loans and
management of commitments and coverages during a period of high
production at the Mortgage Division. Loan servicing income was up
due to a larger outstanding loan balance serviced. In addition,
service charge income on deposit accounts increased by $101,000 due
to a larger volume of accounts and an increase in fees.
NONINTEREST EXPENSE. The following table shows Central
Mortgage's noninterest expense for the periods indicated:
<TABLE>
NONINTEREST EXPENSE
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1993 1992 1991
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Salaries and employee benefits. . . . . . $ 9,161 $ 7,617 $ 6,494
Net occupancy expense . . . . . . . . . . 2,162 1,630 1,549
FDIC and state assessments. . . . . . . . 1,015 778 538
Data processing . . . . . . . . . . . . . 528 467 411
Supplies. . . . . . . . . . . . . . . . . 507 444 331
Professional fees . . . . . . . . . . . . 409 439 248
Postage and freight . . . . . . . . . . . 540 369 317
Advertising . . . . . . . . . . . . . . . 485 322 229
Other noninterest expense . . . . . . . . 3,320 1,788 1,816
------- ------- -------
Total noninterest expense. . . . . . . $18,127 $13,854 $11,933
======= ======= =======
</TABLE>
Noninterest expense increased by $4.3 million for the
year ended December 31, 1993 as compared to the year ended December
31, 1992. The major factor was a $1.5 million increase in salaries
and employee benefits. The increase in salaries and benefits was
primarily due to the increased number of personnel at Citizens-
Jackson Bank as a result of the Blue Springs Bank acquisition.
Additional areas of increased noninterest expense included
increases in occupancy expense of $532,000 and of FDIC insurance
costs of $237,000, again due primarily to the Blue Springs Bank
acquisition. Other noninterest expense increased by $1.5 million,
primarily due to amortization of the intangible assets associated with
- 59 -
<PAGE> 65
the Blue Springs Bank acquisition and expenses related to the
disposition of other real estate owned. During 1993, other
noninterest expense was impacted by a one time expense of
approximately $196,000 related to the acquisition of Blue Springs
Bank.
Noninterest expense increased by $1.9 million for the
year ended December 31, 1992 as compared to the year ended December
31, 1991. Primarily, the increase in noninterest expense consisted
of salaries and benefits totaling $1.1 million, which included 12
new full time employees at Citizens-Jackson Bank due to the Home
Federal acquisition and increased salaries and commissions at the
Mortgage Division due to the increase in volume of lending activity.
The increase was also due to salary and wage increases and the
increasing cost of employee benefits. FDIC and state assessments
increased $240,000, which was directly related to the growth in
insured deposits. Professional fees expense increased by $191,000
due to merger and acquisition activity. Supplies expense increased
by $113,000 directly reflecting the increased volume of services
and locations of Citizens-Jackson Bank and the increased volume of
loans at the Mortgage Division.
The remaining areas of noninterest expense increased
primarily due to the growing volume of business. During 1992,
other noninterest expense was impacted by a one time expense of
approximately $200,000 related to the purchase of Home Federal
deposits.
<TABLE>
The following table reflects a summary of operations of
Central Mortgage by quarter for 1993 and 1992:
SUMMARY OF OPERATIONS BY QUARTER
<CAPTION>
Three Months Ended Three Months Ended
-------------------------------------------- --------------------------------------------
December 31 September 30 June 30 March 31 December 31 September 30 June 30 March 31
----------- ------------ ------- -------- ----------- ------------ ------- --------
1993 1992
-------------------------------------------- --------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income. . . . . . . . . $10,713 $8,731 $7,666 $7,342 $7,571 $7,390 $7,414 $6,202
Interest expense . . . . . . . . 4,243 3,468 3,232 3,251 3,185 3,591 3,987 2,853
------- ------ ------ ------ ------ ------ ------ ------
Net interest income . . . . . 6,470 5,263 4,434 4,091 4,386 3,799 3,427 3,349
Provision for loan losses 288 202 235 231 329 232 204 148
Noninterest income . . . . . . . 1,881 1,518 1,307 1,163 1,143 1,298 1,226 1,125
Noninterest expense. . . . . . . 5,995 4,826 3,848 3,458 3,755 3,418 3,383 3,298
Minority interest in earnings 2 -- 1 (2) 1 1 (1) (1)
Income tax provision . . . . . . 549 473 463 428 336 377 271 261
------- ------ ------ ------ ------ ------ ------ ------
Net income . . . . . . . . . $ 1,517 $1,280 $1,194 $1,139 $1,108 $1,069 $ 796 $ 768
======= ====== ====== ====== ====== ====== ====== ======
Earnings per common share
fully diluted . . . . . . . . $ 0.35 $ 0.33 $ 0.35 $ 0.33 $ 0.35 $ 0.47 $ 0.35 $ 0.34
======= ====== ====== ====== ====== ====== ====== ======
</TABLE>
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
LENDING ACTIVITIES. Central Mortgage's major source of
income is interest on loans. Central Mortgage's loan portfolio
largely reflects the communities served by the Banks and Central
Mortgage's continued emphasis on residential real estate lending.
The following table presents the composition of Central Mortgage's
loan portfolio net of unearned interest at the end of each of the
periods indicated:
- 60 -
<PAGE> 66
<TABLE>
LOAN PORTFOLIO
<CAPTION>
December 31,
------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
--------------- --------------- ------------- -------------- -------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ --- ------ --- ------ ---
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial,
and other . . . . . . . $ 46,327 12.9% $ 26,278 12.1% $23,671 13.2% $ 22,505 13.5% $ 23,996 16.3%
Agricultural. . . . . . . 13,086 3.6 12,274 5.6 12,210 6.8 10,381 6.2 8,728 5.9
Real estate:
Mortgage-residential
(1-4 family) . . . . . 132,058 36.9 62,163 28.6 49,625 27.6 45,259 27.2 42,177 28.7
Mortgage-commercial
and multi-family . . . 75,192 20.9 43,329 20.0 30,358 16.9 26,850 16.1 23,916 16.3
Construction. . . . . . 18,397 5.1 17,614 8.1 17,474 9.7 15,623 9.4 15,735 10.7
Agricultural real estate 9,873 2.7 9,055 4.2 7,580 4.2 7,840 4.7 7,177 4.9
Consumer. . . . . . . . . 62,195 17.4 45,698 21.1 38,293 21.3 37,594 22.7 25,362 17.2
Lease Financing . . . . . 1,900 0.5 586 0.3 513 0.3 273 0.2 19 0.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total loans . . . . . . . 359,028 100% 216,997 100% 179,724 100% 166,325 100% 147,100 100%
==== ==== ==== ==== ====
Unearned interest . . . . (1,921) (2,101) (1,866) (2,625) (1,192)
------- ------- ------- ------- -------
Total . . . . . . . . . $357,107 $214,896 $177,858 $163,700 $145,918
======== ======== ======== ======== ========
</TABLE>
The following table sets forth the remaining maturities for certain
loan categories at December 31, 1993:
<TABLE>
MATURITIES OF LOANS
<CAPTION>
ONE YEAR ONE TO OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -----
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial, agricultural and other. . . . . . $37,575 $17,645 $4,193 $59,413
Real estate construction . . . . . . . . . . . . . . . . 15,475 2,668 254 18,397
</TABLE>
Of the commercial, financial, agricultural, and other
loans due after one year, all had fixed rates as of December 31,
1993.
Central Mortgage makes substantially all its loans to
customers located within the Banks' service areas. Central Mortgage
has no foreign loans or highly leveraged transaction loans as
defined by the Federal Reserve Bank.
DISCUSSION OF LENDING ACTIVITIES. Net loans at December
31, 1993 were $357 million, an increase of $142 million from
December 31, 1992. The increase was primarily due to the loans
acquired in the Blue Springs Bank acquisition. In addition,
Citizens-Jackson Bank continued to experience increased loan
activity in real estate, consumer, commercial and agricultural
loans. The eastern Jackson County market continues to show signs of
growth; however, there is no assurance that the increase in loan
activity will continue.
Although the risk of non-payment for any reason exists
with respect to all loans, certain other more specific risks are
associated with each type of loan. The primary risks associated
with commercial loans, including commercial real estate loans, are
quality of the borrower's management and a number of economic and
other factors which can induce business failures and depreciate the
value of business assets pledged to secure the loan, including
competition, insufficient capital, product
- 61 -
<PAGE> 67
obsolescence, changes in the costs of production, environmental
hazards, weather, changes in laws and regulations and general changes
in the marketplace. With respect to agricultural loans, the primary
risks are mismanagement, weather, commodity and livestock prices and
unexpected increases in operating costs. Primary risks associated with
residential real estate loans include fluctuating land and property
values and rising interest rates with respect to fixed rate long term
loans. Consumer loans are affected primarily by domestic instability
and a variety of factors that may lead to the borrower's unemployment,
including deteriorating economic conditions in one or more segments
of a local or broader economy.
Central Mortgage's strategy with respect to the
management of these types of risks, whether loan demand is weak or
strong, is to encourage the Banks to follow loan policies and
underwriting practices which include (i) granting loans on a sound
and collectible basis, (ii) investing funds profitably for the
benefit of shareholders and the protection of depositors, (iii)
serving the legitimate needs of the community and the Banks'
general market area while maintaining a balance between maximum
yield and minimum risk, (iv) ensuring that primary and secondary
sources of repayment are adequate in relation to the amount of the
loan, (v) administering loan policies through an officers loan
committee, (vi) developing and maintaining adequate diversification
of the loan portfolio as a whole and of the loans within each loan
category and (vii) ensuring that each loan is properly documented
and, if appropriate, secured or guaranteed by government agencies,
and that insurance coverage is adequate.
Commercial, financial and other lending activities are
directed principally towards small to medium-sized professional
firms, retail and wholesale outlets and light industrial and
manufacturing concerns. Commercial, financial and other loans
increased during 1993 by $20.0 million, primarily due to loans
acquired in the Blue Springs Bank acquisition.
Agricultural loans, including agricultural real estate
loans, are typically made to family farms, small corporate farms,
feed and grain dealers and wholesale seed dealers. These are
operating loans for crop production, livestock production and
purchasing seed and grain for cleaning, and processing for resale.
Demand for agricultural loans increased over the past several
years. Agricultural loans increased by $1.6 million during 1993 due
to normal loan demand.
The largest single component of Central Mortgage's loan
portfolio is real estate loans. Central Mortgage actively pursues
mortgage loans on single family dwellings. Generally, on an ongoing
basis the Banks sell on a non-recourse basis the fixed rate
long-term mortgages and retain only short-term or adjustable rate
mortgages. Residential mortgages increased in 1993 by $69.9
million or 112% from 1992 to 1993. This increase was the result of
the $56.3 million of mostly fixed rate, long term residential
mortgages acquired in the Blue Springs Bank acquisition. The
remaining increase occurred in new loans at Citizens-Jackson Bank
and Nevada Bank.
Commercial and multi-family real estate loans increased
by $31.9 million from December 31, 1992 to December 31, 1993. The
increase was comprised of $17.0 million in loans acquired with the
Blue Springs Bank. The remaining increase of $14.9 million is due
to, for the most part, loans originated at the Citizens-Jackson
Bank in metropolitan Kansas City.
Real estate construction loans, which are made primarily
by Citizens-Jackson Bank, include loans for the construction of
commercial properties such as medical office buildings, retail
buildings, multi-family (five or more family) residential
developments, single family homes, and loans for developing single
family home sites. Construction loans increased slightly to $18.4
million at December 31, 1993 compared to $17.6 million at December
31, 1992.
- 62 -
<PAGE> 68
Consumer loans primarily include student loans, loans to
individuals for the purchase of automobiles, boats, recreational
vehicles, home improvements and other personal, family and
household items, and indirect loans purchased through automobile
dealers. Consumer loans may have fixed interest rates, or variable
interest rates tied to an index, both of which typically carry
higher interest rates than other types of loans and typically carry
greater credit risks than other types of loans in Central
Mortgage's portfolio. Central Mortgage increased the size of its
consumer loan portfolio by 36.1% or $16.5 million in 1993 as the
result of the acquisition of the Blue Springs Bank and management's
decision to focus on expanding these types of loans in the Kansas
City market area, believing that in Central Mortgage's marketplace
these loans would yield superior overall returns.
Lease financing is limited to Citizens-Jackson Bank and
Barton Bank. Central Mortgage does not actively pursue lease
financing.
NONPERFORMING LOANS. Potential problem credits are
monitored by the lending staff and reports are submitted for review
by an official at Central Mortgage and a credit committee. Loans
over 90 days past due are placed on a nonaccrual status unless well
secured and in the process of collection. The allowance for loan
losses was 528.49% of nonperforming loans at year end 1993 and 328%
at December 31, 1992. Central Mortgage does not have any material
amounts of interest-earning assets which would have been included
in nonaccrual, past due or restructured loans if such assets were
loans.
Nonperforming loans consist of loans on a nonaccrual
basis, loans which are contractually past due 90 days or more, and
loans the original terms of which have been restructured. The
following table sets forth the amounts of such loans at the end of
the periods indicated:
<TABLE>
NONPERFORMING ASSETS
<CAPTION>
December 31,
--------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans . . . . . . . . . . . . . . . $ 238 $ 104 $ 355 $ 119 $ 119
Loans contractually past due 90 days or more . 569 485 339 905 520
Restructured loans . . . . . . . . . . . . . . 81 218 554 561 750
------ ------ ------ ------ ------
Total nonperforming loans . . . . . . . . . 888 807 1,248 1,585 1,389
Foreclosed assets held for sale. . . . . . . . 2,225 406 415 459 999
------ ------ ------ ------ ------
Total nonperforming assets. . . . . . . . . $3,113 $1,213 $1,663 $2,044 $2,388
====== ====== ====== ====== ======
Nonperforming loans to total loans . . . . . . 0.25% 0.38% 0.70% 0.97% 0.95%
Nonperforming assets to total loans
plus foreclosed assets held for sale 0.87 0.56 0.93 1.25 1.63
Nonperforming assets to total assets . . . . . 0.50 0.29 0.57 0.75 0.91
</TABLE>
Nonperforming assets increased to $3.1 million at
December 31, 1993. This increase was due primarily to the
nonaccrual loans and foreclosed assets transferred in the Blue
Springs Bank acquisition.
The ratio of nonperforming loans to total loans was
0.25%, 0.38% and 0.70% at December 31, 1993, 1992 and 1991,
respectively. The ratio of Central Mortgage's allowance for loan
losses to nonperforming loans was 528%, 328% and 183% at December
31, 1993, 1992 and 1991, respectively. The increase in the ratio
for December 31, 1993 is due primarily to the addition of the Blue
Springs Bank's allowance for loan losses and the transfer of Blue
Springs Bank's nonperforming loans to foreclosed assets.
- 63 -
<PAGE> 69
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 current, the borrowers presently have or have had a history
of financial difficulties, and management has concerns 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 in time, as nonperforming. At December 31, 1993, such loans
(excluding all nonperforming loans described above) amounted to
$12.3 million as compared to $3.7 million at December 31, 1992. The
increase in potential nonperforming loans was due primarily to
loans acquired in the Blue Springs Bank acquisition. Following the
Blue Springs Bank acquisition, management reduced the level of
potential nonperforming loans to 3.44% of total loans as of
December 31, 1993, which management considers to be a reasonable
level in comparison to other banks operating in its market area and
given the size and composition of the loan portfolio.
When, in the opinion of management, a reasonable doubt
exists as to the collectability of interest, the accrual of
interest income is stopped and interest accrued and unpaid during
the current year is reversed through a charge to current year
earnings. Subsequently, interest income is recognized only upon
receipt. If interest on nonaccrual loans had been accrued, such
income would have been approximately $28,000 for the year ended
December 31, 1993.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses
is based on factors that include the overall composition of the
loan portfolio, types of loans, past loss experience, loan
delinquencies, potential substandard and doubtful credits, and such
other factors that, in management's judgment, deserve evaluation in
estimating loan losses. The adequacy of the allowance for loan
losses is monitored quarterly during the ongoing systematic review
of the loan portfolio by the loan review staff of Central
Mortgage. The results of these reviews are reported to each Bank's
management and its board of directors. More specifically, Central
Mortgage calculates the appropriate level of the allowance for loan
losses on a quarterly basis using historical charge offs for each
loan type and anticipated losses with respect to specific loans.
While there can be no assurance that the allowance for
loan losses will be adequate to cover all losses from all loans,
management believes that the allowance for loan losses is adequate.
Management uses available information to determine the provision
for losses on loans. The ultimate collectability of a substantial
portion of the loan portfolio and the need for future additions to
the allowance will be based upon borrowers' performance and changes
in economic conditions. In addition, various regulatory agencies,
as an integral part of their examination process, periodically
review the Banks' allowance for loan losses. Such agencies may
require the Banks to recognize additions to the allowance based
upon their judgments using information available to them at the
time of their examinations.
The following table summarizes, for the periods
indicated, activity in the allowance for loan losses, including
amounts of loans charged off, amounts of recoveries and additions
to the allowance charged to operating expense, and the ratio of net
charge offs to average loans outstanding:
- 64 -
<PAGE> 70
<TABLE>
ALLOWANCE FOR LOAN LOSSES
<CAPTION>
Year Ended December 31,
---------------------------------------------
1993 1992 1991 1990 1989
------- -------- ------- ------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period . . . . $ 2,648 $ 2,282 $ 2,058 $ 1,872 $ 1,801
Loans charged off:
Commercial, financial, agricultural
and other. . . . . . . . . . . . . 1,563 438 549 371 197
Real estate:
Construction . . . . . . . . . . . -- 4 31 -- --
Mortgage . . . . . . . . . . . . . 401 138 43 10 115
Consumer. . . . . . . . . . . . . . . 552 117 167 59 92
------- -------- ------- ------- --------
Total. . . . . . . . . . . . . . . 2,516 697 790 440 404
------- -------- ------- ------- --------
Recoveries:
Commercial, financial, agricultural
and other. . . . . . . . . . . . . 230 123 118 87 44
Real estate:
Construction . . . . . . . . . . . -- -- 4 -- --
Mortgage . . . . . . . . . . . . . 117 17 15 2 11
Consumer. . . . . . . . . . . . . . . 29 10 7 14 6
------- -------- ------- ------- --------
Total. . . . . . . . . . . . . . . 376 150 144 103 61
------- -------- ------- ------- --------
Net loans charged off . . . . . . . . 2,140 547 646 337 343
Additions to allowance charged to
operating expense . . . . . . . . . . 956 913 870 523 414
Allowance acquired from purchased
institution . . . . . . . . . . . . . 3,229 -- -- -- --
------- -------- ------- ------- --------
Allowance at end of period . . . . . . . $ 4,693 $ 2,648 $ 2,282 $ 2,058 $ 1,872
======= ======== ======= ======= ========
Ratio of net loan charge offs during
period to average loans outstanding . 0.80% 0.28% 0.38% 0.22% 0.24%
</TABLE>
Net loan charge offs were $1.6 million greater for the
year ended December 31, 1993, when compared to 1992. The increase
in net loan charge offs was due to increased charge offs in
commercial and consumer loans. The increase in commercial loan
charge offs was related primarily to loans acquired in the Blue
Springs Bank acquisition, which Central Mortgage believes were
adequately reserved for at the acquisition date. The increase in
mortgage loan charge offs was primarily due to loans acquired in
the Blue Springs Bank acquisition, while the consumer loan charge-
off increase was the result of the increased volume of consumer
loans.
The following table summarizes Central Mortgage's
allocation of the allowance for loan losses to the various loan
categories at the dates indicated:
- 65 -
<PAGE> 71
<TABLE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------------- ---------------- ---------------- ---------------- ----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and other . . . . . . $2,066 16.6% $1,138 17.9% $1,075 20.2% $1,037 20.1% $ 829 22.4%
Real estate:
Construction. . . . . 83 5.1 89 8.2 113 9.8 77 9.5 67 10.8
Mortgage. . . . . . . 1,743 60.5 1,026 53.3 820 49.2 726 48.8 771 50.2
Consumer. . . . . . . . 793 17.3 392 20.3 271 20.5 216 21.4 205 16.6
Lease Financing . . . . 8 0.5 3 0.3 3 0.3 2 0.2 -- --
----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Total . . . . . . . . $4,693 100% $2,648 100% $2,282 100% $2,058 100% $1,872 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
INVESTMENT SECURITIES. The objectives of the investment
portfolio are to provide Central Mortgage with a source of
liquidity through maturities and earnings. The following tables
present the composition and maturities of the investment portfolio
by major category:
<TABLE>
INVESTMENT PORTFOLIO COMPOSITION
<CAPTION>
December 31,
-------------------------------------
(dollars in thousands)
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
U.S. Treasury obligations. . . . . . . . . . . . . . $ 65,838 $ 69,895 $ 41,693
U.S. Government agencies and corporations. . . . . . 51,421 26,262 12,115
Obligations of states and political subdivisions . . 44,265 23,171 14,705
Mortgage-backed securities . . . . . . . . . . . . . 22,702 23,768 518
---------- ---------- ----------
Total investments . . . . . . . . . . . . . . . . $ 184,226 $ 143,096 $ 69,031
========== ========== ==========
</TABLE>
<TABLE>
As of December 31, 1993, the maturity of securities in the
investment portfolio was as follows:
- 66 -
<PAGE> 72
INVESTMENT PORTFOLIO - MATURITY AND YIELDS
<CAPTION>
OVER ONE OVER FIVE WEIGHTED
ONE YEAR THROUGH THROUGH OVER AVERAGE
OR LESS FIVE YEARS TEN YEARS TOTAL YIELD<F1>
------- ---------- --------- ----- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities . . . . . . . . . . . . $41,474 $24,364 $ -- $ -- 4.72%
U.S. Government agencies and corporations. . . . 15,020 35,882 519 -- 4.76
Obligations of states and political subdivisions 5,910 22,211 15,689 455 7.16
Mortgage-backed securities <F1> 1,909 12,350 3,261 5,182 6.41
------- ------- ------- ------ ----
Total investments . . . . . . . . . . . . . . $64,313 $94,807 $19,469 $5,637 5.54%
======= ======= ======= ====== ====
Weighted average yield <F2>. . . . . . . . . . . 4.99% 5.41% 7.82% 6.09%
====== ====== ====== =====
<FN>
- -------------------
<F1> Mortgage-backed securities issued by U.S. Government agencies
and corporations and privately-issued collateralized mortgage
obligations have been included using historic prepayment
rates.
<F2> Rates on obligations of states and political subdivisions have
been adjusted to tax-equivalent rates using the incremental
statutory Federal income tax rate of 34%.
</TABLE>
Investment securities increased by $41.1 million at
December 31, 1993 as compared to December 31, 1992. The increase
was due to $38.3 million of securities transferred in the Blue
Springs Bank acquisition and investments made with deposits
acquired from Mercantile Bank of West Central Missouri in 1993 (the
"Butler Acquisition"). Central Mortgage continued the strategy of
investing in non-taxable bonds, short term U.S. Governments and
agencies, while maintaining a short average maturity.
Total investment securities increased by $74.1 million at
December 31, 1992 as compared to December 31, 1991. This increase
was primarily due to the purchase of approximately $66.1 million of
securities as the result of the acquisition of the Home Federal
deposits from the Resolution Trust Corporation (the "RTC"). With
the large increase in deposits, management chose to invest the
majority of the proceeds in the investment portfolio. The
investments were selected based on the liquidity needs of
Citizens-Jackson Bank, the maturity of the deposits acquired and
the income the investments would provide. Of the $66.1 million
invested, approximately $35 million was deployed in U.S. Treasury
obligations, approximately $15 million in mortgage-backed
securities, approximately $13 million in U.S. government agency
securities and approximately $3.1 million in tax-exempt securities.
At December 31, 1993, 12.3% of Central Mortgage's
investments were mortgage-backed securities. These securities have
yields which are somewhat higher than U.S. Treasury or other U.S.
Government agency securities, and provide liquidity through their
monthly payments. Characteristically, mortgage-backed securities
involve a risk of accelerated prepayment. Central Mortgage monitors
its exposure to prepayment risk through the selection of the
securities when they are purchased, and by periodically "stress
testing" securities using hypothetical changes in prepayment rates.
DEPOSITS. Central Mortgage has a relatively stable core
deposit base from within its market area. Central Mortgage has no
brokered deposits and it is Central Mortgage's policy not to
solicit any such deposits.
Total deposits increased by $185 million at December 31,
1993 as compared to December 31, 1992. The increase was due to
$164 million of deposits transferred in the Blue Springs
- 67 -
<PAGE> 73
Bank acquisition and $14.1 million in the Butler Acquisition with the
remaining increase at Citizens-Jackson Bank due to normal growth.
During the year ended December 31, 1992 total deposits
increased by $90.7 million as compared to December 31, 1991. The
majority of the growth in deposits resulted from the Home Federal
acquisition.
<TABLE>
The following table sets forth the distribution of
Central Mortgage's deposit accounts at the dates indicated and the
weighted average nominal interest rates on each category of
deposit:
DEPOSITS
<CAPTION>
December 31,
--------------------------------------------------------------------------
1993 1992 1991
---------------------- ---------------------- ----------------------
Percent Percent Percent
of of of
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- ---- ------ -------- ---- ------ -------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits. . . . . . . . . . . $86,769 16.1% -- $ 49,119 13.9% -- $ 36,868 14.1% --
Savings accounts . . . . . . . . . . 41,486 7.7 2.26% 19,967 5.7 3.24% 13,356 5.1 4.55%
NOW and MMDA accounts. . . . . . . . 144,653 26.9 2.56 100,370 28.5 3.34 80,806 30.9 4.37
Time deposits less than $100,000 . . 224,708 41.8 4.48 158,936 45.1 5.29 95,713 36.6 6.82
Time deposits of $100,000 or more. . 40,135 7.5 3.77 23,911 6.8 4.50 34,844 13.3 6.59
-------- ----- -------- ----- -------- -----
Total deposits . . . . . . . . . . $537,751 100.0% $352,303 100.0% $261,587 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
<TABLE>
The following table sets forth the amount and maturities
of time deposits of $100,000 or more at December 31, 1993 and
December 31, 1992:
AMOUNT AND MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
<CAPTION>
Amount at December 31,
--------------------------
1993 1992
-------- --------
(dollars in thousands)
<S> <C> <C>
Three months or less . . . . . . . . . . . . . . . . $18,230 $10,309
Over three months through six months . . . . . . . . 6,398 4,440
Over six months through twelve months. . . . . . . . 10,748 7,763
Over twelve months . . . . . . . . . . . . . . . . . 4,759 1,399
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . $40,135 $23,911
======= =======
</TABLE>
CAPITAL RESOURCES. Financial institutions are required
to maintain capital ratios in accordance with guidelines adopted in
1989 by the Federal Reserve Board. The guidelines are commonly
known as "Risk-Based Guidelines" as they define the capital level
requirements of a financial institution based upon the level of
risk associated with holding various categories of assets. The
Risk-Based Guidelines currently require minimum Tier I and Total
Capital ratios of 4% and 8%, respectively. On December 31, 1993
Central Mortgage exceeded all capital requirements.
The Federal Reserve Board also has implemented a leverage
ratio, which is Tier 1 capital less purchased mortgage servicing
rights to total assets, to be used as a supplement to the
risk-based guidelines. The principal objective of the leverage
ratio is to place a constraint on the maximum degree to which a
bank holding company may leverage its equity capital base. The
Federal Reserve Board
- 68 -
<PAGE> 74
requires a minimum leverage ratio of 3%. However, for all but the most
highly rated bank holding companies, and for bank holding companies
seeking to expand, the Federal Reserve Board expects a leverage ratio
of 3% plus an additional cushion of at least 100 to 200 basis points.
As of December 31, 1993, Central Mortgage and each of the Banks
exceeded the guidelines as established by the regulatory authorities.
<TABLE>
At December 31, 1993 and 1992, Central Mortgage's and the
Banks' capital ratios were as follows:
CAPITAL RATIOS
<CAPTION>
Risk-Based
-------------------------------------------
Total Capital Tier 1 Leverage
------------------- ------------------- -------------------
December December December December December December
31, 1993 31, 1992 31, 1993 31, 1992 31, 1993 31, 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Central Mortgage . . . . . . 13.08% 17.83% 11.83% 16.58% 6.42% 8.23%
Citizens-Jackson Bank. . . . 13.98 15.10 12.73 13.79 6.93 6.61
Barton Bank. . . . . . . . . 14.43 14.96 13.18 13.70 7.93 7.52
Nevada Bank. . . . . . . . . 17.72 14.88 16.47 13.63 7.73 7.77
Stover Bank. . . . . . . . . 17.26 16.71 16.01 15.45 7.73 7.38
</TABLE>
In 1993, Central Mortgage made a $750,000 capital
contribution to Nevada Bank to support its acquisition of the
Butler Missouri Branch of Mercantile Bank of West Central Missouri
and the related $14.1 million of deposits. Central Mortgage funded
this capital contribution with available cash.
In May, 1993, Central Mortgage arranged for a term loan
from an unaffiliated lender in the amount of $10 million (the "Term Loan").
Central Mortgage has the option to fix the rate of interest on up to 60% of
the Term Loan, but not less than 40% of the loan amount at a rate
equal to 225 basis points over the yield of the three year Treasury
Bond, with the remaining portion to accrue interest at the lender's
fluctuating base rate less 1/4 of one percent with a minimum of 5%
and a maximum of 11%. Principal and interest will be payable
quarterly based on a ten year amortization schedule, with all
unpaid principal and interest due and payable at the end of three
years. Notes issued under the Term Loan will be secured by a pledge
of all of the stock of Citizens-Jackson Bank. Covenants in the Term
Loan require Central Mortgage and each of the Banks to maintain
certain capital ratios, including a Tier 1 tangible capital ratio
of 5.5% or more, and prohibit the payment of dividends by the Banks
upon the occurrence of an event of default.
The capital structure of Central Mortgage was expanded
and strengthened in the third quarter of 1993 with the successful
public offering and sale of 920,000 shares of Central Mortgage
Common Stock. The net proceeds of $9.9 million were used to
partially fund the acquisition of the Blue Springs Bank.
LIQUIDITY. Liquidity is measured by a financial
institution's ability to raise funds through deposits, borrowed
funds, capital, or the sale of highly marketable assets such as
residential mortgage loans. Additional sources of liquidity,
including cash flow from both the repayment of loans and the
securitization of assets, are also considered in determining
whether liquidity is satisfactory. Liquidity is also achieved
through growth of core deposits and liquid assets, and access to
the money and capital markets. The funds are used to meet deposit
withdrawals, maintain reserve requirements, fund loans and operate
the organization. The ratio of temporary investments (those
maturing within one year) to volatile liabilities (time deposits
over $100,000) was 160.2% at December 31, 1993, compared to 190.3% at
- 69 -
<PAGE> 75
December 31, 1992. Core deposits, defined as demand deposits,
NOW accounts, and total savings and certificates of deposit less
than $100,000, were 92.5% and 93.2% of total deposits at December
31, 1993 and 1992, respectively.
<TABLE>
The following table summarizes short-term borrowings for
the periods indicated:
SHORT-TERM BORROWINGS
<CAPTION>
December 31,
-------------------------------------
1993 1992 1991
---------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Treasury tax and loan note options:
End of period balance . . . . . . . . . . . . . $ 1,100 $ 1,100 $ 1,100
Average rate. . . . . . . . . . . . . . . . . . 3.02% 3.23% 5.76%
Average balance . . . . . . . . . . . . . . . . $ 861 $ 1,010 $ 832
Maximum amount outstanding at any month-end . . 1,100 1,100 1,100
Securities sold under agreement to repurchase:
End of period balance . . . . . . . . . . . . . $ 22,300 $ 20,850 $ 4,100
Average rate. . . . . . . . . . . . . . . . . . 3.76% 4.35% 5.05%
Average balance . . . . . . . . . . . . . . . . $ 22,527 $ 8,978 $ 3,084
Maximum amount outstanding at any month-end . . 23,675 20,850 5,100
Federal funds purchased:
End of period balance . . . . . . . . . . . . . -- -- --
Average rate. . . . . . . . . . . . . . . . . . 3.16% 4.83% 5.50%
Average balance . . . . . . . . . . . . . . . . $ 484 $ 883 $ 302
Maximum amount outstanding at any month-end . . 3,000 7,000 700
All short-term borrowings:
End of period balance . . . . . . . . . . . . . $ 23,400 $ 21,950 $ 5,200
Average rate. . . . . . . . . . . . . . . . . . 3.72% 4.29% 5.43%
Maximum amount outstanding at any month-end . . $ 24,775 $ 21,950 $ 6,900
</TABLE>
ASSET-LIABILITY MANAGEMENT. Central Mortgage actively
manages its assets and liabilities through coordinating the levels
of interest rate sensitive assets and liabilities to minimize
changes in net interest income despite changes in market interest
rates. Central Mortgage defines interest rate sensitive assets and
liabilities as any instrument that can be repriced within 180 days,
either because the instrument will mature during the period or
because it carries a variable interest rate. Changes in net
interest income occur when interest rates on loans and investments
change in a different time period from that of changes in interest
rates on liabilities, or when the mix and volume of
interest-earning assets and interest-bearing liabilities change.
The interest rate sensitivity gap represents the dollar amount of
difference between rate sensitive assets and rate sensitive
liabilities within a given time period ("GAP"). A GAP ratio is
determined by dividing rate sensitive assets by rate sensitive
liabilities. A ratio of 1.0 indicates a matched position, in which
case the effect on net interest income due to interest rate
movements would be minimized.
Central Mortgage's strategy with respect to
asset-liability management is to maximize net interest income while
limiting Central Mortgage's exposure to risks associated with
volatile interest rates. The Banks' Funds Management Committees are
responsible for monitoring their respective Banks' GAP positions.
As a general rule, Central Mortgage's policy is to maintain a GAP
position as a percent of total assets within a range from + 20% to
- - 20% in a 12 month time period.
- 70 -
<PAGE> 76
At December 31, 1993, Central Mortgage was liability
sensitive (rate sensitive liabilities in excess of rate sensitive
assets) for the next 12 months, based on contractual maturities and
asset payment assumptions. This means that Central Mortgage's
assets as of December 31, 1993 would reprice more slowly than its
deposits as of such date. In a declining interest rate
environment, the interest cost of Central Mortgage's deposits and
other liabilities may be expected to fall faster than the interest
received on its earning assets, thus increasing the net interest
spread. In an increasing interest rate environment just the
opposite may be expected to occur, in which the interest cost for
deposits and other liabilities would increase faster than interest
received on earning assets, therefore decreasing the net interest
spread.
The most significant change in Central Mortgage's
interest rate sensitivity for 1993 in comparison to 1992 occurred
in loans. Fixed rate loans with maturities over five years
increased by $41 million compared to December 31, 1992, mainly due
to fixed rate real estate loans acquired in the Blue Springs Bank
acquisition.
<TABLE>
The following table sets forth Central Mortgage's
interest rate sensitivity at December 31, 1993:
INTEREST SENSITIVITY ANALYSIS
<CAPTION>
Over Three
Three Through Over One Over
Months Twelve Through Five
or Less Months Five Years Years Total
--------- ---------- ----------- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing time deposits. . . . . . $ 100 $ 100 $ -- $ -- $ 200
Taxable investment securities . . . . . . 12,012 46,697 72,675 8,962 140,346
Tax-exempt investment securities. . . . . 1,716 3,889 22,131 16,144 43,880
Federal funds sold. . . . . . . . . . . . 15,575 -- -- -- 15,575
Loans . . . . . . . . . . . . . . . . . . 83,910 78,757 125,664 68,776 357,107
Mortgage. . . . . . . . . . . . . . . . . 11,379 -- -- -- 11,379
---------- ---------- ---------- --------- -----------
Total interest rate sensitive assets. . $ 124,692 $ 129,443 $ 220,470 $ 93,882 $ 568,487
========== ========== ========== ========= ===========
Interest-bearing liabilities:
Interest-bearing demand deposits. . . . . $ 144,653 $ -- $ -- $ -- $ 144,653
Savings deposits. . . . . . . . . . . . . 41,486 -- -- -- 41,486
Time deposits . . . . . . . . . . . . . . 62,769 117,617 84,066 391 264,843
Short-term debt . . . . . . . . . . . . . 23,400 -- -- -- 23,400
Long-term debt. . . . . . . . . . . . . . 2,769 375 4,375 -- 7,519
---------- -------- ---------- --------- ----------
Total rate sensitive liabilities. . . . $ 275,077 $ 117,992 $ 88,441 $ 391 $ 481,901
========== ========== ========== ========= ==========
Interest Sensitivity GAP:
Periodic. . . . . . . . . . . . . . . . . $ (150,385) $ 11,451 $ 132,029 $ 93,491 $ 86,586
Cumulative. . . . . . . . . . . . . . . . (150,385) (138,934) (6,905) 86,586
========== ========== ========== =========
Cumulative GAP to total assets. . . . . . (24.15)% (22.31)% (1.11)% 13.91%
Ratio of Interest-Sensitive Assets to
Interest Sensitive Liabilities
Periodic. . . . . . . . . . . . . . . . 45.33% 109.70% 249.28% n/a
Cumulative. . . . . . . . . . . . . . . 45.33% 64.65% 98.57% 117.97%
</TABLE>
EFFECTS OF INFLATION. The consolidated financial
statements and related consolidated financial data presented herein
have been prepared in accordance with generally accepted accounting
principles and practices within the banking industry which require
the measurement of financial position and operating results in terms
of historical dollars without considering the changes in the relative
- 71 -
<PAGE> 77
purchasing power of money over time due to inflation. Unlike most
industrial companies, virtually all the assets and liabilities of a
financial institution are monetary in nature. As a result, interest
rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation.
IMPACT OF FUTURE ACCOUNTING PRONOUNCEMENTS.
The Financial Accounting Standards Board has issued
Statement No. 114 regarding accounting by creditors for impairment
of a loan. This statement requires a discounting of expected future
cash flows to measure impairment of certain loans or, as a
practical expedient, measurements based on the loan's observable
market price or the fair value of the collateral if the loan is
collateral dependent. Prior to execution of the Merger Agreement,
Central Mortgage expected to first apply this statement during the
fiscal year ending December 31, 1995. Management has not estimated
the impact, if any, the adoption of FASB 114 would have on Central
Mortgage's financial statements.
The Financial Accounting Standards Board has issued
Statement No. 115 regarding investments in debt and equity
securities. This statement creates three categories of securities
based upon management's intent at the time of purchase. Securities
meeting the criteria for the "held to maturity" category will be
reported at amortized cost. All other securities, excluding those
held in trading accounts, will be reported at fair value with
unrealized gains and losses credited or charged to shareholders'
equity. Unrealized gains and losses for securities held in trading
accounts are reflected in the statement of income. Central Mortgage
adopted this statement as of January 1, 1994. Management has
estimated the adoption of FASB 115 will have an immaterial impact
on Central Mortgage's 1994 financial statements.
September 30, 1994 and 1993
RESULTS OF OPERATION (THIRD QUARTER COMPARISON)
NET INCOME. Net income for the third quarter ended
September 30, 1994 was $2.0 million or $.45 per share compared to
$1.3 million or $.33 per share for the third quarter in 1993. For
the nine months ended September 30, 1994, net income was $5.4
million or $1.24 per share compared to $3.6 million or $1.01 per
common share for the nine months ended September 30, 1993. The
improvements in net income for the quarter and nine months ended
September 30, 1994 were primarily the result of increased net
interest income and noninterest income generated by the greater
volume of earning assets and deposit accounts acquired in the Blue
Springs Bank acquisition in August, 1993 and from the FDIC as
receiver of the former Superior National Bank ("Superior") in
April, 1994.
NET INTEREST INCOME. Net interest income increased by
$1.3 million, or 25% for the third quarter of 1994 as compared to
the third quarter of 1993. In addition, net interest income for
the first nine months of 1994 increased by $5.1 million, or 37%
compared to the first nine months of 1993. The improvement in net
interest income was the result of an increased volume of average
earning assets due primarily to the acquisition of the Blue Springs
Bank and the assets of Superior by Citizens-Jackson Bank. Average
earning assets were $581 million for the nine months ended
September 30, 1994 compared to $417 million for the nine months
ended September 30, 1993. Central Mortgage's net interest rate
spread on a tax equivalent basis was 3.97% during the third quarter
of 1994 compared to 3.93% for the second quarter of 1994, 4.07% for
the year ended December 31, 1993 and 4.03% for the third quarter of
1993. Small quarterly fluctuations in the net interest rate spread
have occurred over the past four quarters, and the most recent
three month trend is towards a very slight improvement.
NONINTEREST INCOME. Noninterest income increased by 34%
to $2.0 million for the third quarter of 1994 as compared to $1.5
million for the third quarter of 1993. This increase was due
partially
- 72 -
<PAGE> 78
to increased service charge revenues on deposit accounts
due to the greater volume of accounts resulting from the Blue
Springs Bank acquisition. In addition, there was a gain during the
third quarter of 1994 of $268,000 on sales of investment securities
available for sale compared to no gain one year earlier.
Offsetting these increases was a loss on the sale of mortgage loans
of $5,000 in the third quarter of 1994 compared to a gain of
$85,000 in the third quarter of 1993. The loss was the result of
increased volatility in interest rates.
For the nine months ended September 30, 1994, noninterest
income increased by 45% to $5.8 million as compared to $4.0 million
for the nine months ended September 30, 1993. This increase was
primarily due to increased service charge revenues on deposit
accounts resulting from the Blue Springs Bank acquisition and gain
on sales of investment securities available for sale.
Future income from the sale of mortgage loans may be
negatively impacted if, among other things, there is a continuation
of volatility in long term interest rates. In addition, future
gains on the sale of investment securities are dependent on the
amount and type of securities available for sale, and whether or
not future market conditions are favorable.
NONINTEREST EXPENSE. Noninterest expense increased by
$626,000 or 13% for the third quarter of 1994 as compared to the
third quarter of 1993. For the nine months ended September 30,
1994, noninterest expense increased by $4.0 million or 33% as
compared to the nine months ended September 30, 1993. The primary
factor contributing to the quarterly and nine month increases was
the increased ongoing operating expenses resulting from the
acquisition of the Blue Springs Bank. Salaries and employee
benefits increased by $272,000 during the third quarter of 1994
compared to the third quarter of 1993, and increased by $1.7
million for the nine months ended September 30, 1994 compared to
the nine months ended September 30, 1993. These increases were due
primarily to the addition of Blue Springs Bank employees and annual
salary adjustments for officers and employees. Net occupancy
expense increased by $144,000 during the third quarter of 1994
compared to the third quarter of 1993, and increased by $675,000
during the nine months ended September 30, 1994 compared to the
nine months ended September 30, 1993, primarily due to costs
associated with Citizens-Jackson Bank's continued integration and
modernization of the former Blue Springs Bank locations and
equipment. Other noninterest expense increased by $210,000 for the
third quarter of 1994 compared to the third quarter of 1993, and
increased by $1.6 million for the nine months ended September 30,
1994 compared to the nine months ended September 30, 1993.
Included in this increase were higher advertising costs, FDIC
insurance premiums, amortization of intangibles, cost of
repossessed property, and communications and postage.
MORTGAGE DIVISION. The Mortgage Division originated or
purchased 235 loans during the third quarter of 1994 with principal balances
of $12.7 million compared to 638 loans with principal balances of $38.7
million originated or purchased during the same quarter during 1993. The
decrease in loan originations was primarily the result of a reduction in the
number of loans refinanced caused by increasing long term interest rates in
the market. The mortgage loan servicing balance as of September 30,
1994 was approximately $579 million, compared to $562 million
serviced as of December 31, 1993. The increase was due in part to
the Mortgage Division's purchase of a $45.4 million block
of conventional loan servicing from an unaffiliated lender and
partially offset by the normal amortization of loans.
- 73 -
<PAGE> 79
FINANCIAL CONDITION (THIRD QUARTER COMPARISON)
TOTAL ASSETS. Total assets of Central Mortgage were $626
million at September 30, 1994 as compared to $623 million at
December 31, 1993. The increase in total assets was due to the
second quarter acquisition of certain deposits and assets of the
Superior National Bank of Kansas City from the FDIC by Citizens-
Jackson Bank. The net deposits acquired "after run off" were $8.5
million. In addition, net loans with a principal balance of $4.2
million were acquired. Partially offsetting these increases from
the acquisition was a slight decline in deposits and total assets
at other Banks.
LOANS. Loans, net of unearned interest, were $381
million at September 30, 1994, a 7% increase as compared to $357
million at December 31, 1993. The increase in loans was due to
internal loan growth and the purchase of $4.2 million of loans in
the Superior transaction. Central Mortgage maintains a diversified
loan portfolio with no international loans or loans classified as
highly leveraged transactions.
NONPERFORMING ASSETS. Nonperforming assets totaled $2.2
million at September 30, 1994, consisting of $348,000 of foreclosed
assets held for sale and nonperforming loans of $1.9 million,
compared to $3.1 million of nonperforming assets consisting of $2.2
million of foreclosed assets held for sale and $888,000 of
nonperforming loans at December 31, 1993. The reduction in
nonperforming assets was due to the disposition of other real
estate owned and in substance foreclosures acquired in the Blue
Springs Bank acquisition. Nonperforming assets to total assets
declined to 0.35% at September 30, 1994, compared to 0.50% at
December 31, 1993.
The provision for loan losses of $919,000 and $374,000
for the nine months and quarter ended September 30, 1994,
respectively, increased from $668,000 and $202,000 for the nine
months and quarter ended September 30, 1993, respectively. The
increase in the provision was due to additional reserves set aside
for growth in the loan portfolio and loans charged off during the
first nine months of 1994.
Central Mortgage's allowance for loan losses increased by
$1.7 million since December 31, 1993, for a total allowance of $6.4
million. The increase in the allowance was due primarily to
recoveries from previously charged off loans and reserves acquired
with the loans purchased from Superior. The allowance for loan
losses was 1.68% of total loans at September 30, 1994, compared to
1.31% at December 31, 1993.
INVESTMENT SECURITIES. Investment securities were $187
million at September 30, 1994 compared to $185 million at
December 31, 1993. During the first quarter of 1994, Central
Mortgage adopted SFAS 115, "Accounting for Certain Investments in
Debt and Equity Securities." As of September 30, 1994, Central
Mortgage has elected to allocate approximately $38 million of its
investment securities as "securities available for sale" and
approximately $149 million of investment securities as "securities
held to maturity." The net unrealized loss (net of tax) on the
market value of the "available for sale securities" was $78,000 on
September 30, 1994.
DEPOSITS. Total deposits were unchanged at $538 million
as of September 30, 1994, as compared to December 31, 1993. The
decline of $25.2 million in noninterest bearing Demand Deposits and
saving, NOW and Money Market deposits was offset by an increase of
$25.1 million in Time Deposits.
- 74 -
<PAGE> 80
LIQUIDITY AND CAPITAL RESOURCES (THIRD QUARTER COMPARISON)
Liquid assets of Central Mortgage at September 30, 1994
consisted of total cash and cash equivalents, investment securities
maturing in one year or less and mortgages held for sale. These
liquid assets totaled $100 million at September 30, 1994, or 19% of
total deposits compared to $117 million at December 31, 1993, or
22% of total deposits.
<TABLE>
Shareholders' equity at September 30, 1994 was $52.5
million, which is an increase of $4.0 million compared to
December 31, 1993. Central Mortgage currently exceeds all
regulatory capital requirements as shown in the following table:
CAPITAL RATIOS
<CAPTION>
Risk-Based
-------------------------------------------------------------------------------
Total Capital Tier I
------------- ------
Regulatory September 30 Regulatory September 30
Minimum 1994 1993 Minimum 1994 1993
------- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
8.00% 13.51% 12.37% 4.00% 12.25% 10.68%
<CAPTION>
Leverage
--------
Regulatory September 30
Minimum 1994 1993
------- ---- ----
<S> <C> <C>
3.00% 7.11% 6.35%
</TABLE>
PROPERTIES
All of the properties of the Banks and the Mortgage
Division referred to in the descriptions under " - Business" are
owned by the respective Banks or by Central Mortgage and are not
subject to any mortgage or material encumbrance, except for the
Mortgage Division's leased office at Joplin, Citizens-Jackson
Bank's Blue Springs Main facility, Citizens-Jackson Bank's Lee's
Summit facility and Central Mortgage's principal executive offices
which, together with Citizens-Jackson Bank's downtown Kansas City
office, occupy 11,435 square feet of leased space. Central
Mortgage believes that its facilities are adequate for its
operations.
LEGAL PROCEEDINGS
There were no material legal proceedings pending as of
September 30, 1994. Legal proceedings which were pending consisted
of matters normally incident to the business conducted by Central
Mortgage and taken together do not appear material.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of ------------------
the number of shares beneficially owned and the percentage of
ownership of Central Mortgage's outstanding Common Stock by (a)
each director of Central Mortgage, (b) each person who is known by
Central Mortgage to own beneficially more than 5% of such stock and
(c) all directors and officers of Central Mortgage as a group:
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<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------
Number Percentage<F1>
------ --------------
<S> <C> <C>
Adrian Harmon <F2> . . . . . . . . . . . . . . . . . . . . . 628,251 14.78%
Lynn A. Harmon <F3>. . . . . . . . . . . . . . . . . . . . . 191,777 4.48
Tom D. Harmon <F4> . . . . . . . . . . . . . . . . . . . . . 177,042 4.14
Margaret K. Harmon <F2>. . . . . . . . . . . . . . . . . . . 300,400 7.07
Edward A. Mangone <F5> . . . . . . . . . . . . . . . . . . . 47,047 1.10
Michael R. Rankin <F6> . . . . . . . . . . . . . . . . . . . 176,992 4.13
Randolph K. Rolf . . . . . . . . . . . . . . . . . . . . . . 2,000 .05
Roger Novak <F7><F8> . . . . . . . . . . . . . . . . . . . . 202,965 4.77
Richard O. Ballentine <F8> . . . . . . . . . . . . . . . . . . 187,674 4.41
Officers and Directors as a group (nine persons) <F2><F8><F9>. 1,426,574 32.62
<FN>
- --------------------------
<F1> The percentage of ownership is calculated by dividing the
number of shares of Central Mortgage Common Stock owned by the
named shareholder, including the number of shares of Central
Mortgage Common Stock issuable upon the exercise of stock
options held by such person, as indicated in the footnotes
below (the "Issuable Shares"), by the number of shares of
Central Mortgage Common Stock outstanding at --------------
(4,251,177) plus the number of Issuable Shares attributed to
such shareholder.
<F2> Includes 300,400 shares held by Margaret Harmon, the wife of
Adrian Harmon, for which Adrian Harmon holds a proxy to vote
the shares.
<F3> Includes 27,900 shares of Central Mortgage Common Stock subject
to exercisable stock options and 57,112 shares of Central
Mortgage Common Stock held by members of Lynn Harmon's
immediate family.
<F4> Includes 29,400 shares of Central Mortgage Common Stock subject
to exercisable stock options and 29,130 shares of Central
Mortgage Common Stock held by members of Tom Harmon's immediate
family.
<F5> Includes 36,000 shares of Central Mortgage Common Stock subject
to stock options that either are currently exercisable or will
be exercisable upon approval of the Merger Agreement by the
stockholders of Central Mortgage and 2,000 shares of Central
Mortgage Common Stock owned by Mr. Mangone and his wife in
joint tenancy.
<F6> Includes 29,400 shares of Central Mortgage Common Stock subject
to exercisable stock options, 57,886 shares of Central Mortgage
Common Stock held by members of Mr. Rankin's immediate family
and 58,023 shares of Central Mortgage Common Stock owned by
Mr. Rankin and his wife in joint tenancy.
<F7> Includes 919 shares held by Mr. Novak's wife.
<F8> Includes 187,174 shares of unallocated Central Mortgage Common
Stock held by Mercantile Bank of Kansas, as Trustee of Central
Mortgage's Employee Stock Ownership Plan (the "ESOP"), which
shares were issued on ____________, 1994 upon the conversion
of 14,506 shares (not taking into consideration any fractional
share) of Central Mortgage Preferred Stock held by the Trustee
into shares of Central Mortgage Common Stock. Roger A. Novak and
Richard O. Ballentine are members of the Administrative Committee of
the ESOP and in such capacity have the authority to direct the voting
of unallocated shares on all issues. Participants have the right to
instruct the Trustee as to the voting of all shares of Central Mortgage
Common Stock held by the ESOP that are allocated to the participants'
respective accounts.
<F9> Includes 122,700 shares of Central Mortgage Common Stock
subject to stock options held by officers and directors as a
group that either are currently exercisable or will be
exercisable upon approval of the Merger Agreement by the
shareholders of Central Mortgage.
</TABLE>
For purposes of the above table, a person is deemed to be
a beneficial owner of shares of Central Mortgage Common Stock if
the person has or shares the power to vote or to dispose of such
shares. Unless otherwise indicated in the footnotes, each person
has sole voting and investment power with respect to shares shown
in the table as beneficially owned by such person and disclaims
beneficial ownership in shares described in the footnotes as being
"held by" other persons. All persons shown in the table have
business addresses at Central Mortgage's principal executive
offices.
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<PAGE> 82
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, 1994, MBI had no issued and outstanding shares of
MBI Preferred Stock and 43,234,757 shares of MBI Common Stock issued and
outstanding. Under Missouri law, MBI's Board of Directors may generally
approve the issuance of authorized shares of Preferred Stock and Common Stock
without shareholder approval.
MBI's Board of Directors is also authorized to fix the number of
shares and determine the designation of any series of Preferred Stock and to
determine or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any series of MBI Preferred Stock. Except for the
designation and reservation of Series A Junior Participating Preferred Stock
pursuant to MBI's Preferred Share Purchase Rights Plan described below, MBI's
Board of Directors has not acted to designate or issue any shares of MBI
Preferred Stock.
The existence of a substantial number of unissued and unreserved
shares of MBI Common Stock and undesignated shares of MBI Preferred Stock may
enable the Board of Directors to issue shares to such persons and in such
manner as may be deemed to have an anti-takeover effect.
DIVIDENDS. The holders of MBI Common Stock are entitled to share
ratably in dividends when, as and if declared by the Board of Directors from
funds legally available therefor, after full cumulative dividends have been
paid or declared, and funds sufficient for the payment thereof set apart, on
all series of MBI Preferred Stock ranking superior as to dividends to MBI
Common Stock.
The Board of Directors of MBI intends to maintain its present
policy of paying quarterly cash dividends on MBI Common Stock, when justified
by the financial condition of MBI and its subsidiaries. The declaration and
amount of future dividends will depend on circumstances existing at the time,
including MBI's earnings, financial condition and capital requirements as
well as regulatory limitations, note and indenture provisions and such other
factors as the Board of Directors may deem relevant. The payment of
dividends to MBI by subsidiary banks is subject to extensive regulation by
various state and federal regulatory agencies. See "SUPERVISION AND
REGULATION."
VOTING RIGHTS. Each holder of MBI Common Stock has one vote for
each share held on matters presented for consideration by the shareholders,
except that, in the election of directors, such shareholders have cumulative
voting rights which entitle each such shareholder to the number of votes
which equals the number of shares held by the shareholder multiplied by the
number of directors to be elected. All such cumulative votes may be cast for
one candidate for election as a director or may be distributed among two or
more candidates.
PREEMPTIVE RIGHTS. The holders of MBI Common Stock have no
preemptive right to acquire any additional unissued shares or treasury shares
of MBI.
LIQUIDATION RIGHTS. In the event of liquidation, dissolution or
winding up of MBI, whether voluntary or involuntary, the holders of MBI
Common Stock will be entitled to share ratably in any of its assets or funds
that are available for distribution to its shareholders after the
satisfaction of its liabilities (or after adequate provision is made
therefor) and after preferences on any outstanding MBI Preferred Stock.
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<PAGE> 83
ASSESSMENT AND REDEMPTION. Shares of MBI Common Stock are and will
be, when issued, fully paid and nonassessable. Such shares do not have any
redemption provisions.
PREFERRED SHARE PURCHASE RIGHTS PLAN. One preferred share purchase
right (a "Right") is attached to each share of MBI Common Stock. The Rights
trade automatically with shares of MBI Common Stock, and become exercisable
and will trade separately from the MBI Common Stock on the tenth day after
public announcement that a person or group has acquired, or has the right to
acquire, beneficial ownership of 20% or more of the outstanding shares of MBI
Common Stock, or upon commencement or announcement of intent to make a tender
offer for 20% or more of the outstanding shares of MBI Common Stock, in
either case without prior written consent of the Board. When exercisable,
each Right will entitle the holder to buy 1/100 of a share of MBI Series A
Junior Participating Preferred Stock at an exercise price of $100 per Right.
In the event a person or group acquires beneficial ownership of 20% or more
of MBI Common Stock, holders of Rights (other than the acquiring person or
group) may purchase MBI Common Stock having a market value of twice the then
current exercise price of each Right. If MBI is acquired by any person or
group after the Rights become exercisable, each Right will entitle its holder
to purchase stock of the acquiring company having a market value of twice the
current exercise price of each Right. The Rights are designed to protect the
interests of MBI and its shareholders against coercive takeover tactics. The
purpose of the Rights is to encourage potential acquirors to negotiate with
MBI's Board of Directors prior to attempting a takeover and to give the Board
leverage in negotiating on behalf of all shareholders the terms of any
proposed takeover. The Rights may deter certain takeover proposals. The
Rights, which can be redeemed by MBI's Board of Directors in certain
circumstances, expire by their terms on June 3, 1998.
CLASSIFICATION OF BOARD OF DIRECTORS. The Board of Directors of
MBI is divided into three classes, and the directors are elected by classes
to three-year terms, so that one of the three classes of the directors of MBI
will be elected at each annual meeting of the shareholders. While this
provision promotes stability and continuity of the Board of Directors,
classification of the Board of Directors may also have the effect of
decreasing the number of directors that could otherwise be elected at each
annual meeting of shareholders by a person who obtains a controlling interest
in the MBI Common Stock and thereby could impede a change in control of MBI.
Because fewer directors will be elected at each annual meeting, such
classification also will reduce the effectiveness of cumulative voting as a
means of establishing or increasing minority representation on the Board of
Directors.
OTHER MATTERS. MBI's Articles of Incorporation and By-Laws also
contain provisions which: (i) require the affirmative vote of holders of at
least 75% of the voting power of all of the outstanding shares of MBI
entitled to vote in the election of directors to remove a director or
directors without cause; (ii) require the affirmative vote of the holders of
at least 75% of the voting power of all shares of the outstanding capital
stock of MBI to approve certain "business combinations" with "interested
parties" unless at least two-thirds of the Board of Directors first approves
such business combinations; and (iii) require an affirmative vote of at least
75% of the voting power of all shares of the outstanding capital stock of MBI
for the amendment, alteration, change or repeal of any of the above
provisions unless at least two-thirds of the Board of Directors first
approves such an amendment, alteration, change or repeal. Such provisions
may be deemed to have an anti-takeover effect.
RESTRICTIONS ON RESALE OF MBI STOCK BY AFFILIATES
Under Rule 145 of the Securities Act of 1933 (the "Securities
Act"), certain persons who receive MBI Common Stock pursuant to the Merger
and who are deemed to be "affiliates" of Central Mortgage 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
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<PAGE> 84
with Central Mortgage at the time the Merger is submitted to a vote of the
shareholders of Central Mortgage. Each affiliate of Central Mortgage
(generally any director or executive officer or shareholder of Central
Mortgage who beneficially owns a substantial number of outstanding shares of
Central Mortgage 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 Central Mortgage 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
stock to be received by affiliates of Central Mortgage 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 CENTRAL MORTGAGE
Both MBI and Central Mortgage are incorporated under the laws of
the State of Missouri and the rights of the shareholders of each of MBI and
Central Mortgage are governed by their respective Articles of Incorporation
and By-Laws and the Missouri Act. The rights of Central Mortgage 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
Central Mortgage 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. Central Mortgage 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 capital stock entitled to vote,
voting together as a single class, unless such amendment has previously been
expressly approved by at least 66 2/3% of the Board of Directors. The
Restated Articles of MBI additionally provide that, in addition to any
shareholder vote required under the Missouri Act, the affirmative vote of the
holders of not less than 75% of the total votes to which all of the then
outstanding shares of capital stock of MBI are entitled, voting together as
a single class (the "Voting Stock"), shall be required for the approval of
any Business Combination. A "Business Combination" is defined generally to
include sales, exchanges, leases, transfers or other dispositions of assets,
mergers or consolidations, issuances of securities, liquidations or
dissolutions of MBI, reclassifications of securities or recapitalizations of
MBI, involving MBI on the one hand, and an Interested Shareholder or an
affiliate of an Interested Shareholder on the other hand. An "Interested
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<PAGE> 85
Shareholder" is defined generally to include any person, firm, corporation or
other entity which is the beneficial owner of 5% or more of the voting power
of the outstanding Voting Stock. If, however, at least 66 2/3% of the Board
of Directors of MBI approve the Business Combination, such Business
Combination shall require only the vote of shareholders as provided by
Missouri law or otherwise. The amendment of the provisions of MBI's Restated
Articles relating to the approval of Business Combinations requires the
affirmative vote of the holders of at least 75% of the Voting Stock unless
such amendment has previously been approved by at least 66 2/3% of the Board
of Directors.
To the extent that a potential acquiror's strategy depends on the
passage of proposals which require a supermajority vote of MBI's
shareholders, such provisions requiring a supermajority vote may have the
effect of discouraging takeover attempts that do not have Board approval by
making passage of such proposals more difficult. Neither Central Mortgage's
Articles of Incorporation nor Central Mortgage'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. Central Mortgage's
Articles of Incorporation and By-Laws do not 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. Central Mortgage also has a
classified Board of Directors with three classes of directors.
ANTI-TAKEOVER STATUTES. The Missouri Act contains certain
provisions applicable to Missouri corporations such as MBI and Central
Mortgage 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 from hostile takeovers by prohibiting certain transactions once
an acquiror has gained control. The statute restricts certain "Business
Combinations" between a corporation and an "Interested Shareholder" or
affiliates of the Interested Shareholder for a period of five years unless
certain conditions are met. A "Business Combination" includes a merger or
consolidation, certain sales, leases, exchanges, pledges and similar
dispositions of corporate assets or stock and certain reclassifications and
recapitalizations. An "Interested Shareholder" includes any person or entity
which beneficially owns or controls 20% or more of the outstanding voting
shares of the corporation.
During the initial five-year restricted period, no Business
Combination may occur unless such Business Combination or the transaction in
which an Interested Shareholder becomes "interested" is approved by the board
of directors of the corporation. Business Combinations may occur during such
five-year period if: (i) prior to the stock acquisition by the Interested
Shareholder, the board of directors approves the transaction in which the
Interested Shareholder became such or approves the Business Combination in
question; (ii) the holders of a majority of the outstanding voting stock,
other than stock owned by the Interested Shareholder, approve the Business
Combination; or (iii) the Business Combination satisfies certain detailed
fairness and procedural requirements.
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<PAGE> 86
The Missouri Act exempts from its provisions: (i) corporations not
having a class of voting stock registered under Section 12 of the Exchange
Act; (ii) corporations which adopt provisions in their articles of
incorporation or bylaws expressly electing not to be covered by the statute;
and (iii) certain circumstances in which a shareholder inadvertently becomes
an Interested Shareholder. Neither MBI's Restated Articles of Incorporation
and By-Laws nor Central Mortgage's Articles of Incorporation and By-Laws "opt
out" of the Missouri business combination statute.
The Missouri Act also contains a "Control Share Acquisition
Statute" which provides that an "Acquiring Person" who after any acquisition
of shares of a publicly traded corporation has the voting power, when added
to all shares of the same corporation previously owned or controlled by the
Acquiring Person, to exercise or direct the exercise of: (i) 20% but less
than 33-1/3%, (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 "opt out" of the Control Share Acquisition
Statute. Central Mortgage's Articles of Incorporation do "opt out" of the
Control Share Acquisition Statute.
DISSENTERS' RIGHTS. Under Section 351.455 of the Missouri Act, a
shareholder of any corporation which is a party to a merger or consolidation,
or which sells all or substantially all of its assets, has the right to
dissent from such corporate action and to demand payment of the value of such
shares. The dissenters' rights provisions of the Missouri Act are applicable
to the shareholders of both MBI and Central Mortgage.
SHAREHOLDERS' RIGHT TO INSPECT. Under Section 351.215 of the
Missouri Act, any shareholder may inspect the corporation's books and records
for any reasonable and proper purpose. Such inspection may be made at all
proper times, subject to regulations as may be prescribed by the By-Laws.
SIZE OF BOARD OF DIRECTORS. As permitted under the Missouri Act,
the number of directors on the Board of Directors of MBI is set forth in
MBI's By-Laws which provide that the number of directors may be fixed from
time to time at not less than 12 nor more than 24 by an amendment of the By-
Laws or by a resolution of the Board of Directors, in either case, adopted by
the vote or consent of at least 66 2/3% of the number of directors then
authorized under the By-Laws. Central Mortgage's By-Laws provide that the
number of directors of the Board of Directors shall be fixed from time to
time at
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<PAGE> 87
not less than 5 nor more than 25 by not less than a majority of the
then serving Board of Directors. The supermajority vote required for the
amendment of MBI's By-Laws regarding a change in the number of directors may
have the effect of making it more difficult to force an immediate change in
the composition of a majority of the Board of Directors and may be deemed to
have an anti-takeover effect.
SUPERVISION AND REGULATION
--------------------------
GENERAL
As a bank holding company, MBI is subject to regulation under the
BHCA and its examination and reporting requirements. Under the BHCA, a bank
holding company may not directly or indirectly acquire the ownership or
control of more than 5% of the voting shares or substantially all of the
assets of any company, including a bank or savings and loan association,
without the prior approval of the Federal Reserve Board. In addition, bank
holding companies are generally prohibited under the BHCA from engaging in
nonbanking activities, subject to certain exceptions.
MBI and its subsidiaries are subject to supervision and examination
by applicable federal and state banking agencies. The earnings of MBI's
subsidiaries, and therefore the earnings of MBI, are affected by general
economic conditions, management policies and the legislative and governmental
actions of various regulatory authorities, including the Federal Reserve
Board, the FDIC and the Comptroller of the Currency (the "Comptroller"). In
addition, there are numerous governmental requirements and regulations that
affect the activities of MBI and its subsidiaries.
CERTAIN TRANSACTIONS WITH AFFILIATES
There are various legal restrictions on the extent to which a bank
holding company and certain of its nonbank subsidiaries can borrow or
otherwise obtain credit from its bank subsidiaries. In general, these
restrictions require that any such extensions of credit must be on
non-preferential terms and secured by designated amounts of specified
collateral and be limited, as to any one of the holding company or such
nonbank subsidiaries, to 10% of the lending bank's capital stock and surplus,
and as to the holding company and all such nonbank subsidiaries in the
aggregate, to 20% of such capital stock and surplus.
PAYMENT OF DIVIDENDS
MBI is a legal entity separate and distinct from its banking and
other subsidiaries. The principal source of MBI's revenues is dividends from
its national and state banking subsidiaries. Various federal and state
statutory provisions limit the amount of dividends the affiliate banks can
pay to MBI without regulatory approval. The approval of the appropriate bank
regulator is required for any dividend by a national bank or state member
bank if the total of all dividends declared by the bank in any calendar year
would exceed the total of its net profits, as defined by regulatory agencies,
for such year combined with its retained net profits for the preceding two
years. In addition, a national bank or a state member bank may not pay a
dividend in an amount greater than its net profits then on hand. The payment
of dividends by any affiliate bank may also be affected by other factors,
such as the maintenance of adequate capital for such affiliate bank.
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<PAGE> 88
CAPITAL ADEQUACY
The Federal Reserve Board has issued standards for measuring
capital adequacy for bank holding companies. These standards are designed to
provide risk-responsive capital guidelines and to incorporate a consistent
framework for use by financial institutions operating in major international
financial markets. The banking regulators have issued standards for banks
that are similar to, but not identical with, the standards for bank holding
companies.
In general, the risk-related standards require banks and bank
holding companies to maintain capital based on "risk adjusted" assets so that
categories of assets with potentially higher credit risk will require more
capital backing than categories with lower credit risk. In addition, banks
and bank holding companies are required to maintain capital to support off-
balance sheet activities such as loan commitments.
The standards classify total capital for this risk-based measure
into two tiers referred to as Tier 1 and Tier 2. Tier 1 capital consists of
common shareholders' equity, certain non-cumulative and cumulative perpetual
preferred stock, and minority interests in equity accounts of consolidated
subsidiaries; Tier 2 capital consists of the allowance for loan and lease
losses (within certain limits), perpetual preferred stock not included in
Tier 1, hybrid capital instruments, term subordinated debt, and intermediate-
term preferred stock. By December 31, 1992, bank holding companies were
required to meet a minimum ratio of 8% of qualifying total capital to risk-
adjusted assets, and a minimum ratio of 4% of qualifying Tier 1 capital to
risk-adjusted assets. Capital that qualifies as Tier 2 capital is limited in
amount to 100% of Tier 1 capital in testing compliance with the total risk-
based capital minimum standards.
In addition, the Federal Reserve Board has established minimum
leverage ratio guidelines for bank holding companies. These guidelines
provide for a minimum ratio of Tier 1 capital to adjusted average total
assets (the "leverage ratio") of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating.
Other bank holding companies generally are required to maintain a leverage
ratio of at least 3% plus 100 to 200 basis points. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions
substantially above minimum supervisory levels, without significant reliance
on intangible assets. Furthermore, the Federal Reserve Board has indicated
that it may consider other indicia of capital strength in evaluating
proposals for expansion or new activities.
The federal bank regulatory agencies have issued various proposals
to amend the risk-based capital guidelines for banks and bank holding
companies. Under one proposal, banks would be required to give explicit
consideration to interest rate risk as an element of capital adequacy by
maintaining capital to compensate for such risk in an amount measured by the
bank's exposure to interest rate risk in excess of a regulatory threshold.
Another proposal would revise the treatment given to (i) low-level recourse
arrangements to reduce the amount of capital required and (ii) certain direct
credit substitutes provided by banking organizations to require that capital
be maintained against the value of the assets enhanced or the loans
protected. A proposal recently issued by the Federal Reserve Board and
expected to be joined in by the other bank regulatory agencies increases the
amount of capital required to be carried against certain long-term derivative
contracts; in addition, the proposal recognizes the effect of certain
bilateral netting arrangements in reducing potential future exposure under
these contracts. MBI believes that these changes will not, if adopted, have
a material effect on the company's compliance with capital adequacy
requirements.
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FDIC INSURANCE ASSESSMENTS
The subsidiary banks of MBI are subject to FDIC deposit insurance
assessments. The FDIC has adopted a risk-based premium schedule which has
increased the assessment rates for most FDIC insured depository institutions.
Under the new schedule, the annual premiums initially range from $.23 to $.31
for every $100 of deposits. Each financial institution is assigned to one of
three capital groups--well capitalized, adequately capitalized or
undercapitalized--and further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution's
primary federal and, if applicable, state supervisors and on the basis of
other information relevant to the institution's financial condition and the
risk posed to the applicable insurance fund. The actual assessment rate
applicable to a particular institution will, therefore, depend in part upon
the risk assessment classification so assigned to the institution by the
FDIC.
The legislation adopted in August, 1989 to provide for the
resolution of insolvent savings associations also required the FDIC to
establish separate deposit insurance funds -- the Bank Insurance Fund ("BIF")
for banks and the Savings Association Insurance Fund ("SAIF") for savings
associations. The law also requires the FDIC to set deposit insurance
assessments at such levels as will cause BIF and SAIF to reach their
"designated reserve ratios" of 1.25 percent of the deposits insured by them
within a reasonable period of time. Thanks to low costs of resolving bank
insolvencies in the last few years, BIF is expected to reach its designated
reserve ratio within one or two years, at which time the FDIC will be
required to lower deposit insurance assessment rates on banks to those
substantially lower levels that will maintain the balance in BIF in the
required relationship to insured bank deposits. However, the balance in SAIF
is not expected to reach the designated reserve ratio for far longer, as the
law provides that a significant portion of the costs of resolving past
insolvencies of savings associations must be paid from this source.
Accordingly, while the BIF and SAIF assessment rates are presently the same,
it is likely that SAIF rates will be significantly higher than BIF rates in
the future. Since MBI has acquired substantial amounts of SAIF-insured
deposits during the years from 1989 to the present which cannot be converted
from SAIF to BIF under present law, it may be required to pay insurance
assessments on these acquired deposits at rates significantly higher than the
rates charged by BIF. While the amount of additional deposit insurance
assessments to be incurred cannot be calculated at this time because the
differential likely to develop between SAIF and BIF is not known, MBI does
not expect that such additional deposit insurance costs will have a
significant, adverse effect on its earnings.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, MBI is expected to act as a
source of financial strength to each subsidiary bank and to commit resources
to support each of the subsidiaries in circumstances where it might not
choose to do so absent such a policy. In addition, any capital loans by MBI
to any of its subsidiaries would also be subordinate in right of payment to
deposits and certain other indebtedness of such subsidiary. This support may
be required at times when MBI may not find itself able to provide it.
Consistent with this policy regarding bank holding companies
serving as a source of financial strength for their subsidiary banks, the
Federal Reserve Board has stated that, as a matter of prudent banking, a bank
holding company generally should not maintain a rate of cash dividends unless
its net income available to common 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.
- 84 -
<PAGE> 90
FIRREA AND FDICIA
The Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA") contains a cross-guarantee provision which could result in
insured depository institutions owned by MBI being assessed for losses
incurred by the FDIC in connection with assistance provided to, or the
failure of, any other insured depository institution owned by MBI. Under
FIRREA, failure to meet the capital guidelines could subject a banking
institution to a variety of enforcement remedies available to federal
regulatory authorities, including the termination of deposit insurance by the
FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") made extensive changes to the federal banking laws. FDICIA
instituted certain changes to the supervisory process, including provisions
that mandate certain regulatory agency actions against undercapitalized
institutions within specified time limits. FDICIA contains various other
provisions that may affect the operations of banks and savings institutions.
The prompt corrective action provision of FDICIA requires the
federal banking regulators to assign each insured institution to one of five
capital categories ("well capitalized," "adequately capitalized" or one of
three "undercapitalized" categories) and to take progressively more
restrictive actions based on the capital categorization, as specified below.
Under FDICIA, capital requirements would include a leverage limit, a risk-
based capital requirement and any other measure of capital deemed appropriate
by the federal banking regulators for measuring the capital adequacy of an
insured depository institution. All institutions, regardless of their
capital levels, are restricted from taking any capital distribution or paying
any management fees that would cause the institution to fail to satisfy the
minimum levels for any relevant capital measure. An institution that fails
to meet the minimum level for any relevant capital measure (an
"undercapitalized institution") may be: (i) subject to increased monitoring
by the appropriate federal banking regulator; (ii) required to submit an
acceptable capital restoration plan within 45 days; (iii) subject to asset
growth limits; and (iv) required to obtain prior regulatory approval for
acquisitions, branching and new lines of businesses. The capital restoration
plan must include a guarantee by the institution's holding company (under
which the holding company would be liable up to the lesser of 5% of the
institution's total assets or the amount necessary to bring the institution
into capital compliance as of the date it failed to comply with its capital
restoration plan) that the institution will comply with the plan until it has
been adequately capitalized on average for four consecutive quarters.
The FDIC and the Federal Reserve Board adopted capital-related
regulations under FDICIA. Under those regulations, a bank will be well
capitalized if it: (i) had a risk-based capital ratio of 10% or greater;
(ii) had a ratio of Tier 1 capital to risk-adjusted assets of 6% or greater;
(iii) had a ratio of Tier 1 capital to adjusted total assets of 5% or
greater; and (iv) was not subject to an order, written agreement, capital
directive, or prompt corrective action directive to meet and maintain a
specific capital level for any capital measure. An association will be
adequately capitalized if it was not "well capitalized" and: (i) had a risk-
based capital ratio of 8% or greater; (ii) had a ratio of Tier 1 capital to
risk-adjusted assets of 4% or greater; and (iii) had a ratio of Tier 1
capital to adjusted total assets of 4% or greater (except that certain
associations rated "Composite 1" under the federal banking agencies' CAMEL
rating system may be adequately capitalized if their ratios of core capital
to adjusted total assets were 3% or greater).
Under FDICIA, a bank or savings institution that is
undercapitalized may not accept, renew or roll over deposits obtained through
a deposit broker, may not solicit deposits by offering interest rates that
are significantly higher than market rates and cannot provide pass-through
insurance on certain collective deposits. Banks that are "adequately
capitalized" but are not "well capitalized" will be required to obtain a
waiver from the FDIC in order to accept, renew, or roll over brokered
deposits, and may not
- 85 -
<PAGE> 91
pay interest on deposits that significantly exceeds market rates for deposits
of similar maturity or provide pass-through insurance.
FDICIA directs the FDIC to establish a risk-based assessment system
for deposit insurance by January 1, 1994. On September 15, 1992, the Board
of Directors of the FDIC approved a transitional system of risk-based deposit
insurance pursuant to which the insurance assessments would vary depending
upon the level of capital of the institution and the degree to which it is
the subject of supervisory concern to the FDIC. Under the risk-based
insurance premium schedule approved by the FDIC's Board of Directors,
effective January 1, 1993, the assessment rate varies from .23% of eligible
deposits for "healthy" well capitalized banks to .31% of eligible deposits
for less than adequately capitalized banks that pose substantial supervisory
concerns.
FDICIA also makes extensive changes in existing rules regarding
audits, examinations and accounting. It generally requires annual on-site,
full scope examinations by each bank's primary federal regulator. It also
imposes new responsibilities on management, the independent audit committee
and outside accountants to develop or approve reports regarding the
effectiveness of internal controls, legal compliance and off-balance sheet
liabilities and assets.
DEPOSITOR PREFERENCE STATUTE
Legislation enacted in August 1993 provides a preference for
deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution, such as Central
Mortgage's and MBI's insured bank subsidiaries, in the liquidation or other
resolution of such an institution by any receiver. Such obligations would be
afforded priority over other general unsecured claims against such an
institution, including federal funds and letters of credit, as well as any
obligation to shareholders of such an institution in their capacity as such.
THE INTERSTATE BANKING AND COMMUNITY DEVELOPMENT LEGISLATION
In September, 1994 legislation was enacted that is expected to have
a significant effect in restructuring the banking industry in the United
States. The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 facilitates the interstate expansion and consolidation of banking
organizations (i) by permitting 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) by permitting 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) by permitting banks to establish new
branches on an interstate basis provided that such action is specifically
authorized by the law of the host state, (iv) by permitting 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) by
permitting, beginning September 29, 1995, banks to receive deposits, renew
time deposits, close loans, service loans and receive payments on loans and
other obligations as agent for any bank or thrift affiliate, whether the
affiliate is located in the same state or a different state. One effect of
this legislation will be to permit MBI to acquire banks located in any state
and to permit bank holding companies located in any state to acquire banks
and bank holding companies in Missouri. Overall, this legislation is likely
to have the effects of increasing competition and promoting geographic
diversification in the banking industry.
The Riegle Community Development and Regulatory Improvement Act of
1994, also enacted in September, 1994, is intended to (i) increase the flow
of loans to businesses in distressed
- 86 -
<PAGE> 92
communities by providing incentives to lenders to provide credit within those
communities, (ii) remove impediments to the securitization of small business
loans, (iii) provide for a reduction in paperwork and to streamline bank
regulation through, for example, the coordination of examinations in a bank
holding company context, a reduction in the number of currency transaction
reports required, improvements to the National Flood Insurance Program that
include enabling lenders to force place flood insurance, and (iv) increase the
level of consumer protection provided to customers in banking transactions.
MBI believes that these provisions of the new law will not have a material
effect on its operation.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
-----------------------------------------
KPMG Peat Marwick LLP served as MBI's independent accountants for
the year ended December 31, 1993 and continues to serve in such capacity.
Services provided in connection with the audit function included examination
of the annual consolidated financial statements, review and consultation
regarding filings with the Securities and Exchange Commission and other
regulatory authorities and consultation on financial accounting and reporting
matters.
Baird, Kurtz & Dobson served as Central Mortgage's independent
accountants for the year ended December 31, 1993 and continues to serve in
such capacity. Services provided in connection with the audit function
included examination of the annual consolidated financial statements, review
and consultation regarding filings with the Securities and Exchange
Commission and other regulatory authorities and consultation on financial
accounting and reporting matters. Baird, Kurtz & Dobson intends to have a
representative present at the Special Meeting to answer relevant questions
regarding the Merger.
LEGAL MATTERS
-------------
Certain legal matters will be passed upon for MBI by Thompson &
Mitchell, St. Louis, Missouri and for Central Mortgage by Blackwell Sanders
Matheny Weary & Lombardi, Kansas City, Missouri.
EXPERTS
-------
The consolidated financial statements of Mercantile Bancorporation
Inc. as of December 31, 1993, 1992 and 1991, and for each of the years in the
three-year period ended December 31, 1993, incorporated by reference in MBI's
Annual Report on Form 10-K, and the supplemental consolidated financial
statements of Mercantile Bancorporation Inc. as of December 31, 1993, 1992
and 1991, and for each of the years in the three-year period ended
December 31, 1993, contained in MBI's Current Report on Form 8-K dated June
17, 1994, have been incorporated by reference herein in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing. The report of KPMG Peat Marwick LLP
dated January 13, 1994, except as to Note Q, which is as of February 10,
1994, contains an explanatory paragraph referring to the change in accounting
for income taxes.
The consolidated financial statements of Central Mortgage
Bancshares, Inc. as of December 31, 1993 and 1992 and for each of the years
in the three-year period ended December 31, 1993 have been included herein in
reliance upon the report of Baird, Kurtz & Dobson, independent certified
public accountants, whose report is included herein, and upon the authority
of such firm as experts in accounting and auditing.
- 87 -
<PAGE> 93
OTHER MATTERS
-------------
The Board of Directors of Central Mortgage, 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 Central Mortgage.
SHAREHOLDER PROPOSALS
---------------------
If the Merger is approved, the other conditions to the Merger are
satisfied and the Merger is consummated, shareholders of Central Mortgage
will become shareholders of MBI at the Effective Time. MBI shareholders may
submit to MBI proposals for formal consideration at the 1995 annual meeting
of MBI's shareholders and inclusion in MBI's proxy statement for such
meeting. All such proposals must have been received in writing by the
Corporate Secretary at Mercantile Bancorporation Inc., P.O. Box 524,
St. Louis, Missouri 63166-0524 by November 22, 1994 in order to be considered
for inclusion in MBI's Proxy Statement and proxy for the 1995 annual meeting.
Proposals to be considered for inclusion in MBI's Proxy Statement and proxy
for the 1996 annual meeting must be received in writing by November 21, 1995.
- 88 -
<PAGE> 94
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
INDEX
-----
<CAPTION>
Page
----
<S> <C>
INDEPENDENT ACCOUNTANTS' REPORT. . . . . . . . . . . . . . F-1
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1994
(UNAUDITED) AND DECEMBER 31, 1993 AND 1992. . . . . . . . F-2 to F-3
CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991. . . . . F-4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(UNAUDITED) AND YEARS ENDED DECEMBER 31, 1993,
1992 AND 1991 . . . . . . . . . . . . . . . . . . . . . . F-5 to F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991. . . . . F-7 to F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . F-9 to F-35
</TABLE>
- 89 -
<PAGE> 95
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
Board of Directors
Central Mortgage Bancshares, Inc.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of
CENTRAL MORTGAGE BANCSHARES, INC. as of December 31, 1993 and 1992,
and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1993. These financial statements are
the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of CENTRAL MORTGAGE BANCSHARES, INC. as of December 31,
1993 and 1992, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1993,
in conformity with generally accepted accounting principles.
/s/ Baird, Kurtz & Dobson
Kansas City, Missouri
February 4, 1994, except for
Note 23 as to which the
date is September 21, 1994
F-1
<PAGE> 96
<TABLE>
CENTRAL MORTGAGE BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 (UNAUDITED) AND
DECEMBER 31, 1993 AND 1992
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
December 31,
September 30, ----------------------
1994 1993 1992
------------- --------- --------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks
Interest bearing deposits $ 211
Non-interest bearing deposits and cash (Note 3) $ 28,502 $ 27,901 18,229
Federal funds sold 2,400 15,575 14,950
-------- -------- --------
Total Cash and Cash Equivalents 30,902 43,476 33,390
-------- -------- --------
Investments
Investment securities held to maturity
(fair value of $146,729 at September 30,
1994 and $186,335 and $145,262 at
December 31, 1993 and 1992, respectively) (Note 4) 149,163 184,226 143,096
Investment securities available for sale
(amortized cost of $38,155 at September
30, 1994) 38,028
Other investments 200 504 631
-------- -------- --------
Total Investments 187,391 184,730 143,727
-------- -------- --------
Mortgage loans held for sale 5,579 11,379 10,950
-------- -------- --------
Loans (Note 6) 381,783 359,028 216,997
Less: Unearned interest 1,010 1,921 2,101
Allowance for loan losses (Note 7) 6,396 4,693 2,648
-------- -------- --------
Net loans 374,377 352,414 212,248
-------- -------- --------
Foreclosed assets held for sale (Note 8) 348 2,225 406
Premises and equipment (Note 9) 11,686 11,632 6,905
Excess cost over fair value of net assets of subsidiary
banks acquired, net of accumulated amortization (Note 5) 5,724 6,035
Interest receivable 4,797 4,673 3,556
Other assets 5,672 6,071 2,625
-------- -------- --------
28,227 30,636 13,492
-------- -------- --------
TOTAL ASSETS $626,476 $622,635 $413,807
======== ======== ========
See Notes to Consolidated Financial Statements
</TABLE>
F-2
<PAGE> 97
<TABLE>
<CAPTION>
December 31,
September 30, ----------------------
1994 1993 1992
------------- --------- --------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Demand deposits $ 80,347 $ 86,769 $ 49,119
Savings, NOW and money market deposits 167,302 186,139 120,337
Time deposits (Note 10) 289,974 264,843 182,847
-------- --------- ---------
Total Deposits 537,623 537,751 352,303
Securities sold under agreement to repurchase 23,574 22,300 20,850
Employee Stock Ownership Plan note payable (Note 15) 1,819 1,819 2,271
Notes payable (Note 11) 3,400 5,700 50
Other borrowings (Note 11) 1,100 1,100 1,100
Other liabilities and accrued expenses 6,456 5,443 2,868
-------- --------- ---------
Total Liabilities 573,972 574,113 379,442
-------- --------- ---------
SHAREHOLDERS' EQUITY (Note 12)
Series A preferred stock; par value $10 per
share; authorized and issued 43,000 shares
including shares in Treasury (1993 and 1992
- 427); (aggregate liquidation preference
$4.3 million) 430 430 430
Common stock; par value $1 per share; authorized
6,000,000 shares; issued 3,734,675 and
2,814,675 shares, respectively, at December
31, 1993 and 1992, including shares in
Treasury (1993 and 1992 - 32,826), after
giving retroactive recognition to the 3-for-1
stock split effected in June 1992 3,735 3,735 2,815
Capital surplus 24,376 24,376 15,347
Net unrealized loss on securities available for sale (78)
Retained earnings 26,036 21,976 18,220
Less: Cost of common and preferred stock in Treasury (176) (176) (176)
Less: Employee Stock Ownership Plan obligation (Note 15) (1,819) (1,819) (2,271)
-------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 52,504 48,522 34,365
-------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $626,476 $622,635 $413,807
======== ========= =========
See Notes to Consolidated Financial Statements
</TABLE>
F-3
<PAGE> 98
<TABLE>
CENTRAL MORTGAGE BANCHSARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------- ----------------------------------
1994 1993 1993 1992 1991
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $25,188 $17,266 $25,638 $20,862 $20,085
------- ------- ------- ------- -------
Interest on investments:
Taxable 5,227 4,944 6,751 5,988 4,149
Tax-exempt 1,696 1,239 1,742 1,102 872
------- ------- ------- ------- -------
Total Interest on Investments 6,923 6,183 8,493 7,090 5,021
------- ------- ------- ------- -------
Other interest income 372 290 321 625 600
------- ------- ------- ------- -------
Total Interest Income 32,483 23,739 34,452 28,577 25,706
------- ------- ------- ------- -------
INTEREST EXPENSE
Interest on deposits (Note 10) 12,489 9,177 13,056 12,802 12,653
Interest on short-term borrowings 748 678 888 417 229
Interest on notes payable 333 96 250 397 378
------- ------- ------- ------- -------
Total Interest Expense 13,570 9,951 14,194 13,616 13,260
------- ------- ------- ------- -------
Net Interest Income 18,913 13,788 20,258 14,961 12,446
Provision for loan losses (Note 7) 919 668 956 913 870
------- ------- ------- ------- -------
Net Interest Income after Provision for
Loan Losses 17,994 13,120 19,302 14,048 11,576
------- ------- ------- ------- -------
NON-INTEREST INCOME
Service charges on deposit accounts 2,318 1,485 2,254 1,559 1,458
Loan servicing income 1,522 1,469 2,034 1,869 1,725
Gain on sale of loans 169 247 456 325 103
Gain on sale of investment securities
available for sale 450
Other 1,315 787 1,125 1,039 966
------- ------- ------- ------- -------
Total Non-Interest Income 5,774 3,988 5,869 4,792 4,252
------- ------- ------- ------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits 8,185 6,442 9,161 7,617 6,494
Net occupancy and equipment expense 2,029 1,354 2,162 1,630 1,549
Other (Note 20) 5,899 4,335 6,804 4,607 3,890
------- ------- ------- ------- -------
Total Non-Interest Expense 16,113 12,131 18,127 13,854 11,933
------- ------- ------- ------- -------
INCOME BEFORE MINORITY INTEREST 7,655 4,977 7,044 4,986 3,895
MINORITY INTEREST IN EARNINGS OF
CONSOLIDATED SUBSIDIARIES 1 6
------- ------- ------- ------- -------
INCOME BEFORE INCOME TAXES 7,655 4,977 7,043 4,986 3,889
INCOME TAXES (Note 13) 2,266 1,364 1,913 1,245 924
------- ------- ------- ------- -------
NET INCOME 5,389 3,613 5,130 3,741 2,965
CASH DIVIDENDS ON PREFERRED STOCK, Net 143 128 170 283 377
------- ------- ------- ------- -------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ 5,246 $ 3,485 $ 4,960 $ 3,458 $ 2,588
======= ======= ======= ======= =======
EARNINGS PER COMMON SHARE (Note 1)
Primary $1.38 $1.15 $1.54 $1.79 $1.57
===== ===== ===== ===== =====
Fully diluted $1.24 $1.01 $1.36 $1.51 $1.35
===== ===== ===== ===== =====
See Notes to Consolidated Financial Statements
</TABLE>
F-4
<PAGE> 99
<TABLE>
CENTRAL MORTGAGE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1994 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Series A Common Series A
Preferred Stock Stock Common Stock
--------------- ------ ------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1990 $ 4,300 $1,684 $ 16
Net income
Reduction in par value of common and preferred stock (3,870) (15)
Purchase of 6,000 shares of common stock for the treasury
Conversion of 427 shares of preferred stock into
1,836 shares of common stock from the treasury
Sale of 1,800 treasury shares under key employee
stock option plans
Dividends on Series A preferred stock, $8.79 per share
Dividends on common stock, $.16 per share
Reduction of Employee Stock Ownership Plan obligation
------- ------ ----
BALANCE, DECEMBER 31, 1991 430 1,684 1
Net income
Sale of 1,131,006 shares under public offering of common stock 1,131
Purchase of 2,700,000 shares of Series A common stock
for the treasury
Sale of 1,500 treasury shares under key employee stock
option plans
Retirement of 2,700,000 shares of Series A common stock
from the treasury (1)
Dividends on shares of Series A preferred stock, $6.65 per share
Dividends on common stock, $.23 per share
Reduction of Employee Stock Ownership Plan obligation
------- ------ ----
BALANCE, DECEMBER 31, 1992 430 2,815 0
Net income
Sale of 920,000 shares under public offering of common stock 920
Dividends on common stock, $.37 per share
Dividends on shares of Series A preferred stock, $6.07 per share
Income tax benefit of preferred stock dividends
Reduction of Employee Stock Ownership Plan obligation
------- ------ ----
BALANCE, DECEMBER 31, 1993 430 3,735 0
Net income
Dividends on shares of Series A preferred stock, $5.10 per share
Dividends on common stock, $.32 per share
Income tax benefit of preferred stock dividends
SFAS 115 "Accounting for Certain Investments in Debt and
Equity Securities" adopted January 1, 1994
Net fair value adjustment for available-for-sale securities
------- ------ ----
BALANCE, SEPTEMBER 30, 1994 (Unaudited) $ 430 $3,735 $ 0
======= ====== ====
See Notes to Consolidated Financial Statements
</TABLE>
F-5
<PAGE> 100
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) on Employee Total
Capital Securities Retained Treasury Stock Ownership Shareholders'
Surplus Available for Sale Earnings Stock Plan Obligation Equity
- ------- ------------------ -------- -------- --------------- -------------
<C> <C> <C> <C> <C> <C>
$ 2,536 $12,918 $(184) $(3,026) $18,244
2,965 2,965
3,885 0
(38) (38)
(23) 29 6
9 9
(377) (377)
(263) (263)
339 339
- ------- ------- ----- ------- -------
6,398 15,243 (184) (2,687) 20,885
3,741 3,741
8,970 10,101
(23) (23)
1 8 9
(22) 23 0
(283) (283)
(481) (481)
416 416
- ------- ------- ----- ------- -------
15,347 18,220 (176) (2,271) 34,365
5,130 5,130
9,029 9,949
(1,204) (1,204)
(258) (258)
88 88
452 452
- ------- ------- ----- ------- -------
24,376 21,976 (176) (1,819) 48,522
5,389 5,389
(217) (217)
(1,186) (1,186)
74 74
$ 404 404
(482) (482)
- ------- ----- ------- ----- ------- -------
$24,376 $ (78) $26,036 $(176) $(1,819) $52,504
======= ===== ======= ===== ======= =======
</TABLE>
F-6
<PAGE> 101
<TABLE>
CENTRAL MORTGAGE BANCSHARES,INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
-------------------- --------------------------------
1994 1993 1993 1992 1991
-------- -------- -------- --------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,389 $ 3,613 $ 5,130 $ 3,741 $ 2,965
Items not requiring (providing) cash:
Gain on sale of loans (169) (247) (456) (325) (103)
Gain on sale of investment securities available for sale (450)
Depreciation 845 511 921 619 585
Provision for loan losses and foreclosed assets
held for sale 1,027 743 1,176 913 870
Amortization and accretion, net 1,586 940 1,340 859 259
Deferred income taxes (88) (113) 65 (47) (72)
Changes in:
Mortgage loans held for sale 5,969 (3,977) (429) (3,333) 2,688
Interest receivable (124) 209 55 (597) 55
Interest payable 313 191 (23) 68 (126)
Other, net 1,310 (833) 1,645 (177) 230
-------- -------- -------- --------- --------
Net cash provided by operating activities 15,608 1,037 9,424 1,721 7,351
-------- -------- -------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net originations of loans (23,334) (22,826) (37,334) (38,506) (15,480)
Purchase of premises and equipment, net (899) (659) (1,458) (1,150) (779)
Proceeds from the sale of foreclosed assets 1,970 2,106 3,725 930 821
Proceeds from the maturity of investment securities
held to maturity 32,139 47,096 70,705 48,314 31,176
Proceeds from the sale of investment securities
held to maturity 3,029 1,665
Purchase of investment securities held to maturity (54,698) (50,043) (74,144) (126,341) (33,487)
Proceeds from the maturity of investment securities
available for sale 24,936
Proceeds from the sale of investment securities
available for sale 475
Purchase of investment securities available for sale (5,853)
Purchase of mortgage servicing rights (148) (250) (299) (113) (61)
Increase in ownership of subsidiary (10) (8) (24)
Net cash provided by purchase acquisition 2,992 2,992
-------- -------- -------- --------- --------
Net cash used in investing activities (25,422) (21,584) (35,821) (113,861) (16,145)
-------- ------- -------- --------- --------
See Notes to Consolidated Financial Statements
</TABLE>
F-7
<PAGE> 102
<TABLE>
CENTRAL MORTGAGE BANCSHARES,INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
-------------------- --------------------------------
1994 1993 1993 1992 1991
-------- -------- -------- --------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand, savings, NOW and
money market deposits (Note 5) $(25,259) $ (5,242) $ 493 $ 38,426 $ 21,210
Net increase (decrease) in time deposits (Note 5) 24,928 9,627 20,853 52,290 (2,167)
Increase in federal funds purchased and securities
sold under agreements to repurchase 1,274 1,950 1,450 16,750 900
Notes payable proceeds 5,000 6,275 5,023
Notes payable repayments (2,300) (50) (1,075) (5,679) (230)
Proceeds from public offering of common stock 10,039 9,949 10,101
Retirement of Class "A" shares (23)
Dividends paid (1,403) (1,028) (1,462) (764) (640)
Purchase of treasury stock, net 9 (23)
-------- -------- -------- --------- --------
Net cash provided by (used in)
financing activities (2,760) 20,296 36,483 116,133 19,050
-------- --------- -------- --------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (12,574) (251) 10,086 3,993 10,256
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 43,476 33,390 33,390 29,397 19,141
-------- --------- -------- --------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 30,902 $ 33,139 $ 43,476 $ 33,390 $ 29,397
======== ========= ======== ========= ========
See Notes to Consolidated Financial Statements
</TABLE>
F-8
<PAGE> 103
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
- --------
Central Mortgage Bancshares, Inc. (the "Company") provides a full range of
banking services to individual and corporate customers through four
subsidiary banks (the "Banks") in west-central and southwestern Missouri,
consisting of Citizens-Jackson County Bank, Barton County State Bank,
Citizens State Bank of Nevada and Farmers Bank of Stover. The Company's
Mortgage Division also operates a mortgage banking business headquartered in
Springfield, Missouri. The Company is subject to competition from other
financial institutions. The Company is subject to the regulations of certain
federal agencies and undergoes periodic examinations by those regulatory
authorities.
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The consolidated financial statements include the accounts of Central
Mortgage Bancshares, Inc. and its subsidiaries, which are substantially
wholly-owned.
BASIS OF FINANCIAL STATEMENT PRESENTATION
- -----------------------------------------
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the
valuation of repossessed property. These estimates are based upon
management's periodic analysis of net realizable value or fair value and
consider both current and anticipated future economic, operating and sales
conditions. However, unanticipated changes in these factors could result in
material adjustments to the allowance for loan losses and the valuation of
repossessed property.
Management believes that the allowance for losses on loans is adequate and
repossessed property is properly valued and, in that regard, management
obtains independent appraisals for significant properties. While management
uses available information to recognize losses on loans and repossessed
property, future losses may be accruable based on changes in economic
conditions.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the subsidiary banks' allowances for
losses on loans and valuation of repossessed property. Such agencies may
require the banks to recognize additional losses based on their judgments of
information available to them at the time of their examination.
F-9
<PAGE> 104
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
- ----------------
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents. At December 31, 1993 and 1992,
cash equivalents consisted of federal funds sold and repurchase agreements.
INVESTMENTS
- -----------
Investments are stated at cost, adjusted for amortization of premiums and
accretion of discounts, and include certificates of deposit with original
maturities of greater than three months. The specific adjusted cost of
securities is used to compute gains or losses on sales or redemptions of
securities.
All investments are intended to be held to maturity. In considering
whether securities can be held until maturity, management considers whether
there are conditions, such as regulatory requirements, which would impair its
ability to hold such securities until maturity. At present, management is
not aware of any such conditions. Management reviews the securities
individually to determine whether there are other than temporary declines in
net realizable values and write-downs are recorded, if necessary.
MORTGAGE LOANS HELD FOR SALE
- ----------------------------
Mortgage loans held for sale are carried at the lower of cost or market.
Write-downs to market value are recognized as a charge to earnings at the
time the decline in value occurs. Gains and losses resulting from sales of
mortgage loans are recognized when the respective loans are sold to
investors. Gains and losses are determined by the difference between the
selling price and the face amount of the loans sold, net of discounts
collected or paid and considering a normal servicing rate. Fees received
from borrowers to guarantee the funding of mortgage loans held for sale and
fees paid to investors to ensure the ultimate sale of such mortgage loans are
recognized as revenue or expense when the loans are sold or when it becomes
evident that the commitment will not be used.
LOAN SERVICING INCOME
- ---------------------
Loan servicing income represents fees earned for servicing real estate
mortgage loans owned by various investors. The fees are generally calculated
on the outstanding principal balances of the loans serviced and are recorded
as income when earned.
LOANS
- -----
Interest on loans is accrued and credited to operations based upon the
principal amount outstanding. The accrual of interest income is discontinued
when, in the opinion of management, it is not reasonable to expect that such
interest will be paid. Subsequently, interest income is recognized only upon
receipt.
F-10
<PAGE> 105
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES
- -------------------------
The provision for loan losses charged to expense is based on recent loan
loss experience, a review of loan portfolios, current economic conditions and
other pertinent factors which form a basis for management's determination as
to the adequacy of the allowance for loan losses.
FORECLOSED ASSETS HELD FOR SALE
- -------------------------------
Assets acquired by foreclosure or in settlement of debt and held for sale
are valued at fair value as of the date of foreclosure and a related
valuation allowance is provided for estimated costs to sell the assets. Fair
value at the time of foreclosure or settlement of debt is based on a current
appraisal of the property. Management evaluates the value of foreclosed
assets held for sale periodically and increases the valuation allowance for
any subsequent declines in estimated fair value. Changes in the valuation
allowance are charged or credited to other expense.
Assets acquired by foreclosure also include loans upon which the
foreclosure process is imminent or has been initiated but not completed and
considered in-substance foreclosed. Such assets are carried at fair value
and a related valuation allowance is provided for estimated costs to sell the
assets.
Gains or losses from the sale of foreclosed assets held for sale are
recognized at the time of final sale and are credited or charged to current
income. Net gains (losses) from the sale of foreclosed assets held for sale
are included in other income and amounted to $(15,736), $31,327 and $(6,695)
in 1993, 1992 and 1991, respectively.
PREMISES AND EQUIPMENT
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is mainly computed using the straight-line method over the
estimated useful lives of the assets.
PURCHASED MORTGAGE SERVICING
- ----------------------------
Purchased mortgage servicing represents the cost of acquiring the rights
to service mortgage loans. The cost is capitalized and amortized in
proportion to, and over the period of, estimated future net revenue to be
realized from the purchased servicing. These costs are included in other
assets and amounted to $730,000 and $555,000 at December 31, 1993 and 1992,
respectively, net of related accumulated amortization of $520,000 and
$395,000, respectively. Amortization of purchased mortgage servicing rights
for the years ended December 31, 1993, 1992 and 1991 was $154,000, $133,000
and $135,000, respectively.
F-11
<PAGE> 106
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PURCHASED MORTGAGE SERVICING (CONTINUED)
- ----------------------------------------
The Company's carrying values of purchased mortgage servicing and the
amortization thereon are periodically evaluated in relation to estimated
future servicing revenues and costs, and such carrying values are adjusted
for indicated impairments based on management's estimate of remaining cash
flows, using a pool-by-pool method.
EXCESS COSTS OF PURCHASED SUBSIDIARIES AND BRANCH DEPOSITS
- ----------------------------------------------------------
Unamortized costs of purchased subsidiaries, in excess of the estimated
fair value of underlying net tangible assets acquired, aggregated $6,035,000
(originally $6,162,000) at December 31, 1993, and are being amortized over a
15-year period using the straight-line method. Unamortized costs allocated
to the future earnings potential of acquired deposits were $2,610,000
(originally $2,700,000) at December 31, 1993, and are being amortized over 10
years using the straight-line method. Amortization expense was $217,000 for
1993.
Unamortized costs of purchased branch deposits (included in other assets)
amounted to $250,000 and $297,000 at December 31, 1993 and 1992,
respectively, and relate to the 1992 acquisition of deposits from the
Resolution Trust Corporation (the "RTC") discussed in Note 5. These costs
are allocated to the future earnings potential of the acquired deposits and are
being amortized over seven years using the straight-line method. Amortization
expense was $47,000 and $31,000 for the years ended December 31, 1993 and
1992, respectively.
INCOME TAXES
- ------------
The Company and its subsidiary banks file a consolidated federal income tax
return.
Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse. A valuation allowance is established to reduce deferred
tax assets if it is more likely than not that all, or some portion, of such
deferred tax asset will not be realized.
EARNINGS PER SHARE
- ------------------
Primary earnings per share is based on net income less preferred stock
dividends divided by the weighted average shares of common stock and common
stock equivalents outstanding during each year after giving recognition to
the Company's 3-for-1 stock split effected in June 1992. Common stock
equivalents in 1991 include the dilutive effect of the assumed conversion of
the Series A common stock. Common stock equivalents in the form of stock
options are not considered in the computation when the effect thereof is
anti-dilutive. The weighted average of the outstanding common stock and
common stock equivalents as of December 31, 1993, 1992 and 1991 was
3,220,672, 1,931,099 and 1,647,534, respectively.
F-12
<PAGE> 107
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE (CONTINUED)
- ------------------------------
Fully diluted earnings per common share are based on net income divided by
weighted average common shares outstanding assuming conversion of preferred
shares which are convertible into 549,330 common shares at December 31, 1993
and 1992, and 552,996 common shares at December 31, 1991 after giving
retroactive recognition to the Company's 3-for-1 stock split effected in June
1992.
IMPACT OF FUTURE ACCOUNTING PRONOUNCEMENTS
- ------------------------------------------
The Financial Accounting Standards Board has issued Statement No. 114
regarding accounting by creditors for impairment of a loan. This statement
requires discounting expected future cash flows to measure impairment of
certain loans or, as a practical expedient, impairment measurements based on
the loan's observable market price or the fair value of collateral if the
loan is collateral dependent. The Company expects to first apply this
statement during the year ending December 31, 1995. Management has not
estimated the impact, if any, of adopting FASB 114 on the Company's financial
statements.
The Financial Accounting Standards Board has issued Statement No. 115
regarding investments in debt and equity securities. This statement creates
three categories of securities based upon management's intent. Securities
meeting the criteria for the "held to maturity" category will be reported at
amortized cost. All other securities, excluding those held in trading
accounts, will be reported at fair value with unrealized gains and losses
credited or charged to shareholders' equity. Unrealized gains and losses for
securities held in trading accounts will continue to be reflected in income.
The Company expects to first apply this statement during the year ending
December 31, 1994. Management has determined that the impact of adopting
FASB 115 will not be material to the Company's financial statements.
RECLASSIFICATION
- ----------------
Certain reclassifications have been made to the 1992 and 1991 financial
statements to conform to the 1993 financial statement presentation. These
reclassifications had no effect on net earnings.
INTERIM FINANCIAL INFORMATION
- -----------------------------
The consolidated financial statements as of September 30, 1994, and for the
nine months ended September 30, 1994 and 1993, are unaudited but, in the
opinion of management, reflect all adjustments consisting of only normal
recurring items necessary for fair presentation. Interim results are not
necessarily indicative of annual results.
F-13
<PAGE> 108
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 2: OFF-BALANCE-SHEET AND CREDIT RISK
The Banks make agricultural, commercial, real estate and
consumer loans in west-central and southwestern Missouri.
Commitments to extend credit (for other than mortgage loans
held for delivery against commitments) are agreements to lend to a
customer as long as there is no violation of any condition
established in the lending contract. Commitments generally have
fixed expiration dates or other termination clauses and may require
payment of a fee. Since a portion of the commitments may expire
without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Each customer's
credit-worthiness is evaluated on a case-by-case basis. The amount
of collateral obtained, if deemed necessary, upon extension of
credit is based on management's credit evaluation of the customer.
Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, agricultural real estate,
commercial real estate and residential real estate.
Mortgage loans in process represent amounts which the Company
plans to fund within a normal period of 60 to 90 days and which are
intended for sale to investors in the secondary market. Forward
commitments to sell mortgage loans are obligations to deliver loans
at a specified price on or before a specified future date. The
Company acquires such commitments to reduce its interest-rate risk
on mortgage loans in process and mortgage loans held for sale.
Total mortgage loans in process amounted to $16,923,000 and
$16,985,000 at December 31, 1993 and 1992, respectively; and mortgage
loans held for sale amounted to $11,379,000 and $10,950,000,
respectively. Related forward commitments to sell mortgage loans
during this same time frame amounted to approximately $24,008,000 and
$24,421,000 also at December 31, 1993 and 1992, respectively.
At December 31, 1993 and 1992, the Company had outstanding
commitments to extend credit amounting to approximately $2,296,000
and $3,073,000, respectively.
Letters of credit are conditional commitments issued to
guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing
and similar transactions. The credit risk involved in issuing
letters of credit is essentially the same as that involved in
extending loans to customers.
Total outstanding letters of credit amounted to approximately
$930,000 and $627,000 at December 31, 1993 and 1992, respectively.
F-14
<PAGE> 109
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 2: OFF-BALANCE-SHEET AND CREDIT RISK (CONTINUED)
Lines of credit are agreements to lend to a customer as long
as there is no violation of any condition established in the
contract. Lines of credit generally have fixed expiration dates.
Since a portion of the line may expire without being drawn upon,
the total unused lines do not necessarily represent future cash
requirements. Each customer's credit-worthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary, upon extension of credit, is based on management's
credit evaluation of the customer. Collateral held varies but may
include livestock, growing and stored crops, accounts receivable,
inventory, property, plant and equipment, agricultural real estate,
commercial real estate and residential real estate. The same
credit policies are used in granting lines of credit as those for
on-balance-sheet instruments.
At December 31, 1993 and 1992, unused lines-of-credit
available to borrowers aggregated approximately $14,244,000 and
$12,573,000, respectively.
Additionally, the Company periodically has excess funds which
are loaned to other banks as federal funds sold. At December 31,
1993 and 1992, federal funds sold totalling $15,575,000 and
$14,250,000, respectively, were with numerous banks, with the
largest balance at any one institution being $3,000,000 and
$5,175,000, respectively.
NOTE 3: CASH RESERVE REQUIREMENTS
The Banks are required to maintain certain daily reserve
balances on hand in accordance with regulatory requirements. Their
reserve balance maintained in accordance with such requirements at
December 31, 1993 and 1992 was approximately $4,980,000 and
$2,908,000, respectively.
NOTE 4: INVESTMENT IN DEBT SECURITIES
<TABLE>
The amortized cost and approximate fair values of investment
securities at December 31, 1993 and 1992 are summarized as follows:
<CAPTION>
December 31, 1993 December 31, 1992
-------------------------------------------- ------------------------------------------------
Amortized Unrealized Unrealized Approximate Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value Cost Gains Losses Fair Value
--------- ---------- ---------- ----------- --------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations $ 65,838 $ 376 $ (11) $ 66,203 $ 69,895 $ 846 $ (47) $ 70,694
Obligations of U.S.
Government agencies 51,421 282 (125) 51,578 26,262 256 (34) 26,484
Obligations of state and
political subdivisions 44,265 1,452 (106) 45,611 23,171 907 (22) 24,056
Mortgage-backed securities 22,702 319 (78) 22,943 23,768 327 (67) 24,028
-------- ------ ----- -------- -------- ------ ----- --------
$184,226 $2,429 $(320) $186,335 $143,096 $2,336 $(170) $145,262
======== ====== ===== ======== ======== ====== ===== ========
</TABLE>
F-15
<PAGE> 110
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 4: INVESTMENT IN DEBT SECURITIES (CONTINUED)
<TABLE>
Maturities of investment securities at December 31, 1993 are as follows:
<CAPTION>
Amortized Approximate
Cost Fair Value
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
In one year or less $ 62,404 $ 62,804
After one through five years 82,457 83,107
After five through ten years 16,208 17,023
After ten years 455 458
Mortgage-backed securities, not due
at a single maturity date 22,702 22,943
-------- --------
$184,226 $186,335
======== ========
</TABLE>
There were no sales of debt securities during 1993. Proceeds from sales
of debt securities were $3,029,000 and $1,665,000 for the years ended
December 31, 1992 and 1991, respectively. Resultant gross gains of $47,000
were realized on 1992 sales, and gross gains of $4,000 and gross losses of
$7,000 were realized on 1991 sales.
Investments with carrying values and approximate fair values of
$119,351,000 and $120,710,000, respectively, at December 31, 1993 and
$87,009,000 and $87,835,000, respectively, at December 31, 1992 were pledged
to secure public deposits as required by law and for other purposes.
<TABLE>
Securities sold under agreements to repurchase at December 31, 1993 and
1992 are summarized as follows:
<CAPTION>
1993 1992
------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
U.S. Government securities with an
estimated fair value of $22,389,000 in
1993 and $21,404,000 in 1992 $22,300 $20,850
======= =======
</TABLE>
The Banks enter into sales of securities under agreements to repurchase.
The amounts deposited under these agreements represent short-term borrowings
and are reflected as a liability in the balance sheet. The securities
underlying the agreements are book-entry securities. During the period,
securities held in safekeeping were pledged to the depositors under a written
custodial agreement that explicitly recognizes the depositors' interest in
the securities. At December 31, 1993, no material amount of agreements to
repurchase securities sold was outstanding with any individual dealer.
Securities sold under agreements to repurchase averaged $22,527,000 and
$8,978,000 during 1993 and 1992, and the maximum amounts outstanding at any
month end during 1993 and 1992 were $23,675,000 and $20,850,000,
respectively.
F-16
<PAGE> 111
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 5: ACQUISITIONS
In March 1992, Citizens-Jackson County Bank entered into an agreement with
the RTC wherein the Company acquired approximately $80.2 million (after "run
off") of core deposits of the former Home Federal Savings and Loan Association
at three locations in eastern Jackson County, Missouri, for a premium of
$329,000. That Bank also acquired the real estate and other fixed assets of
the three offices for $580,000.
In February 1993, Citizens State Bank of Nevada contracted to acquire
$14.1 million of deposits and the property and equipment of the Butler,
Missouri office of Mercantile Bank of West Central Missouri in exchange for
an assumption of the deposit liabilities and the payment of a $50,000
premium. Citizens State Bank of Nevada opened that office in June 1993.
<TABLE>
On August 31, 1993, the Company acquired Blue Springs Bank, a $175 million
bank located in Blue Springs, Missouri, for $19.3 million in cash. The
acquisition was financed primarily through $9.9 million in proceeds from a
public offering of the Company's stock and $5 million in additional
borrowings. The transaction was accounted for as a purchase by recording the
assets and liabilities of the acquiree at their estimated fair values at the
acquisition date. Goodwill totalled $6.2 million and is being amortized over
15 years using the straight-line method. A core deposit intangible of $2.7
million was recorded and is being amortized over ten years. The consolidated
operations of the Company include the operations of the acquiree, which was
merged into another subsidiary, from the date of acquisition. Unaudited pro
forma consolidated operations assuming the purchase was made at the beginning
of each period are shown below:
<CAPTION>
Year Ended Year Ended
December 31, 1993 December 31, 1992
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total income $49,815 $50,434
======= =======
Net income (loss) $ 4,416 $ (446)
======= =======
Net income (loss) available to
common shareholders $ 4,246 $ (729)
======= =======
Earnings per common share:
Primary $1.12 $(.26)
===== =====
Fully diluted $1.02 $(.13)
===== =====
</TABLE>
The pro forma results are not necessarily indicative of what would have
occurred had the acquisition been on those dates, nor are they necessarily
indicative of future operations.
Pro forma data reflect adjusted amortization and depreciation from
revaluing the acquiree's assets and liabilities, additional interest expense
related to the financing of the purchase and adjustments to income tax
expense reflecting the tax effect of the purchase accounting entries.
F-17
<PAGE> 112
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 6: LOANS
<TABLE>
A summary of loans at year end is as follows:
<CAPTION>
1993 1992
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial $ 46,327 $ 26,278
Agricultural 13,086 12,274
Real estate
Mortgage--residential (1-4 families) 132,058 62,163
Mortgage--commercial and multi-family 75,192 43,329
Construction 18,397 17,614
Agricultural real estate 9,873 9,055
Consumer 62,195 45,698
Other 1,900 586
-------- --------
$359,028 $216,997
======== ========
<CAPTION>
Nonperforming loans are summarized as follows:
1993 1992
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans $238 $104
Loans 90 days or more past due 569 485
Restructured loans 81 218
---- ----
$888 $807
==== ====
</TABLE>
If interest on non-accrual loans had been accrued, accrued interest and
the related income would have increased by approximately $28,000 and $5,000
at December 31, 1993 and 1992, respectively.
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 current, the borrowers presently
have or have had a history of financial difficulties, and management has
concerns as to the borrowers' ability to comply with present loan repayment
terms. As such, these loans may result in classification at some future
point in time as nonperforming. At December 31, 1993, such loans (excluding
all nonperforming loans described above) amounted to $12.3 million as
compared to $3.7 million at December 31, 1992.
F-18
<PAGE> 113
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 6: LOANS (CONTINUED)
Certain directors, officers and principal holders of equity securities of
the Company and its subsidiary banks were customers of and had transactions
with the subsidiary banks in the ordinary course of business. In the opinion
of management, all loans included in such transactions were made on
substantially the same terms as those prevailing at the time for comparable
transactions with unrelated parties. The activity of aggregate loans
exceeding $60,000 to such directors, officers, principal shareholders and
their related interests during 1993 is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Balance at beginning of year $ 2,976
New loans 1,974
Repayments (1,684)
-------
Balance at end of year $ 3,266
=======
</TABLE>
NOTE 7: ALLOWANCE FOR LOAN LOSSES
<TABLE>
The activity in the allowance for loan losses for the years ended
December 31, 1993, 1992 and 1991 is as follows:
<CAPTION>
1993 1992 1991
------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 2,648 $2,282 $2,058
Allowance acquired from purchased subsidiary 3,229
Provision charged to expense 956 913 870
Loans charged off (2,516) (697) (790)
Recoveries on loans previously charged off 376 150 144
------- ------ ------
Balance at end of year $ 4,693 $2,648 $2,282
======= ====== ======
</TABLE>
F-19
<PAGE> 114
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 8: FORECLOSED ASSETS HELD FOR SALE
At December 31, 1993 and 1992, foreclosed assets held for sale included
$1,113,000 and $215,000 in loans which were considered in-substance
foreclosed.
<TABLE>
Transactions in the allowance for losses on foreclosed assets were as
follows:
<CAPTION>
1993 1992
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year $ 25 $
Allowance acquired from purchased institution 628
Provision charged to expense 220 25
Charge-offs, net of recoveries (760)
----- ---
Balance, end of year $ 113 $25
===== ===
</TABLE>
NOTE 9: PREMISES AND EQUIPMENT
<TABLE>
A summary of premises and equipment at year end is as follows:
<CAPTION>
1993 1992
------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land and buildings $10,724 $ 8,500
Equipment 9,133 5,813
------- -------
19,857 14,313
Accumulated depreciation (8,225) (7,408)
------- -------
$11,632 $ 6,905
======= =======
</TABLE>
NOTE 10: TIME DEPOSITS
Time deposits included approximately $40,135,000 and $23,911,000 of
certificates of deposit of $100,000 or more at December 31, 1993 and 1992,
respectively. Interest expense on certificates of deposit of $100,000 or
more was approximately $1,391,000, $1,264,000 and $2,542,000 for the years
ended December 31, 1993, 1992 and 1991, respectively.
F-20
<PAGE> 115
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 11: NOTES PAYABLE AND OTHER BORROWINGS
<TABLE>
<CAPTION>
1993 1992
------ ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Note payable, bank <F1> $4,875
Revolving credit agreement, bank <F2> 375
Note payable, bank <F3> $50
Capital notes payable <F4> 450
------ ---
$5,700 $50
====== ===
<FN>
<F1> Due September 30, 1996; payable $500,000 annually plus quarterly
interest at 6.61%; secured by all of the common stock of a
subsidiary bank.
<F2> Provides for borrowing up to $5,000,000 and is secured by all of
the common stock of a subsidiary bank. Principal is due September
30, 1994 with variable interest payable quarterly at prime less
one-quarter percent.
<F3> Due January 20, 1998; with interest at varying rates; secured by
substantially all of the common stock of certain subsidiary banks;
paid off in 1993.
<F4> Due March 15, 1994; interest payable quarterly at 8.5%; unsecured
and subordinated to all other outstanding debt of the Company. A
portion of the outstanding note balances may be included as capital
under certain regulatory capital guidelines.
</TABLE>
<TABLE>
Aggregate annual maturities of long-term debt at December 31, 1993
are as follows:
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
1994 $1,325
1995 500
1996 3,875
------
$5,700
======
</TABLE>
Other borrowings at December 31, 1993 and 1992 represent treasury,
tax and loan deposits owed to the Federal Reserve under an open-end,
interest-bearing note.
F-21
<PAGE> 116
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 12: SHAREHOLDERS' EQUITY
In June 1992, the Company effected a 3-for-1 stock split. All shares
and per share amounts presented in these financial statements have been
restated to give effect to the stock split, retroactively.
The amount of dividends that the Company and its subsidiary banks may
pay is subject to various regulatory agency limitations. At December
31, 1993, approximately $10,000,000 was available from subsidiary banks'
retained earnings, without regulatory approval, for distribution as
dividends to the Company. The subsidiary banks' internal capital
policies provide for greater restrictions than regulatory capital
guidelines and, under internal policies, approximately $2,500,000 was
available for distribution as dividends to the Company.
All Series A common stock was retired during 1992.
Series A preferred stock is non-voting (except on major issues),
cumulative and convertible. Dividends are payable quarterly and are at
a rate of 2.50% above the most recent per annum auction average discount
rate for the monthly auction of one-year U.S. Treasury bills during a
defined time period prior to the dividend period subject to a maximum of
11%. Each share of Series A preferred stock is convertible into a
number of shares of the Company's $1 par value common stock equal to 100
divided by 7.75. The Series A preferred stock may be redeemed by the
Company after December 31, 1991 at redemption prices ranging from $100
to $103 per share. In the event of liquidation, dissolution or winding
up of the Company, the holders of the Series A preferred stock are
entitled to receive $100 per share plus accumulated and unpaid
dividends. During 1991, the par value of Series A preferred stock was
changed from $100 per share to $10 per share. At December 31, 1993 and
1992, capital surplus of $3,870,000 related to Series A preferred stock.
The subsidiary banks are subject to risk-based capital guidelines
issued by various regulatory agencies. These standards required a
minimum level of total capital equal to 8% of risk-adjusted assets by
December 31, 1992. Each of the subsidiary banks met these capital
standards at December 31, 1993 and 1992.
NOTE 13: INCOME TAXES
<TABLE>
The provision for income taxes includes these components:
<CAPTION>
1993 1992 1991
------ ------ ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Taxes currently payable $1,848 $1,292 $996
Deferred income taxes (benefit) 65 (47) (72)
------ ------ ----
$1,913 $1,245 $924
====== ====== ====
</TABLE>
F-22
<PAGE> 117
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 13: INCOME TAXES (CONTINUED)
<TABLE>
A reconciliation of income tax expense at the statutory rate (34%)
to income tax expense at the Company's effective rate is shown below:
<CAPTION>
1993 1992 1991
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Computed at the statutory rate $2,395 $1,695 $1,314
Tax exempt interest (587) (418) (341)
Dividends paid to ESOP (96) (128)
State income taxes-net of federal tax benefits 113 75 115
Non-deductible amortization 43
Other, net (51) (11) (36)
------ ------ ------
Actual tax provision $1,913 $1,245 $ 924
====== ====== ======
</TABLE>
Management adopted Financial Accounting Standards No. 109, ACCOUNTING FOR
INCOME TAXES ("FASB 109"), during the year ended December 31, 1993. The
adoption of FASB 109 had no material impact on reported earnings or
shareholders' equity.
<TABLE>
Significant components of the Company's deferred tax assets and
liabilities at December 31, 1993 are as follows:
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Deferred tax assets:
Allowance for loan losses $ 1,039
Valuation adjustment for foreclosed assets held for sale 190
Differences in accounting for loan fee income 92
Differences resulting from purchase accounting:
Time deposits 107
Other 135
-------
1,563
Valuation allowances 0
-------
Total deferred tax assets 1,563
-------
Deferred tax liabilities:
Differences between tax and financial depreciation methods (495)
Differences resulting from purchase accounting:
Investment in debt securities (117)
Loans (729)
Premises and equipment (573)
Core deposit intangible (1,018)
Other (17)
-------
Total deferred tax liabilities (2,949)
-------
Deferred tax liabilities - net $(1,386)
=======
</TABLE>
F-23
<PAGE> 118
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 13: INCOME TAXES (CONTINUED)
<TABLE>
For the years ended December 31, 1992 and 1991, significant components
of the Company's deferred tax expense were as follows:
<CAPTION>
1992 1991
--------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Provision for loan losses $(118,000) $(90,000)
Differences in tax and financial depreciation methods 24,000 60,000
Valuation adjustment for foreclosed assets held for sale 26,000 (37,000)
Differences in tax and financial amortization methods 27,000
Other timing differences (6,000) (5,000)
--------- --------
Total deferred income tax (benefit) $ (47,000) $(72,000)
========= ========
</TABLE>
NOTE 14: PENSION PLAN
The Company has a defined contribution pension plan covering
substantially all employees over 21 years of age who have completed one
year of employment. The Company's contributions to the plan are
determined annually by the Board of Directors. Contributions to the
plan were approximately $54,000, $48,000 and $34,000 for 1993, 1992 and
1991, respectively.
F-24
<PAGE> 119
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 15: EMPLOYEE STOCK PLANS
STOCK OPTION PLANS
- ------------------
<TABLE>
Under the Company's stock option plans, 348,000 shares of $1 par
common stock were reserved for issuance upon exercise of options granted
or to be granted to key employees. The plans provide that the option
price will be no less than fair market value of the stock at the date of
the grant. Outstanding options are exercisable in five equal annual
installments commencing one year after the date of grant and expire ten
years after the date of grant. Activity in the plan for each year as
adjusted retroactively for the 3-for-1 stock split was:
<CAPTION>
1993 1992 1991
---------------- ----------------- -------------
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 122,700 $5.83 124,200 $5.83 126,000 $5.83
12,000 6.33 12,000 6.33 12,000 6.33
12,000 6.83 12,000 6.83 12,000 6.83
Options granted
Options exercised (1,500) 5.83 (1,800) 5.83
Options outstanding,
end of year 122,700 5.83 122,700 5.83 124,200 5.83
12,000 6.33 12,000 6.33 12,000 6.33
12,000 6.83 12,000 6.83 12,000 6.83
------- ------- -------
146,700 146,700 148,200
======= ======= =======
</TABLE>
Options exercisable at December 31, 1993, 1992 and 1991 were 139,500,
109,500 and 81,000, respectively.
F-25
<PAGE> 120
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 15: EMPLOYEE STOCK PLANS (CONTINUED)
EMPLOYEE STOCK OWNERSHIP PLAN
- -----------------------------
<TABLE>
The Company has an employee stock ownership plan ("ESOP") to invest
in the Company's common or preferred stock for the benefit of eligible
employees. The Company makes annual contributions to the plan, payable
either in cash or the Company's common stock, as determined by the Board
of Directors. Contributions to the ESOP were approximately $333,000,
$312,000 and $285,000 in 1993, 1992 and 1991, respectively. The ESOP
had total debt outstanding of $1,819,000 and $2,271,000 at December
31, 1993 and 1992, respectively, which was secured by 26,935 shares of
Series A preferred stock held by the ESOP and guaranteed by the Company.
Aggregate annual maturities of the ESOP note payable at December 31,
1993 were as follows:
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
1994 $ 427
1995 461
1996 499
1997 432
------
$1,819
======
</TABLE>
The note payable bears interest at varying rates. For financial
reporting purposes, the outstanding ESOP obligation has been reflected
as a liability with shareholders' equity reduced by an equal amount.
Interest incurred on the ESOP obligation was $123,000, $166,000 and
$247,000 for 1993, 1992 and 1991, respectively. Dividends on preferred
shares held by the ESOP and used for debt service were $258,000,
$283,000 and $377,000, respectively.
F-26
<PAGE> 121
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 16: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
CASH AND CASH EQUIVALENTS
- -------------------------
For these short-term instruments, the carrying amount approximates
fair value.
INVESTMENTS
- -----------
For securities held as investments, fair value equals quoted market
price, if available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
MORTGAGE LOANS HELD FOR SALE
- ----------------------------
For homogeneous categories of loans, such as mortgage loans held for
sale, fair value is estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics.
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. Loans with similar characteristics were aggregated for
purposes of the calculations. The carrying amount of accrued interest
approximates its fair value.
DEPOSITS
- --------
The fair value of demand deposits, savings accounts, NOW accounts and
certain money market deposits is the amount payable on demand at the
reporting date (i.e., their carrying amount). The fair value of fixed-
maturity time deposits is estimated using a discounted cash flow
calculation that applies the rates currently offered for deposits of
similar remaining maturities.
SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE AND OTHER BORROWINGS
- ------------------------------------------------------------------
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
NOTES PAYABLE
- -------------
Rates currently available to the Banks for debt with similar terms
and remaining maturities are used to estimate fair value of existing
debt.
F-27
<PAGE> 122
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 16: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
COMMITMENTS TO EXTEND CREDIT, LETTERS OF CREDIT AND LINES OF CREDIT
- -------------------------------------------------------------------
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present credit-worthiness of
the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and
the committed rates. The fair value of letters of credit and lines of
credit is based on fees currently charged for similar agreements or on
the estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
The following table presents estimated fair values of the Company's
financial instruments. The fair values of certain of these instruments
were calculated by discounting expected cash flows, which method
involves significant judgments by management and uncertainties. Fair
value is the estimated amount at which financial assets or liabilities
could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Because no market exists
for certain of these financial instruments and because management does
not intend to sell these financial instruments, the Company does not
know whether the fair values shown below represent values at which the
respective financial instruments could be sold individually or in the
aggregate.
<TABLE>
<CAPTION>
1993 1992
--------------------- ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents $ 43,476 $ 43,476 $ 33,390 $ 33,390
Investments 184,730 186,839 143,727 145,893
Mortgage loans held for sale 11,379 11,379 10,950 10,950
Interest receivable 4,673 4,673 3,556 3,556
Loans 357,107 214,896
Less: Allowance for loan losses 4,693 2,648
-------- --------
352,414 355,618 212,248 214,046
FINANCIAL LIABILITIES:
Deposits 537,751 541,002 352,303 354,421
Federal funds purchased and securities
sold under agreement to repurchase 22,300 22,300 20,850 20,850
Notes payable 7,519 7,521 2,321 2,321
Other borrowings 1,100 1,100 1,100 1,100
Interest payable 2,479 2,479 1,818 1,818
UNRECOGNIZED FINANCIAL INSTRUMENTS (NET
OF CONTRACT AMOUNT):
Commitments to extend credit 0 0 0 0
Letters of credit 0 0 0 0
Lines of credit 0 0 0 0
</TABLE>
F-28
<PAGE> 123
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 17: LOAN SERVICING
At December 31, 1993, the Company was servicing 13,607 loans for 34
investors with unpaid principal balances aggregating $561,842,000.
Related trust funds totalling $12,056,000 on deposit in special bank
accounts and with various mortgagees are not included as assets in the
consolidated balance sheets.
The Company has issued mortgage-backed securities guaranteed by GNMA
under the provisions of the National Housing Act. At December 31, 1993,
the principal amount of these securities outstanding was approximately
$309,189,000, which also represents the approximate principal amount of
the related mortgages that serve as collateral for the securities that
are being serviced under this program. These mortgages are included in
the $561,842,000 of total mortgages serviced referred to in the previous
paragraph. In keeping with the economic substance of these
transactions, the issuance of the mortgage-backed securities and
simultaneous placement of the related mortgages in trust have been
accounted for as a sale of the mortgages; accordingly, neither the
mortgages receivable nor the securities payable appear on the Company's
consolidated balance sheets. Included in the loans
underlying GNMA guaranteed mortgage-backed securities are FHA insured
loans, FmHA guaranteed loans and approximately $121,222,000 of mortgages
subject to VA guarantees. VA guarantees range from 25% to 60% of the
loan amount and, in the event of default, the Company is subject to a
contingent recourse liability to the investor in the mortgage-backed
securities for any loss not covered by FHA insurance, FmHA or VA
guarantees and the proceeds from liquidation of the mortgage collateral.
The Company has established allowances of $75,700 and $78,300 as of
December 31, 1993 and 1992, respectively, to provide for such recourse
liability and any related foreclosure expenses.
NOTE 18: CONTINGENCIES
In the ordinary course of business, there are various legal
proceedings pending against the Company and its subsidiaries.
Management, after consultation with legal counsel, is of the opinion
that the ultimate resolution of these proceedings will not have a material
adverse effect on the consolidated financial position of the Company.
F-29
<PAGE> 124
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 19: ADDITIONAL CASH FLOW INFORMATION
NONCASH INVESTING ACTIVITY
- --------------------------
<TABLE>
<CAPTION>
1993 1992 1991
------ ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Repossessed property acquired in settlement of debt $1,732 $921 $777
</TABLE>
<TABLE>
The Company purchased all of the capital stock of Blue Springs Bank
for $19.3 million. In conjunction with the acquisition, liabilities
were assumed as follows:
<CAPTION>
(DOLLARS
IN THOUSANDS)
<S> <C>
Fair value of assets acquired $187,678
Cash paid for the capital stock (19,328)
--------
Liabilities assumed $168,350
========
</TABLE>
ADDITIONAL CASH FLOW INFORMATION
- --------------------------------
<TABLE>
<CAPTION>
1993 1992 1991
--------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest paid $ 14,217 $ 13,549 $ 13,384
Income taxes paid 1,398 1,236 1,094
Mortgage loans held for sale:
Originations (127,778) (83,589) (51,871)
Purchases (19,984) (20,146) (16,348)
Sales 147,333 100,402 70,907
--------- -------- --------
Net change $ (429) $ (3,333) $ 2,688
========= ======== ========
</TABLE>
F-30
<PAGE> 125
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
NOTE 20: OTHER EXPENSES
Other expenses consisted of the following:
<CAPTION>
1993 1992 1991
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FDIC and state assessments $1,015 $ 778 $ 538
Data processing 528 467 411
Supplies 507 444 331
Professional fees 409 439 248
Postage and freight 540 369 317
Advertising 485 322 229
Other expenses 3,320 1,788 1,816
------ ------ ------
Total $6,804 $4,607 $3,890
====== ====== ======
</TABLE>
F-31
<PAGE> 126
<TABLE>
NOTE 21: MORTGAGE BANKING DIVISION
The following summarizes financial information for the Mortgage
Banking Division:
<CAPTION>
1993 1992 1991
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues $4,178 $3,821 $2,839
====== ====== ======
Income Before Income Taxes $ 921 $ 821 $ 367
====== ====== ======
Depreciation and Amortization $ 100 $ 97 $ 83
====== ====== ======
Capital Expenditures $ 67 $ 115 $ 289
====== ====== ======
Identifiable Assets at End of Period $2,864 $3,673 $2,712
====== ====== ======
</TABLE>
F-31
<PAGE> 127
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
NOTE 22: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Following is condensed financial information of the Company as of
December 31, 1993 and 1992 and for the years ended December 31, 1993, 1992
and 1991:
CONDENSED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
ASSETS
<CAPTION>
1993 1992
------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents $ 193 $ 5,410
Receivable from subsidiaries 251
Investment in subsidiaries 52,873 28,875
Premises and equipment 725 798
Other assets 2,180 1,689
------- -------
Total Assets $55,971 $37,023
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Employee Stock Ownership Plan obligation $ 1,819 $ 2,271
Notes payable 5,250 50
Other liabilities 380 337
------- -------
Total Liabilities 7,449 2,658
Shareholders' Equity 48,522 34,365
------- -------
Total Liabilities and Shareholders' Equity $55,971 $37,023
======= =======
</TABLE>
F-32
<PAGE> 128
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
NOTE 22: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<CAPTION>
1993 1992 1991
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME:
Dividends received from subsidiaries $2,103 $1,218 $1,991
Loan servicing income 2,184 2,015 1,834
Interest and fees on loans 1,363 1,140 651
Management fees 328 348 336
Other 717 532 348
------ ------ ------
6,695 5,253 5,160
------ ------ ------
EXPENSE:
Salaries and employee benefits 2,991 2,728 2,163
Net occupancy and equipment expense 367 313 292
Other 1,446 1,351 1,032
------ ------ ------
4,804 4,392 3,487
------ ------ ------
Income before income taxes 1,891 861 1,673
Income tax (expense) benefit (52) 214 233
Excess of equity in net income of subsidiaries over
dividends received 3,291 2,666 1,059
------ ------ ------
NET INCOME $5,130 $3,741 $2,965
====== ====== ======
</TABLE>
F-33
<PAGE> 129
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
NOTE 22: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<CAPTION>
1993 1992 1991
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,130 $ 3,741 $ 2,965
Items not requiring (providing) cash:
Excess of equity in net income of subsidiaries
over dividends received (3,291) (2,666) (1,059)
Depreciation and amortization 125 125 105
Gain on sale of assets (103)
Loss on retirement of premises and equipment 26 23
Change in other, net (38) 6 (20)
-------- ------- -------
Net cash provided by operating activities 1,952 1,206 1,911
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of premises and equipment, net (78) (106) (369)
Capital contributed to subsidiary (1,450) (5,100)
Purchase acquisition (19,328)
Purchase of subsidiary's common stock (24)
-------- ------- -------
Net cash used in investing activities (20,856) (5,230) (369)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid on common stock (1,204) (481) (263)
Dividends paid on preferred stock (258) (283) (377)
Proceeds from notes payable 6,275 5,023
Repayments of notes payable (1,075) (5,679) (230)
Proceeds from public offering of common stock 9,949 10,101
Retirement of Class "A" shares (23)
Purchase of treasury stock, net 9 (23)
-------- ------- -------
Net cash provided by (used in) financing activities 13,687 8,667 (893)
-------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,217) 4,643 649
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,410 767 118
-------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 193 $ 5,410 $ 767
======== ======= =======
</TABLE>
F-34
<PAGE> 130
CENTRAL MORTGAGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 23: AGREEMENT AND PLAN OF REORGANIZATION
On September 21, 1994, a merger agreement with the $12 billion
Mercantile Bancorporation Inc. ("MBI") of St. Louis, Missouri was
announced. The Company's shareholders will receive .597 shares of MBI
common stock for each share of the Company's common stock as
consideration for the merger. In connection with the transaction, the Company
granted MBI an option to acquire a number of shares of the Company's common
stock equal to 19.9% the Company's outstanding common stock, exercisable under
certain conditions.
MBI and the Company expect to complete the merger in the first half of 1995,
subject to satisfaction of certain conditions including the approval of
the Company's shareholders and certain regulatory agencies.
F-35
<PAGE> 131
ANNEX A
-------
LETTERHEAD OF STIFEL, NICOLAUS & COMPANY, INCORPORATED
September 21, 1994
Board of Directors
Central Mortgage Bancshares, Inc.
4435 Main Street
Kansas City, MO 64111
Members of the Board:
We understand that Central Mortgage Bancshares, Inc. ("Central")
is contemplating entering into an Agreement and Plan of Merger (the
"Agreement") with Mercantile Bancorporation Inc. ("MBI") and
Ameribanc, Inc., a wholly owned subsidiary of MBI. As is set forth in
the Agreement each outstanding share of common stock of Central will
be converted into and exchanged for .5970 shares of common stock of
MBI (the "Merger Consideration"). In connection therewith, you have
requested our opinion as to the fairness of the Merger Consideration,
from a financial point of view, to the shareholders of Central.
Stifel, Nicolaus & Company, Incorporated is an investment banking
and securities firm with membership on all principal U.S. securities
exchanges. As part of our investment banking services, we are
regularly engaged in the independent valuation of securities in
connection with negotiated underwritings, private placements, merger
and acquisition transactions and recapitalizations.
During the course of our engagement, we reviewed and analyzed
material bearing upon the financial and operating condition of Central
and MBI and material prepared in connection with the proposed
transaction, including among other things, the following: the
Agreement; certain publicly available information concerning Central
and MBI, including financial statements and Consolidated Reports of
Condition and Income for each of the five years ended December 31,
1993, and for the quarter ended June 30, 1994, for such institutions;
the nature and terms of recent sale and merger transactions involving
banks and holding companies for such institutions that we consider
relevant; historical and current market data for Central and MBI
common stock; and financial and other information provided to us by
management of Central and MBI. In addition, we have conducted
meetings with members of the senior management of Central and MBI. We
evaluated the pro forma ownership of MBI common stock by Central
shareholders, relative to the pro forma contribution of Central's
assets, liabilities, equity and earnings to the pro forma combined
entity. We also took into account our experience in other
transactions, as well as our knowledge of the banking industry and our
general experience in securities valuations.
In rendering this opinion, we have assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations provided to us by Central and MBI.
With respect to the financial forecasts of Central provided to us by
Central's management, we assumed for purposes of our opinion that they
were reasonably prepared on bases reflecting the best available
estimates and judgments of Central's management at the time of
preparation as to the future financial performance of Central and that,
in preparing such forecasts, Central's management took into account all
factors that were reasonably required to be taken into account by
management in order to prepare such forecasts. We also assumed that there were
no material changes in Central's or MBI's assets, financial condition, results
of operations, business or prospects since the date of the last financial
statements made available to us. We relied on advice of counsel to Central as
to all legal matters contained or contemplated therein. In addition, we did
not make or obtain an independent evaluation, appraisal or physical
inspection of the assets, individual properties or liabilities of
Central or MBI, nor were we furnished with any such appraisal.
Further, our opinion is based on economic, monetary, market and
A-1
<PAGE> 132
other conditions existing as of the date hereof. No opinion is expressed as
to the prices at which any securities of Central or MBI, including their
common stock, might trade in the future.
Based on the foregoing and our experience as investment bankers,
we are of the opinion that, as of the date hereof, the Merger
Consideration to be received by the shareholders of Central, as
described in the Agreement, is fair to the shareholders of Central
from a financial point of view.
Sincerely,
STIFEL, NICOLAUS AND
COMPANY, INCORPORATED
A-2
<PAGE> 133
ANNEX B
-------
Following is the text of the statutory appraisal right as set
forth at Section 351.455 of The General and Business Corporation Law
of Missouri:
351.455 SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE OF
SHARES, WHEN.--1. If a shareholder of a corporation which is a party
to a merger or consolidation shall file with such corporation, prior
to or at the meeting of shareholders at which the plan of merger or
consolidation is submitted to a vote, a written objection to such plan
of merger or consolidation, and shall not vote in favor thereof, and
such shareholder, within twenty days after the merger or consolidation
is effected, shall make written demand on the surviving or new
corporation for payment of the fair value of his shares as of the day
prior to the date on which the vote was taken approving the merger or
consolidation, the surviving or new corporation shall pay to such
shareholder, upon surrender of his certificate or certificates
representing said shares, the fair value thereof. Such demand shall
state the number and class of the shares owned by such dissenting
shareholder. Any shareholder failing to make demand within the twenty
day period shall be conclusively presumed to have consented to the
merger or consolidation and shall be bound by the terms thereof.
2. If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon
between the dissenting shareholder and the surviving or new
corporation, payment therefor shall be made within ninety days after
the date on which such merger or consolidation was effected, upon the
surrender of his certificate or certificates representing said shares.
Upon payment of the agreed value the dissenting shareholder shall
cease to have any interest in such shares or in the corporation.
3. If within such period of thirty days the shareholder and the
surviving or new corporation do not so agree, then the dissenting
shareholder may, within sixty days after the expiration of the thirty
day period, file a petition in any court of competent jurisdiction
within the county in which the registered office of the surviving or
new corporation is situated, asking for a finding and determination of
the fair value of such shares, and shall be entitled to judgment
against the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was taken
approving such merger or consolidation, together with interest thereon
to the date of such judgment. The judgment shall be payable only upon
and simultaneously with the surrender to the surviving or new
corporation of the certificate or certificates representing said
shares. Upon the payment of the judgment, the dissenting shareholder
shall cease to have any interest in such shares, or in the surviving
or new corporation. Such shares may be held and disposed of by the
surviving or new corporation as it may see fit. Unless the dissenting
shareholder shall file such petition within the time herein limited,
such shareholder and all persons claiming under him shall be
conclusively presumed to have approved and ratified the merger or
consolidation, and shall be bound by the terms thereof.
4. The right of a dissenting shareholder to be paid the fair
value of his shares as herein provided shall cease if and when the
corporation shall abandon the merger or consolidation.
B-1
<PAGE> 134
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
------------------------------------------
Item 20. Indemnification of Officers and Directors
- ---------------------------------------------------
Sections 351.355(1) and (2) of The General and Business
Corporation Law of the State of Missouri provide that a corporation
may indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was
unlawful, except that, in the case of an action or suit by or in the
right of the corporation, the corporation may not indemnify such
persons against judgments and fines and no person shall be indemnified
as to any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation, unless and only to the
extent that the court in which the action or suit was brought
determines upon application that such person is fairly and reasonably
entitled to indemnity for proper expenses. Section 351.355(3)
provides that, to the extent that a director, officer, employee or
agent of the corporation has been successful in the defense of any
such action, suit or proceeding or any claim, issue or matter therein,
he shall be indemnified against expenses, including attorneys' fees,
actually and reasonably incurred in connection with such action, suit
or proceeding. Section 351.355(7) provides that a corporation may
provide additional indemnification to any person indemnifiable under
subsection (1) or (2), provided such additional indemnification is
authorized by the corporation's articles of incorporation or an
amendment thereto or by a shareholder-approved bylaw or agreement, and
provided further that no person shall thereby be indemnified against
conduct which was finally adjudged to have been knowingly fraudulent,
deliberately dishonest or willful misconduct or which involved an
accounting for profits pursuant to Section 16(b) of the Securities
Exchange Act of 1934.
Article 12 of the Restated Articles of Incorporation of the
Registrant provides that the Registrant shall extend to its directors
and executive officers the indemnification specified in subsections
(1) and (2) and the additional indemnification authorized in
subsection (7) and that it may extend to other officers, employees and
agents such indemnification and additional indemnification.
Pursuant to directors' and officers' liability insurance
policies, with total annual limits of $30,000,000, the Registrant's
directors and officers are insured, subject to the limits, retention,
exceptions and other terms and conditions of such policy, against
liability for any actual or alleged error, misstatement, misleading
statement, act or omission, or neglect or breach of duty by the
directors or officers of the Registrant, individually or collectively,
or any matter claimed against them solely by reason of their being
directors or officers of the Registrant.
II-1
<PAGE> 135
Item 21. Exhibits and Financial Statement Schedules
- ----------------------------------------------------
A. Exhibits. See Exhibit Index.
---------
B. Financial Statement Schedules. Not Applicable.
------------------------------
Item 22. Undertakings
- ----------------------
(1) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication
of such issue.
(2) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) The undersigned Registrant hereby undertakes as follows:
that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other Items of the
applicable form.
(4) The Registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph (3) immediately preceding, or
(ii) that purports to meet the requirements of section 10(a)(3) of
the Act and is used in connection with an offering of securities
subject to Rule 415 (Section 230.415 of this chapter), will be
filed as a part of an amendment to the Registration Statement and
will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offering
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) The undersigned Registrant hereby undertakes to respond
to requests for information that is incorporated by reference into
the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in the documents filed
subsequent to the effective date of the Registration Statement
through the date of responding to the request.
II-2
<PAGE> 136
(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.
(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
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of St. Louis, State of
Missouri, on November ___, 1994.
MERCANTILE BANCORPORATION INC.
By /s/ Thomas H. Jacobsen
___________________________________
Thomas H. Jacobsen
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act
of 1933, this Registration Statement has been signed by the
following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Thomas H. Jacobsen
_______________________________________ Chairman of the Board, November ___, 1994
Thomas H. Jacobsen President, Chief Executive
Principal Executive Officer Officer and Director
/s/ W. Randolph Adams
_______________________________________ Executive Vice President and November ___, 1994
W. Randolph Adams Chief Financial Officer
Principal Financial Officer
/s/ Michael T. Normile
_______________________________________ Vice President and November ___, 1994
Michael T. Normile Treasurer
Principal Accounting Officer
- --------------------------------------- Director November ___, 1994
Richard P. Conerly
- --------------------------------------- Director November ___, 1994
Harry M. Cornell, Jr.
- --------------------------------------- Director November ___, 1994
Earl K. Dille
- --------------------------------------- Director November ___, 1994
J. Cliff Eason
II-4
<PAGE> 138
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
- --------------------------------------- Director November ___, 1994
Bernard A. Edison
- --------------------------------------- Director November ___, 1994
William A. Hall
- --------------------------------------- Director November ___, 1994
Thomas A. Hays
- --------------------------------------- Director November ___, 1994
William G. Heckman
- --------------------------------------- Director November ___, 1994
James B. Malloy
- --------------------------------------- Director November ___, 1994
Charles H. Price II
- --------------------------------------- Director November ___, 1994
Harvey Saligman
- --------------------------------------- Director November ___, 1994
Craig D. Schnuck
- --------------------------------------- Director November ___, 1994
Robert W. Staley
- --------------------------------------- Director November ___, 1994
Robert L. Stark
- --------------------------------------- Director November ___, 1994
Patrick T. Stokes
- --------------------------------------- Director November ___, 1994
Francis A. Stroble
- --------------------------------------- Director November ___, 1994
Joseph G. Werner
II-5
<PAGE> 139
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
- --------------------------------------- Director November ___, 1994
John A. Wright
</TABLE>
*By /s/ Thomas H. Jacobsen
____________________________________
Thomas H. Jacobsen, Attorney-in-fact
Thomas H. Jacobsen, by signing his name hereto, does sign this
document on behalf of the persons named above, pursuant to a
power of attorney duly executed by such persons, filed
herewith as Exhibit 24.1.
II-6
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Description Page
------- ----------- ----
<S> <C> <C>
2.1 Amended and Restated Agreement and Plan of Merger dated as of
November 1, 1994 by and among MBI, ABNK and Central Mortgage.
2.2 Investment Agreement dated as of September 21, 1994 by and
between MBI and Central Mortgage.
2.3 Option dated September 21, 1994 granted to MBI by Central
Mortgage.
2.4 Form of Voting Agreement dated as of September 21, 1994 by and
between MBI and certain directors of Central Mortgage.
3.1 MBI's Restated Articles of Incorporation, as amended and
currently in effect (filed as Exhibit 3(i) to MBI's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994 and
incorporated herein by reference).
3.2 MBI's By-Laws, as amended and currently in effect (filed as
Exhibit 3(ii) to MBI's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993 and 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 and 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 on May 24, 1988 as Exhibits 1 and
2 to MBI's Registration Statement on Form 8-A, and incorporated
herein by reference).
4.3 Form of Indenture between Ameribanc, Inc. and First Trust
Company, Inc., Trustee (filed as Exhibit 4.4 to MBI's
Registration No. 33-63196 and incorporated herein by
reference).
4.4 First Supplemental Indenture by and among Mercantile
Bancorporation Inc., Mercantile Acquisition Corporation I and
First Trust National Association (filed as Exhibit 4.5 to MBI's
Registration No. 33-63196 and incorporated herein by
reference).
5.1 Opinion of Thompson & Mitchell as to the legality of the
securities being registered.
8.1 Opinion of Thompson & Mitchell regarding certain tax matters in
the Merger.
10.1 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan
(filed on April 28,
II-7
<PAGE> 141
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Description Page
------- ----------- ----
<S> <C> <C>
1994 as Appendix B to the Definitive Proxy
Materials of Registrant and incorporated herein by reference).
10.2 The Mercantile Bancorporation Inc. 1994 Executive Incentive
Compensation plan (filed on April 28, 1994 as Appendix C to the
Definitive Proxy Materials of Registrant and incorporated
herein by reference).
10.3 The Mercantile Bancorporation Inc. 1994 Voluntary Deferred
Compensation Plan (filed on April 28, 1994 as Appendix D to the
Definitive Proxy Materials of Registrant and incorporated
herein by reference).
10.4 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan
for Non-Employee Directors (filed on April 28, 1994 as Appendix
E to the Definitive Proxy Materials of Registrant and
incorporated herein by reference).
23.1 Consent of KPMG Peat Marwick LLP with regard to use of its
report on MBI's financial statements.
23.2 Consent of Baird, Kurtz & Dobson with regard to the use of its
report on Central Mortgage's financial statements.
23.3 Consent of Thompson & Mitchell (included in Exhibit 5.1).
23.4 Consent of Stifel, Nicolaus & Company, Incorporated.
24.1 Power of Attorney.
99.1 Form of Proxy for the Special Meeting of Shareholders of
Central Mortgage to be held on -----------------, 1995.
</TABLE>
II-8
<PAGE> 1
================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
MERCANTILE BANCORPORATION INC.,
A MISSOURI CORPORATION
AND
AMERIBANC, INC.,
A MISSOURI CORPORATION
AND
CENTRAL MORTGAGE BANCSHARES, INC.
A MISSOURI CORPORATION
-------------------------------------------------
SEPTEMBER 21, 1994
AS AMENDED NOVEMBER 1, 1994
================================================================================
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
Recitals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
THE MERGER
1.01 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.03 Method of Effecting Merger and Effective Time . . . . . . . . . . . . . 2
1.04 Articles of Incorporation and By-Laws . . . . . . . . . . . . . . . . . 2
1.05 Board of Directors and Officers . . . . . . . . . . . . . . . . . . . . 2
1.06 Additional Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.07 Conversion of Securities. . . . . . . . . . . . . . . . . . . . . . . . 3
1.08 Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.09 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.10 No Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.11 Closing of Stock Transfer Books . . . . . . . . . . . . . . . . . . . . 5
1.12 Anti-Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CENTRAL MORTGAGE
2.01 Organization and Authority. . . . . . . . . . . . . . . . . . . . . . . 6
2.02 Corporate Authorization; Records. . . . . . . . . . . . . . . . . . . . 6
2.03 Second Tier Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 7
2.04 Capitalization of Central Mortgage. . . . . . . . . . . . . . . . . . . 7
2.05 Capitalization of Central Mortgage Subsidiaries . . . . . . . . . . . . 8
2.06 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.07 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.08 Title to and Condition of Assets. . . . . . . . . . . . . . . . . . . . 9
2.09 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.10 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.11 Absence of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.12 Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . 13
2.13 Allowance for Loan and Lease Losses; Non-Performing
Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.15 Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . 14
2.16 Litigation and Other Proceedings. . . . . . . . . . . . . . . . . . . . 14
2.17 Governmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . 15
2.18 Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.19 Interests of Certain Persons. . . . . . . . . . . . . . . . . . . . . . 16
2.20 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . 16
2.21 Conduct of Central Mortgage and the Central Mortgage
Subsidiaries to Date. . . . . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE> 3
2.22 Registration Statement, etc . . . . . . . . . . . . . . . . . . . . . . 18
2.23 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE MERCANTILE ENTITIES
3.01 Organization and Authority. . . . . . . . . . . . . . . . . . . . . . . 19
3.02 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.03 Capitalization of Mercantile. . . . . . . . . . . . . . . . . . . . . . 20
3.04 Mercantile Financial Statements . . . . . . . . . . . . . . . . . . . . 21
3.05 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.06 Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . 21
3.07 Registration Statement, Proxy Statement etc . . . . . . . . . . . . . . 22
3.08 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.09 Legal Proceedings or Other Adverse Facts. . . . . . . . . . . . . . . . 22
3.10 Commitments and Contracts . . . . . . . . . . . . . . . . . . . . . . . 23
3.11 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IV
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.01 Conduct of Businesses Prior to the Effective Time . . . . . . . . . . . 23
4.02 Forbearances of Central Mortgage. . . . . . . . . . . . . . . . . . . . 23
4.03 Forbearances of the Mercantile Entities . . . . . . . . . . . . . . . . 25
ARTICLE V
ADDITIONAL AGREEMENTS
5.01 Access and Information; Due Diligence . . . . . . . . . . . . . . . . . 26
5.02 Registration Statement; Regulatory Matters. . . . . . . . . . . . . . . 27
5.03 Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.04 Current Information . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.05 Agreements of Affiliates. . . . . . . . . . . . . . . . . . . . . . . . 28
5.06 Tax Opinion Certificates. . . . . . . . . . . . . . . . . . . . . . . . 28
5.07 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.08 Miscellaneous Agreements and Consents . . . . . . . . . . . . . . . . . 29
5.09 Press Releases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.10 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.11 Employee Benefit Plans; Employee Stock Options. . . . . . . . . . . . . 29
5.12 Best Efforts to Insure Pooling. . . . . . . . . . . . . . . . . . . . . 30
5.13 Payment of Change of Control Benefits . . . . . . . . . . . . . . . . . 30
5.14 Cenco Stock Purchase/Redemption . . . . . . . . . . . . . . . . . . . . 30
ii
<PAGE> 4
ARTICLE VI
CONDITIONS
6.01 Conditions to Each Party's Obligation To Effect the
Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.02 Conditions to Obligations of Central Mortgage . . . . . . . . . . . . . 31
6.03 Conditions to Obligations of the Mercantile Entities. . . . . . . . . . 32
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.01 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.02 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.03 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.04 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VIII
GENERAL PROVISIONS
8.01 Non-Survival of Representations, Warranties and
Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.02 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.03 No Assignment; Successors and Assigns . . . . . . . . . . . . . . . . . 35
8.04 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.05 No Implied Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.06 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.07 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.08 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.09 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
iii
<PAGE> 5
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
----------------------------
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
(this "Agreement"), made and entered into as of November 1, 1994
by and among Mercantile Bancorporation Inc., a Missouri
corporation ("Mercantile"), Ameribanc, Inc., a Missouri
corporation ("Ameribanc" and, collectively, with Mercantile, the
"Mercantile Entities"), and Central Mortgage Bancshares, Inc. a
Missouri corporation ("Central Mortgage"), amends and restates
the Agreement and Plan of Merger dated as of September 21, 1994
by and among Mercantile, Ameribanc and Central Mortgage (the
"Initial Agreement") and supercedes such Initial Agreement in its
entirety:
A. Central Mortgage is the beneficial and record owner
of one hundred percent (100%) of the issued and outstanding
shares of the capital stock of each of Barton County State Bank
("Barton Bank"), Citizens-Jackson County Bank ("Citizens-Jackson
Bank"), Citizens State Bank of Nevada ("Nevada Bank") and Farmers
Bank of Stover ("Farmers Bank"), all of which are banking
corporations organized under the laws of the State of Missouri,
and beneficial and record owner of approximately seventy-seven
and four-tenths percent (77.4%) of the issued and outstanding
shares of the capital stock of Cenco Insurance Company, Inc., a
non-banking corporation organized under the laws of the State of
Arizona ("Cenco") (individually, a "Central Mortgage Subsidiary"
and, collectively, the "Central Mortgage Subsidiaries"); and
B. Mercantile is the beneficial and record owner of
one hundred percent (100%) of the issued and outstanding shares
of the capital stock of Ameribanc; and
C. The Executive Committee of the Board of Directors
of Mercantile and the respective Boards of Directors of Ameribanc
and Central Mortgage previously approved the merger of Central
Mortgage and Ameribanc pursuant to the terms of the Initial
Agreement and now desire to amend, restate and supercede the
Initial Agreement in its entirety with this Agreement; and
D. The Mercantile Entities and Central Mortgage desire
to provide in this Agreement for certain undertakings,
conditions, representations, warranties and covenants, as
amended, in connection with the transactions contemplated by this
Agreement.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the
parties agree as follows:
ARTICLE I
---------
THE MERGER
1.01 The Merger. Subject to the terms and
----------
conditions of this Agreement, Central Mortgage shall be merged
with and into Ameribanc (the "Merger") in accordance with Chapter
351 of the Missouri Revised Statutes (the "Missouri Statute"),
and the separate corporate existence of Central Mortgage shall
cease. Ameribanc shall be the surviving
1
<PAGE> 6
corporation (sometimes hereinafter referred to as the "Surviving
Corporation") and the name of the Surviving Corporation shall be
Ameribanc, Inc.
1.02 Closing. The closing (the "Closing") of the
-------
Merger, unless the parties hereto shall otherwise mutually agree,
shall take place at the offices of Mercantile in St. Louis,
Missouri, at 10:00 am, local time, subject to the terms and
conditions (including but not limited to the conditions set forth
in Article VI) of this Agreement, on the first Business Day (as
hereinafter defined) (the "Closing Date") of the month
immediately succeeding the month in which the last of the
following events occurs: (a) the receipt of the requisite
approval of the Agreement and the Merger by the shareholders of
Central Mortgage as set forth in Section 2.02 of this Agreement,
(b) the thirtieth day after the approval of the Merger by the
Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") and (c) the approval by the Missouri Division of
Finance (the "Division of Finance") and any other bank regulatory
agency that may be necessary or appropriate. For purposes of
this Agreement, "Business Day" shall mean any day that the Office
of Secretary of State of the State of Missouri is open for the
receipt of official corporate filings.
1.03 Method of Effecting Merger and Effective Time.
---------------------------------------------
On the Closing Date, the parties hereto will cause the Merger to
be consummated by delivering to the Secretary of State of the
State of Missouri, for filing, Articles of Merger in such form as
required by, and executed and acknowledged in accordance with,
the relevant provisions of the Missouri Statute. The Merger
shall be effective (the "Effective Time") upon the issuance of
the certificate of merger by the Secretary of State of the State
of Missouri.
1.04 Articles of Incorporation and By-Laws. The
-------------------------------------
Articles of Incorporation and By-Laws of Ameribanc in effect
immediately prior to the Effective Time shall be the Articles of
Incorporation and By-Laws of the Surviving Corporation, in each
case until amended in accordance with their respective provisions
and applicable law.
1.05 Board of Directors and Officers.
-------------------------------
(a) At the Effective Time, the Board of Directors
of the Surviving Corporation shall consist of those persons
serving as directors of Ameribanc immediately prior to the
Effective Time and the terms of those directors after the
Effective Time shall be the same as their respective terms
immediately prior to the Effective Time.
(b) The officers of Ameribanc shall be the
officers of the Surviving Corporation until their respective
successors are duly elected and qualified.
1.06 Additional Actions. If, at any time after the
------------------
Effective Time, the Surviving Corporation shall consider or be
advised that any further deeds, assignments, or assurances in law
or any other acts are necessary or desirable to (a) vest,
perfect, or confirm, of record or otherwise, in the Surviving
Corporation its right, title, or interest in, to, or under any of
the rights, properties, or assets of Central Mortgage and the
Central Mortgage Subsidiaries, or (b) otherwise carry out the
purposes of this Agreement, Central Mortgage and its 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 in law and to
do all acts necessary or proper to vest, perfect, or confirm
title to and possession of such rights, properties, or assets in
the Surviving Corporation and otherwise to carry out the
2
<PAGE> 7
purposes of this Agreement, and the officers and directors of the
Surviving Corporation are authorized in the name of Central
Mortgage or otherwise to take any and all such action.
1.07 Conversion of Securities.
------------------------
At the Effective Time, by virtue of the Merger and
without any action on the part of the Mercantile Entities,
Central Mortgage or any Central Mortgage shareholder, each share
of common stock, $1.00 par value, of Central Mortgage ("Central
Mortgage Common Stock") issued and outstanding at the Effective
Time (other than any shares held by Central Mortgage, Mercantile
or any of their respective wholly-owned subsidiaries (in each
case other than in a fiduciary capacity or as a result of debts
previously contracted), which shall be cancelled, and other than
any Dissenting Shares), shall cease to be outstanding and shall
be converted into and become the right to receive .5970 of the
shares of common stock, $5.00 par value, of Mercantile and the
associated "Rights" under the "Rights Agreement", as those terms
are defined in Section 3.03 hereof ("Mercantile Stock") (the
"Exchange Ratio").
1.08 Exchange Procedures.
-------------------
(a) Prior to the Closing Date, Mercantile shall
appoint Society National Bank, or such other bank or trust
company selected by Mercantile and reasonably acceptable to
Central Mortgage, as the exchange agent (the "Exchange Agent") to
effect the exchange of certificates evidencing shares of Central
Mortgage Stock for shares of Mercantile Common Stock to be
received in the Merger. At the Effective Time, Mercantile shall
have granted the Exchange Agent the requisite power and authority
to effect for and on behalf of Mercantile the issuance of the
number of shares of Mercantile Common Stock issuable in the
Merger.
(b) Within five (5) Business Days after the
Effective Time, the Exchange Agent shall mail to each holder of
record of Central Mortgage Stock as of the Closing Date a notice
of consummation of the Merger and a form of letter of
transmittal, which shall be in a form reasonably acceptable to
Central Mortgage, pursuant to which each such shareholder shall
transmit the certificate or certificates formerly representing
shares of the Central Mortgage Common Stock, or, in lieu thereof,
such evidence of lost, stolen or mutilated certificate or
certificates and such surety bond as the Exchange Agent may
reasonably require in accordance with customary exchange
practices. Central Mortgage shareholders who satisfy such
requirements for lost, stolen or mutilated certificates shall for
purposes of the exchange procedures set forth herein be deemed to
have submitted certificates for Central Mortgage Stock. As soon
as practicable after surrender of such certificate to the
Exchange Agent with a properly completed letter of transmittal,
the Exchange Agent will promptly mail by first-class mail to such
shareholder a certificate or certificates representing the number
of full shares of Mercantile Stock into which the shares of
Central Mortgage Common Stock evidenced by the certificate
surrendered shall have been converted pursuant to this Agreement.
(c) The Exchange Agent shall accept such
certificates upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an orderly
exchange thereof in accordance with customary exchange practices.
Each outstanding certificate that, prior to the Effective Time,
represented Central Mortgage Common Stock shall, except as otherwise
provided in this Agreement, until duly surrendered to the Exchange Agent,
3
<PAGE> 8
be deemed to evidence ownership of the number of shares of
Mercantile Common Stock into which such Central Mortgage Common
Stock shall have been converted in the Merger. After the
Effective Time, there shall be no further transfer on the records
of Central Mortgage of certificates representing shares of
capital stock of Central Mortgage, and if such certificates are
presented to Central Mortgage for transfer, they shall be
cancelled against delivery of the consideration provided therefor
in this Agreement. If the record date for any dividend or other
distribution in respect of Mercantile Stock, including any
redemption by Mercantile of the Rights associated therewith,
shall occur on or after the Closing Date, the holders of Central
Mortgage Common Stock shall be entitled to such dividend or other
distribution, but no dividends declared on or other distributions
in respect of Mercantile Stock will be remitted to
any person entitled to receive Mercantile Stock under this
Agreement until such person surrenders the certificate or
certificates representing Central Mortgage Common Stock, at which
time such dividends or other distributions shall be remitted to
such person, without interest and less any amounts in respect of
taxes that may have been imposed thereon and which are required
to be withheld by Mercantile. Neither the Exchange Agent,
Mercantile nor Central Mortgage shall be liable to any holder of
Central Mortgage Common Stock for any consideration paid to a
public official pursuant to applicable abandoned property,
escheat or similar laws. The Exchange Agent shall not be
entitled to vote or exercise any rights of ownership with respect
to shares of Mercantile Stock held by it from time to time
hereunder.
(d) No transfer taxes shall be payable by any
shareholder of Central Mortgage in respect of the issuance of
certificates for Mercantile Stock and no expenses shall be
imposed on any shareholder of Central Mortgage in connection with
the conversion of shares of Central Mortgage Stock into shares of
Mercantile Stock and the delivery of such shares to the former
holder of Central Mortgage Stock entitled thereto, except that
(i) if any certificate for shares of Mercantile Stock is to be
issued in a name other than that in which a certificate or
certificates for shares of Central Mortgage Common Stock
surrendered shall have been registered, it shall be a condition
to such issuance that the person requesting such issuance shall
pay to Mercantile any transfer taxes payable by reason thereof or
of any prior transfer of such surrendered certificate or
certificates or establish to the reasonable satisfaction of
Mercantile that such taxes have been paid or are not payable, and
(ii) nothing herein shall relieve a shareholder of Central
Mortgage of any expenses associated with surrendering such
holder's certificates evidencing Central Mortgage Common Stock to
the Exchange Agent.
1.09 Dissenting Shares.
-----------------
(a) "Dissenting Shares" means any shares held by
any holder who becomes entitled to payment of the fair value of
such shares under Section 351.455 of the Missouri Statute. Any
holders of Dissenting Shares shall be entitled to payment for
such shares only to the extent permitted by and in accordance
with the provisions of such law and Mercantile shall cause the
Surviving Corporation to pay such consideration with funds
provided by Mercantile.
(b) Each party hereto shall give the other prompt
notice of any written demands for the payment of the fair value
of any shares, withdrawals of such demands, and any other
instruments, served pursuant to the Missouri Statute received by
such party and Central Mortgage shall give Mercantile the
opportunity to participate in all negotiations and proceedings
with respect to such demands. Central Mortgage shall not
voluntarily make any payment with respect to any demands for
payment of fair value and shall not, except with the
4
<PAGE> 9
prior written consent of Mercantile, which consent shall not be
unreasonably withheld, settle or offer to settle any such
demands.
1.10 No Fractional Shares. Notwithstanding any
--------------------
other provision of this Agreement, neither certificates nor scrip
for fractional shares of Mercantile Common Stock shall be issued
in the Merger. Each holder of shares of Central Mortgage Common
Stock who otherwise would have been entitled to a fraction of a
share of Mercantile Common Stock shall receive (by check from the
Exchange Agent, mailed to the shareholder with the certificate(s)
for Mercantile Common Stock which such holder is to receive
pursuant to the Merger) in lieu thereof, and at the time such
holder receives the shares of Mercantile Common Stock to which
the holder is entitled, cash (without interest) in an amount
determined by multiplying the fractional share interest to which
such holder would otherwise be entitled by the closing stock
price of Mercantile Common Stock on the New York Stock Exchange
(the "NYSE") Composite Tape as reported in The Wall Street
Journal on the Closing Date of the Merger. No such holder shall
be entitled to dividends, voting rights or any other rights in
respect of any fractional share.
1.11 Closing of Stock Transfer Books. The stock
-------------------------------
transfer books of Central Mortgage shall be closed at the close
of business on the Business Day immediately preceding the Closing
Date. In the event of a transfer of ownership of Central
Mortgage Common Stock which is not registered in the transfer
records of Central Mortgage, the consideration to be distributed
pursuant to this Agreement may be delivered to a transferee, if
the certificate representing such shares is presented to the
Exchange Agent, accompanied by all documents required to evidence
and effect such transfer and all applicable stock transfer taxes
are paid. Mercantile and the Exchange Agent shall be entitled to
rely upon the stock transfer books of Central Mortgage to
establish the identity of those persons entitled to receive the
consideration specified in this Agreement for their shares of
Central Mortgage Common Stock, which books shall be conclusive
with respect to the ownership of such shares. In the event of a
dispute with respect to the ownership of any such shares,
Mercantile and the Exchange Agent shall be entitled to deposit
any consideration represented thereby in escrow with an
independent party and thereafter be relieved with respect to any
claims to such consideration.
1.12 Anti-Dilution. If between the date of this
-------------
Agreement and the Effective Time a share of Mercantile Common
Stock shall be changed into a different number of shares of
Mercantile Common Stock or a different class of shares by reason
of reclassification, recapitalization, split-up, exchange of
shares or readjustment, or if a stock dividend thereon shall be
declared with a record date within such period, then the number
of shares of Mercantile Common Stock into which a share of
Central Mortgage Common Stock shall be converted pursuant to
Section 1.07 of this Agreement will be appropriately and
proportionately adjusted so that each shareholder of Central
Mortgage shall be entitled to receive such number of shares of
Mercantile Common Stock or other securities as such shareholder
would have received pursuant to such reclassification,
recapitalization, split-up, exchange of shares or readjustment or
as a result of such stock dividend had the record date therefor
been immediately following the Effective Time.
5
<PAGE> 10
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES OF CENTRAL MORTGAGE
As an inducement to the Mercantile Entities to enter
into and perform their respective obligations under this
Agreement, and notwithstanding any examinations, inspections,
audits and other investigations made by the Mercantile Entities,
Central Mortgage hereby represents and warrants to the Mercantile
Entities as follows:
2.01 Organization and Authority. Central Mortgage
--------------------------
is a corporation duly organized, validly existing and in good
standing under the laws of the State of Missouri, is duly
qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and has
the corporate power and authority to own its properties and
assets and to carry on its business as it is now being conducted.
Central Mortgage is registered as a bank holding company with the
Federal Reserve Board under the Bank Holding Company Act of 1956,
as amended (the "BHC Act"). Except for the Central Mortgage
Subsidiaries, Central Mortgage has no direct or indirect
subsidiaries.
Each of Barton Bank, Citizens-Jackson Bank, Nevada Bank
and Farmers Bank (collectively, the "Banks") is a commercial bank
duly organized, validly existing and in good standing under the
laws of the State of Missouri. The deposits of the Banks are
insured by the Federal Deposit Insurance Corporation (the "FDIC")
under the Federal Deposit Insurance Act of 1950, as amended (the
"FDI Act"). Cenco is a corporation duly organized, validly
existing and in good standing under the law of the State of
Arizona. Each Central Mortgage Subsidiary is qualified to do
business and is in good standing in all jurisdictions where its
ownership or leasing of property or the conduct of its business
requires it to be so qualified and has the corporate power and
authority to own and operate its properties and to carry out its
business as and where the same is now being conducted, except
where the failure to so qualify would not have a material adverse
effect on the financial condition, results of operations,
business, assets, prospects or operations of Central Mortgage and
the Central Mortgage Subsidiaries, taken as a whole. (Such an
effect, as applied to either Central Mortgage or Mercantile, as
the context requires, is hereinafter referred to as a "Material
Adverse Effect").
2.02 Corporate Authorization; Records. Central
--------------------------------
Mortgage has the corporate power and authority to enter into this
Agreement and, subject to the approval of this Agreement and the
Merger by the shareholders of Central Mortgage and such approvals
of governmental agencies and other governing boards having
regulatory authority over Central Mortgage and each Central
Mortgage Subsidiary as may be required by applicable law, rule or
regulation, to carry out its obligations hereunder. The only
shareholder vote of Central Mortgage required to approve this
Agreement and the Merger is the affirmative vote of the holders
of at least two-thirds of the outstanding shares of Central
Mortgage Common Stock. The execution, delivery and performance
of this Agreement by Central Mortgage and the consummation of the
transactions contemplated hereby have been duly authorized by the
Board of Directors of Central Mortgage. Subject to the
approvals, as aforesaid, this Agreement is the valid and binding
obligation of Central Mortgage, enforceable against Central
Mortgage in accordance with its terms.
6
<PAGE> 11
Except as set forth on Schedule 2.02, neither the
-------------
execution, delivery and performance by Central Mortgage of this
Agreement, nor the consummation of the transactions contemplated
hereby, nor compliance by Central Mortgage with any of the
provisions hereof will (a) violate, conflict with, or result in a
breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate
the performance required by, or result in a right of termination
or acceleration of, or result in the creation of, any lien,
security interest, charge or encumbrance upon any of the material
properties or assets of Central Mortgage or any Central Mortgage
Subsidiary under any of the terms, conditions or provisions of
(i) the Articles of Incorporation or the Articles of Association,
as the case may be, or By-laws of each, or (ii) any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Central Mortgage or any
Central Mortgage Subsidiary is a party or by which it may be
bound, or to which Central Mortgage or any Central Mortgage
Subsidiary or any of the material properties or assets of Central
Mortgage or any Central Mortgage Subsidiary may be subject, or
(b) subject to compliance with the statutes and regulations
referred to in the next paragraph, violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation
applicable to Central Mortgage or any Central Mortgage Subsidiary
or any of their respective material properties or assets.
Other than in connection or in compliance with the
provisions of the Missouri Statute, the Securities Act of 1933
and the rules and regulations thereunder (the "Securities Act"),
the Securities Exchange Act of 1934 and the rules and regulations
thereunder (the "Exchange Act"), the securities or blue sky laws
of the various states or filings, consents, reviews,
authorizations, approvals or exemptions required under the BHC
Act, or any required approvals of the Federal Reserve Board and
the Division of Finance or other governmental agencies or
governing boards having regulatory authority over Central
Mortgage or any Central Mortgage Subsidiary, no notice to, filing
with, exemption or review by, or authorization, consent or
approval of, any public body or authority is necessary for the
consummation by Central Mortgage of the transactions contemplated
by this Agreement.
The minute books and stock records of Central Mortgage
and each of the Central Mortgage Subsidiaries are complete and
correct in all material respects and accurately reflect in all
material respects all meetings, consents and other actions of the
organizers, incorporators, shareholders, Board of Directors and
committees of the Board of Directors occurring since the
organization of each.
2.03 Second Tier Subsidiaries. Each Central
------------------------
Mortgage Subsidiary has no subsidiaries and does not control, or
have any equity ownership interest in, any other corporation,
partnership, joint venture or other business association, other
than any interest pledged to such Central Mortgage Subsidiary in
the ordinary course of its business as security for the
obligations of third parties to such Central Mortgage Subsidiary
or held by such Central Mortgage Subsidiary either as a
consequence of its exercise of rights and remedies in respect of
any interest pledged as security in respect of such obligations
or in a fiduciary capacity.
2.04 Capitalization of Central Mortgage. The
----------------------------------
authorized stock of Central Mortgage consists of (i) 43,000
shares of Series A preferred stock, $10.00 par value, of which,
as of August 31, 1994, 42,573 shares were issued and
outstanding, and (ii) 6,000,000 shares of common stock, $1.00 par
value, of which as of August 31, 1994, 3,701,849 shares were
issued and outstanding. Since August 31, 1994, no shares of
Central Mortgage Stock or other Equity Securities (as defined
below) of Central Mortgage have been
7
<PAGE> 12
issued. There are no other shares of capital stock or other equity
securities of Central Mortgage outstanding and no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible
into, shares of any capital stock of Central Mortgage, or contracts,
commitments, understandings or arrangements by which Central
Mortgage is or may be become bound to issue additional shares of
its capital stock or options, warrants or rights to purchase or
acquire any additional shares of its capital stock (all of which
are sometimes referred to as "Equity Securities"), except for:
(a) stock options for an aggregate of 146,700 shares of Central
Mortgage Common Stock granted under the CMBI Incentive
Compensation Plan for Key Employees and the CMBI Incentive Plan
of 1990 at the dates, for the exercise prices, and to the
recipients set forth in Schedule 2.04 attached hereto
-------------
("Employee Options"); (b) the option dated September 21, 1994
granted by Central Mortgage to Mercantile for up to 736,667
shares of Central Mortgage Common Stock pursuant to an Investment
Agreement dated September 21, 1994 between Central Mortgage and
Mercantile (the "Investment Agreement"); and (c) the rights of
holders of Series A preferred stock, $10.00 par value, of Central
Mortgage ("Central Mortgage Preferred Stock") to convert such
stock into Central Mortgage Common Stock (none of which shall be
outstanding as of the record date of the special meeting of
Central Mortgage shareholders referred to in Section 5.03 of this
Agreement). All of the issued and outstanding shares of Central
Mortgage Stock are validly issued, fully paid, and nonassessable,
and have not been issued in violation of any preemptive right of
any shareholder of Central Mortgage.
2.05 Capitalization of Central Mortgage
----------------------------------
Subsidiaries. Except as set forth on Schedule 2.05,
- ------------ -------------
Central Mortgage has and will have as of the Effective Time good
and marketable title to all of the then issued and outstanding
shares of the capital stock of each of the Banks and, as to
Cenco, to that number and percentage of the issued and
outstanding shares of the capital stock of Cenco held
beneficially and of record by Central Mortgage as of the date
hereof, in each case free and clear of any liens, claims,
charges, encumbrances and assessments of any kind or nature
whatsoever. Except as set forth on Schedule 2.05 and except
-------------
for issued and outstanding shares of capital stock of Cenco held
by persons other than Central Mortgage, there are no other shares
of capital stock or other equity securities of any Central
Mortgage Subsidiary outstanding and no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights
convertible into, shares of any capital stock of any Central
Mortgage Subsidiary, or contracts, commitments, understandings or
arrangements by which any Central Mortgage Subsidiary is or may
become bound to issue additional Equity Securities of any Central
Mortgage Subsidiary. All of the issued and outstanding shares of
each Central Mortgage Subsidiary's Common Stock are validly
issued, fully paid and nonassessable.
2.06 Financial Statements.
--------------------
(a) Attached hereto as Schedule 2.06(a) are
----------------
copies of the following documents:
(i) Annual Report on Form 10-K for the year
ended December 31, 1993; and
(ii) Quarterly Report on Form 10-Q for the
quarters ended March 31, 1994 and June 30, 1994.
8
<PAGE> 13
(b) The financial statements contained in the
documents referenced in Schedule 2.06(a) are referred to
----------------
collectively as the "Central Mortgage Financial Statements." The
Central Mortgage Financial Statements have been prepared in
accordance with the books and records of Central Mortgage in
accordance with generally accepted accounting principles
consistently applied, and present fairly the consolidated
financial positions of Central Mortgage and the Central Mortgage
Subsidiaries, at the dates thereof and the consolidated results
of operations and cash flows of Central Mortgage and the Central
Mortgage Subsidiaries for the periods stated therein.
(c) Central Mortgage and the Central Mortgage
Subsidiaries have each prepared, kept and maintained through the
date hereof true, correct and complete financial and other books
and records of their affairs which fairly reflect their
respective financial conditions, results of operations,
businesses, assets, prospects and operations.
2.07 Reports. Since January 1, 1991, Central
-------
Mortgage and the Central Mortgage Subsidiaries have each filed
all material reports, registrations and statements, together with
any required material amendments thereto, that were required to
be filed with (i) the Securities and Exchange Commission (the
"SEC"), including but not limited to, reports on Forms 10-K,
Forms 10-Q, Forms 8-K and proxy statements; (ii) the Federal
Reserve Board, including, but not limited to, reports on Form FR
Y-6 and Form FR Y-9; (iii) the FDIC and (iv) any applicable state
securities or banking authorities. All such reports and
statements filed with any such regulatory body or authority are
collectively referred to herein as the "Central Mortgage
Reports." As of their respective dates, the Central Mortgage
Reports substantially complied with all the rules and regulations
promulgated by the applicable federal and/or state authorities,
as the case may be, and did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
2.08 Title to and Condition of Assets.
--------------------------------
(a) Except as may be reflected in the Central
Mortgage Financial Statements or set forth on Schedule
--------
2.08(a) and excepting all real property (which is the subject
- -------
of Section 2.09), each of Central Mortgage and the Central
Mortgage Subsidiaries has, and at the Closing Date will have,
good and marketable title to its respective properties and
assets, including, without limitation, those reflected in the
Central Mortgage Financial Statements, free and clear of any
liens, charges, pledges, encumbrances, defects, claims or rights
of third parties, except for liens for taxes, assessments or
other governmental charges not yet delinquent, and except for
such liens, charges, pledges, encumbrances, defects, claims and
rights which in the aggregate do not have a Material Adverse
Effect.
(b) No assets reflected on the Central Mortgage
Financial Statements in respect of Central Mortgage and the
Central Mortgage Subsidiaries have been sold, leased,
transferred, assigned or otherwise disposed of since June 30,
1994, except in the ordinary course of business or as set forth
in Schedule 2.08(b) under the heading "Dispositions."
----------------
(c) All furniture, fixtures, vehicles, machinery
and equipment and computer software owned or used by Central
Mortgage and the Central Mortgage Subsidiaries, including any of
such items leased by Central Mortgage or any Central Mortgage
Subsidiary as a lessee and all facilities and improvements
comprising part of any owned or leased real property, taken as a
whole, with no single such item being deemed of importance,
9
<PAGE> 14
are fit for the purposes for which they were intended, are, in all
material respects, in good order and repair, free of defects and
in good operating condition, subject only to normal wear and
tear. The operation by Central Mortgage and the Central Mortgage
Subsidiaries of such assets is in compliance in all material
respects with all applicable laws, ordinances and rules and
regulations of any governmental authorities having jurisdiction.
2.09 Real Property. Except as set forth in
-------------
Schedule 2.09:
- -------------
(a) The legal description of each parcel of real
property owned by Central Mortgage and the Central Mortgage
Subsidiaries (other than real property acquired in foreclosures
or in lieu of foreclosure in the course of collection of its
loans and being held by Central Mortgage or any Central Mortgage
Subsidiary for disposition as required by law) is set forth in
Schedule 2.09(a) attached hereto under the heading "Owned
- ----------------
Real Property" (such real property being herein referred to as
the "Owned Real Property"). The legal description of each parcel
of real property leased by Central Mortgage or a Central Mortgage
Subsidiary as lessee is also set forth in Schedule 2.09(a)
----------------
under the heading "Leased Real Property" (such real property
being herein referred to as the "Leased Real Property").
Collectively, the Owned Real Property and the Leased Real
Property are herein referred to as the "Real Property."
(b) There is no pending dispute involving
Central Mortgage or any Central Mortgage Subsidiary as to the
title of or the right to use any of its respective Real
Properties.
(c) Neither Central Mortgage nor any Central
Mortgage Subsidiary has any interest in any other real property
except interests as a mortgagee, and except for real property
acquired in foreclosures or in lieu of foreclosure and being held
for disposition as required by law.
(d) To the best knowledge of Central Mortgage,
none of the buildings, structures or other improvements located
on the Real Property encroaches upon or over any adjoining parcel
or real estate or any easement or right-of-way or "setback" line,
and all such buildings, structures and improvements are located
and constructed in substantial conformity with all applicable
zoning ordinances and building codes.
(e) None of the buildings, structures or
improvements located on the Real Property is the subject of any
official complaint or notice given to Central Mortgage or any
Central Mortgage Subsidiary by any governmental authority of any
material violation of any applicable zoning ordinance or building
code, and there is no action under any zoning ordinance, building
code, or use or occupancy restriction, and no condemnation action
or proceeding pending, or, to the best knowledge of Central
Mortgage, threatened, with respect to any such building,
structure or improvement. The Real Property is in generally good
condition, reasonable wear and tear excepted, and has been
maintained in accordance with reasonable and prudent business
practices applicable to like facilities.
(f) Except as may be reflected in the Central
Mortgage Financial Statements or with respect to such easements,
liens, defects or encumbrances as do not individually or in the
aggregate materially and adversely affect the use or value of the
parcel of Real Property, each of Central Mortgage and the Central
Mortgage Subsidiaries has, and at the Closing Date will have,
good and marketable title to its respective Real Properties, free
10
<PAGE> 15
and clear of any liens, charges, pledges, encumbrances, defects,
claims or rights of third parties.
2.10 Contracts.
---------
(a) Schedule 2.10(a) contains a complete and
----------------
accurate listing of all contracts entered into with respect to
deposits of $500,000 or more, by account or other identifying
number, and all loan agreements and commitments, notes, security
agreements, repurchase agreements, bankers' acceptances,
outstanding letters of credit and commitments to issue letters of
credit, participation agreements, and other documents relating to
or involving extensions of credit or other commitments to which
Central Mortgage or any Central Mortgage Subsidiary is a party or
by which it is bound, to extend credit with respect to any one
entity or related group of entities in excess of $250,000, by
account or other identifying number, and the names and
relationships of such related group.
(b) Except for the contracts and agreements
required to be listed on Schedule 2.10(a) and except as set
----------------
forth in Schedule 2.10(b) or any other Schedule hereto,
----------------
neither Central Mortgage nor any Central Mortgage Subsidiary is a
party to or bound by any:
(i) agreement, contract, arrangement,
understanding or commitment with any labor union;
(ii) franchise or license agreement;
(iii) written employment, severance or
termination pay, agency, consulting or similar
agreement, contract, arrangement, understanding or
commitment in respect of personal services;
(iv) loans or other obligations payable to
or owing to any officer, director or employee thereof,
except (A) salaries, wages and directors' fees incurred
and accrued in the ordinary course of business and/or
(B) obligations due in respect of any depository
accounts maintained by any of the foregoing at such
entity in the ordinary course of business;
(v) loans or debts payable by or owing by
any executive officer or director of Central Mortgage
or any Central Mortgage Subsidiary or any other person
or entity deemed an "executive officer" or a "related
interest" of any of the foregoing, as such terms are
defined in Regulation O of the Federal Reserve Board;
or
(vi) other agreement, contract,
arrangement, understanding or commitment involving an
obligation of Central Mortgage or any Central Mortgage
Subsidiary of more than $50,000 extending beyond six
(6) months from the date hereof that cannot be
cancelled without cost or penalty upon notice of thirty
(30) days or less, other than contracts entered into in
respect of deposits, loan agreements and commitments,
notes, security agreements, repurchase agreements,
bankers' acceptances, outstanding letters of credit and
commitments to issue letters of credit, participation
agreements and other documents relating to transactions
entered into by Central Mortgage or by any Central
Mortgage Subsidiary in the ordinary course of business
and not
11
<PAGE> 16
involving extensions of credit with respect to any one
entity or related group of entities in excess of $250,000.
(c) Central Mortgage and the Central Mortgage
Subsidiaries each carry property, casualty, liability, products
liability and other insurance coverages as set forth in
Schedule 2.10(c) under the heading "Insurance."
- ----------------
(d) True, correct and complete copies of the
agreements, contracts, leases, insurance policies and other
documents referred to in Schedule 2.10(a), Schedule 2.10(b)
---------------- ----------------
or Schedule 2.10(c) shall be furnished or made available to the
----------------
Mercantile Entities.
(e) Each of the agreements, contracts, leases,
insurance policies and other documents referred to in Schedule 2.10(a),
----------------
Schedule 2.10(b) and Schedule 2.10(c) is a valid, binding and enforceable
- ---------------- ----------------
obligation of Central Mortgage or the Central Mortgage Subsidiary which is
a party thereto, and, to the best knowledge of Central Mortgage, the other
parties sought to be bound thereby, except as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium and
other laws now or hereafter in effect relating to the enforcement
of creditors' rights generally, and except that equitable
principles may limit the right to obtain specific performance or
other equitable remedies with respect to such other parties.
(f) Schedule 2.10(f) under the heading
----------------
"Loans" contains a true, correct and complete listing, as of the
date of this Agreement, by account or other identifying number,
of:
(i) all loans in excess of $100,000, of either
Central Mortgage or any Central Mortgage
Subsidiary which have been accelerated during
the past twelve months;
(ii) all loan commitments or lines of credit of
either Central Mortgage or any Central Mortgage
Subsidiary in excess of $100,000 which have been
terminated by such entity during the past twelve
months by reason of default or adverse
developments in the condition of the borrower or
other events or circumstances affecting the
credit of the borrower;
(iii) all loans, lines of credit and loan commitments
in excess of $100,000 as to which either Central
Mortgage or any Central Mortgage Subsidiary has
given written notice to the borrower or customer
of such entity's intent to terminate during the
past twelve months;
(iv) with respect to all loans, all
notification letters and other written
communications from either Central
Mortgage or any Central Mortgage
Subsidiary to any of its borrowers,
customers or other parties since June 30,
1994 wherein such entity 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 either Central Mortgage or any Central
Mortgage Subsidiary during the past twelve
months of, or asserted against Central Mortgage
or any Central
12
<PAGE> 17
Mortgage Subsidiary, in writing, any "lender
liability" or similar claim, and, to the best of
Central Mortgage's knowledge, each borrower,
customer or other party which has given either
Central Mortgage or any Central Mortgage Subsidiary
any oral notification of, or asserted against such
entity, any such claim and
(vi) all loans (1) that are contractually past due 90
days or more in the payment of principal and/or
interest; (2) that are on non-accrual status;
(3) where a reasonable doubt exists in the mind
of the President of either Central Mortgage or
any Central Mortgage Subsidiary as to the timely
future collectibility of future principal and
interest, whether or not interest is still
accruing or the loan is less than 90 days past
due; (4) the interest rate terms have been
reduced and/or the maturity dates have been
extended subsequent to the agreement under which
the loan was originally created due to concerns
regarding the borrower's ability to pay in
accordance with such initial terms or (5) where
a specific reserve allocation exists in
connection therewith.
2.11 Absence of Defaults. Except as set forth in
-------------------
Schedule 2.11 attached hereto, there are no pending disputes
- -------------
between Central Mortgage or any Central Mortgage Subsidiary and
the other parties to any material agreement, commitment,
arrangement, lease, insurance policy, or other instrument,
whether entered into in the ordinary course of business or
otherwise, and whether written or oral, and there has not
occurred any event that, with the lapse of time or giving of
notice or both, would constitute a default by Central Mortgage or
any Central Mortgage Subsidiary under any such agreement,
commitment, arrangement, lease, insurance policy or instrument,
except, in all cases, where such default would not have a
Material Adverse Effect and, to the best knowledge of Central
Mortgage, all such agreements, commitments, arrangements, leases,
insurance policies and other instruments are in full force and
effect and will not be terminable by the other party solely as a
result of the consummation of the Merger.
2.12 Absence of Undisclosed Liabilities. Except
----------------------------------
as disclosed in Schedule 2.12 or in any other Schedule
-------------
attached hereto, neither Central Mortgage nor any Central
Mortgage Subsidiary, as of the date hereof, has any debts,
liabilities or obligations equal to or exceeding $10,000,
individually, or $25,000, in the aggregate, whether accrued,
absolute, contingent or otherwise and whether due or to become
due, except
(a) debts, liabilities or obligations reflected in
the Central Mortgage Financial Statements, and
(b) debts, liabilities or obligations incurred since
June 30, 1994, in the ordinary and usual course of its business,
none of which are for breaches of contract, breaches of warranty,
torts, infringements or lawsuits.
2.13 Allowance for Loan and Lease Losses; Non-
-----------------------------------------
Performing Assets.
- -----------------
(a) Except as set forth in Schedule 2.13
-------------
attached hereto: (i) all of the accounts, notes and other
receivables which are reflected in the Central Mortgage Financial
Statements as of June 30, 1994 were acquired in the ordinary
course of business and, to the best knowledge of Central
Mortgage, are collectible in full in the ordinary course of
business,
13
<PAGE> 18
except for possible loan and lease losses which are
adequately provided for in the allowance for loan and lease
losses in such Central Mortgage Financial Statements, and (ii)
the collection experience of Central Mortgage and each Central
Mortgage Subsidiary since June 30, 1994 to the date hereof has
not materially deteriorated from the credit and collection
experience of such entity in the six months ended June 30, 1994
and the year ended December 31, 1993.
(b) Schedule 2.13(b) attached hereto sets
----------------
forth as of the date of this Agreement all assets classified as
real estate acquired through foreclosure, including in-substance
foreclosed real estate ("Non-Performing Assets").
(c) The aggregate amount of all loans described
by Section 2.10(f)(vi) and all Non-Performing Assets does not
exceed one percent (1%) of (i) the gross amounts of all loans and
leases on the books of Central Mortgage and the Central Mortgage
Subsidiaries, plus (ii) the aggregate book value of all Non-
Performing Assets.
2.14 Taxes. Each of Central Mortgage and the
-----
Central Mortgage Subsidiaries has timely filed or will timely
file all tax returns required to be filed at or prior to the
Closing Date. Each of Central Mortgage and the Central Mortgage
Subsidiaries has paid, or has set up adequate reserves in the
Central Mortgage Financial Statements for the payment of, all
taxes required to be paid in respect of the periods covered by
such returns and, to the extent required by generally accepted
accounting principles consistently applied, has set up adequate
reserves in the Central Mortgage Financial Statements for the
payment of all taxes anticipated to be payable in respect of the
period subsequent to the last of said periods. Neither Central
Mortgage nor any Central Mortgage Subsidiary will have any
liability for any such taxes in excess of the amounts so paid or
reserves so established and no deficiencies for any tax,
assessment or governmental charge have been proposed, asserted or
assessed (tentatively or definitely) against Central Mortgage or
any Central Mortgage Subsidiary which would not be covered by
existing reserves. Neither Central Mortgage nor any Central
Mortgage Subsidiary is delinquent in the payment of any tax,
assessment or governmental charge, nor has it requested any
extension of time within which to file any tax returns in respect
of any fiscal year which have not since been filed and no
requests for waivers of the time to assess any tax are pending.
The federal, state and foreign income tax returns of Central
Mortgage and the Central Mortgage Subsidiaries have not been
audited by the Internal Revenue Service (the "IRS") or the state
or foreign taxing authority since prior to January l, 1986.
2.15 Material Adverse Change. Except as
-----------------------
otherwise disclosed in any of the Schedules referenced herein,
since June 30, 1994, there has been no material adverse change in
the financial condition, results of operations, business, assets,
prospects or operations of Central Mortgage and the Central
Mortgage Subsidiaries, taken as a whole, other than changes in
banking laws or regulations, or interpretations thereof, or other
conditions that affect the banking industry generally, or changes
in the general level of interest rates.
2.16 Litigation and Other Proceedings. Except as
--------------------------------
set forth in Schedule 2.16, there are no actions, suits, or
-------------
proceedings pending or, to the best knowledge of Central
Mortgage, threatened against Central Mortgage or any Central
Mortgage Subsidiary or any of their respective employees, except
for matters which, in the aggregate, will not have, or cannot
reasonably be expected to have, a Material Adverse Effect.
14
<PAGE> 19
2.17 Governmental Compliance. Except as set
-----------------------
forth in Schedule 2.17:
-------------
(a) To the best knowledge of Central Mortgage,
Central Mortgage and the Central Mortgage Subsidiaries are in
compliance with all laws, ordinances, rules, regulations and
orders, licenses and permits that are applicable to each;
(b) To the best knowledge of Central Mortgage,
Central Mortgage and the Central Mortgage Subsidiaries hold all
permits, business licenses, certificates, franchises and other
similar items, which, if not held, would adversely affect the
financial condition, results of operations business, prospects or
operations and/or ownership rights as to the assets and
properties of any of the foregoing;
(c) There is no legal action or governmental
proceeding or investigation pending or, to the best knowledge of
Central Mortgage, threatened against Central Mortgage or any
Central Mortgage Subsidiary that could prevent or adversely
affect, or that seeks to prohibit the consummation of, the
transactions contemplated hereby, nor is Central Mortgage or any
Central Mortgage Subsidiary subject to any order of a court or
governmental authority having any such effect;
(d) Neither Central Mortgage nor any Central
Mortgage Subsidiary is subject to any cease and desist order,
memorandum of understanding or any written agreement issued by,
or entered into with, any federal or state governmental or
regulatory agency, authority, entity or official having
jurisdiction over the banking or other related activities of
Central Mortgage or any Central Mortgage Subsidiary, including,
without limitation, the Federal Reserve Board, the Division of
Finance and/or the FDIC; and
(e) To the best knowledge of Central Mortgage,
neither Central Mortgage nor any Central Mortgage Subsidiary is
subject to or reasonably likely to incur a material liability as
a result of its ownership, operation, or use of any property
(whether directly or, to the best knowledge of Central Mortgage,
as a consequence of such property being part of its investment
portfolio, including, without limitation, properties under
foreclosure, property held by any Central Mortgage Subsidiary in
its capacity as a trustee, and property in which any venture
capital or similar unit of Central Mortgage or any Central
Mortgage Subsidiary has an interest, but excluding property held
by Central Mortgage or any Central Mortgage Subsidiary as
collateral for the security of any loan due it) (the "Property")
(i) that is contaminated by or contains any hazardous waste,
toxic substance or related materials, including without
limitation, asbestos, PCBs, pesticides, herbicides, and any other
substance or waste that is hazardous to human health or the
environment (collectively, a "Toxic Substance"), or (ii) on which
any Toxic Substance has been stored, disposed of, placed or used
in the construction thereof. No claim, action, suit or
proceeding is pending against Central Mortgage or any Central
Mortgage Subsidiary relating to any Property before any court or
other governmental authority or arbitration tribunal relating to
hazardous substances, pollution or the environment, and there is
no outstanding judgment, order, writ, injunction, decree or award
against or affecting Central Mortgage or any Central Mortgage
Subsidiary with respect to the same. Except for statutory or
regulatory restrictions of general application, no federal,
state, municipal or other governmental authority has placed any
restriction on the business of Central Mortgage or any Central
Mortgage Subsidiary which, individually or in the aggregate,
reasonably could be expected to have a Material Adverse Effect.
15
<PAGE> 20
2.18 Labor. Except as set forth on Schedule 2.18:
----- -------------
(a) no work stoppage involving Central Mortgage or any
Central Mortgage Subsidiary is pending or, to the best knowledge
of Central Mortgage, threatened;
(b) neither Central Mortgage nor any Central Mortgage
Subsidiary is involved in, or, to the best knowledge of Central
Mortgage, threatened with or affected by, any labor dispute,
arbitration, lawsuit or administrative proceeding which could
adversely affect the business of Central Mortgage or any Central
Mortgage Subsidiary; and
(c) no employee of Central Mortgage or any Central
Mortgage Subsidiary is represented by any labor union nor are any
collective bargaining agreements otherwise in effect with respect
to any such employee.
2.19 Interests of Certain Persons. Except as set
----------------------------
forth on Schedules 2.10(b) or 2.19, to the best
----------------- ----
knowledge of Central Mortgage, no officer or director of Central
Mortgage or any Central Mortgage Subsidiary has any interest in
any contract or property (real or personal), tangible or
intangible, used in or pertaining to the business of Central
Mortgage or any Central Mortgage Subsidiary.
2.20 Employee Benefit Plans. Schedule 2.20
---------------------- -------------
lists all pension, retirement, stock option, stock purchase,
stock ownership, savings, stock appreciation right, profit
sharing, deferred compensation, consulting, bonus, group
insurance, severance and other employee benefit, incentive and
welfare policies, contracts, plans and arrangements, and all
trust agreements related thereto, covering the present or former
directors, officers or other employees of Central Mortgage or any
Central Mortgage Subsidiary (collectively, "Employee Plans or
Policies"). To the best knowledge of Central Mortgage, except as
set forth in Schedule 2.20, all Employee Plans or Policies
-------------
currently comply and have at all relevant times complied in all
respects with all applicable laws, requirements and orders under
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Internal Revenue Code of 1986, as amended (the
"Code"), and state law. With respect to each Employee Plan or
Policy which is a pension plan (as defined in Section 3(2) of
ERISA) (the "Pension Plans"), except as set forth in Schedule 2.20:
-------------
(a) no Pension Plan is a "multiemployer plan"
within the meaning of Section 3(37) of ERISA;
(b) each Pension Plan intended by management to
be "qualified" is so "qualified" within the meaning of Section
401(a) of the Code, and each related trust, if any, is exempt
from taxation under Section 501(a) of the Code;
(c) the present value of all benefits vested and
all benefits accrued under each Pension Plan which is subject to
Title IV of ERISA did not, in each case, as of the last
applicable annual valuation date (as indicated on Schedule 2.20),
-------------
exceed the value of the assets of the Pension Plans
allocable to such vested or accrued benefits;
(d) no Pension Plan or any trust created
thereunder, nor, to the best knowledge of Central Mortgage, any
trustee, fiduciary or administrator thereof, has engaged in a
"prohibited transaction," as such term is defined in Section 4975
of the Code, which could subject such plan or trust, or, to the
best knowledge of Central Mortgage, any trustee,
16
<PAGE> 21
fiduciary or administrator thereof, or any party dealing with any such
plan or trust, to the tax or penalty on prohibited transactions imposed
by said Section 4975;
(e) no Pension Plan which is subject to Title IV
of ERISA or any trust created thereunder has been terminated, nor
have there been any "reportable events" with respect to any such
Pension Plan, as that term is defined in Section 4043 of ERISA;
and
(f) no Pension Plan or any trust created
thereunder has incurred any "accumulated funding deficiency," as
such term is defined in Section 302 of ERISA (whether or not
waived), since the effective date of ERISA. With respect to each
Employee Plan or Policy which provides for health care, neither
Central Mortgage nor any Central Mortgage Subsidiary nor any of
Central Mortgage's other affiliates has or will have any
obligation or liability to pay any post-retirement health care
costs, except as required by applicable law.
2.21 Conduct of Central Mortgage and the Central
-------------------------------------------
Mortgage Subsidiaries to Date. Except for entering into this
- -----------------------------
Agreement and matters related thereto and as disclosed in
Schedule 2.21 from and after June 30, 1994:
- -------------
(a) Central Mortgage and the Central Mortgage
Subsidiaries have carried on their respective businesses in the
ordinary and usual course consistent with their past practices;
(b) neither Central Mortgage nor any Central
Mortgage Subsidiary has issued or sold any of its capital stock
or any corporate debt securities which would be classified as
long-term debt on its balance sheet;
(c) Central Mortgage has not granted any option
for the purchase of its capital stock, effected any stock split,
or otherwise changed its capitalization;
(d) Central Mortgage has not declared, set
aside, or paid any dividend or other distribution in respect of
its capital stock (other than as contemplated by Section 4.02(a)
of this Agreement), or, directly or indirectly, redeemed or
otherwise acquired any of its capital stock;
(e) neither Central Mortgage nor any Central
Mortgage Subsidiary has incurred any obligation or liability
(absolute or contingent), except normal trade or business
obligations or liabilities incurred in the ordinary course of
business, or mortgaged, pledged, or subjected to lien, claim,
security interest, charge, encumbrance, or restriction any of its
assets or properties;
(f) neither Central Mortgage nor any Central
Mortgage Subsidiary has discharged or satisfied any material
lien, mortgage, pledge, claim, security interest, charge,
encumbrance, or restriction or paid any material obligation or
liability (absolute or contingent), other than in the ordinary
course of business;
(g) neither Central Mortgage nor any Central
Mortgage Subsidiary has sold, assigned, transferred, leased,
exchanged, or otherwise disposed of any of its properties or
assets other than for a fair consideration in the ordinary course
of business;
17
<PAGE> 22
(h) neither Central Mortgage nor any Central
Mortgage Subsidiary has: (i) increased the rate of compensation
of, or paid any bonus to, any of its directors, officers, or
other employees, except merit, promotion or cost-of-living
increases in accordance with existing policy; (ii) entered into
any new, or amended or supplemented any existing, employment,
management, consulting, deferred compensation, severance, or
other similar contract; (iii) entered into, terminated, or
substantially modified any Employee Plan or Policy in respect of
any of its present or former directors, officers, or other
employees; or (iv) agreed to do any of the foregoing:
(i) neither Central Mortgage nor any Central
Mortgage Subsidiary has suffered any damage, destruction or loss,
whether as the result of fire, explosion, earthquake, accident,
casualty, labor trouble, requisition or taking of property by any
government or any agency of any government, flood, windstorm,
embargo, riot, act of God or the enemy or other similar or
dissimilar casualty or event or otherwise, and whether or not
covered by insurance (other than damages, destructions and losses
which in the aggregate do not have a Material Adverse Effect);
and
(j) neither Central Mortgage nor any Central
Mortgage Subsidiary has entered into any material transaction,
contract, or commitment outside the ordinary course of its
business.
2.22 Registration Statement, etc. None of the
---------------------------
information regarding Central Mortgage and/or any Central
Mortgage Subsidiary supplied or to be supplied by Central
Mortgage for inclusion or included in (a) a registration
statement on Form S-4 to be filed with the SEC by Mercantile for
the purpose of registering the shares of Mercantile Stock to be
exchanged for Central Mortgage Common Stock pursuant to the
provisions of this Agreement (the "Registration Statement"), (b)
the proxy statement to be mailed to shareholders of Central
Mortgage in connection with the meeting to be called to consider
the approval of this Agreement and the Merger (the "Proxy
Statement") and (c) any other documents to be filed with the SEC
or any regulatory authority in connection with the transactions
contemplated hereby will, at the respective times such documents
are filed with the SEC or any regulatory authority and, in the
case of the Registration Statement, when it becomes effective
and, with respect to the Proxy Statement, when mailed, be false
or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements
therein not misleading or, in the case of the Proxy Statement or
any amendment thereof or supplement thereto, at the time of the
special meeting of Central Mortgage's shareholders referred to in
Section 5.03, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the
solicitation of any proxy for such meeting. All documents which
Central Mortgage is responsible for filing with any regulatory
authority in connection with the Merger will comply as to form in
all material respects with the provisions of applicable law.
2.23 Brokers and Finders. Neither Central
-------------------
Mortgage nor any Central Mortgage Subsidiary nor any of their
respective officers, directors or employees has employed any
broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finder's fees, and
no broker or finder has acted directly or indirectly for Central
Mortgage and/or any Central Mortgage Subsidiary in connection
with this Agreement or the transactions contemplated hereby,
except that Stifel, Nicolaus & Company, Incorporated has been
retained by Central Mortgage to render financial advisory
services and
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<PAGE> 23
an opinion with regard to the fairness of the Merger to the Central
Mortgage shareholders from a financial point of view.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF THE MERCANTILE ENTITIES
As an inducement to Central Mortgage to enter into and
perform its obligations under this Agreement, and notwithstanding
any examinations, inspections, audits or other investigations
made by Central Mortgage, the Mercantile Entities hereby
represent and warrant to Central Mortgage as follows:
3.01 Organization and Authority. Mercantile and
--------------------------
each of its subsidiaries (individually, a "Mercantile Subsidiary"
and, collectively, the "Mercantile Subsidiaries") is a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of organization, is duly
qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and has
the corporate power and authority to own its properties and
assets and to carry on its business as it is now being conducted
except, in the case of the Mercantile Subsidiaries, where the
failure to be so qualified would not have a Material Adverse
Effect. Mercantile is registered as a bank holding company with
the Federal Reserve Board under the BHC Act. Ameribanc is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Missouri, is duly qualified to do
business and is in good standing in all jurisdictions where its
ownership or leasing of property or the conduct of its business
requires it to be so qualified and has the corporate power and
authority to own its properties and assets and to carry on its
business as it is now being conducted. True and complete copies
of the Articles of Incorporation and Bylaws of Mercantile, as in
effect on the date of this Agreement, have been provided to
Central Mortgage.
3.02 Authorization. Mercantile and Ameribanc
-------------
each have the corporate power and authority to enter into this
Agreement and to carry out their respective obligations
hereunder. The execution, delivery and performance of this
Agreement by Mercantile and Ameribanc and the consummation of the
transactions contemplated hereby have been duly authorized by the
Executive Committee of the Board of Directors of Mercantile and
the Board of Directors of Ameribanc and no other approval of the
respective Boards or shareholders or any committees thereof is
required. Subject to such approvals of governmental agencies and
other governing boards having regulatory authority over
Mercantile and Ameribanc as may be required by statute or
regulation, this Agreement is a valid and binding obligation of
Mercantile and Ameribanc, enforceable against each in accordance
with its terms.
Neither the execution, delivery and performance by
Mercantile or Ameribanc of this Agreement, nor the consummation
of the transactions contemplated hereby, nor compliance by
Mercantile or Ameribanc with any of the provisions hereof, will
(a) violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration of, or result in the creation of, any lien, security
interest, charge or encumbrance upon any of the properties or
assets of Mercantile or Ameribanc under any of the terms,
conditions or provisions of (i) their respective Articles of
Incorporation or By-laws
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<PAGE> 24
or (ii) any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Mercantile or
Ameribanc is a party or by which it may be bound, or to which Mercantile
or Ameribanc or any of its properties or assets may be subject, or
(b) subject to compliance with the statutes and regulations
referred to in the next paragraph, to the best knowledge of
Mercantile, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to
Mercantile or Ameribanc or any of their subsidiaries or any of
its or their respective material properties or assets.
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, authorizations, approvals
or exemptions required under the BHC Act, or any required
approvals of the Federal Reserve Board or the Division of
Finance, 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
Ameribanc of the transactions contemplated by this Agreement.
3.03 Capitalization of Mercantile. The
----------------------------
authorized capital stock of Mercantile consists of (a)
100,000,000 shares of Mercantile Common Stock, of which, as of
June 30, 1994, 43,146,531 shares were issued and outstanding and
(b) 5,000,000 shares of preferred stock, no par value, issuable
in series, none of which were issued and outstanding. A series
of 1,000,000 shares of preferred stock have been designated as
Series A Junior Participating Preferred Stock and are reserved
for issuance upon exercise of Mercantile's preferred share
purchase rights (the "Rights") issued pursuant to a Rights
Agreement, dated May 23, 1988 (the "Rights Agreement"), between
Mercantile and Mercantile Bank of St. Louis National Association,
as Rights Agent. As of June 30, 1994, Mercantile had reserved
(i) 4,608,735 shares of Mercantile Common Stock for issuance
under various employee stock option and incentive plans
("Mercantile Employee Stock Options"), (ii) 970,000 shares of
Mercantile Common Stock for issuance upon the acquisition of
Wedge Bank pursuant to the Agreement and Plan of Reorganization
dated as of July 6, 1994 between Mercantile, Mercantile
Bancorporation of Illinois Inc., Wedge Bank and The Wedge Holding
Company, (iii) 1,731,142 shares of Mercantile Common Stock for
issuance upon the acquisition of UNSL Financial Corp. ("UNSL")
pursuant to the Agreement and Plan of Reorganization dated July
12, 1994 between Mercantile, Ameribanc and UNSL and (iv) 388,135
shares of Mercantile Common Stock for issuance upon conversion of
Mercantile's 8% Subordinated Capital Convertible Notes due 1995.
From June 30, 1994 through the date of this Agreement, no shares
of Mercantile Common Stock or other Equity Securities of
Mercantile have been issued excluding any such shares which may
have been issued pursuant to stock-based employee benefit or
incentive plans and programs.
Mercantile continually evaluates possible acquisitions
and may prior to the Effective Time enter into one or more
agreements providing for, and may consummate, the acquisition by
Mercantile of another bank, bank holding company or other company
(or the assets and/or liabilities thereof) for consideration that
may include Equity Securities of Mercantile. In addition, prior
to the Effective Time, Mercantile may, depending on market
conditions and other factors, otherwise determine to issue Equity
Securities for financing purposes. Except in connection with any
such acquisition transactions and except as set forth in this
Section 3.03 and except pursuant to the Rights Agreement, there
are no other Equity Securities of Mercantile outstanding or to be
issued and no other outstanding options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, shares of
any capital stock of Mercantile,
20
<PAGE> 25
or contracts, commitments, understandings or arrangements by which
Mercantile is or may become bound to issue additional shares of its Equity
Securities. All of the issued and outstanding shares of Mercantile Common
Stock are validly issued, fully paid and nonassessable, and have
not been issued in violation of any preemptive right of any
shareholder of Mercantile. At the Effective Time, the Mercantile
Common Stock issued pursuant to this Agreement will be duly
authorized, validly issued and in compliance with all applicable
federal and state securities laws, fully paid and nonassessable
and not subject to or in violation of any preemptive rights.
3.04 Mercantile Financial Statements. The
-------------------------------
supplemental audited consolidated balance sheets of Mercantile
and the Mercantile Subsidiaries as of December 31, 1993, 1992 and
1991 and related supplemental audited consolidated statements of
income, changes in shareholders' equity and cash flows for the
three years ended December 31, 1993, together with the notes
thereto, certified by KPMG Peat Marwick LLP and included in
Mercantile's current report on Form 8-K dated June 17, 1994 as
filed with the SEC, and the related unaudited consolidated
balance sheets of Mercantile and the Mercantile Subsidiaries as
of June 30, 1994 and 1993 and related unaudited consolidated
statements of income, cash flows and shareholders' equity for the
six months ended June 30, 1994 and 1993 included in Mercantile's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994, both as filed with the SEC (collectively, the "Mercantile
Financial Statements"), have been prepared in accordance with
generally accepted accounting principles applied on a consistent
basis, and present fairly the consolidated financial position of
Mercantile and the Mercantile Subsidiaries at the dates and the
consolidated results of operations and cash flows of Mercantile
and the Mercantile Subsidiaries for the periods stated therein
and are derived from the books and records of Mercantile and the
Mercantile Subsidiaries, which are complete and accurate in all
material respects and have been maintained in accordance with
good business practices. Neither Mercantile nor any of the
Mercantile Subsidiaries has any material contingent liabilities
that are not described in the Mercantile Financial Statements.
3.05 Reports. Since January 1, 1991, Mercantile
-------
and each of the Mercantile Subsidiaries have filed all reports,
registrations and statements, together with any required
amendments thereto, that they were required to file with (i) the
SEC, including, but not limited to, Forms 10-K, Forms 10-Q, Forms
8-K and proxy statements, (ii) the Federal Reserve Board,
including, but not limited to, reports on Form FR Y-6 and Form FR
Y-9, (iii) the FDIC, (iv) the Office of the Comptroller of the
Currency (the "OCC"), and (v) any applicable state securities or
banking authorities. All such reports and statements filed with
any such regulatory body or authority are collectively referred
to herein as the "Mercantile Reports." As of their respective
dates, the Mercantile Reports substantially complied with all the
rules and regulations promulgated by the SEC, the Federal Reserve
Board, the FDIC, the OCC and any applicable federal and/or state
authorities, as the case may be, and did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading.
3.06 Material Adverse Change. Since June 30,
-----------------------
1994, there has been no material adverse change in the financial
condition, results of operations, business, assets, prospects or
operations of Mercantile and the Mercantile Subsidiaries taken as
a whole, other than changes in banking laws or regulations, or
interpretations thereof, or other conditions that affect the
banking industry generally, or changes in the general level of
interest rates.
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<PAGE> 26
3.07 Registration Statement, Proxy Statement etc.
-------------------------------------------
None of the information regarding Mercantile and/or any
Mercantile Subsidiary supplied or to be supplied by Mercantile
for inclusion or included in (a) the Registration Statement, (b)
the Proxy Statement, or (c) any other documents to be filed with
the SEC or any regulatory authority in connection with the
transactions contemplated hereby will, at the respective times
such documents are filed with the SEC or any regulatory authority
and, in the case of the Registration Statement, when it becomes
effective and, with respect to the Proxy Statement, when mailed,
be false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the
statements therein not misleading or, in the case of the Proxy
Statement or any amendment thereof or supplement thereto, at the
time of the special meeting of shareholders referred to in
Section 5.03, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the
solicitation of any proxy for such meeting. All documents which
Mercantile and the Mercantile Subsidiaries are responsible for
filing with the SEC and any regulatory authority in connection
with the Merger will comply as to form in all material respects
with the provisions of applicable law.
3.08 Brokers and Finders. Neither Mercantile,
-------------------
Ameribanc nor any of their respective officers, directors or
employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees,
commissions or finder's fees, and no broker or finder has acted
directly or indirectly for Mercantile or Ameribanc in connection
with this Agreement or the transactions contemplated hereby and
thereby.
3.09 Legal Proceedings or Other Adverse Facts.
----------------------------------------
Neither Mercantile nor any Mercantile Subsidiary is a party to
any pending or, to the best knowledge of Mercantile, threatened
claim, action, suit, investigation or proceeding, or is subject
to any order, judgment or decree, except for matters which, in
the aggregate, will not have, or reasonably could not be expected
to have, a Material Adverse Effect, or which purports or seeks to
enjoin or restrain the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing,
there are no actions, suits or proceedings pending, or, to the
best knowledge of Mercantile, threatened against Mercantile or
any Mercantile Subsidiary or any of their respective officers or
directors involving claims under the Community Reinvestment Act
of 1977, as amended, or the fair lending laws. No claim, action,
suit, or proceeding is pending against Mercantile or any
Mercantile Subsidiary relating to property of Mercantile before
any court or regulatory authority or arbitration tribunal
relating to hazardous substances, pollution, or the environment,
and there is no outstanding judgment, order, writ, injunction,
decree, or award against or affecting Mercantile or any
Mercantile Subsidiary with respect to the same. Except as
previously disclosed to Central Mortgage, since December 31,
1991, neither Mercantile nor any Mercantile Subsidiary has
received any notification or communication which has not been
resolved from any regulatory authority (i) asserting that
Mercantile or any Mercantile Subsidiary is not in substantial
compliance with any of the statutes, regulations or ordinances
that such Regulatory Authority enforces, except with respect to
matters which reasonably could not be expected to have a Material
Adverse Effect; (ii) threatening to revoke any license,
franchise, permit or governmental authorization that is material
to the condition of Mercantile and the Mercantile Subsidiaries,
taken as a whole, including without limitation such company's
status as an insured depositary institution under the Federal
Deposit Insurance Act or (iii) requiring or threatening to
require Mercantile or any of the Mercantile Subsidiaries, or
indicating that Mercantile or any of the Mercantile Subsidiaries
may be required, to enter into a cease and desist order,
agreement or memorandum of understanding or any other agreement
restricting or limiting or purporting to direct, restrict or
limit in any
22
<PAGE> 27
manner the operations of Mercantile or any of the Mercantile Subsidiaries,
including without limitation any restriction on the payment of dividends,
and no such cease and desist order, agreement or memorandum of
understanding or other agreement is currently in effect.
3.10 Commitments and Contracts. Neither
-------------------------
Mercantile nor any of the Mercantile Subsidiaries is in violation
of its charter documents or bylaws or in default under any
material agreement, commitment, arrangement, lease, insurance
policy, or other instrument, whether entered into in the ordinary
course of business or otherwise and whether written or oral, and
there has not occurred any event that, with the lapse of time or
giving of notice or both, would constitute such a default,
except, in all cases, where such default would not have a
Material Adverse Effect.
3.11 Compliance with Laws. Each of Mercantile
--------------------
and the Mercantile Subsidiaries has complied with all laws, regulations,
and orders (including without limitation zoning ordinances, building
codes, ERISA, and securities, tax, environmental, civil rights, and
occupational health and safety laws and regulations and including without
limitation in the case of any Mercantile Subsidiary that is a bank,
banking organization, banking corporation or trust company, all statutes,
rules and regulations pertaining to the conduct of a banking,
deposit-taking or lending or related business or to the exercise
of trust powers) and governing instruments applicable to them and
to the conduct of their business, except where such failure to
comply would not have a Material Adverse Effect and neither
Mercantile nor any Mercantile Subsidiary is in default under, and
no event has occurred which, with the lapse of time or notice or
both, could result in the default under, the terms of any
judgment, order, writ, decree, permit, or license of any
regulatory authority or court, whether federal, state, municipal
or local and whether at law or in equity, except where such
default would not have a Material Adverse Effect. Neither
Mercantile nor any Mercantile Subsidiary is subject to or
reasonably likely to incur a liability as a result of its
ownership, operation, or use of any property of Mercantile
(whether directly or, to the best knowledge of Mercantile, as a
consequence of such property being part of the investment
portfolio of Mercantile or any Mercantile Subsidiary) (a) that is
contaminated by or contains any toxic substance or (b) on which
any toxic substance has been stored, disposed of, placed, or used
in the construction thereof; and which, in each case, reasonably
could be expected to have a Material Adverse Effect. Except for
statutory or regulatory restrictions of general application, no
regulatory authority has placed any restriction on the business
of Mercantile or any Mercantile Subsidiary which reasonably could
be expected to have a Material Adverse Effect.
ARTICLE IV
----------
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.01 Conduct of Businesses Prior to the Effective
--------------------------------------------
Time. During the period from the date of this Agreement to the
- ----
Effective Time, Central Mortgage and the Central Mortgage
Subsidiaries shall conduct their businesses according to the
ordinary and usual course consistent with past and current
practices and shall use their best efforts to maintain and
preserve their business organization, employees and advantageous
business relationships and retain the services of their officers
and key employees.
4.02 Forbearances of Central Mortgage. During
--------------------------------
the period from the date of this Agreement to the Closing Date,
Central Mortgage shall not, and shall cause each Central
23
<PAGE> 28
Mortgage Subsidiary (as to the matters set forth in subsections (b),
(c), (e), (f), (g), (h), (i), and (j) below) not to, without the prior
written consent of the Mercantile Entities, which consent shall
not be unreasonably withheld:
(a) declare, set aside or pay any dividends or
other distributions, directly or indirectly, in respect of its
capital stock (other than dividends from any Central Mortgage
Subsidiary to Central Mortgage), except that Central Mortgage may
declare and pay regular quarterly cash dividends in amounts not
to exceed (i) the amount determined pursuant to Section 7.3 of
the Articles of Incorporation of Central Mortgage on the Central
Mortgage Preferred Stock and (ii) $0.12 per share on the Central
Mortgage Common Stock; provided, however, that any such
-----------------
quarterly dividend shall only be payable for a fiscal quarter for
which a Central Mortgage shareholder is not entitled to receive a
quarterly dividend on the shares of Mercantile Stock to be issued
in the Merger;
(b) enter into or amend any employment,
severance or similar agreements or arrangements with any director
or officer or employee, or materially modify any of the Central
Mortgage Employee Plans or Policies or grant any salary or wage
increase or materially increase any employee benefit (including
incentive or bonus payments), except normal individual increases
in compensation to employees consistent with past practice, or as
required by law or contract, and except for such increases of
which Central Mortgage notifies Mercantile in writing and which
Mercantile does not disapprove within ten days of the receipt of
such notice;
(c) propose or adopt any amendments to the
Articles of Incorporation or the Articles of Association of
Central Mortgage or any Central Mortgage Subsidiary, as the case
may be, or their respective by-laws;
(d) issue any shares of capital stock, except
with respect to the issuance of Central Mortgage Common Stock
upon the exercise or conversion of Employee Options or Central
Mortgage Preferred Stock, outstanding on the date hereof, or
effect any stock split or otherwise change its capitalization as
it existed as of the date hereof;
(e) grant, confer or award any options,
warrants, conversion rights or other rights not existing on the
date hereof to acquire any shares of its capital stock;
(f) purchase or redeem any shares of its capital
stock, except, in the case of Central Mortgage, the redemption of
any or all shares of Central Mortgage Preferred Stock, and in the
case of Cenco, the purchase or redemption of shares of Cenco
capital stock held of record or beneficially by persons other
than Central Mortgage, pursuant to preexisting contractual
arrangements;
(g) enter into or increase any loan or credit
commitment (including standby letters of credit but excluding
commitments in respect of the packaging of mortgages for sale in
the ordinary course of business) to, or invest or agree to invest
in any person or entity (i) in an amount in excess of $750,000,
without first consulting with Mercantile, and, in the case of
persons or entities to which it has outstanding aggregate credit
commitments and loans exceeding $750,000, subject to subparagraph
(ii) below, increase or agree to increase the loan or credit
commitment to, or invest or agree to invest in, such person or
entity by more than twenty-five percent (25%) of the amount of
such loan, credit commitment or investment, without first
consulting with Mercantile and (ii) in an amount in
24
<PAGE> 29
excess of $1,000,000 without first obtaining the prior written consent of
Mercantile, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, nothing in this paragraph shall
prohibit either Central Mortgage or any Central Mortgage
Subsidiary from honoring any contractual and legally binding
obligation in existence on the date of this Agreement;
(h) agree in writing or otherwise to take any of
the foregoing actions or engage in any activity, enter into any
transaction or take or omit to take any other action which would
make any of the representations and warranties in Article II of
this Agreement untrue or incorrect in any respect if made anew
after engaging in such activity, entering into such transaction,
or taking or omitting such other act;
(i) take any action (i) that would (1)
materially impede or delay the consummation of the transactions
contemplated by this Agreement or the ability of Mercantile or
Central Mortgage to obtain any necessary approvals of any
regulatory authority required for the transactions contemplated
by this Agreement or to perform its covenants and agreements
under this Agreement or (2) prevent or impede the transactions
contemplated hereby from qualifying for pooling-of-interests
accounting treatment or as a reorganization within the meaning of
Section 368 of the Code, or (ii) that is not in the ordinary
course of business consistent with past practice unless otherwise
expressly permitted by this Agreement; or
(j) 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 the Mercantile
Entities) relating to the disposition of any significant portion
of the business or assets of Central Mortgage or any Central
Mortgage Subsidiary, or the acquisition of the capital stock (or
rights or options exercisable for, or securities convertible or
exchangeable into, capital stock) of Central Mortgage or any
Central Mortgage Subsidiary, or the merger of Central Mortgage or
any Central Mortgage Subsidiary (other than the merger of Barton
Bank and Nevada Bank) with any person (other than the Mercantile
Entities) 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. Central Mortgage shall promptly notify Mercantile
orally of all the relevant details relating to all inquiries,
indications of interest and proposals which it or any Central
Mortgage Subsidiary may receive with respect to any Acquisition
Transaction.
4.03 Forbearances of the Mercantile Entities.
---------------------------------------
During the period from the date of this Agreement to the Closing
Date, the Mercantile Entities shall not, without the prior
consent of Central Mortgage, agree in writing or otherwise to
engage in any activity, enter into any transaction or take or
omit to take any other action
(a) that would (i) materially impede or delay
the consummation of the transactions contemplated by this
Agreement or the ability of Mercantile or Central Mortgage to
obtain any necessary approvals of any regulatory authority
required for the transactions contemplated by this Agreement or
to perform its covenants and agreements under this Agreement or
(ii) prevent or impede the transactions contemplated hereby from
qualifying for pooling-of-interests accounting treatment or as a
reorganization within the meaning of Section 368 of the Code; or
25
<PAGE> 30
(b) which would make any of the representations
and warranties of Article III of this Agreement untrue or
incorrect in any material respect if made anew after engaging in
such activity, entering into such transaction, or taking or
omitting such other action.
ARTICLE V
---------
ADDITIONAL AGREEMENTS
5.01 Access and Information; Due Diligence.
-------------------------------------
(a) The Mercantile Entities and Central Mortgage
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 Closing Date, to
all their respective properties, books, contracts, commitments
and records and, during such period, each shall furnish promptly
to the other (i) a copy of each report, schedule and other
document filed or received by it during such period pursuant to
the requirements of federal and state securities or banking laws
and (ii) all other information concerning its business,
properties and personnel as such other party may reasonably
request. Prior to the Effective Time and in the event of the
termination of this Agreement, each party hereto shall, and shall
cause its advisors and representatives to, (1) hold confidential
all information obtained in connection with any transaction
contemplated hereby with respect to the other party which is not
otherwise public knowledge, (2) return all documents (including
copies thereof) obtained hereunder from the other party to such
other party and (3) use its best efforts to cause all information
obtained pursuant to this Agreement or in connection with the
negotiation hereof to be treated as confidential and not use, or
knowingly permit others to use, any such information unless such
information becomes generally available to the public.
(b) Mercantile, through its officers, employees,
and/or agents, promptly following the date of the Initial
Agreement, commenced its review of Central Mortgage and the
Central Mortgage Subsidiaries and the respective operations,
business affairs, prospects and financial conditions of each,
including, without limitation, those matters which are the
subject of Central Mortgage's representations and warranties (the
"Mercantile Due Diligence Review"). Mercantile shall conclude
such review by not later than thirty (30) business days after the
date of the Initial Agreement (the "Mercantile Due Diligence
Period"), but the pendency of such Mercantile Due Diligence
Review shall not delay Mercantile's obligation pursuant to
Section 5.02 of this Agreement to file a Registration Statement
with the SEC and all other necessary applications and filings
with the appropriate federal and state regulatory agencies.
Mercantile shall advise Central Mortgage of any situation, event,
circumstance or other matter which first came to the attention of
Mercantile during the Mercantile Due Diligence Review which could
result in the termination of this Agreement by Mercantile
pursuant to Sections 7.01(d) or 7.01(f) hereof, or, if
applicable, of the absence of any situation, event, circumstance
or other matter, it being the intention of Mercantile to provide
notice to Central Mortgage, as promptly as possible, of any
perceived impediment to the consummation of the Merger.
Notwithstanding anything hereinabove contained or implied to the
contrary, the Mercantile Due Diligence Review shall not limit,
restrict or preclude, or be construed to limit, restrict or
preclude, Mercantile, at any time or from time to time
thereafter, from conducting such further 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
26
<PAGE> 31
event or condition which was not detected in the Mercantile Due Diligence
Review by Mercantile and which would constitute a breach of any
representation, warranty or agreement of Central Mortgage under this
Agreement.
(c) Central Mortgage, through its officers,
employees, and/or agents, promptly following the date of the
Initial Agreement, commenced its review of the Mercantile
Entities and their respective operations, business affairs,
prospects and financial conditions of each, including, without
limitation, those matters which are the subject of the Mercantile
Entities' representations and warranties (the "Central Mortgage
Due Diligence Review"). Central Mortgage concluded the Central
Mortgage Due Diligence Review by not later than thirty (30)
business days after the date of the Initial Agreement (the
"Central Mortgage Due Diligence Period"). Central Mortgage shall
advise the Mercantile Entities of any situation, event,
circumstance or other matter which first came to the attention of
Central Mortgage during the Central Mortgage Due Diligence Review
which could result in the termination of this Agreement pursuant
to Sections 7.01(e) or Section 7.01(f) hereof, or, if applicable,
of the absence of any situation, event, circumstance or other
matter, it being the intention of Central Mortgage to provide
notice to the Mercantile Entities, as promptly as possible, of
any perceived impediment to the consummation of the Merger.
Notwithstanding anything hereinabove contained or implied to the
contrary, the Central Mortgage Due Diligence Review shall not
limit, restrict or preclude, or be construed to limit, restrict
or preclude, Central Mortgage, at any time or from time to time
thereafter, from conducting such further reviews or from
exercising any rights available to it hereunder as a result of
the existence or occurrence prior to the Central Mortgage Due
Diligence Period of any event or condition which was not detected
in the Central Mortgage Due Diligence Review and which would
constitute a breach of any representation, warranty or agreement
of the Mercantile Entities under this Agreement.
5.02 Registration Statement; Regulatory Matters.
------------------------------------------
(a) Mercantile shall prepare and file with the
SEC, as soon as is reasonably practicable after the date of this
Agreement, the Registration Statement with respect to the shares
of Mercantile Stock to be issued to Central Mortgage shareholders
pursuant to the Merger, and shall use its best efforts to cause
the Registration Statement to become effective. Mercantile shall
also take any action required to be taken under any applicable
state blue sky or securities laws in connection with the issuance
of such shares, and Central Mortgage shall furnish Mercantile all
information concerning Central Mortgage and the Central Mortgage
Subsidiaries as Mercantile may reasonably request in connection
with any such action.
(b) Each of the parties hereto shall cooperate
and use its respective best efforts to prepare all documentation,
to effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties and
governmental bodies necessary to consummate the transactions
contemplated by this Agreement as soon as is reasonably
practicable after the date of this Agreement, including, without
limitation, in any event, Mercantile's filing of the necessary
applications with the Federal Reserve Board and the Division of
Finance and any other required applications with any other
regulatory agency or governing board as soon as is reasonably
practicable after the date of this Agreement.
5.03 Shareholder Approval. Central Mortgage shall
--------------------
call a special meeting of its shareholders to be held as soon as
is reasonably possible for the purpose of voting upon
27
<PAGE> 32
this Agreement and the Merger and related matters. In connection with
such meeting, Central Mortgage shall aid Mercantile in the
preparation and filing of the Proxy Statement (which shall be a
part of the Registration Statement to be filed with the SEC by
Mercantile) and mail it to its shareholders. The Board of
Directors of Central Mortgage shall submit for approval of its
shareholders the matters to be voted upon at such meeting. The
Board of Directors of Central Mortgage (subject to its fiduciary
duties, upon written advice of counsel to Central Mortgage, which
counsel shall be reasonably acceptable to Mercantile) will
recommend this Agreement and the Merger and will use its best
efforts to obtain the votes and approvals of its shareholders
necessary for the approval and adoption of this Agreement and the
Merger contemplated hereby.
5.04 Current Information. During the period from
-------------------
the date of this Agreement to the Closing Date, each party will
promptly furnish the other with copies of all monthly and other
interim financial statements as the same become available and
shall cause one or more of its designated representatives to
confer on a regular and frequent basis with representatives of
the other party. Each party shall promptly notify the other
party of the following events immediately upon learning of the
occurrence thereof, describing the same and, if applicable, the
steps being taken by the affected party with respect thereto: (a)
the occurrence of any event which could cause any representation
or warranty of such party or any schedule, statement, report,
notice, certificate or other writing furnished by such party to
be untrue or misleading in any material respect; (b) any Material
Adverse Change; (c) the issuance or commencement of any
governmental and/or regulatory agency complaint, investigation or
hearing or any communications indicating that the same may be
contemplated and, as to any such matter which shall now or
hereafter be in effect, any communications pertaining thereto; or
(d) the institution or the threat of litigation involving such
party.
5.05 Agreements of Affiliates. Set forth as
------------------------
Schedule 5.05 is a list (which includes individual and
- -------------
beneficial ownership) of all persons whom Central Mortgage
believes to be "affiliates" of Central Mortgage for purposes of
Rule 145 under the Securities Act and for pooling-of-interests
accounting treatment. Central Mortgage shall use its best
efforts to cause each person who is identified as an "affiliate"
to deliver to Mercantile, as of the date hereof, or as soon as
practicable hereafter, a written agreement in substantially the
form set forth as Exhibit A to this Agreement providing that
---------
each such person will agree not to sell, pledge, transfer or
otherwise dispose of the shares of Mercantile Stock to be
received by such person in the Merger during the period
designated in such letter and thereafter in compliance with the
applicable provisions of the Securities Act. Prior to the
Closing Date, and via letter, Central Mortgage shall amend and
supplement Schedule 5.05 and use its best efforts to cause
-------------
each additional person who is identified as an "affiliate" to
execute a written agreement as provided in this Section 5.05.
5.06 Tax Opinion Certificates. Central Mortgage
------------------------
shall cause such of its executive officers, directors and/or
holders of one percent (1%) or more of the Central Mortgage
Preferred Stock and/or Central Mortgage Common Stock (including
shares beneficially held) as may be reasonably requested by
Thompson & Mitchell to timely execute and deliver to Thompson &
Mitchell certificates substantially in the form of Exhibit B
---------
or Exhibit C hereto, as the case may be.
---------
5.07 Expenses. Each party hereto shall bear its
--------
own expenses incident to preparing, entering into and carrying
out this Agreement and to consummating the Merger,
28
<PAGE> 33
except that the Mercantile Entities shall pay all printing expenses and
filing fees incurred in connection with this Agreement, the Registration
Statement and the Proxy Statement.
5.08 Miscellaneous Agreements and Consents.
-------------------------------------
Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use its 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 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. Central Mortgage and the
Mercantile Entities shall use their best efforts to obtain
consents of all third parties and governmental bodies necessary
or, in the opinion of any of the Mercantile Entities or Central
Mortgage, desirable for the consummation of the transactions
contemplated by this Agreement.
5.09 Press Releases. Central Mortgage and the
--------------
Mercantile Entities shall consult with each other as to the form
and substance of any proposed press release or other proposed
public disclosure of matters related to this Agreement or any of
the transactions contemplated hereby.
5.10 Indemnification. Mercantile agrees that the
---------------
Merger shall not affect or diminish any of Central Mortgage's
duties and obligations of indemnification existing at the
Effective Time in favor of employees, agents, directors or
officers of Central Mortgage arising by virtue of its Articles of
Incorporation or By-laws in the form in effect at the date hereof
or arising by operation of law or arising by virtue of any
contract, resolution or other agreement or document existing at
the date hereof, and such duties and obligations shall continue
in full force and effect for so long as they would otherwise
survive and continue in full force and effect. Mercantile
represents that the directors and officers liability insurance
policy maintained by Mercantile provides for "prior acts"
coverage for directors and officers of entities acquired by
Mercantile. Mercantile shall provide the directors and officers
of Central Mortgage director and officer liability insurance
coverage comparable to that provided from time to time to the
directors and officers of other Mercantile Subsidiaries.
5.11 Employee Benefit Plans; Employee Stock Options.
----------------------------------------------
(a) Effective as of the Closing Date, the employees of
Central Mortgage and the Central Mortgage Subsidiaries (the
"Central Employees") shall be eligible to participate in the
Mercantile employee benefit plans generally made available to
other employees of the Mercantile Subsidiaries, subject to the
terms and conditions specified in such Mercantile plans and to
such changes therein as may be necessary to reflect the Merger.
The service of Central Employees with Central Mortgage or the
Central Mortgage Subsidiaries shall be recognized for purposes of
vesting and eligibility for participation in Mercantile employee
benefit plans generally made available to the other employees of
the Mercantile Subsidiaries, except that such service shall not
be counted for purposes of benefit accrual under any Mercantile
defined benefit pension plans. With respect to any Mercantile
welfare benefit plans, any eligibility waiting periods and any
preexisting conditions and actively-at-work exclusions shall be
waived for Central Employees and their eligible dependents,
except that any Central Employee or eligible dependent who, as of
the Closing Date, is then in the process of satisfying any
similar exclusion or waiting period under a welfare benefit plan
of Central Mortgage or any Central Mortgage Subsidiary may be
required to fully satisfy the balance of
29
<PAGE> 34
the applicable time period for such exclusion or waiting period under the
Mercantile welfare benefit plan after granting full credit for service
with Central Mortgage and the Central Mortgage Subsidiaries.
(b) At the Effective Time, all rights with respect to
Central Mortgage Common Stock pursuant to Employee Options that
are outstanding at the Effective Time, whether or not then
exercisable, shall be converted into and become rights with
respect to Mercantile Common Stock and Mercantile shall assume
each Employee Option in accordance with the terms of the stock
option plan or arrangement under which it was issued and the
stock option agreement by which it is evidenced. From and after
the Effective Time, (i) each Employee Option assumed by
Mercantile may be exercised solely for shares of Mercantile
Common Stock, (ii) the number of shares of Mercantile Common
Stock subject to each Employee Option shall be equal to the
number of shares of Central Mortgage Common Stock subject to each
Employee Option immediately prior to the Effective Time
multiplied by the Common Exchange Ratio, and (iii) the per share
exercise price under each such Employee Option shall be adjusted
by dividing the per share exercise price under each Employee
Option by the Common Exchange Ratio and rounding down to the
nearest cent; provided, however, that the terms of each
-------- -------
Employee Option shall, in accordance with its terms, be subject
to further adjustment as appropriate to reflect any stock split,
stock dividend, capitalization or other similar transaction
subsequent to the Effective Time. It is intended that the
foregoing assumption shall be undertaken in a manner that will
not constitute a "modification" as defined in Section 424 of the
Code, as to any Employee Option that is an incentive stock
option.
(c) The shares of Mercantile Stock covered by the
stock options to be issued pursuant to Section 5.11(b) shall be
covered by an effective registration statement filed on Form S-8
with the SEC and shall be duly authorized, validly issued and in
compliance with all applicable federal and state securities laws,
fully paid and nonassessable and not subject to or in violation
of any preemptive rights. Mercantile shall at and after the
Effective Time have reserved sufficient shares of Mercantile
Stock for issuance with respect to such options. Mercantile
shall also take any action required to be taken under any
applicable state blue sky or securities laws in connection with
the issuance of such shares.
5.12 Best Efforts to Insure Pooling. Each of
------------------------------
Mercantile and Central Mortgage undertakes and agrees to use its
best efforts to cause the Merger to qualify for pooling-of-
interests accounting treatment.
5.13 Payment of Change of Control Benefits. At
-------------------------------------
the Effective Time, Mercantile shall pay to each officer of
Central Mortgage or a Central Mortgage Subsidiary identified on
Schedule 5.13 the amount payable to such officer upon a change of
control under the change of control agreement between such
officer and Central Mortgage, without regard to any notice or
waiting periods set forth in such change of control agreements.
Central Mortgage shall provide written notice of such amounts to
Mercantile not less than ten business days prior to the Closing
Date.
5.14 Cenco Stock Purchase/Redemption. At or prior
-------------------------------
to the Effective Time, Central Mortgage shall have caused to be
consummated, in accordance with each respective Buy-Sell Stock
Option Agreement, the form of which is attached as Exhibit D
---------
to this Agreement, by and among Central Mortgage and designated
other persons, the purchase or
30
<PAGE> 35
redemption of shares of the capital stock of Cenco held of record or
beneficially by persons other than Central Mortgage.
ARTICLE VI
----------
CONDITIONS
6.01 Conditions to Each Party's Obligation To Effect
-----------------------------------------------
the Merger. The respective obligations of each party to effect
- ----------
the Merger shall be subject to the fulfillment or waiver at or
prior to the Effective Time of the following conditions:
(a) Shareholder Approval. The approval of
--------------------
this Agreement and the Merger shall have received the requisite
vote of shareholders of Central Mortgage at the special meeting
of shareholders called pursuant to Section 5.03 hereof.
(b) Regulatory Approval. This Agreement and
-------------------
the transactions contemplated hereby shall have been approved by
the Federal Reserve Board, the Division of Finance and any other
federal and/or state regulatory agencies whose approval is
required for consummation of the transactions contemplated
hereby.
(c) Effectiveness of Registration Statement.
---------------------------------------
The Registration Statement shall have been declared effective and
shall not be subject to a stop order or any threatened stop
order.
(d) No Judicial Prohibition. Neither Central
-----------------------
Mortgage, Mercantile nor Ameribanc shall be subject to any order,
decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the
Merger.
6.02 Conditions to Obligations of Central Mortgage.
---------------------------------------------
The obligations of Central Mortgage to effect the Merger shall be
subject to the fulfillment or waiver at or prior to the Effective
Time of the following additional conditions:
(a) Representations and Warranties. The
------------------------------
representations and warranties of the Mercantile Entities set
forth in Article III hereof shall be true and correct in all
material respects, except such inaccuracies therein as are not of
a magnitude as to have a Material Adverse Effect, as of the date
of this Agreement and as of the Closing Date, (as though made on
and as of the Closing Date except (i) to the extent such
representations and warranties are by their express provisions
made as of a specified date, and (ii) for the effect of
transactions contemplated by this Agreement) and Central Mortgage
shall have received a signed certificate which is to the best
knowledge of the Vice Chairman of Mercantile, signing on behalf
of the Mercantile Entities, and is to that effect.
(b) Performance of Obligations. The
--------------------------
Mercantile Entities shall have performed in all material respects
all obligations required to be performed by each under this
Agreement prior to or at the Effective Time, and Central Mortgage
shall have received a signed certificate which is to the best
knowledge of the Vice Chairman of Mercantile, signing on behalf
of the Mercantile Entities, and is to that effect.
(c) Permits, Authorizations, etc. The
----------------------------
Mercantile Entities shall have obtained any and all material
permits, authorizations, consents, waivers and approvals required
for the lawful consummation by them of the Merger.
31
<PAGE> 36
(d) No Material Adverse Change. Since the
--------------------------
date of this Agreement, there shall have been no material adverse
change in the financial condition, results of operations,
business, assets, prospects or operations of Mercantile and the
Mercantile Subsidiaries, taken as a whole.
(e) Opinion of Counsel. Mercantile shall
------------------
have delivered to Central Mortgage an opinion of counsel to
Mercantile dated as of the Closing Date or a mutually agreeable
earlier date in substantially the form set forth as Exhibit E
---------
to this Agreement.
(f) Tax Opinion. Thompson & Mitchell, as
-----------
counsel to Mercantile, shall have delivered to Central Mortgage
an opinion dated as of the Closing Date to the effect that the
Merger constitutes a reorganization within the meaning of Section
368 of the Code and to the effect that, as a result of the
Merger, except with respect to fractional share interests,
holders of Central Mortgage Common Stock who receive Mercantile
Stock in the Merger will not recognize gain or loss for federal
income tax purposes, the basis of such Mercantile Stock will
equal the basis of the Central Mortgage Common Stock for which it
is exchanged, and the holding period of such Mercantile Stock
will include the holding period of the Central Mortgage Common
Stock for which it is exchanged, assuming that such Central
Mortgage Common Stock is a capital asset in the hands of the
holder thereof at the Effective Time.
6.03 Conditions to Obligations of the Mercantile
-------------------------------------------
Entities. The obligations of the Mercantile Entities to effect
- --------
the Merger shall be subject to the fulfillment at or prior to the
Effective Time of the following additional conditions:
(a) Representations and Warranties. The
------------------------------
representations and warranties of Central Mortgage set forth in
Article II hereof shall be true and correct in all material
respects, except such inaccuracies therein as are not of a
magnitude as to have a Material Adverse Effect, as of the date of
this Agreement and as of the Closing Date (as though made on and
as of the Closing Date except (i) to the extent such
representations and warranties are by their express provisions
made as of a specific date; (ii) for the effect of transactions
contemplated by this Agreement; (iii) the parties acknowledge
that the schedules to this Agreement shall not be supplemented or
amended following their delivery to the Mercantile Entities, and
the lack of such supplementation or amendments shall not
constitute non-fulfillment of the conditions of this Section
6.03(a); and (iv) that any change resulting from Central
Mortgage's performance of its covenant set forth in Section 5.15
hereof shall not constitute nonfulfillment of the conditions of
this Section 6.03(a)) and Mercantile shall have received a signed
certificate which is to the best knowledge of the chief executive
officer and chief financial officer of Central Mortgage, signing
on behalf of Central Mortgage, and is to that effect.
(b) Performance of Obligations. Central
--------------------------
Mortgage shall have performed in all material respects all
obligations required to be performed by it under this Agreement
prior to or at the Closing Date, and Mercantile shall have
received a signed certificate which is to the best knowledge of
the chief executive officer and chief financial officer of
Central Mortgage, signing on behalf of Central Mortgage, and is
to that effect.
(c) Permits, Authorizations, etc. Central
----------------------------
Mortgage shall have obtained any and all material consents or
waivers from other parties to loan agreements, leases or other
contracts material to Central Mortgage's businesses required for
the consummation of the
32
<PAGE> 37
Merger, and Central Mortgage shall have obtained any and all material
permits, authorizations, consents, waivers and approvals required for the
lawful consummation by it of the Merger.
(d) No Material Adverse Change. Since the
--------------------------
date of this Agreement, there shall have been no material adverse
change in the financial condition, results of operations,
business, assets, prospects or operations of Central Mortgage or
the Central Mortgage Subsidiaries taken as a whole, except that
any change resulting from Central Mortgage's performance of its
covenant set forth in Section 5.15 hereof shall not constitute
nonfulfillment of the conditions of this Section 6.03(d).
(e) Election of Dissenting Shareholders.
-----------------------------------
Unless otherwise waived by the Mercantile Entities in their sole
discretion, holders of less than ten percent (10%) of the total
value of shares of Central Mortgage Stock outstanding shall have
taken such steps as are then possible to dissent from the Merger
pursuant to Section 351.455 of the Missouri Statute.
(f) Pooling Letter. The Mercantile Entities
--------------
shall have received as soon as practicable after the date of this
Agreement an opinion of KPMG Peat Marwick LLP, satisfactory in
form and substance to the Mercantile Entities, to the effect that
the Merger will qualify for pooling-of-interests accounting
treatment, which opinion shall have not been withdrawn. Baird,
Kurtz & Dobson, independent auditors for Central Mortgage, shall
provide to Central Mortgage assurance that Baird, Kurtz & Dobson
knows of no facts that would prevent pooling-of-interests
accounting treatment.
(g) Opinion of Counsel. Central Mortgage
------------------
shall have delivered to Mercantile an opinion of counsel to
Central Mortgage dated as of the Closing Date or a mutually
agreeable earlier date in substantially the form set forth as
Exhibit F to this Agreement.
- ---------
ARTICLE VII
-----------
TERMINATION, AMENDMENT AND WAIVER
7.01 Termination. This Agreement may be terminated
-----------
at any time prior to the Closing Date, whether before or after
approval by the shareholders of Central Mortgage:
(a) by mutual consent by the Executive Committee
of the Board of Directors of Mercantile and the Board of
Directors of each other party hereto; or
(b) by the Executive Committee of the Board of
Directors of Mercantile or the Board of Directors of each other
party hereto at any time after June 30, 1995 if the Merger shall
not theretofore have been consummated; provided, however,
-----------------
that such date shall be automatically extended to August 31, 1995
if the cause of the failure to consummate the Merger by such date
is the result of regulatory delay not due to the fault or failure
of the parties hereto; or
(c) by the Executive Committee of the Board of
Directors of Mercantile or the Board of Directors of each other
party hereto if the Federal Reserve Board, the Division of
Finance or any other federal and/or state regulatory agency whose
approval is required for
33
<PAGE> 38
the consummation of the transactions contemplated hereby shall have issued
a final and nonappealable denial of such approval; or
(d) by the Executive Committee of the Board of
Directors of Mercantile or the Board of Directors of Ameribanc,
at any time prior to the completion of the Mercantile Due
Diligence Period, in the event any situation, event, circumstance
or other matter shall come to the attention of Mercantile during
the course of the Mercantile Due Diligence Review conducted
pursuant to Section 5.01(b) hereof which Mercantile shall, in a
good faith exercise of its reasonable discretion, determine to be
of type or nature which is of such a magnitude as to be
materially adverse to the financial condition, results of
operations, business, assets, prospects or operations of Central
Mortgage and the Central Mortgage Subsidiaries, taken as a whole,
and is not capable of being expeditiously or effectively resolved
or remedied in a manner reasonably acceptable to Mercantile; or
(e) by the Board of Directors of Central Mortgage
at any time prior to the completion of the Central Mortgage Due
Diligence Period, in the event any situation, event, circumstance
or other matter shall come to the attention of Central Mortgage
during the course of the Central Mortgage Due Diligence Review
conducted pursuant to Section 5.01(c) hereof which Central
Mortgage shall, in a good faith exercise of its reasonable
discretion, determine to be of the type or nature which is of
such a magnitude as to be materially adverse to the financial
condition, results of operations, business, assets, prospects or
operations of Mercantile and its subsidiaries, taken as a whole,
and is not capable of being expeditiously or effectively resolved
or remedied in a manner reasonably acceptable to Central
Mortgage; or
(f) by the Executive Committee of the Board of
Directors of Mercantile or the Board of Directors of Ameribanc or
the Board of Directors of Central Mortgage in the event of a
breach by the other of any representation, warranty or agreement
contained in this Agreement, which breach is of such a magnitude
as to be materially adverse to the financial condition, results
of operations, business, assets, prospects or operations of the
breaching party and its subsidiaries taken as a whole and is not
cured after 45 days' written notice thereof is given to the party
committing such breach or waived by such other party(ies).
7.02 Effect of Termination. In the event of
---------------------
termination of this Agreement as provided in Section 7.01 above,
this Agreement shall forthwith become void and without further
effect and there shall be no liability on the part of any party
hereto or the respective officers and directors of each, except
as set forth in the second sentence of Section 5.01(a) and in
Sections 5.07 and 8.02, and, except that no termination of this
Agreement pursuant to subsection (f) of Section 7.01 shall
relieve the non-performing party of any liability to any other
party hereto arising from the intentional, deliberate and willful
non-performance of any covenant herein, after the giving of
notice and the opportunity to cure.
7.03 Amendment. This Agreement and the Exhibits
---------
and Schedules hereto may be amended by the parties hereto, by
action taken by or on behalf of the respective Executive
Committees of the Board of Directors or the respective Boards of
Directors of the Mercantile Entities, or the Board of Directors
of Central Mortgage, at any time before or after approval of this
Agreement by the shareholders of Central Mortgage; provided,
however, that after any such approval no such modification shall
alter the amount or change the form of the consideration
contemplated by this Agreement to be received by shareholders of
Central Mortgage or alter or change any of the terms of this
Agreement if such alteration or change
34
<PAGE> 39
would adversely affect the shareholders of Central Mortgage. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
7.04 Waiver. Any term, condition or provision of
------
this Agreement may be waived in writing at any time by the party
which is, or whose shareholders are, entitled to the benefits
thereof.
ARTICLE VIII
------------
GENERAL PROVISIONS
8.01 Non-Survival of Representations, Warranties and
-----------------------------------------------
Agreements. No investigation by the parties hereto made
- ----------
heretofore or hereafter shall affect the representations and
warranties of the parties which are contained herein and each
such representation and warranty shall survive such
investigation. Except as set forth below in this Section 8.01,
all representations, warranties and agreements in this Agreement
of the Mercantile Entities and Central Mortgage or in any
instrument delivered by the Mercantile Entities or Central
Mortgage pursuant to this Agreement shall expire at the Effective
Time or upon termination of this Agreement in accordance with its
terms. In the event of termination of this Agreement in
accordance with its terms, the agreements contained in Sections
5.01(a)(second sentence), 5.07, 7.02 and 8.02 shall survive such
termination. In the event of consummation of the Merger, the
agreements contained in Sections 1.06, 1.08, 1.10, 5.10, 5.11 and
8.02 shall survive the Effective Time.
8.02 Indemnification. Central Mortgage and the
---------------
Mercantile Entities (hereinafter, in such capacity being referred
to, individually and/or collectively, as the "Indemnitor") agree
to indemnify and hold harmless each other and their officers,
directors and controlling persons (each such other party being
hereinafter referred to, individually and/or collectively, as the
"Indemnitee") against any and all losses, claims, damages or
liabilities, joint or several, to which the Indemnitee may become
subject under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) (a) arise out of any information
furnished to the Indemnitee by the Indemnitor or are based upon
any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement as originally filed
or in any amendment thereof, or in the Proxy Statement, or in any
amendment thereof or supplement thereto, and provided for
inclusion therein by the Indemnitor, or (b) arise out of or are
based upon the omission or alleged omission by the Indemnitor to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and
agrees to reimburse each such Indemnitee, as incurred, for any
legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage,
liability or action. The obligations of the Indemnitor under
this Section 8.02 shall survive any termination of this
Agreement.
8.03 No Assignment; Successors and Assigns. This
-------------------------------------
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors (including any
corporation deemed to be a successor corporation of any of the
parties by operation of law) and assigns, but neither this
Agreement nor any right or obligation set forth in any provision
hereof may be transferred or assigned (except by operation of
law) by any
35
<PAGE> 40
party hereto without the prior written consent of all other parties, and
any purported transfer or assignment in violation of this Section 8.03
shall be void and of no effect. There shall not be any third party
beneficiaries of any provisions hereof except for Sections 1.08, 1.10,
5.10, 5.11, 5.13 and 8.02 which may be enforced against Mercantile or
Central Mortgage, as the case may be, by the parties therein identified
or described.
8.04 Severability. Whenever possible, each
------------
provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any
provision of this Agreement shall be held to be prohibited by or
invalid under applicable law, such provision shall be ineffective
only to the extent of such prohibition or invalidity, without
invalidating the remaining provisions of this Agreement.
8.05 No Implied Waiver. No failure or delay on the
-----------------
part of any party hereto to exercise any right, power or
privilege hereunder or under any instrument executed pursuant
hereto shall operate as a waiver nor shall any single or partial
exercise of any right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right,
power or privilege.
8.06 Headings. Article, section, subsection and
--------
paragraph titles, captions and headings herein are inserted only
as a matter of convenience and for reference, and in no way
define, limit, extend or describe the scope of this Agreement or
the intent of any provision hereof.
8.07 Entire Agreement. This Agreement and the
----------------
Schedules and Exhibits hereto constitute the entire agreement
between the parties with respect to the subject matter hereof,
supersede all prior negotiations, representations, warranties,
commitments, offers, letters of interest or intent, proposal
letters, contracts, writings or other agreements or
understandings with respect thereto. No waiver, and no
modification or amendment, of any provision of this Agreement,
shall be effective unless specifically made in writing and duly
signed by all parties thereto.
8.08 Counterparts. This Agreement may be executed
------------
in one or more counterparts, and any party to this Agreement may
execute and deliver this Agreement by executing and delivering
any of such counterparts, each of which when executed and
delivered shall be deemed to be an original and all of which
taken together shall constitute one and the same instrument.
8.09 Notices. All notices and other communications
-------
hereunder shall be in writing and shall be deemed to be duly
received (a) on the date given if delivered personally or by
cable, telegram, telex or telecopy or (b) on the date received if
mailed by registered or certified mail (return receipt
requested), to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
36
<PAGE> 41
(i) if to the Mercantile Entities:
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, MO 63166-0524
Attention: Ralph W. Babb, Jr.
Vice Chairman
Telecopy: (314) 425-8108
Copy to:
Jon W. Bilstrom, Esq.
General Counsel
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, MO 63166-0524
Telecopy: (314) 425-1386
and
Robert M. LaRose, Esq.
Thompson & Mitchell
One Mercantile Center
St. Louis, Missouri 63101
Telecopy: (314) 342-1717
(ii) if to Central Mortgage:
Central Mortgage Bancshares, Inc.
4435 Main Street, Suite 100
Kansas City, Missouri 64111
Attention: Lynn A. Harmon
Chairman and Chief Executive
Officer
Telecopy: (816) 561-3387
Copy to:
Robin V.W. Foster, Esq.
Blackwell Sanders Matheny Weary & Lombardi
Two Pershing Square, Suite 1100
2300 Main Street
Kansas City, Missouri 64108
Telecopy: (816) 274-6914
8.10 Governing Law. This Agreement shall be
-------------
governed by and controlled as to validity, enforcement,
interpretation, effect and in all other respects by the internal
laws of the State of Missouri applicable to contracts made in
that state.
37
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective officers thereunto
duly authorized and their respective corporate seals to be
affixed hereto, all as of the date first written above.
MERCANTILE BANCORPORATION INC.
By: /s/ Ralph W. Babb, Jr.
------------------------------
Ralph W. Babb, Jr.
Vice Chairman
AMERIBANC, INC.
By: /s/ Ralph W. Babb, Jr.
------------------------------
Ralph W. Babb, Jr.
Chairman
CENTRAL MORTGAGE BANCSHARES, INC.
By: /s/ Lynn A. Harmon
------------------------------
Lynn A. Harmon
Chairman and Chief Executive
Officer
38
<PAGE> 1
INVESTMENT AGREEMENT
THIS AGREEMENT, dated as of September 21, 1994, by and between Central
Mortgage Bancshares, Inc., a Missouri corporation ("Issuer"), and Mercantile
Bancorporation Inc., a Missouri corporation ("Recipient").
W I T N E S S E T H:
WHEREAS, Issuer and Recipient are entering into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), which agreement
is being executed by the parties hereto simultaneously with this Investment
Agreement;
WHEREAS, as a condition to Recipient's entry into the Merger Agreement
and in consideration for such entry, Issuer has agreed to issue to Recipient,
on the terms and conditions set forth herein, an Option entitling Recipient to
purchase up to an aggregate of 736,667 shares of Issuer's common stock, $1.00
par value (Issuer's common stock being hereinafter referred to as "Common
Stock"), subject to adjustment as provided in Section 4 hereof;
---------
NOW, THEREFORE, in consideration of the execution of the Merger
Agreement and the premises herein contained, Issuer and Recipient agree as
follows:
1. Grant of Option. Concurrently with the execution of the
----------------
Merger Agreement, Issuer shall issue to Recipient an Option or Options
appropriately completed in the form of Attachment A hereto (the "Option",
------------
which term as used herein includes any Options issued upon transfer or
exchange of the original Option or pursuant to Section 3 or 4 of this
--------------
Agreement) to purchase up to 736,667 shares of Common Stock. The Option shall
be exercisable at a price of $18.50 per share of Common Stock, subject to
adjustment as provided herein or in the Option (the "Exercise Price"). Issuer
shall at all times maintain and reserve, free from preemptive right, such
number of authorized but unissued shares of Common Stock as are issuable upon
exercise of the Option without additional authorization of Common Stock after
giving effect to all other options, warrants, convertible securities and other
rights to acquire shares of Common Stock. Issuer represents and warrants that
it has duly authorized the issuance of shares of Common Stock upon exercise of
the Option and covenants that the shares of Common Stock issued upon exercise
of the Option shall be duly authorized, validly issued and fully paid and
nonassessable and subject to no preemptive rights. Issuer represents that
this Agreement has been authorized by all necessary corporate action and the
execution, delivery and performance of this Agreement do not, and the
consummation of the transactions contemplated hereby by Issuer will not,
constitute (i) a breach or violation of any judgment, decree, order,
governmental permit or license, or agreement, indenture or instrument of it or
to which it is subject, which breach, violation or default would have a
material adverse effect on the financial condition, results of operations,
business, assets, prospects or operations of Issuer and its subsidiaries,
taken as a whole; or (ii) a breach or violation of, or a default under,
Issuer's articles of incorporation or bylaws or the articles of incorporation
or the articles of association, as the case may be, or bylaws of its
subsidiaries; and the consummation of the transactions contemplated hereby
will not require any consent or approval under any judgment, decree, order,
governmental permit or license or the consent or approval of any other party
to any such agreement, indenture or instrument other than any required
approvals of applicable regulatory authorities for the exercise of the Option
(or as otherwise herein provided).
<PAGE> 2
2. Conditions to Exercise. Subject to any necessary
-----------------------
regulatory approvals, the Option may be exercised by Recipient, in whole or in
part, at any time or from time to time, but only after the occurrence of any
of the following events ("Triggering Events"):
(a) The failure of the Issuer's shareholders to approve
the Merger Agreement or, if not previously held, the failure of Issuer to
promptly hold a shareholders' meeting and the failure of the Issuer's
shareholders to thereafter approve the Merger Agreement, in each case, after:
(i) Any person makes a public announcement (other
than Recipient or any subsidiary thereof) of an offer or
proposal to acquire 10% or more of the Common Stock, or to
acquire, merge or consolidate with Issuer or any subsidiary
of the Issuer (individually, a "Subsidiary" and,
collectively, the "Subsidiaries") or to purchase all or any
substantial part of Issuer's assets or any Subsidiary's
assets;
(ii) Any person (other than Recipient or any
subsidiary thereof) shall have acquired beneficial ownership
or the right to acquire beneficial ownership of 10% or more
of the outstanding shares of Common Stock;
(iii) Any person shall have commenced a bona fide
tender offer or exchange offer to purchase shares of Common
Stock such that, upon consummation of said offer, said
person would own or control 25% or more of the outstanding
shares of Common Stock;
(iv) Any person shall have solicited proxies in a
proxy solicitation in opposition to approval by Issuer's
shareholders of the Merger Agreement;
provided, however, that no Triggering Event shall be deemed to have occurred
- ------------------
under this Section 2(a) solely due to the beneficial ownership of Common
Stock, or securities of a Subsidiary, by any person who has executed a voting
agreement in favor of Recipient under the Merger Agreement or by Issuer's
ESOP; or
(b) Issuer shall have entered into an agreement with a
person (other than Recipient or any subsidiary thereof) for such person to
acquire, merge or consolidate with Issuer or to purchase all or any
substantial part of Issuer's or any Subsidiary's assets (except for the merger
of Citizens State Bank of Nevada with Barton County State Bank).
As used in this Agreement, "person" shall mean any individual, firm,
corporation, or other entity and shall include any syndicate or group of
persons deemed to be a "person" by Section 13(d)(3)(e) of the Securities
Exchange Act of 1934, as amended.
3. Resale of Option and Option Stock to Issuer. Subject to
--------------------------------------------
applicable regulatory restrictions, from and after the date on which a
Triggering Event occurs:
(a) On or after the consummation of a transaction in which
a Market/Offer Price (as hereinafter defined) or a Sale Price (as hereinafter
defined) has been established, at the request of Recipient, Issuer shall
repurchase for cash the Option from Recipient at a price (the "Option
Repurchase Price") equal to the higher of (i) (x) the Market/Offer Price less
the Exercise Price, multiplied by (y) the number of shares of Common Stock for
which the Option is then exercisable (the "Conversion Number") and (ii) in the
event of the sale of all or any substantial part of the assets of Issuer, the
2
<PAGE> 3
Conversion Number multiplied by the excess of (x) (I) the sum of (a) the price
paid for such assets, (b) the current market value of the remaining assets of
Issuer, as determined by a recognized investment banking firm selected by
Recipient and acceptable to Issuer, and (c) the Exercise Price multiplied by
the Conversion Number, divided by (II) the sum of the number shares of Common
Stock then outstanding and the Conversion Number (the "Sale Price"), over (y)
the Exercise Price; and
(b) On or after the consummation of a transaction in which
a Market/Offer Price or a Sale Price has been established, at the request of
Recipient on or prior to the termination of the Option ("Option Stock"),
Issuer shall repurchase for cash any shares of Common Stock purchased pursuant
to the Option, at a price (the "Option Stock Repurchase Price") equal to the
highest of (x) the Market/Offer Price multiplied by the number of such shares,
and (y) in the event of a sale of all or any substantial part of the assets of
Issuer, the Sale Price multiplied by the number of such shares.
(c) At the request of Recipient on or prior to the
termination of the Option, Issuer shall repurchase for cash any shares of
Option Stock, at a price (the "Alternative Option Stock Repurchase Price")
equal to the Exercise Price multiplied by the number of such shares.
The term "Market/Offer Price" means the highest of (i) the highest
price per share of Common Stock at which a tender offer or exchange offer has
been consummated and (ii) the highest price per share of Common Stock paid by
any third party pursuant to an agreement with Issuer. In the event that an
exchange offer is consummated or a merger or consolidation involving
consideration other than cash occurs, the value of the securities or other
property issued or delivered in exchange for the Common Stock shall be
determined by a nationally recognized investment banking firm selected by
Recipient and acceptable to Issuer.
Recipient may exercise its right to require Issuer to repurchase
the Option and the Option Stock pursuant to this Section 3 by surrendering
---------
for such purpose to Issuer, at its principal office, the Option and
certificates for Option Stock, duly endorsed for transfer and free and clear
of all claims and liens of any nature, accompanied by a written notice or
notices stating that Recipient elects to require Issuer to repurchase the
Option and/or the Option Stock in accordance with the provisions of this
Section 3. As promptly as practicable, and in any event within five
- ----------
business days after the surrender of the Option and/or certificates
representing shares of Option Stock and the receipt of such notice or notices
relating thereto, Issuer shall deliver or cause to be delivered to Recipient
the Option Repurchase Price and/or the Option Stock Repurchase Price and/or
the Alternative Option Stock Repurchase Price therefor (together, the
"Aggregate Repurchase Price") or the portion thereof which Issuer is not then
prohibited under applicable law and regulation from so delivering.
To the extent that Issuer is prohibited under applicable law or
regulation, or as a result of administrative or judicial action, from
repurchasing the Option and/or the Option Stock in full, Issuer shall
immediately so notify Recipient and hereafter deliver or cause to be
delivered, from time to time, to Recipient the portion of the Aggregate
Repurchase Price which it is no longer prohibited from delivering, within five
business days after the date on which Issuer is no longer so prohibited;
provided, however, that upon receipt of such notice from Issuer and until
- ------------------
five days thereafter, Recipient may revoke its notice of repurchase of the
Option and/or Option Stock by written notice to Issuer at its principal office
stating that Recipient elects to revoke its election to exercise its right to
require Issuer to repurchase the Option and/or Option Stock, whereupon Issuer
will promptly deliver to Recipient the Option and/or certificates representing
the shares of Option Stock surrendered to Issuer for purposes of such
repurchase and Issuer shall have no further obligation to repurchase such
Option and/or Option Stock.
3
<PAGE> 4
The occurrence of one or more of the Triggering Events shall cause
the Option and the Option Stock to become eligible for repurchase as provided
in this Section 3. Upon the occurrence of one of the Triggering Events,
----------
Issuer shall promptly notify the Recipient of such event, and promptly compute
the Option Repurchase Price and the Option Stock Repurchase Price and furnish
to the Recipient a certificate, signed by a principal financial officer of
Issuer, setting forth the Option Repurchase Price and the Option Stock
Repurchase Price and the basis and computation thereof.
4. Additional Options. In the event that Issuer issues any
-------------------
additional shares of Common Stock (other than Common Stock issued in
connection with the exercise hereof), Issuer shall issue additional Options to
Recipient, such additional options to be exercisable for a number of shares of
Common Stock equal to 19.9% of the number of additional shares of Common Stock
so issued. Such additional Options shall be identical to the Option.
5. Certain Transactions. Issuer will not enter into any
---------------------
transaction described in Subsections (a), (b) or (c) of Section 5(A) of the
-------------------------------
Option unless the Acquiring Corporation (as defined in the Option) assumes in
writing, in form and substance satisfactory to Recipient, all the obligations
of Issuer hereunder.
6. Governmental Approvals. Recipient will not exercise the
-----------------------
Option to purchase shares of Common Stock unless it has received any required
regulatory approvals for such exercise.
7. Miscellaneous Provisions.
-------------------------
(a) Specific Performance. Without limiting any remedies
---------------------
available to Recipient, it is specifically acknowledged that Recipient would
not have an adequate remedy at law for any breach of this Agreement and will
be entitled to specific performance of the obligations of Issuer under, and/or
the injunctive relief against actual or threatened violations of the
obligations of Issuer pursuant to, this Agreement.
(b) Entire Agreement. Except as otherwise expressly
-----------------
provided herein, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereto, written or
oral, except the Merger Agreement. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors and assigns, any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided herein.
(c) Assignment. Neither of the parties hereto may sell,
-----------
transfer, assign or otherwise dispose of any of its rights or obligations
under this Agreement or the Option created hereunder to any other person,
without the express written consent of the other party, except as expressly
provided herein.
(d) Notices. All notices or other communications
--------
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (with receipt confirmed) or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
4
<PAGE> 5
If to Issuer:
Central Mortgage Bancshares, Inc.
4435 Main Street, Suite 100
Kansas City, Missouri 64111
Attention: Lynn A. Harmon, Chairman and Chief Executive Officer
Telecopy: (816) 561-3382
with a copy to:
Blackwell Sanders Matheny Weary & Lombardi
Two Pershing Square, Suite 1100
2300 Main Street
Kansas City, Missouri 64108
Attention: Robin V. W. Foster
Telecopy: (816) 274-6914
If to Recipient:
Mercantile Bancorporation Inc.
Mercantile Tower
P. O. Box 524
St. Louis, Missouri 63166-0524
Attention: Ralph W. Babb, Jr., Vice Chairman
Telecopy: (314) 425-8108
with a copy to:
Mercantile Bancorporation Inc.
Mercantile Tower
P. O. Box 524
St. Louis, Missouri 63166-0524
Attention: Jon W. Bilstrom, General Counsel
Telecopy: (314) 425-1386
A party may change its address for notice purposes by written notice to
the other party hereto.
(e) Counterparts. This Investment Agreement may be
-------------
executed in any number of counterparts, and each such counterpart shall be
deemed to be an original instrument, but all such counterparts together shall
constitute but one agreement.
5
<PAGE> 6
(f) Governing Law. This Investment Agreement shall be
--------------
governed by, and interpreted in accordance with, the laws of the State of
Missouri.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed in counterparts by their duly authorized officers as of the day
and year first above written.
CENTRAL MORTGAGE BANCSHARES, INC.
("Issuer")
By: /s/ Lynn A. Harmon
-----------------------------------------
Lynn A. Harmon
Chairman and Chief Executive Officer
Attest:
/s/ Robin V. Foster
- -------------------------------------
MERCANTILE BANCORPORATION INC.
("Recipient")
By: /s/ Ralph W. Babb, Jr.
---------------------------------------
Ralph W. Babb, Jr.
Vice Chairman
Attest:
/s/ Jon W. Bilstrom
- -------------------------------------
Jon W. Bilstrom, Secretary
6
<PAGE> 1
THIS OPTION IS SUBJECT TO CERTAIN CONDITIONS SET FORTH IN A CERTAIN INVESTMENT
AGREEMENT DATED AS OF SEPTEMBER 21, 1994, A COPY OF WHICH IS AVAILABLE FOR
INSPECTION AT THE OFFICES OF THE COMPANY.
OPTION
to Purchase up to 736,667 shares of Common Stock of Central Mortgage
Bancshares, Inc.
This is to certify that, for value received, Mercantile
Bancorporation Inc. ("Recipient") is entitled to purchase, subject to the
provisions of this Option, from Central Mortgage Bancshares, Inc. (the
"Issuer"), at any time on or after the date hereof, an aggregate of up to
736,667 fully paid and non-assessable shares of common stock, $1.00 par value
(the "Common Stock"), of Issuer at a price of $18.50 per share, subject to
adjustment as provided herein and in the Agreement (as hereinafter defined)
(the "Exercise Price").
1. Exercise of Option. Subject to the provisions hereof and
-------------------
of the Investment Agreement of even date herewith by and between Recipient and
Issuer (the "Agreement"), this Option may be exercised in whole or in part, at
any time or from time to time on or after the occurrence of a Triggering Event
(as defined in the Agreement). This Option shall be exercised by presentation
and surrender hereof to Issuer at the principal office of Issuer, accompanied
by (i) a written notice of exercise, (ii) payment to Issuer, for the account
of Issuer, of the Exercise Price for the number of shares of Common Stock
specified in such notice, and (iii) a certificate of Recipient stating the
event or events that have occurred which entitle Recipient to exercise this
Option. The Exercise Price for the number of shares of Common Stock specified
in the notice shall be payable in immediately available funds.
Upon such presentation and surrender, Issuer shall issue promptly
(and within one business day if requested by Recipient) to Recipient the
shares of Common Stock to which Recipient is entitled hereunder.
If this Option should be exercised in part only, Issuer shall,
upon surrender of this Option for cancellation, execute and deliver a new
Option evidencing the rights of Recipient to purchase the balance of the
shares of Common Stock purchasable hereunder. Upon receipt by Issuer of this
Option, in proper form for exercise, Recipient shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be closed
or that certificates representing such shares of Common Stock shall not then
be actually delivered to the Recipient. The Issuer shall pay all expenses,
and any and all United States federal, state and local taxes and other charges
(not including any taxes on Recipient's income or assets), that may be payable
in connection with the preparation, issue and delivery of stock certificates
pursuant to this Section 1 in the name of Recipient or its assignee,
---------
transferee or designee.
2. Reservation of Shares; Preservation of Rights of Recipient.
-----------------------------------------------------------
The Issuer agrees (i) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets,
or by any other voluntary act, avoid or seek to avoid the observance or
performance of any of the covenants, terms or conditions to be observed or
performed hereunder or under the Agreement by Issuer, (ii) that it will use
its best efforts to cooperate fully with Recipient in preparing any such
regulatory applications that may be necessary before this Option may be
exercised and providing
<PAGE> 2
such information to regulators as may be required in order to permit
Recipient to exercise this Option and Issuer duly and effectively to issue
shares of its Common Stock hereunder, and (iii) that it will promptly take
all action necessary to protect the rights of Recipient against dilution as
provided herein.
3. Fractional Shares. The Issuer shall not be required to
------------------
issue fractional shares of Common Stock upon exercise of this Option but shall
pay for such fraction of a share in cash or by certified or official bank
check at the Exercise Price.
4. Exchange, Transfer or Loss of Option. This Option is
-------------------------------------
exchangeable without expense, at the option of Recipient, upon presentation
and surrender hereof at the principal office of issuer for other Options of
different denominations entitling Recipient to purchase in the aggregate the
same number of shares of Common Stock purchasable hereunder. The term
"Option" as used herein includes any Options for which this Option may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Option, and (in case of
loss, theft or destruction) of reasonably satisfactory indemnification and
upon surrender and cancellation of this Option, if mutilated, Issuer will
execute and deliver a new Option of like tenor and date. Any such new Option
executed and delivered shall constitute an additional contractual obligation
on the part of Issuer, whether or not the Option so lost, stolen, destroyed or
mutilated shall be at any time enforceable by anyone.
5. Certain Transactions.
---------------------
(A) In case Issuer (a) shall consolidate with or merge
into any Person, other than Recipient or one of its Affiliates, and shall not
be the continuing or surviving corporation of such consolidation or merger,
(b) shall permit any Person, other than Recipient or one of its Affiliates, to
merge into Issuer and Issuer shall be the continuing or surviving corporation,
but, in connection with such merger, the shares of Common Stock outstanding
immediately prior to the merger shall be changed into or exchanged for stock
or other securities of any other Person or cash or any other property or shall
represent less than 50% of the shares of Common Stock immediately after giving
effect to the merger, or (c) shall sell or otherwise transfer all or any
substantial part of its assets to any Person, other than Recipient or one of
its Affiliates, then, and in each such case, the agreement governing such
transaction shall make proper provision so that this Option shall, upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an Option (the "Substitute
Option"), at the option of Recipient, of (I) the Acquiring Corporation (as
hereinafter defined), (II) any company which controls the Acquiring
Corporation, or (III) in the case of a merger described in Clause (A)(b),
--------------
Issuer, in which case such Option shall be a newly issued Option.
(B) The following terms have the meanings indicated:
(a) "Acquiring Corporation" shall mean (I) the continuing
or surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (II) the corporation merging into Issuer in a merger in which
Issuer is the continuing or surviving Person and in connection with which the
shares of Common Stock outstanding immediately prior to the merger are changed
into or exchanged for stock or other securities of any other Person or cash or
any other property or shall represent less than 50% of the shares of Common
Stock immediately after giving effect to the merger, and (III) the transferee
of all or substantially all of the Issuer's assets or other assets of its
subsidiaries;
2
<PAGE> 3
(b) "Substitute Common Stock" shall mean the common stock
issued by the issuer of the Substitute Option;
(c) "Assigned Value" shall mean, as appropriate, (I) the
Sales Price (as defined in the Agreement) or (II) the highest of the highest
price per share of Common Stock at which a tender offer or exchange offer has
been made, the highest price per share of Common Stock paid or agreed to be
paid therefor by any third party pursuant to an agreement with Issuer and the
highest last reported sale price per share of the Issuer's Common Stock within
the four-month period immediately preceding the consolidation or merger in
question;
(d) "Average Price" shall mean the average last reported
sale price or closing price, as the case may be, of a share of Substitute
Common Stock for the one year immediately preceding the consolidation, merger,
or sale in question, but in no event higher than the last reported sale price
or closing price, as the case may be, of the shares of Substitute Common Stock
on the day preceding such consolidation, merger or sale; provided that if
--------
Issuer is the issuer of the Substitute Option, the Average Price shall be
computed with respect to a share of the common stock issued by the Person
merging into Issuer or by any company which controls such Person, as the
Recipient may elect;
(e) A "Person" shall mean any individual, firm,
corporation or other entity and include as well any syndicate or group deemed
to be a "person" by Section 13(d)(3)(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act");
(f) "Affiliate" shall have the meaning ascribed to such
term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act
as in effect on the date hereof.
(C) Subject to Subsection (D), the Substitute Option shall
---------------
have the same terms as this Option provided that if the terms of the
Substitute Option cannot, for legal reasons, be the same as this Option, such
terms shall be substantially similar and in no event less advantageous to
Recipient, as determined by Recipient in its sole discretion. The issuer of
the Substitute Option shall also enter into an agreement with the Recipient of
the Substitute Option in substantially the same form as the Agreement, which
shall be applicable to the Substitute Option.
(D) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which this Option is
then exercisable, divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock for which the
Substitute Option is exercisable shall be equal to the Exercise Price
multiplied by a fraction in which the numerator is the number of shares of
Common Stock for which this Option is then exercisable and the denominator is
the number of shares of Substitute Common Stock for which the Substitute
Option is exercisable.
(E) In no event, pursuant to any of the foregoing provisions,
shall the Substitute Option be exercisable for a number of shares of
Substitute Common Stock that equal more than 19.9% of the aggregate of the
outstanding shares of Substitute Common Stock prior to issuance of the stock
subject to the Substitute Option.
3
<PAGE> 4
6. Adjustment. The number of shares of Common Stock
-----------
purchasable upon the exercise of this Option and the Exercise Price shall be
subject to adjustment from time to time as provided in this Section 6.
----------
(A) (1) In case Issuer shall pay or make a dividend or
other distribution on any class of capital stock of Issuer in Common Stock,
the number of shares of Common Stock purchasable upon exercise of this Option
shall be increased by multiplying such number of shares by a fraction of which
the denominator shall be the number of shares of Common Stock outstanding at
the close of business on the day immediately preceding the date of such
distribution and the numerator shall be the sum of such number of shares and
the total number of shares constituting such dividend or other distribution,
such increase to become effective immediately after the opening of business on
the date following such distribution.
(2) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the number of
shares of Common Stock purchasable upon exercise of this Option at the opening
of business on the day following the day upon which such subdivision becomes
effective shall be proportionately increased, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller
number of shares of Common Stock, the number of shares of Common Stock
purchasable upon exercise of this Option at the opening of business on the day
following the day upon which such combination becomes effective shall be
proportionately decreased, such increase or decrease, as the case may be, to
become effective immediately after the opening of business on the day
following the day upon which such subdivision or combination becomes
effective.
(3) The reclassification (excluding any transaction in
which a Substitute Option would be issued) of Common Stock into securities
(other than Common Stock) and/or cash and/or other consideration shall be
deemed to involve a subdivision or combination, as the case may be, of the
number of shares of Common Stock outstanding immediately prior to such
reclassification into the number or amount of securities and/or cash and/or
other consideration outstanding immediately thereafter and the effective date
of such reclassification shall be deemed to be "the day upon which such
subdivision becomes effective" or "the day upon which such combination becomes
effective", as the case may be, within the meaning of Clause (2) above.
----------
(4) The Issuer may make such increases in the number of
shares of Common Stock purchasable upon exercise of this Option, in addition
to those required by this subsection (A), as shall be determined by its
---------------
Board of Directors to be advisable in order to avoid taxation so far as
practicable of any dividend of stock or stock rights or any event treated as
such for federal income tax purposes to the recipients.
(B) Whenever the number of shares of Common Stock
purchasable upon exercise of this Option is adjusted as herein provided, the
Exercise Price shall be adjusted to equal the amount determined by multiplying
the Exercise Price in effect immediately prior to such adjustments in the
number of shares by a fraction in which the numerator is equal to the number
of shares of Common Stock purchasable prior to the adjustment and the
denominator is equal to the number of shares of Common Stock purchasable after
the adjustment.
(C) For the purpose of this Section 6, the term "Common
----------
Stock" shall include any shares of Issuer of any class or series which has no
preference or priority in the payment of dividends or in the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding
up of Issuer and which is not subject to redemption by Issuer.
4
<PAGE> 5
7. Notice. (A) Whenever the number of shares of Common Stock
-------
for which this Option is exercisable is adjusted as provided in Section 6,
----------
Issuer shall promptly compute such adjustment and mail to Recipient a
certificate, signed by a principal financial officer of Issuer, setting forth
the number of shares of Common Stock for which this Option is exercisable as a
result of such adjustment, a brief statement of the facts requiring such
adjustment and the computation thereof and when such adjustment will become
effective.
(B) Upon the occurrence of an event which results in this Option
becoming convertible into, or exchangeable for, the Substitute Option, as
provided in Section 5, each of Issuer and any Acquiring Corporation shall
----------
promptly notify Recipient of such event; and, upon receipt from Recipient of
its choice as to Issuer of the Substitute Option, each of the Issuer and any
Acquiring Corporation shall promptly compute the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable and
furnish to Recipient a certificate, signed by a principal financial officer of
each of Issuer and any Acquiring Corporation, setting forth the number of
shares of Substitute Common Stock for which the Substitute Option is
exercisable, a computation thereof and when such adjustment will become
effective.
8. Rights of Recipient. (A) Without limiting the foregoing
--------------------
or any remedies available to Recipient, it is specifically acknowledged that
Recipient would not have an adequate remedy at law for any breach of this
Option and will be entitled to specific performance, and injunctive relief
against actual or threatened violations, of the obligations of any Person
subject to this Option.
(B) Except as provided in Section 1, Recipient shall
----------
not, by virtue hereof, be entitled to any rights of a shareholder in Issuer.
9. Termination. This Option and the rights conferred
------------
hereunder and pursuant to the Agreement shall terminate on the earlier of
(a) (i) termination of the Merger Agreement (as defined in the
Agreement) pursuant to Sections 7.01(a), 7.01(b), 7.01(c), 7.01(d) or 7.01(g)
of the Merger Agreement; or
(ii) termination of the Merger Agreement by Issuer pursuant to
Section 7.01(f) of the Merger Agreement where Recipient has materially
breached the Merger Agreement and failed to cure such breach within 45 days
after notice thereof from Issuer; or
(iii) termination of the Merger Agreement by Recipient pursuant to
Section 7.01(f) based upon a non-volitional breach of Sections 2.06 through
2.10, 2.13 through 2.18, 2.20 or 2.21 of the Merger Agreement which Issuer has
used its best efforts to cure after notice from Recipient; or
(b) twelve months after
(i) termination by Issuer of the Merger Agreement pursuant to
Section 7.01(e) of the Merger Agreement; or
(ii) termination by Recipient of the Merger Agreement pursuant to
Section 7.01(f) of the Merger Agreement if Issuer has materially breached the
Merger Agreement and failed to cure such breach within 45 days after notice
thereof
5
<PAGE> 6
from Recipient, except for a termination of the Merger Agreement by
Recipient based upon a non-volitional breach of Sections 2.06 through 2.10,
2.13 through 2.18, 2.20 or 2.21 of the Merger Agreement which Issuer has used
its best efforts to cure after notice from Recipient prior to such
termination;
provided, however, that if a Triggering Event (as defined in the Agreement)
- ------------------
has occurred prior to the termination of this Option, this Option and said
rights shall terminate twelve months after the date of the first Triggering
Event to occur.
10. Governing Law. This Option shall be governed by, and
--------------
interpreted in accordance with, the laws of the State of Missouri.
Dated as of September 21, 1994.
CENTRAL MORTGAGE BANCSHARES, INC.
By: /s/ Lynn A. Harmon
---------------------------------------
Lynn A. Harmon
Chairman and Chief Executive Officer
ATTEST:
/s/ Robin V. Foster
- -------------------------------------
6
<PAGE> 1
VOTING AGREEMENT
This Voting Agreement dated as of September 21, 1994, is entered into
between Mercantile Bancorporation Inc. ("Mercantile"), and the undersigned
director and shareholder ("Shareholder") of Central Mortgage Bancshares, Inc.
("Central Mortgage").
WHEREAS, Central Mortgage 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 Series A preferred
stock and 100% of the common stock of Central Mortgage (collectively, the
"Central Mortgage Stock") by means of a merger between Central Mortgage and
Mercantile's subsidiary, Ameribanc, Inc. (the "Merger"); and
WHEREAS, Mercantile is willing to expend the substantial time, effort
and expense necessary to implement the Merger, only if Shareholder enters into
this Voting Agreement; and
WHEREAS, the undersigned shareholder of Central Mortgage believes that
the Merger is in his best interest and the best interest of Central Mortgage;
NOW, THEREFORE, in consideration of the premises, Shareholder hereby
agrees as follows:
1. Voting Agreement - Shareholder shall vote all of the
----------------
shares of Central Mortgage Stock he now owns or hereafter acquires, in favor
of the Merger at the meeting of shareholders of Central Mortgage to be called
for the purpose of approving the Merger (the "Meeting").
2. No Competing Transaction - Shareholder shall not vote any
------------------------
of his shares of Central Mortgage Stock in favor of any other merger or sale
of all or substantially all the assets of Central Mortgage 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 Central
Mortgage and Mercantile, whichever comes first.
3. Transfers Subject to Agreement - Shareholder shall not
------------------------------
transfer his shares of Central Mortgage Stock unless the transferee, prior to
such transfer, executes a voting agreement with respect to the transferred
shares substantially to the effect of this Voting Agreement and satisfactory
to Mercantile.
4. Meeting - At Mercantile's request, Shareholder shall use
-------
his best efforts to cause the Meeting to be held as soon as practicable.
5. No Ownership Interest. Nothing contained in this Voting
----------------------
Agreement shall be deemed to vest in Mercantile any direct or indirect
ownership or incidence of ownership of or with respect to any shares of
Central Mortgage Stock. All rights, ownership and economic benefits of and
relating to the shares of Central Mortgage Stock shall remain and belong to
Shareholder and Mercantile shall have no authority to manage, direct,
superintend, restrict, regulate, govern or administer any of the policies or
operations of Central Mortgage or exercise any power or authority to direct
Shareholder in the voting of any of his shares of Central Mortgage Stock,
except as otherwise expressly provided herein, or the performance of his
duties or responsibilities as a director of Central Mortgage.
6. Evaluation of Investment. Shareholder, by reason of his
-------------------------
knowledge and experience in financial and business matters and in his capacity
as a director of a financial institution,
<PAGE> 2
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.
7. Documents Delivered. Shareholder acknowledges having
--------------------
reviewed the Agreement and its attachments and that reports, proxy statements
and other information with respect to Mercantile filed with the Securities and
Exchange Commission (the "Commission") were, prior to his execution of this
Voting Agreement, available for inspection and copying at the Offices of the
Commission and that Mercantile delivered the following such documents to
Central Mortgage:
(a) Mercantile's Annual Report on Form 10-K for the year
ended December 31, 1993;
(b) Mercantile's Annual Report to Shareholders for the
year ended December 31, 1993;
(c) Mercantile's Current Report on Form 8-K dated June 17,
1994; and
(d) Mercantile's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994.
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 Shareholder 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
Central Mortgage and its shareholders concerning the Merger, disposition or
control of the stock of Central Mortgage.
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 and the rights and obligations of the parties
shall be construed and enforced accordingly.
11. Counterparts. This Voting Agreement may be executed in
-------------
two counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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.
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
2
<PAGE> 3
the Merger or upon 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 Shareholder and
Shareholder's spouse and their respective executors, personal representatives,
administrators, heirs, legatees, guardians and other legal representatives.
This Voting Agreement shall survive the death or incapacity of Shareholder.
This agreement may be assigned by Mercantile only to an affiliate of
Mercantile.
MERCANTILE BANCORPORATION INC.
By:
---------------------------------------
Ralph W. Babb, Jr.
Vice Chairman
SHAREHOLDER
------------------------------------------
3
<PAGE> 1
November 21, 1994
Mercantile Bancorporation Inc.
P.O. Box 524
St. Louis, Missouri 63166-0524
Re: Registration Statement on Form S-4
----------------------------------
Gentlemen:
We refer you to the Registration Statement on Form S-4
filed by Mercantile Bancorporation Inc. (the "Company"), on
November 21, 1994 (the "Registration Statement") with the
Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended, pertaining to the proposed
issuance by the Company of up to 2,625,533 shares of the
Company's common stock, $5.00 par value (the "Shares"), in
connection with the acquisition by merger of Central Mortgage
Bancshares, Inc. ("Central Mortgage") pursuant to the Amended and
Restated Agreement and Plan of Merger dated as of November 1,
1994 (the "Merger Agreement"), by and among the Company, Central
Mortgage and Ameribanc, Inc., all as provided in the Registration
Statement. In rendering the opinions set forth herein, we have
examined such corporate records of the Company, such laws and
such other information as we have deemed relevant, including the
Company's Restated Articles of Incorporation and Bylaws, as
amended and currently in effect, the resolutions adopted by the
Executive Committee of the Company's Board of Directors relating
to the merger transaction, certificates received from state
officials and statements we have received from officers and
representatives of the Company. In delivering this opinion, the
undersigned assumed the genuineness of all signatures; the
authenticity of all documents submitted to us as originals; the
conformity to the originals of all documents submitted to us as
certified, photostatic or conformed copies; the authenticity of
the originals of all such latter documents; and the correctness
of statements submitted to us by officers and representatives of
the Company.
Based only on the foregoing, the undersigned is of the
opinion that:
1. The Company has been duly incorporated and is
validly existing under the laws of the State of Missouri; and
2. The Shares to be sold by the Company, when issued
as provided in the Merger Agreement, will be duly authorized,
duly and validly issued and fully paid and nonassessable.
<PAGE> 2
Mercantile Bancorporation, Inc.
November 21, 1994
Page 2
We consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to this firm
in the section of the Proxy Statement/Prospectus entitled "Legal
Matters."
Very truly yours,
/s/ Thompson & Mitchell
<PAGE> 1
[Letterhead of Thompson & Mitchell]
November 21, 1994
Board of Directors
Central Mortgage Bancshares, Inc.
4435 Main Street
Kansas City, Missouri 64111
Gentlemen:
You have requested our opinion with regard to certain
federal income tax consequences of the proposed merger (the
"Merger") of Central Mortgage Bancshares, Inc. ("CMB") with and
into Ameribanc, Inc. ("ABNK"), 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 Amended and Restated Agreement and Plan of
Merger by and among MBI, ABNK and CMB, dated as of
November 1, 1994 (the "Plan");
(ii) MBI's Registration Statement on Form S-4,
including the Proxy Statement and Prospectus contained
therein, to be filed with the Securities and Exchange
Commission on November 17, 1994 (the "Registration
Statement");
(iii) The representations and undertaking of MBI
substantially in the form of Exhibit A hereto;
(iv) The representations and undertakings of CMB and
certain holders of CMB common stock, par value $1.00
per share ("CMB Common Stock"), substantially in the
form of Exhibits B and C hereto; and
(v) The Rights Plan between MBI and Mercantile Bank of
St. Louis National Association (as successor in
interest to Mercantile Bank National Association),
dated May 23, 1988.
Our opinion is based solely upon applicable law and the
factual information and undertakings contained in the above-
mentioned documents. In rendering our opinion, we have assumed
the accuracy of all information and the performance of all
undertakings contained in each of such documents. We also have
assumed the authenticity of all original documents, the
conformity of all copies to the original documents, and the
genuineness of all signatures. We have not attempted to verify
independently the accuracy of any information in any such
document, and we have assumed that such documents accurately and
completely set forth all material facts relevant to this opinion.
All of our assumptions were made with your consent. If any fact
or assumption described herein or below is incorrect, any or all
of the opinions expressed herein may be inapplicable.
<PAGE> 2
Central Mortgage Bancshares, Inc.
November 21, 1994
Page 2
OPINIONS
Subject to the foregoing, to the conditions and
limitations expressed elsewhere herein, and assuming that the
Merger is consummated in accordance with the Plan, we are of the
opinion that for federal income tax purposes:
1. The Merger will constitute a reorganization within
the meaning of sections 368(a)(1)(A) and 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), and CMB, ABNK, and MBI each will constitute a "party to
a reorganization" within the meaning of section 368(b) of the
Code.
2. Each shareholder of CMB who exchanges, in the
Merger, shares of CMB Common Stock solely for shares of MBI
common stock, par value $5.00 per share ("MBI Common Stock"):
a) will recognize no gain or loss, except with regard
to cash received in lieu of a fractional share, as
discussed below (Code section 354(a)(1));
b) will have an aggregate basis for the shares of MBI
Common Stock received (including any fractional share
of MBI Common Stock deemed to be received, as described
in paragraph 3, below) equal to the aggregate basis of
the shares of CMB Common Stock surrendered (Code
section 358(a)(1)); and
c) will have a holding period for the shares of MBI
Common Stock received (including any fractional share
of MBI Common Stock deemed to be received, as described
in paragraph 3, below) which includes the period during
which the shares of CMB Common Stock surrendered were
held, provided that the shares of CMB Common Stock
surrendered were capital assets in the hands of such
holder (Code section 1223(1)).
3. Each shareholder of CMB who receives cash in lieu
of a fractional share of MBI Common Stock will be treated as if
the fractional share had been received in the Merger and then
redeemed by MBI. Provided that the shares of CMB Common Stock
surrendered were capital assets in the hands of such holder, the
receipt of such cash will cause the recipient to recognize
capital gain or loss equal to the difference between the amount
of cash received and the portion of such holder's adjusted tax
basis in the shares of MBI Common Stock allocable to the
fractional share interest (Code sections 1001 and 1222; Rev. Rul.
66-365, 1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2 C.B. 574).
4. Each shareholder of CMB who receives solely cash
as a result of the exercise of dissenters' rights will recognize
gain or loss (determined separately as to each block of CMB
Common Stock exchanged) in an amount equal to the difference
between (x) the amount of cash received by such shareholder and
(y) such shareholder's basis for the shares of CMB Common Stock
surrendered, provided that the cash payment does not have the
effect of the distribution of a dividend (Code sections 1001 and
302(a)). Such gain or loss will be capital gain or loss if the
shares of CMB Common Stock surrendered were capital assets in the
hands of the holder, and long-term or short-
<PAGE> 3
Central Mortgage Bancshares, Inc.
November 21, 1994
Page 3
term depending on the holder's holding period for each block of
CMB Common Stock surrendered (Code section 1222). However, if
the cash payment does have the effect of the distribution of a
dividend, such shareholder will recognize income in the amount
of the cash received (without regard to such shareholder's
basis in the CMB Common Stock surrendered), which generally
will be taxable as a dividend (Code sections 302(d) and 301).
The determination of whether a cash payment has the
effect of the distribution of a dividend will be made pursuant to
the provisions and limitations of section 302 of the Code, taking
into account the stock ownership attribution rules of section 318
of the Code. Because such determination generally will depend on
the facts and circumstances of each CMB shareholder, we express
no opinion as to whether the cash payments discussed in this
paragraph 4 will be treated as having the effect of the
distribution of a dividend.
A cash payment will be considered not to have the
effect of the distribution of a dividend under section 302 of the
Code only if the cash payment (i) results in a "complete
redemption" of such shareholder's actual and constructive stock
interest, (ii) qualifies as a "substantially disproportionate"
reduction in such shareholder's actual and constructive stock
interest, or (iii) is not "essentially equivalent to a dividend"
(Code section 302(b)(1), (2), (3)).
A cash payment will result in a "complete redemption"
of a shareholder's stock interest if such shareholder does not
actually or constructively own any stock after the Merger. A
reduction in a shareholder's stock interest will be
"substantially disproportionate" if (i) the percentage of
outstanding shares actually and constructively owned by such
shareholder after the receipt of the cash payment is less than
four-fifths (80%) of the percentage of outstanding shares
actually and constructively owned by such shareholder immediately
prior to the receipt of the cash payment, and (ii) such
shareholder actually and constructively owns less than 50 percent
of the number of shares outstanding after the receipt of the cash
payment (Code section 302(b)(2)). The cash payment will not be
"essentially equivalent to a dividend" if there has been a
"meaningful reduction" (as the quoted term has been interpreted
by judicial authorities and by rulings of the Internal Revenue
Service (the "Service")) of the shareholder's actual and
constructive ownership interest (Code section 302(b)(1); United
------
States v. Davis, 397 U.S. 301 (1970); see, e.g., Rev. Rul. 76-
- --------------- ---- ----
385, 1976-2 C.B. 92; Rev. Rul. 76-364, 1976-2 C.B. 91).
Under the traditional analysis (which apparently
continues to be used by the Service), section 302 of the Code
will apply as though the distribution of cash were made by CMB in
a hypothetical redemption of CMB Common Stock immediately prior
to, and in a transaction separate from, the Merger (a "deemed CMB
redemption"). Thus, under the traditional analysis, the
determination of whether a cash payment results in a complete
redemption of interest, qualifies as a substantially
disproportionate reduction of interest, or is not essentially
equivalent to a dividend will be made by comparing (x) the
shareholder's actual and constructive stock interest in CMB
before the deemed CMB redemption, with (y) such shareholder's
actual and constructive stock interest in CMB after the deemed
CMB redemption (but before the Merger). Nevertheless, in view of
Commissioner v. Clark, 489 U.S. 726 (1989), many tax
- ---------------------
practitioners believe that the continuing validity of the
traditional analysis is open to question and that, in a
transaction such as the Merger, the receipt of solely cash in
exchange for stock actually owned should be treated in accordance
with the principles of Commissioner v. Clark, supra, as if the
--------------------- -----
CMB Common Stock exchanged for cash in the Merger
<PAGE> 4
Central Mortgage Bancshares, Inc.
November 21, 1994
Page 4
had instead been exchanged in the Merger for shares of MBI
Common Stock followed immediately by a redemption of such
shares by MBI for the cash payment (a "deemed MBI redemption").
Under this analysis, the determination of whether a cash
payment satisfies any of the foregoing tests would be made by
comparing (i) the shareholder's actual and constructive stock
interest in MBI before the deemed MBI redemption (determined as
if such shareholder had received solely MBI Common Stock in the
Merger), with (ii) such shareholder's actual and constructive
stock interest in MBI after the deemed MBI redemption. Because
this analysis is more likely to result in capital gain
treatment than the traditional analysis, each CMB shareholder
who receives solely cash in exchange for all of the CMB Common
Stock he or she actually owns should consult his or her own tax
advisor with regard to the proper treatment of such cash.
The determination of ownership for purposes of the
foregoing tests will be made by taking into account both shares
actually owned by such shareholder and shares constructively
owned by such shareholder pursuant to section 318 of the Code
(Code section 302(c)). Under section 318 of the Code, a
shareholder will be deemed to own stock that is owned or deemed
to be owned by certain members of his or her family (spouse,
children, grandchildren, and parents) and other related parties
including, for example, certain entities in which such
shareholder has a direct or indirect interest (including
partnerships, estates, trusts and corporations), as well as
shares of stock that such shareholder (or a related person) has
the right to acquire upon exercise of an option or conversion
right. Section 302(c)(2) of the Code provides certain exceptions
to the family attribution rules for the purpose of determining
whether a complete redemption of a shareholder's interest has
occurred for purposes of Code section 302.
* * * * * * * * * * * *
We express no opinion with regard to (1) the federal
income tax consequences of the Merger not addressed expressly by
the above opinions, including without limitation, (i) the tax
consequences, if any, to those shareholders of CMB who acquired
shares of CMB 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
opinions are based upon the Code, Treasury Regulations proposed
or promulgated thereunder, administrative interpretations and
judicial precedents relating to the Code or Treasury Regulations
as of the date hereof, all of which are subject to change at any
time, possibly with retroactive effect, and we assume no
obligation to advise you of any subsequent change thereto. If
there is any change in the applicable law or regulations, or if
there is any new administrative or judicial interpretation of the
applicable law or regulations, any or all of the opinions
expressed herein may become inapplicable.
The foregoing opinions reflect our legal judgment
solely on the issues presented and discussed herein. These
opinions have no official status or binding effect of any kind.
Accordingly, we cannot assure you that the Service will agree
with the opinions expressed herein, nor can we assure you that
any court of competent jurisdiction will agree with such
opinions.
<PAGE> 5
Central Mortgage Bancshares, Inc.
November 21, 1994
Page 5
We hereby consent to the filing of this letter as an
exhibit to the Registration Statement and to all references made
to this letter in the Registration Statement.
Very truly yours,
/s/ Thompson & Mitchell
<PAGE> 6
Exhibit A
CERTIFICATE
-----------
The undersigned, Mercantile Bancorporation Inc., a
Missouri corporation ("MBI"), through _________________, its
[Officer's Title] HEREBY CERTIFIES that (a) it is familiar with
the terms and conditions of the Amended and Restated Agreement
and Plan of Merger by and among MBI, Ameribanc, Inc., a Missouri
corporation ("ABNK"), and Central Mortgage Bancshares, Inc., a
Missouri corporation ("CMB"), dated as of November 1, 1994 (the
"Agreement"), and (b) it is aware that (i) this Certificate will
be relied on by Thompson & Mitchell, counsel for MBI, in
rendering its opinion to CMB that the merger of CMB with and into
ABNK (the "Merger") will constitute a reorganization within the
meaning of section 368(a)(1)(A) of the Internal Revenue Code of
1986, as amended (the "Code"), and (ii) the representations and
undertaking recited herein will survive the Merger.
The undersigned HEREBY FURTHER CERTIFIES that:
(1) The fair market value of the MBI common stock, par
value $5.00 per share ("MBI Common Stock"), to be received by
each CMB shareholder in the Merger (including cash to be received
in lieu of fractional shares of MBI Common Stock, if any) will be
approximately equal to the fair market value of the CMB common
stock, par value $1.00 per share ("CMB Common Stock"), exchanged
in the Merger by each such shareholder.
(2) Except as otherwise set forth by the undersigned
on an attachment hereto and excluding the contemplated sale of
MBI Common Stock by the Central Mortgage Bancshares, Inc.
Restated Employee Stock Ownership Plan to raise funds to retire
debt, MBI is aware of no plan, intention or arrangement
(including any option or pledge) on the part of any holder of CMB
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 ABNK
within the meaning of section 368(c) of the Code.
<PAGE> 7
(4) After the Merger, (a) ABNK will not issue
additional shares of ABNK's stock that would result in MBI losing
control of ABNK within the meaning of section 368(c) of the Code,
and (b) ABNK 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 ABNK that, if exercised or converted, would affect MBI's
retention of control of ABNK (as defined above).
(5) Neither MBI nor any other member of MBI's
"affiliated group" (as the quoted term is defined in Code section
1504) (the "MBI Affiliated Group") has any plan or intention to
redeem or otherwise reacquire any of the MBI Common Stock issued
to the shareholders of CMB in the Merger. MBI may, however, and
solely for business purposes unrelated to the Merger, acquire MBI
Common Stock from time to time through anonymous purchases on an
established securities market at prices then prevailing in such
market.
(6) MBI has no plan or intention (a) to liquidate ABNK
(b) to merge ABNK with and into another corporation, (c) to sell
or otherwise dispose (whether by dividend distribution or
otherwise) of the stock of ABNK, or (d) except for transfers
described in section 368(a)(2)(C) of the Code, dispositions made
in the ordinary course of business, or dispositions approved by
Thompson & Mitchell, to cause, suffer, or permit ABNK to sell or
otherwise dispose (whether by dividend distribution or otherwise)
of (i) any assets of CMB acquired in the Merger, or (ii) any
assets of any other member of CMB's "affiliated group" (as
defined above) (the "CMB Affiliated Group").
(7) After the Merger, ABNK will continue the historic
businesses of CMB and the other members of the CMB Affiliated
Group, or will use a significant portion of the historic business
assets of the CMB Affiliated Group in a business (no stock of any
member of the CMB Affiliated Group shall be treated as a business
asset for purposes of this representation).
(8) MBI, ABNK, CMB, and the shareholders of CMB will
each pay their respective expenses, if any, incurred in
connection with the Merger; provided, however, that MBI or ABNK
may pay and assume those expenses of CMB 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
expenses described in Section 5.07 of the Agreement.
(9) Except with regard to MBI Common Stock and
Transactional Costs (as defined below), neither MBI nor any other
member of the MBI Affiliated Group will pay any amount
<PAGE> 8
or incur any liability to or for the benefit of any person
other than CMB in connection with the Merger, and no liability
to which CMB Common Stock is subject will be extinguished as a
result of the Merger or assumed by MBI or any other member of
the MBI Affiliated Group. For purposes of this representation,
(a) the term "liability" shall include any contingent or other
undertaking to pay or to cause the reduction, release, or
extinguishment of, any obligation, without regard to whether any
such obligation or undertaking is legally enforceable (for
example, and without limitation, the term "liability" includes an
unenforceable agreement to cause the repayment of an obligation
guaranteed by a CMB shareholder or otherwise to cause the release
of such guaranty), and (b) the term "Transactional Costs" shall
mean amounts paid or liabilities incurred in connection with the
Merger (i) for legal, accounting, and investment banking and/or
advisor services rendered to MBI or CMB, if any, (ii) as
compensation to any CMB employee for services rendered in the
ordinary course of his or her employment, and (iii) to
dissenters, if any.
(10) No indebtedness between CMB or any other member of
the CMB Affiliated Group, on the one hand, and ABNK or any other
member of the MBI Affiliated Group, on the other hand, exists or
will exist prior to the Merger that (a) was issued or acquired at
a discount, or (b) will be settled, as a result of the Merger, at
a discount. No "installment obligation" (as the quoted term is
defined for purposes of Code section 453B), between CMB, on the
one hand, and ABNK, on the other hand, exists or will exist prior
to the Merger that will be extinguished as a result of the
Merger.
(11) 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 CMB 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 CMB
shareholders in exchange for their shares of CMB Common Stock.
The fractional share interests of each CMB shareholder will be
aggregated, and no CMB 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.
(12) None of the compensation to be paid or accrued
after the Merger to or for the benefit of any shareholder-
employee of CMB will be separate consideration for, or allocable
to, any of their shares of CMB Common Stock; none of the shares
of MBI Common Stock received in the Merger by any CMB
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
<PAGE> 9
benefit of any CMB 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.
(13) With regard to the Rights Agreement by and between
MBI and Mercantile Bank of St. Louis National Association (as
successor in interest to Mercantile Bank National Association) as
rights agent, dated May 23, 1988 (the "Rights Agreement"), no
"Distribution Date" (as the quoted term is defined in the Rights
Agreement) has occurred, and the Merger will not cause the
occurrence of a Distribution Date.
(14) Neither MBI nor any other member of the MBI
Affiliated Group has owned, directly or indirectly, any stock of
CMB within the last five years.
(15) 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 CMB assets.
The undersigned HEREBY AGREES to immediately
communicate in writing to Thompson & Mitchell at One Mercantile
Center, St. Louis, Missouri 63101, to the attention of Charles H.
Binger, any information that could indicate (i) any of the
foregoing representations was inaccurate when made, or (ii) any
of the foregoing representations would be inaccurate if it were
made immediately before the Merger.
IN WITNESS WHEREOF, I have hereunto signed my name and
affixed the seal of MBI this _____ day of ____________, 1994.
MERCANTILE BANCORPORATION INC.
By ________________________________
<PAGE> 10
Exhibit B
OFFICER CERTIFICATE
-------------------
The undersigned, * , [Officer's Title] of
-------------
Central Mortgage Bancshares, Inc., a Missouri corporation
("CMB"), HEREBY CERTIFIES that (a) I am familiar with the terms
and conditions of the Amended and Restated Agreement and Plan of
Merger by and among Mercantile Bancorporation Inc., a Missouri
corporation ("MBI"), Ameribanc, Inc., a Missouri corporation
("ABNK"), and CMB dated
as of November 1, 1994, and (b) I am aware that (i) this
Certificate will be relied on by Thompson & Mitchell, counsel for
MBI, in rendering its opinion to CMB that the merger of CMB with
and into ABNK (the "Merger") will constitute a reorganization
within the meaning of section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"), and (ii) the
representations and undertaking recited herein will survive the
Merger.
The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF
CMB, that:
(1) The fair market value of the MBI common stock, par
value $5.00 per share ("MBI Common Stock"), to be received by
each CMB shareholder in the Merger (including cash to be received
in lieu of fractional shares of MBI Common Stock, if any) will be
approximately equal to the fair market value of the CMB common
stock, par value $1.00 per share ("CMB Common Stock"),
surrendered in the Merger by each such shareholder.
(2) There is no plan, intention or other arrangement
(including any option or pledge) on the part of the holders of 5%
or more of the CMB Common Stock and, to the best knowledge of the
undersigned, there is no plan, intention or other arrangement
(including any option or pledge) on the part of the other holders
of CMB Common Stock to sell, exchange or otherwise dispose of a
number of shares of MBI Common Stock to be received by such
holders in the Merger that would reduce such holders' ownership
of MBI Common Stock to a number of shares having a value, as of
the date on which the Merger is consummated, of less than 50
percent of the value of all of the formerly outstanding CMB
Common Stock as of the such date. For purposes of this
representation, shares of CMB Common Stock exchanged for cash or
other property, or exchanged for cash in lieu of fractional
shares of MBI Common Stock will be treated as outstanding on such
date. Moreover, all shares of CMB Common Stock and/or shares of
MBI Common Stock held by CMB shareholders and otherwise sold,
redeemed, or disposed of before or after such date will be
<PAGE> 11
taken into account in making this representation (including the
contemplated sale of MBI Common Stock by the Central Mortgage
Bancshares, Inc. Restated Employee Stock Ownership Plan to raise
funds to retire debt).
(3) CMB will transfer to ABNK 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 CMB immediately
prior to the Merger. For purposes of this representation, CMB
assets used to pay shareholders who receive cash, and CMB 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 CMB
held immediately prior to the Merger. For purposes of this
representation, any asset of CMB or any other member of CMB's
"affiliated group" (as the quoted term is defined in Code section
1504) (the "CMB 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 CMB held
immediately prior to the Merger.
(4) At the time of the Merger and except with regard
to Transactional Costs (as defined below), each liability of CMB
or each liability to which an asset of CMB is subject will have
been incurred by CMB 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 Transactional Costs, CMB will have neither paid any
amount nor incurred any liability, directly or indirectly, to or
for the benefit of any person to induce such person's assistance
or acquiescence in, or vote in favor of, the Merger. For
purposes of this representation, (a) the term "CMB" shall be
deemed also to refer to each other member of the CMB Affiliated
Group, (b) the term "liability" shall include any contingent
obligation or any other undertaking to pay or to cause the
reduction, release, or extinguishment of, any obligation, without
regard to whether any such obligation or undertaking is legally
enforceable (for example, and without limitation, the term
"liability" includes an unenforceable agreement to cause the
repayment of an obligation guaranteed by a CMB shareholder or to
otherwise cause the release of such guaranty), and (c) the term
"Transactional Costs" shall mean amounts paid or liabilities
incurred in connection with the Merger (i) for legal, accounting,
and investment banking and/or advisor services rendered to CMB,
if any, and (ii) as compensation to any CMB employee for services
rendered in the ordinary course of his or her employment.
(5) Before the Merger, CMB will not have outstanding
any warrants, options, convertible securities, or any other type
of right (including any preemptive right) pursuant to which
<PAGE> 12
any person could acquire stock in CMB that, if exercised or
converted after the Merger, would affect MBI's retention of
control of ABNK (within the meaning of section 368(c) of the
Code).
(6) Expenses, if any, that are incurred in connection
with the Merger and are properly attributable to CMB's
shareholders will be paid by those shareholders and not by CMB.
CMB will pay its own expenses that are incurred in connection
with the Merger.
(7) No indebtedness between CMB or any other member of
the CMB Affiliated Group, on the one hand, and ABNK or any other
member of MBI's "affiliated group" (defined as above), on the
other hand, exists or will exist prior to the Merger that (a) was
issued or acquired at a discount, or (b) will be settled, as a
result of the Merger, at a discount. No "installment obligation"
(as the quoted term is defined for purposes of Code section
453B), between CMB, on the one hand, and ABNK, on the other hand,
exists or will exist prior to the Merger that will be
extinguished as a result of the Merger.
(8) The fair market value of the assets of CMB to be
transferred to ABNK will exceed the sum of the amount of
liabilities to be assumed by ABNK, plus the amount of
liabilities, if any, to which the assets to be transferred are
subject.
(9) The payment of cash in lieu of fractional shares
of MBI Common Stock will be solely for the purpose of avoiding
the expense and inconvenience to MBI of issuing fractional shares
and will not represent separately bargained-for consideration.
The total cash consideration that will be paid in the Merger to
the CMB 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 CMB shareholders in
exchange for their shares of CMB Common Stock. The fractional
share interests of each CMB shareholder will be aggregated, and
no CMB shareholder will receive cash in lieu of fractional share
interests in an amount equal to or greater than the value of one
full share of MBI Common Stock.
(10) None of the compensation paid or accrued before
the Merger to or for the benefit of any CMB shareholder-employee
will be separate consideration for, or allocable to, any of their
shares of CMB Common Stock; none of the shares of MBI Common
Stock received in the Merger by any CMB 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 CMB shareholder-employee will be for
services actually rendered in the ordinary course of his
<PAGE> 13
or her employment and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
The undersigned HEREBY AGREES to immediately
communicate in writing to Thompson & Mitchell at One Mercantile
Center, St. Louis, Missouri 63101, to the attention of Charles H.
Binger, any information that indicates (i) any of the foregoing
representations was inaccurate when made, or (ii) any of the
foregoing representations would be inaccurate if it were made
immediately before the Merger.
IN WITNESS WHEREOF, I have hereunto signed my name and
affixed the seal of CMB this _____ day of _______________, 1994.
------------------------------
<PAGE> 14
Exhibit C
CERTIFICATE
-----------
[Shareholder's Name], a shareholder of Central Mortgage
--------------------
Bancshares, Inc., a Missouri corporation ("CMB"), who holds
(beneficially or otherwise) # shares of CMB common stock, par
-----
value $1.00 per share ("CMB Common Stock"), HEREBY CERTIFIES that
(a) I am familiar with the terms and conditions of the Amended
and Restated Agreement and Plan of Merger by and among Mercantile
Bancorporation Inc., a Missouri corporation ("MBI"), Ameribanc,
Inc., a Missouri corporation ("ABNK"), and CMB dated as of
November 1, 1994, (the "Agreement"), and (b) I am aware that (i)
this Certificate will be relied on by Thompson & Mitchell,
counsel for MBI, in rendering its opinion to CMB that the merger
of CMB with and into ABNK (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 that the
undersigned has no plan, intention or arrangement (including any
option or pledge) to sell, exchange or otherwise dispose of any
of the MBI common stock, par value $5.00 per share ("MBI Common
Stock"), to be received in the Merger, with the exception of
fractional shares of MBI Common Stock to be exchanged for cash
pursuant to the Merger.
The undersigned HEREBY AGREES to immediately
communicate in writing to Thompson & Mitchell at One Mercantile
Center, St. Louis, Missouri 63101, to the attention of Charles H.
Binger, any information that indicates (i) any of the foregoing
representations was inaccurate when made, or (ii) any of the
foregoing representations would be inaccurate if it were made
immediately before the Merger.
IN WITNESS WHEREOF, the undersigned has executed this
certificate, or caused this certificate to be executed by its
duly authorized representative, this _____ day of
_______________, 1994.
[Shareholder's Name]
----------------------------
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors and Shareholders
Mercantile Bancorporation Inc.:
We consent to the use of our reports incorporated herein by
reference and to the reference to our firm under the heading
"Experts" in the prospectus.
Our reports dated January 13, 1994, except as to Note Q, which is
as of February 10, 1994, contains an explanatory paragraph
referring to the change in accounting for income taxes.
St. Louis, Missouri /s/ KPMG Peat Marwick LLP
November 17, 1994
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
Mercantile Bancorporation Inc.
St. Louis, Missouri
We consent to the reference to our firm and to the use
of our report dated February 4, 1994, except for Note 23 as to
which the date is September 21, 1994, with respect to the
consolidated financial statements as of and for the year ended
December 31, 1993, of Central Mortgage Bancshares, Inc. included
in Mercantile Bancorporation Inc.'s Form S-4 Registration
Statement under the Securities Act of 1933. We also consent to
the reference to us under the caption "Experts" in the
Registration Statement.
/s/ Baird, Kurtz & Dobson
Kansas City, Missouri
November 17, 1994
<PAGE> 1
CONSENT OF STIFEL, NICOLAUS & COMPANY, INCORPORATED
---------------------------------------------------
We hereby consent to the summarization of our fairness opinion
letter and references to our firm under the caption "TERMS OF THE
PROPOSED MERGER - Opinion of Financial Advisor to Central
Mortgage" and to the inclusion of such letter as Annex A to the
Proxy Statement - Prospectus which is part of this Registration
Statement on Form S-4 of Mercantile Bancorporation Inc. By
giving such consent, we do not thereby admit that we are experts
with respect to any part of such Registration Statement within
the meaning of the term "expert" as used in the Securities and
Exchange Commission promulgated thereunder.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
By: /s/ Rick Maples
---------------------
Rick Maples
Senior Vice President
November 17, 1994
<PAGE> 1
POWER OF ATTORNEY
Each of the undersigned does hereby appoint Thomas H.
Jacobsen and Ralph W. Babb, Jr., and each of them, as his true
and lawful attorney in fact, with full power and authority
separately to execute in the name of the undersigned, and to file
with the United States Securities and Exchange Commission, a
registration statement on Form S-4, and any amendments or
supplements thereto, registering the issuance by Mercantile
Bancorporation Inc. of shares of its common stock, and the
preferred share purchase rights which trade there-with, in
connection with the acquisition of Central Mortgage Bancshares,
Inc., as well as such other filings as the above-named attorneys
deem necessary or advisable to enable Mercantile Bancorporation
Inc. to comply with the Securities Act of 1933, the Securities
Exchange Act of 1934, and any rules, regulations and requirements
of the Securities and Exchange Commission in connection with said
acquisition, and does hereby ratify and confirm all acts that
such attorneys in fact, or any of them separately, may lawfully
do or cause to be done by virtue hereof.
Name Signature Date
- --------------------- ---------------------- --------------------
Richard P. Conerly ______________________ ____________________
Harry M. Cornell, Jr. ______________________ ____________________
Earl K. Dille ______________________ ____________________
J. Cliff Eason ______________________ ____________________
Bernard A. Edison ______________________ ____________________
William A. Hall ______________________ ____________________
Thomas A. Hays ______________________ ____________________
William G. Heckman ______________________ ____________________
Thomas H. Jacobsen ______________________ ____________________
James B. Malloy ______________________ ____________________
Charles H. Price II ______________________ ____________________
Harvey Saligman ______________________ ____________________
Craig D. Schnuck ______________________ ____________________
Robert W. Staley ______________________ ____________________
Robert L. Stark ______________________ ____________________
Patrick T. Stokes ______________________ ____________________
Francis A. Stroble ______________________ ____________________
Joseph G. Werner ______________________ ____________________
John A. Wright ______________________ ____________________
<PAGE> 1
PROXY CENTRAL MORTGAGE BANCSHARES, INC.
4435 MAIN STREET, SUITE 100
KANSAS CITY, MISSOURI 64111-1856
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD _______________, 1995
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder(s) of CENTRAL MORTGAGE BANCSHARES, INC.
("Central Mortgage"), does hereby nominate, constitute and appoint
___________________, ____________________ and ____________________ (or such
other person as is designated by the Board of Directors of Central Mortgage),
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, $1.00
par value, of Central Mortgage standing in the name of the undersigned on its
books on _______________, 1995 at the Special Meeting of Shareholders to be
held at Blue Springs Country Club, 1600 North Circle Drive, Blue Springs,
Missouri, on __________, 1995, at ___________, Central Time, and at any
adjournments or postponements thereof, with all the powers the undersigned
would possess if personally present, as follows:
1. To consider and vote upon the adoption and approval of the Amended
and Restated Agreement and Plan of Merger dated as of November 1, 1994 (the
"Merger Agreement"), pursuant to which Central Mortgage will be merged with
and into a wholly owned subsidiary of Mercantile Bancorporation Inc. ("MBI")
and whereby, upon consummation of the merger, all shares of Central Mortgage
Common Stock will be converted into an aggregate of ______________ shares of
MBI Common Stock, as set forth in detail in the Merger Agreement.
/ / FOR / / AGAINST / / ABSTAIN
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
(Continued on Reverse Side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN HEREIN,
THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL LISTED ABOVE.
Dated: _________, 1994
----------------------------------------
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.
