<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
File No. 33-55439
[UNSL FINANCIAL CORP. LETTERHEAD]
October 27, 1994
Dear Stockholder:
The Board of Directors cordially invites you to attend a Special
Meeting of Stockholders of UNSL Financial Corp. ("UNSL") to be held
at 11:00 a.m., Central Time, on Friday, December 2, 1994, at the
Lebanon Country Club, Highway 64, Lebanon, Missouri ("Special
Meeting"). At this important meeting, you will be asked to
consider and vote upon the Agreement and Plan of Reorganization
dated as of July 12, 1994 (the "Merger Agreement"), pursuant to
which UNSL will merge 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 UNSL 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 UNSL 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 UNSL CAREFULLY CONSIDERED AND APPROVED
THE TERMS OF THE MERGER AGREEMENT AS BEING IN THE BEST INTEREST OF
UNSL AND ITS STOCKHOLDERS. THE UNSL BOARD RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
---
APPROVAL OF THE MERGER AGREEMENT IS A CONDITION TO THE
CONSUMMATION OF THE MERGER. Accordingly, it is important that your
shares be represented at the Special Meeting, whether or not you
plan to attend the Special Meeting in person. Please complete,
sign and date the enclosed proxy card and return it to UNSL 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 UNSL 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 John W. Donald at (417) 588-4111.
Sincerely,
J. C. Benage
President and Chairman of the Board
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<PAGE> 2
UNSL FINANCIAL CORP.
201 N. Jefferson
Lebanon, Missouri 65536
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held
December 2, 1994
TO THE STOCKHOLDERS OF UNSL:
Notice is hereby given that a Special Meeting of Stockholders of
UNSL FINANCIAL CORP., a Delaware corporation ("UNSL"), will be held at
the Lebanon Country Club, Highway 64, Lebanon, Missouri on Friday,
December 2, 1994, at 11:00 a.m. Central Time, for the following purposes:
(1) To consider and vote upon the adoption and approval of
the Agreement and Plan of Reorganization dated as of July 12, 1994,
pursuant to which UNSL will merge (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 UNSL being continued
through such wholly owned subsidiary, and whereby, upon the
consummation of the Merger, each share of UNSL Common Stock will be
converted into the right to receive 1.0604 shares of MBI Common Stock,
as set forth in detail in the attached Proxy Statement/Prospectus.
(2) To transact such other business as may properly come
before the Special Meeting or any adjournment thereof.
The record date for determining the stockholders entitled
to receive notice of, and to vote at, the Special Meeting or any
adjournment thereof has been fixed as of the close of business on
October 25, 1994.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN
IT IN THE ACCOMPANYING ENVELOPE. THE PROXY MAY BE REVOKED AT ANY
TIME PRIOR TO THE VOTE AT THE SPECIAL MEETING BY FOLLOWING THE
PROCEDURES SET FORTH IN THE ACCOMPANYING PROXY STATEMENT/
PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
Thelma A. Benner
Secretary-Treasurer
Lebanon, Missouri
October 27, 1994
<PAGE> 3
MERCANTILE BANCORPORATION INC.
PROSPECTUS
UNSL FINANCIAL CORP.
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 2, 1994
This Prospectus of Mercantile Bancorporation Inc. ("MBI")
relates to up to 1,731,142 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 stockholders of UNSL
Financial Corp., a Delaware corporation ("UNSL"), upon consummation
of the proposed merger (the "Merger") of UNSL with and into
Ameribanc, Inc., a Missouri corporation ("ABNK") and wholly owned
subsidiary of MBI. Upon receipt of the requisite stockholder and
regulatory approvals, the Merger will be consummated pursuant to
the terms of the Agreement and Plan of Reorganization dated as of
July 12, 1994 (the "Merger Agreement"), by and among MBI, ABNK and
UNSL. This Prospectus also serves as the Proxy Statement of UNSL
for use in connection with the Special Meeting of Stockholders of
UNSL (the "Special Meeting"), which will be held on December 2,
1994, at the time and place and for the purposes stated in the
Notice of Special Meeting of Stockholders accompanying this Proxy
Statement/Prospectus.
Pursuant to the Merger, MBI will issue up to an aggregate
of 1,731,142 shares of MBI Common Stock. Upon consummation of the
Merger, the business and operations of UNSL will be continued
through ABNK and each share of UNSL common stock, $1.00 par value
("UNSL Common Stock") will be converted into the right to receive
1.0604 shares of MBI Common Stock. The fair market value of MBI
Common Stock to be received pursuant to the Merger may fluctuate
and at the consummation of the Merger may be more or less than the
current fair market value of such shares. See "TERMS OF THE
PROPOSED MERGER - General Description of the Merger." No
fractional shares of MBI Common Stock will be issued in the Merger,
but cash will be paid in lieu of such fractional shares. See
"TERMS OF THE PROPOSED MERGER - Fractional Shares."
The transaction is intended to qualify as a 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 UNSL
stockholders. 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 October 21, 1994 the
closing sale price for MBI Common Stock as reported on the NYSE
Composite Tape was $35.375.
This Proxy Statement/Prospectus, the Notice of Special
Meeting and the form proxy were first mailed to the stockholders of
UNSL on or about October 27, 1994.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is October 27, 1994.
<PAGE> 4
AVAILABLE INFORMATION
---------------------
MBI and UNSL 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 Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements
and other information filed by MBI and UNSL 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. UNSL Common Stock is quoted on
the Nasdaq National Market System ("Nasdaq"), and such reports, proxy
statements and other information concerning UNSL 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.
SUCH DOCUMENTS, EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED
THEREIN, ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL
REQUEST. DOCUMENTS RELATING TO MBI MAY BE REQUESTED FROM JON W.
BILSTROM, GENERAL COUNSEL AND SECRETARY, MERCANTILE BANCORPORATION
INC., P.O. BOX 524, ST. LOUIS, MISSOURI 63166-0524, TELEPHONE (314)
425-2525. DOCUMENTS RELATING TO UNSL MAY BE REQUESTED FROM JOHN W.
DONALD, UNSL FINANCIAL CORP., 201 N. JEFFERSON, LEBANON, MISSOURI
65536, TELEPHONE (417) 588-4111. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
NOVEMBER 21, 1994.
The following documents filed with the Commission by MBI
under the Exchange Act are incorporated herein by reference:
(a) MBI's Report on Form 10-K for the year ended
December 31, 1993.
(b) MBI's Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1994.
(c) MBI's Current Reports on Form 8-K dated February 11,
1994 and June 17, 1994.
- 2 -
<PAGE> 5
(d) The description of MBI's Common Stock set forth in
Item 1 of MBI's Registration Statement on Form 8-A,
dated March 5, 1993, and any amendment or report
filed for the purpose of updating such description.
(e) The description of MBI's Preferred Share Purchase
Rights set forth in Item 1 of MBI's Registration
Statement on Form 8-A, dated March 5, 1993, and any
amendment or report filed for the purpose of
updating such description.
The following documents filed with the Commission by UNSL
under the Exchange Act are incorporated herein by reference:
(a) UNSL's Report on Form 10-K for the year ended
December 31, 1993.
(b) UNSL's Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1994.
(c) UNSL's Current Report on Form 8-K dated July 20,
1994.
(d) The description of UNSL's Common Stock set forth in
UNSL's Registration Statement on Form 8-A, dated
February 21, 1990, and any amendment or report
filed for the purpose of updating such description.
All documents filed by MBI or UNSL pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date
hereof and until the date of the Special Meeting shall be deemed to
be incorporated by reference herein and made a part hereof from the
date any such document is filed. The information relating to MBI
and UNSL 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 UNSL. 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 UNSL OR ANY OF THEIR SUBSIDIARIES
OR IN THE INFORMATION SET FORTH HEREIN SUBSEQUENT TO THE DATE
HEREOF.
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<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SUMMARY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Business of MBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Business of ABNK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Business of UNSL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Proposed Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Special Meeting of UNSL Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Reasons for the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Opinion of Financial Advisor to UNSL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Waiver and Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Federal Income Tax Consequences in General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
No Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Markets and Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Comparative Unaudited Per Share Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Summary Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
INFORMATION REGARDING SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Date, Time and Place. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Record Date; Vote Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Voting and Revocation of Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
TERMS OF THE PROPOSED MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
General Description of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Background of and Reasons for the Merger; Board Recommendations . . . . . . . . . . . . . . . . . . . . . 19
Opinion of Financial Advisor to UNSL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Conditions of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Termination of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Surrender of UNSL Stock Certificates and Receipt of MBI Common
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Certain Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Waiver and Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Interests of Certain Persons in the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
- 4 -
<PAGE> 7
<CAPTION>
Page
Proposed Reorganization Following the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Comparative Unaudited Per Share Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Pro Forma Combined Consolidated Financial Statements (Unaudited). . . . . . . . . . . . . . . . . . . . . 34
INFORMATION REGARDING UNSL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Subsidiary Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Supplementary Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
INFORMATION REGARDING MBI STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Description of MBI Common Stock and Attached Preferred Share
Purchase Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Restrictions on Resale of MBI Stock by Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Comparison of the Rights of Stockholders of MBI and UNSL. . . . . . . . . . . . . . . . . . . . . . . . . 49
SUPERVISION AND REGULATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Certain Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Payment of Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Capital Adequacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Support of Subsidiary Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
FIRREA and FDICIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Depositor Preference Statute. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ANNEXES
Annex A --
Agreement and Plan of Reorganization between MBI and ABNK, and
UNSL, dated July 12, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
Annex B --
Opinion of Stifel, Nicolaus & Company, Incorporated. . . . . . . . . . . . . . . . . . . . . . . .B-1
</TABLE>
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<PAGE> 8
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. Stockholders of UNSL 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 August 30, 1994,
MBI owned, directly or indirectly, all of the capital stock of
Mercantile Bank of St. Louis National Association ("Mercantile Bank")
and 40 other commercial banks which operate from 244 banking offices
and 249 Fingertip Banking automated teller machines, including 25
off-premises machines, located throughout Missouri, southern Illinois,
eastern Kansas and Iowa. MBI's services concentrate in four major
lines of business -- consumer, corporate, investment banking and trust
services. MBI also operates non-banking subsidiaries which provide
related financial services, including investment management, brokerage
services and asset-based lending. As of June 30, 1994, MBI had
43,146,531 shares of its Common Stock issued and outstanding. As of
June 30, 1994, MBI reported, on a consolidated basis, total assets of
$11.9 billion, total deposits of $9.1 billion, total loans of $7.6
billion and shareholders' equity of $1.0 billion.
In the first quarter of 1994, MBI completed the acquisition of
United Postal Bancorp, Inc. ("UPB"), a Missouri-based holding
company for United Postal Savings Association, which as of December
31, 1993 reported total assets of $1.3 billion and total deposits
of $1.0 billion. Also during the first quarter of 1994, MBI
acquired Metro Bancorporation, 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 June 30, 1994, total assets of
$210 million, total deposits of $162 million, total loans of $113
million and shareholders' equity of $19 million. On September 21,
1994, MBI entered into an agreement to acquire Central Mortgage
Bancshares, Inc., a Missouri corporation ("Central Mortgage"), a
multi-bank holding company based in Kansas City, Missouri which
owns all of the outstanding capital stock of four state banks with
17 offices in western Missouri, and a mortgage banking unit based in
Springfield, Missouri. At June 30, 1994, Central Mortgage reported
total assets of $629 million, total deposits of $542 million, total
loans of $377 million and shareholders' equity of $51.2 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 and acquired by MBI in 1992. ABNK
is a registered bank holding company under the BHCA. ABNK
currently owns all of the capital stock of 15 banks which operate
from 113 locations in Missouri. ABNK, which will continue to be a
subsidiary of MBI, will be the surviving corporation upon
consummation of the Merger with UNSL.
- 6 -
<PAGE> 9
BUSINESS OF UNSL
UNSL, a Delaware corporation, commenced operations in 1989 and
is a savings and loan holding company under the Home Owners Loan
Act ("HOLA"). UNSL currently owns all of the issued and
outstanding shares of capital stock of United Savings Bank ("United
Savings"), a Missouri-chartered capital stock savings and loan
association founded in 1924. United Savings operates from 20
locations in Southwest and Central Missouri. As of June 30, 1994,
UNSL had 1,488,537 shares of its Common Stock issued and
outstanding plus outstanding stock options for 144,000 shares which
may be exercised prior to the consummation of the Merger. As of
June 30, 1994, UNSL reported, on a consolidated basis, total assets
of $464 million, total deposits of $376 million, total loans of
$420 million and stockholders' equity of $39 million. See
"INFORMATION REGARDING UNSL."
UNSL's principal executive offices are located at 201 N.
Jefferson, Lebanon, Missouri and its telephone number is (417) 588-4111.
THE PROPOSED MERGER
Subject to the satisfaction of the terms and conditions set
forth in the Merger Agreement described below, UNSL will merge with
and into ABNK. Upon consummation of the Merger, UNSL's corporate
existence will terminate and ABNK will continue as the surviving
entity. Simultaneously with the effectiveness of the Merger, each
share of UNSL Common Stock will be converted into the right to
receive 1.0604 shares of MBI Common Stock. Such consideration is
subject to certain anti-dilution protections but is not adjustable
based upon the operating results, financial condition or other
factors affecting either MBI or UNSL 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.
Society National Bank of Cleveland, Ohio, the transfer agent
for MBI Common Stock, has been selected as the Exchange Agent (the
"Exchange Agent") for purposes of effecting the conversion of UNSL
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 a majority of the outstanding shares of UNSL 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 beginning at least five business days
after the month in which the last of the following events occurs
(i) the approval of the Merger Agreement by the stockholders of
UNSL, (ii) the approval of the Merger by the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"), (iii) the
approval of the Merger by the Office of Thrift Supervision (the
"OTS"), and (iv) the approval of the Merger by the Missouri
Division of Finance (the "MDOF"). The Merger Agreement may be
terminated at any time prior to the Closing Date by the mutual
consent of the parties or, unilaterally, by either party upon the
occurrence of certain events or if the Merger is not consummated by
March 31, 1995. See "TERMS OF THE PROPOSED MERGER - Conditions of
the Merger" and "- Termination of the Merger Agreement."
- 7 -
<PAGE> 10
OTHER AGREEMENTS
In addition to and contemporaneously with the Merger
Agreement, MBI and UNSL executed an Option Agreement (the "Option
Agreement"), MBI and each of the directors of UNSL executed
separate Stockholder Agreements (the "Stockholder Agreements") and
MBI and J.C. Benage, President and Chairman of the Board of UNSL,
entered into an employment agreement with respect to his employment
by United Savings (the "Employment Agreement"). The following are
summaries of the material terms of the Option Agreement, the
Stockholder Agreements and the Employment Agreement:
Option Agreement. Concurrent with the execution of the Merger
Agreement, MBI and UNSL entered into the Option Agreement pursuant
to which UNSL has issued MBI an option (the "Option") to purchase
up to 296,218 shares of UNSL Common Stock (or 19.9% of the
outstanding shares of UNSL Common Stock as of June 30, 1994) at an
exercise price of $32.50 per share. The Option is exercisable upon
the occurrence of certain events generally relating to the failure
of UNSL to consummate the Merger because of a material change or
potential change in the ownership of UNSL, all as set forth in the
Option Agreement. None of such events has occurred as of the date
hereof. UNSL 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 - Option
Agreement."
Stockholder Agreements. Concurrent with the execution of the
Merger Agreement, MBI and each of the directors of UNSL executed
separate Stockholder Agreements by which each such director agreed
that he will vote all of the shares of UNSL Common Stock that he
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 Stockholder Agreement or the termination of the
Merger Agreement, each director further agreed that he will not
vote any such shares in favor of the approval of any other
competing acquisition proposal involving UNSL and a third party.
Each director also agreed that he will not transfer shares of UNSL
Common Stock owned by him unless, prior to such transfer, the
transferee executes a Stockholder Agreement in substantially the
same form.
Employment Agreement. J.C. Benage, President and Chairman of
the Board of UNSL, has entered into an employment agreement with
MBI providing for his employment by United Savings or any successor
thereto until he attains the age of 65. See "TERMS OF THE PROPOSED
MERGER -Interests of Certain Persons in the Merger."
SPECIAL MEETING OF UNSL STOCKHOLDERS
The Special Meeting will be held on Friday, December 2, 1994,
at 11:00 a.m. Central Time, at the Lebanon Country Club, Highway 64,
Lebanon, Missouri. Approval by the UNSL stockholders of the Merger
Agreement requires the affirmative vote of the holders of a
majority of the outstanding shares of UNSL Common Stock. Only
holders of record of UNSL Common Stock at the close of business on
October 25, 1994 (the "Record Date") will be entitled to notice of,
and to vote at, the Special Meeting. At such date, there were
1,488,537 shares of UNSL Common Stock outstanding.
As of the Record Date, directors and officers of UNSL and
their affiliates owned beneficially an aggregate of 392,048 shares
of UNSL Common Stock, or approximately 26.34% of the shares
entitled to vote at the Special Meeting. All of UNSL's directors
and officers and their affiliates have indicated their intention to
vote their shares for the approval of the Merger Agreement.
THE BOARD OF DIRECTORS OF UNSL CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AS BEING IN THE BEST
- 8 -
<PAGE> 11
INTEREST OF UNSL AND ITS STOCKHOLDERS. THE UNSL BOARD RECOMMENDS
THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER
---
AGREEMENT.
REASONS FOR THE MERGER
UNSL's Board of Directors believes that the Merger will result
in a combined entity that is (i) committed to serving the banking
and other financial needs of UNSL's depositors, employees,
customers and communities; (ii) capable of competing more
effectively with larger financial institutions that have exerted
increased competitive pressure on UNSL and (iii) well capitalized
and capable of enjoying significant market penetration throughout
the Southwest and Central Missouri bank market. UNSL's Board of
Directors also believes that the Merger will provide the holders of
UNSL Common Stock with an opportunity to receive a premium over the
market prices of UNSL Common Stock prior to the announcement of the
Merger, and will enable such stockholders to participate as MBI
stockholders, on a tax deferred basis, in the expanded
opportunities for growth and profitability made possible by the
Merger. 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 Southwest and Central
Missouri, through the acquisition of an established banking
organization, and (ii) enhance MBI's ability to compete in the
increasingly competitive banking and financial services industry.
See "TERMS OF THE PROPOSED MERGER - Background of and Reasons for
the Merger; Board Recommendations."
OPINION OF FINANCIAL ADVISOR TO UNSL
Stifel, Nicolaus & Company, Incorporated ("Stifel") has served
as financial advisor to UNSL and its Board of Directors and has
rendered an opinion to UNSL's Board of Directors that the
consideration to be offered to UNSL's stockholders in the Merger is
fair to UNSL's stockholders from a financial point of view. A copy
of such opinion is attached hereto as Annex B 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 UNSL."
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued to the
former stockholders of UNSL in connection with the Merger. Each
former holder of UNSL 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 UNSL stockholders 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 or
stockholders are, entitled to the benefits thereof or
- 9 -
<PAGE> 12
(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 stockholders of UNSL 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 UNSL
stockholders in the Merger or (ii) adversely affect the tax
treatment to UNSL stockholders. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER" in this Proxy Statement/Prospectus.
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 UNSL, the
Merger will constitute a "reorganization" for federal income tax
purposes and that, accordingly, no gain or loss will be recognized
by UNSL stockholders who exchange their shares of UNSL 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 UNSL STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN
TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO SUCH STOCKHOLDER. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER." If any amendment to the Merger
Agreement adversely affects the rights of the UNSL stockholders
thereunder prior to consummation of the Merger, UNSL will resolicit
proxies from UNSL stockholders by means of a revised Proxy
Statement/Prospectus and related proxy materials.
REGULATORY APPROVALS
Applications regarding the Merger have been filed with the
Federal Reserve Board, the OTS and the MDOF. The Merger cannot be
consummated until receipt of approvals from such agencies. 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 approvals will be received
or as to the timing of such approvals. See "TERMS OF THE PROPOSED
MERGER - Certain Regulatory Approvals" and "SUPERVISION AND
REGULATION."
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."
NO APPRAISAL RIGHTS
Under the Delaware General Corporation Law (the "Delaware
Corporation Law"), holders of UNSL Common Stock will not be
entitled to appraisal or dissenters' rights as a result of the
Merger.
- 10 -
<PAGE> 13
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 July 12, 1994, the last trading date preceding
the public announcement of the Merger, was $35.375. UNSL Common
Stock is quoted on Nasdaq under the symbol "UNSL." The last sale
price reported for UNSL Common Stock on July 12, 1994, was $33.25.
<TABLE>
<CAPTION>
MBI(1) UNSL
-------------------------- ---------------------------
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 $12.75 $11.00 $.15
Second Quarter 29.500 25.625 .2325 15.75 12.38 .15
Third Quarter 29.375 25.375 .2325 16.50 15.00 .15
Fourth Quarter 32.125 25.875 .2325 20.00 16.00 .20
<CAPTION>
1993
- ----
First Quarter $35.625 $30.625 $ .2475 $24.25 $19.25 $.23
Second Quarter 37.625 29.375 .2475 24.75 22.50 .23
Third Quarter 34.375 31.625 .2475 35.50 22.75 .25
Fourth Quarter 34.625 29.125 .2475 36.25 29.50 .25
<CAPTION>
1994
- ----
First Quarter $34.125 $29.875 $.28 $32.75 $27.25 $.25
Second Quarter 38.125 31.125 .28 32.25 26.00 .25
Third Quarter 39.25 34.875 .28 39.50 32.25 .25
Fourth Quarter
(through October 21,
1994(1) 36.875 33.875 .28 37.50 36.25 .25
<FN>
- ------------------------------------
(1) 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 UNSL and the
corresponding pro forma and pro forma equivalent per share amounts
giving effect to the proposed Merger, the proposed acquisitions of
Wedge and Central Mortgage 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 UNSL 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 had been consummated prior to the periods indicated.
- 11 -
<PAGE> 14
<TABLE>
<CAPTION>
MBI/UNSL UNSL MBI/All Entities UNSL/All Entities
MBI UNSL Pro Forma Pro Forma Pro Forma Pro Forma
Reported Reported Combined (1) Equivalent(2) Combined (3) Equivalent(2)
-------- -------- ------------ ------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
June 30, 1994 $ 23.49 $25.91 $23.52 $24.94 $23.23 $24.63
December 31, 1993 22.40 25.03 22.44 23.80 22.16 23.50
Cash Dividends Declared per Share:
Six months ended June 30, 1994 $ .56 $ .50 $ .56 $ .59 $ .56 $ .59
Year ended December 31, 1993 .99 .96 .99 1.05 .99 1.05
Year ended December 31, 1992 .93 .65 .93 .99 .93 .99
Year ended December 31, 1991 .93 .60 .93 .99 .93 .99
Earnings per Share:
Six months ended June 30, 1994 $ 1.84 $ 1.32 $ 1.82 $ 1.93 $ 1.79 $ 1.90
Year ended December 31, 1993 2.80 2.82(4) 2.80 2.97 2.79 2.96
Year ended December 31, 1992 2.36 3.42 2.36 2.50 2.37 2.51
Year ended December 31, 1991 2.37 1.67 2.23 2.36 2.21 2.34
Market Price per Share:
At July 12, 1994 (5) $35.375 $33.25 -- $37.51 -- $37.51
At October 21, 1994 (5) 35.375 36.25 -- 37.51 -- 37.51
<FN>
- -----------------
(1) Includes the effect of pro forma adjustments for UNSL and ABNK, as appropriate. See "PRO FORMA FINANCIAL
INFORMATION."
(2) Based on the pro forma combined per share amounts multiplied times 1.0604, the conversion ratio
applicable to one share of UNSL 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."
(3) Includes the effect of pro forma adjustments for UNSL, ABNK, Wedge and Central Mortgage, as
as appropriate. See "PRO FORMA FINANCIAL INFORMATION."
(4) Net of effect of accounting change. See "UNSL Financial Corp. and Subsidiaries Consolidated Financial
Statements."
(5) The market value of MBI and UNSL Common Stock was determined as of the last trading day preceding the
public announcement of the proposed acquisition and as of the latest practicable 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 UNSL. 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 UNSL as of and for such years. The balance
sheet data and income statement data included in the summary
financial data as of and for the six months ended June 30, 1994 and
1993 are taken from the unaudited consolidated financial statements
of MBI and UNSL as of, and for the six months ended, June 30, 1994
and 1993. These data include all adjustments which are, in the
opinion of the respective managements of MBI and UNSL, necessary to
present a fair statement of these periods and are of a normal
recurring nature. Results for the six months ended June 30, 1994
are not necessarily indicative of results for the entire year. The
following information should be read in conjunction with the
consolidated financial statements of MBI and UNSL, 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."
- 12 -
<PAGE> 15
<TABLE>
MERCANTILE BANCORPORATION INC.
SUMMARY FINANCIAL DATA
<CAPTION>
Six Months Ended
June 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 (1) . . . . . . . . . . $ 1.84 $ 1.58 $ 2.80 $ 2.36 $ 2.37 $ 2.18 $ 0.29
Dividends declared . . . . . . . . 0.56 0.49 0.99 0.93 0.93 0.93 0.93
Book value at period end . . . . . 23.49 21.50 22.40 20.25 18.86 17.14 15.86
Average common shares outstanding
(thousands). . . . . . . . . . . 42,948 42,243 42,439 39,492 31,791 30,144 29,092
EARNINGS (THOUSANDS)
Interest income. . . . . . . . . . $ 402,464 $ 421,512 $ 829,930 $ 873,447 $ 879,471 $ 882,148 $ 836,446
Interest expense . . . . . . . . . 150,346 171,140 328,734 417,358 506,916 552,231 528,008
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income. . . . . . . . 252,118 250,372 501,196 456,089 372,555 329,917 308,438
Provision for possible loan losses 16,398 28,534 61,013 74,579 58,076 50,886 104,708
Other income . . . . . . . . . . . 95,938 99,872 199,158 183,944 155,696 137,356 150,038
Other expense. . . . . . . . . . . 206,487 215,376 444,909 418,068 383,348 318,887 335,266
Income taxes (benefit) . . . . . . 46,113 39,422 75,568 52,346 18,673 27,658 (1,804)
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . $ 79,058 $ 66,912 $ 118,864 $ 95,040 $ 68,154 $ 69,842 $ 20,306
========= ========== ========== ========== ========== ========== ==========
ENDING BALANCE SHEET (MILLIONS)
Total assets . . . . . . . . . . . $ 11,934 $ 11,778 $ 12,141 $ 12,273 $ 10,765 $ 10,137 $ 9,536
Earning assets . . . . . . . . . . 11,045 10,823 11,114 11,186 9,827 9,016 8,477
Investment securities. . . . . . . 3,302 3,320 3,401 3,401 2,475 1,886 1,904
Loans and leases,
net of unearned income . . . . . 7,619 7,469 7,382 7,499 6,946 6,884 6,358
Deposits . . . . . . . . . . . . . 9,141 9,321 9,602 9,928 8,776 8,278 7,601
Long-term debt . . . . . . . . . . 290 274 273 299 203 233 308
Stockholders' equity . . . . . . . 1,013 913 959 851 690 581 536
Reserve for possible loan losses . 172 152 169 166 146 149 149
SELECTED RATIOS
Return on average assets . . . . . 1.30% 1.09% 0.97% 0.80% 0.67% 0.73% 0.23%
Return on average equity . . . . . 15.99 15.14 13.00 11.95 10.52 12.51 3.81
Net interest rate margin . . . . . 4.64 4.57 4.59 4.33 4.12 3.97 4.09
Equity to assets . . . . . . . . . 8.49 7.75 7.90 6.94 6.41 5.73 5.62
Reserve for possible loan losses to:
Outstanding loans. . . . . . . . 2.26 2.03 2.28 2.21 2.10 2.16 2.35
Non-performing loans . . . . . . 495.20 238.41 293.39 156.85 113.14 119.68 121.55
<FN>
(1) Based on weighted average common shares outstanding.
</TABLE>
- 13 -
<PAGE> 16
<TABLE>
UNSL FINANCIAL CORP.
SUMMARY FINANCIAL DATA
<CAPTION>
Six Months Ended
June 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 (1) . . . . . . . . . . $ 1.32 $ 1.90 $ 3.23 $ 3.42 $ 1.67 $ .54 $ .81
Dividends declared . . . . . . . . .50 .46 .96 .65 .60 .60 .48
Book value at period end . . . . . 25.91 23.66 25.03 22.74 20.04 19.11 18.41
Average common shares outstanding 1,487,965 1,512,416 1,497,678 1,523,769 1,507,826 1,594,380 1,616,592
EARNINGS (THOUSANDS)
Interest income. . . . . . . . . . $ 14,185 $ 13,996 $ 27,834 $ 32,332 $ 39,191 $ 41,500 $ 40,221
Interest expense . . . . . . . . . 7,342 7,055 14,071 18,517 26,417 29,884 29,957
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income. . . . . . . . 6,843 6,941 13,763 13,815 12,774 11,616 10,264
Provision for possible loan losses 60 260 320 296 1,263 3,112 2,720
Other income . . . . . . . . . . . 1,638 1,419 3,169 3,129 2,901 2,939 2,382
Other expense. . . . . . . . . . . 5,196 4,441 9,746 8,880 10,131 8,769 7,991
Income taxes . . . . . . . . . . . 1,182 1,352 2,548 2,540 1,767 1,806 618
Cumulative effect of
accounting changes . . . . . . . -- 624 624 -- -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . $ 2,043 $ 2,931 $ 4,942 $ 5,228 $ 2,514 $ 868 $ 1,317
========= ========== ========== ========== ========== ========== ==========
ENDING BALANCE SHEET (THOUSANDS)
Total assets . . . . . . . . . . . $ 463,924 $ 403,864 $ 434,277 $ 407,292 $ 427,722 $ 433,325 $ 423,740
Earning assets . . . . . . . . . . 451,523 391,545 422,537 395,472 411,035 418,612 405,182
Investment securities. . . . . . . 16,026 16,928 15,890 14,616 12,841 11,145 13,285
Loans and leases . . . . . . . . . 420,274 363,611 390,074 337,180 339,917 360,259 369,110
Deposits . . . . . . . . . . . . . 375,583 363,783 373,591 368,801 394,798 401,736 357,550
Borrowings . . . . . . . . . . . . 45,000 -- 20,000 -- -- 500 34,000
Stockholders' equity . . . . . . . 38,577 35,839 37,214 34,780 30,438 28,643 30,314
Reserve for possible loan losses . 3,631 3,627 3,569 3,377 3,246 3,704 1,717
Selected ratios
Return on average assets . . . . . .91% 1.50% 1.20% 1.25% .59% .20% .31%
Return on average equity . . . . . 10.79 13.45 13.72 16.19 8.52 2.92 4.35
Net interest rate margin . . . . . 3.17 3.52 3.42 3.39 3.04 2.79 2.47
Equity to assets . . . . . . . . . 8.32 8.87 8.42 8.43 7.08 6.59 7.12
Reserve for possible loan losses to:
Outstanding loans. . . . . . . . .87 1.05 .92 1.01 .96 1.04 .47
Non-performing loans . . . . . . 439.06 352.48 525.63 143.28 117.91 116.44 22.38
<FN>
(1) Based on weighted average common shares outstanding.
</TABLE>
- 14 -
<PAGE> 17
INFORMATION REGARDING SPECIAL MEETING
-------------------------------------
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of
UNSL Common Stock in connection with the solicitation of proxies by the
Board of Directors of UNSL for use at the Special Meeting and any
adjournments thereof at which the stockholders of UNSL 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 thereof. Each copy of this Proxy
Statement/Prospectus is accompanied by the Notice of Special Meeting of
Stockholders of UNSL, a proxy card and related instructions and a self-
addressed return envelope to UNSL for the proxy card.
This Proxy Statement/Prospectus is also furnished by MBI to each
holder of UNSL 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
stockholders of UNSL on October 27, 1994.
DATE, TIME AND PLACE
The Special Meeting will be held at the Lebanon Country Club,
Highway 64, Lebanon, Missouri, on Friday, December 2, 1994, at
11:00 a.m. Central Time.
RECORD DATE; VOTE REQUIRED
On the Record Date, there were 1,488,537 shares of UNSL 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 a
majority of the outstanding shares of UNSL Common Stock is required to
approve the Merger Agreement.
As of the Record Date, directors and officers of UNSL and their
affiliates owned beneficially an aggregate of 392,048 shares of UNSL
Common Stock, or approximately 26.34% of the outstanding shares of UNSL
Common Stock entitled to vote at the Special Meeting. All directors and
officers of UNSL and their affiliates have indicated their intention to
vote their shares for the approval of the Merger Agreement at the
Special Meeting.
VOTING AND REVOCATION OF PROXIES
Shares of UNSL 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 UNSL STOCKHOLDER RETURNING A BLANK EXECUTED PROXY
CARD WILL BE DEEMED TO HAVE APPROVED THE MERGER AGREEMENT. Failure to
return a properly executed proxy card or to vote in person at the
Special 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
- 15 -
<PAGE> 18
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 stockholder of UNSL giving a proxy may revoke it at any time
prior to the vote at the Special Meeting. Stockholders of UNSL wishing
to revoke a proxy prior to the vote may do so by delivering to the
Secretary of UNSL at 201 N. Jefferson, Lebanon, Missouri 65536 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 UNSL 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 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 UNSL.
SOLICITATION OF PROXIES
UNSL 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 UNSL may also solicit proxies in person or by
telephone. Directors, executive officers and any other employees of
UNSL 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 UNSL 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 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.
GENERAL DESCRIPTION OF THE MERGER
Pursuant to the Merger Agreement, UNSL, a Delaware corporation,
will merge on the Closing Date with and into ABNK, a Missouri
corporation and wholly owned subsidiary of MBI. Upon consummation of
the Merger, UNSL's corporate existence will terminate and ABNK will
continue as the surviving entity. Simultaneously with the effectiveness
of the Merger, each share of UNSL Common Stock will be converted into
the right to receive 1.0604 shares of MBI Common Stock. Such
consideration is subject to certain anti-dilution protections but is not
adjustable based upon the operating results, financial condition or
other factors affecting either MBI or UNSL prior to the consummation of
the Merger. The fair market value of MBI Common Stock received pursuant
to the Merger may fluctuate
- 16 -
<PAGE> 19
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 UNSL, 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 UNSL STOCKHOLDER OR AT ANY
OTHER TIME. THE FAIR MARKET VALUE OF MBI COMMON STOCK RECEIVED BY A
UNSL STOCKHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET
VALUE OF MBI COMMON STOCK DUE TO NUMEROUS MARKET FACTORS.
Following the Closing Date, each stockholder of UNSL will be
required to submit to Society National Bank, Cleveland, Ohio, which has
been appointed as exchange agent in the Merger (the "Exchange Agent"),
a properly executed letter of transmittal and surrender to the Exchange
Agent the stock certificate(s) formerly representing the shares of UNSL
Common Stock prior to the issuance of the new stock certificate
evidencing the shares of MBI Common Stock to which such stockholder is
entitled. No dividends or other distributions will be paid to a former
UNSL stockholder with respect to shares of MBI Common Stock until such
stockholder's letter of transmittal and stock certificates formerly
representing UNSL Common Stock, or documentation acceptable to the
Exchange Agent in lieu of lost or destroyed certificates, is delivered
to the Exchange Agent. See "TERMS OF THE PROPOSED MERGER - Surrender of
UNSL 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 stockholders of
UNSL who are deemed to be "affiliates" of UNSL. The shares of MBI
Common Stock issued to such affiliates will be restricted in their
transferability in accordance with the rules and regulations promulgated
by the Commission. See "INFORMATION REGARDING MBI STOCK - Restrictions
on Resale of MBI Stock by Affiliates."
OTHER AGREEMENTS
In addition to and contemporaneously with the Merger Agreement, MBI
and UNSL executed the Option Agreement and MBI and each of the directors
of UNSL have executed separate Stockholder Agreements. The following
are summaries of the material terms of the Option Agreement and the
Stockholder Agreements:
Option Agreement. Concurrent with the execution of the Merger
Agreement, MBI and UNSL entered into the Option Agreement pursuant to
which UNSL has issued the Option to MBI. The Option was granted by UNSL
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 Option
Agreement, which is attached as an exhibit to the Registration Statement
and is incorporated herein by reference.
- 17 -
<PAGE> 20
The shares issued pursuant to an exercise of the Option (the
"Option Shares") would represent approximately 19.9% of the number of
shares of UNSL Common Stock issued and outstanding immediately prior to
such issuance.
If not then in material breach of the Merger Agreement, MBI may
exercise the Option, in whole or in part, from time to time if a
Purchase Event (as defined below) has occurred; provided, however, that
(i) to the extent the Option has not been exercised, it will terminate
and be of no further force and effect upon the earliest to occur of (A)
the Effective Time, and (B) the termination of the Merger Agreement in
accordance with its terms, provided that in the case of certain
terminations of the Merger Agreement, as specified in the Stock Option
Agreement, the Option will not terminate until the date that is 12
months following such termination, (ii) if the Option cannot be
exercised on such day because of any injunction, order or similar
restraint issued by a court of competent jurisdiction, the Option will
expire on the 30th business day after such injunction, order or
restraint has been dissolved or when such injunction, order or restraint
has become permanent and no longer subject to appeal, as the case may be
and (iii) any such exercise will be subject to compliance with
applicable law, including the BHCA and HOLA.
"Purchase Event" means any of the following events: (i) UNSL or
any of its subsidiaries, without having received prior written consent
from MBI, enters into, authorizes, recommends, proposes or publicly
announces its intention to enter into, authorize, recommend, or propose
an agreement, arrangement or understanding with any person (other than
MBI or any of its subsidiaries) to (A) effect a merger, consolidation or
similar transaction involving UNSL or any of its subsidiaries, (B)
purchase, lease or otherwise acquire 15% or more of the assets of UNSL
or any of its subsidiaries or (C) purchase or otherwise acquire
(including by way of merger consolidation, share exchange or similar
transaction) beneficial ownership of securities representing 10% or more
of the voting power of UNSL or any of its subsidiaries; (ii) any person
(other than MBI or any subsidiary of MBI, or UNSL or any subsidiary of
UNSL in a fiduciary capacity) acquires beneficial ownership or the right
to acquire beneficial ownership of 10% or more of the voting power of
UNSL; or (iii) the holders of UNSL Common Stock do not approve the
Merger Agreement at the Special Meeting, the Special Meeting is not held
or is cancelled prior to termination of the Merger Agreement in
accordance with its terms or UNSL's Board of Directors withdraws or
modifies in a manner adverse to MBI the recommendation to UNSL's Board
of Directors with respect to the Merger Agreement, in each case after an
Extension Event.
"Extension Event" means any of the following events: (i) a
Purchase Event; (ii) any person (other than MBI or any of its
subsidiaries) "commences" (as such term is defined in Rule 14d-2 under
the Exchange Act), or files a registration statement under the
Securities Act with respect to, a tender offer or exchange offer to
purchase shares of UNSL Common Stock such that, upon consummation of
such offer, such person would have beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the voting power of UNSL;
or (iii) any person (other than MBI or any subsidiary of MBI, or UNSL or
any subsidiary of UNSL in a fiduciary capacity) publicly announces its
willingness, or publicly announces a proposal, or publicly discloses an
intention to make a proposal, (x) to make an offer described in clause
(ii) above or (y) to exchange a transaction described in clause (i)
above.
Subject to extension as provided in the Stock Option Agreement,
after a Purchase Event and prior to termination of the Option, subject
to regulatory approval, UNSL is required, upon MBI's request, to
repurchase the Option and/or the Option Shares from MBI, at a price
based on the market price or a subsequent offer price for UNSL Common
Stock (the "Market Price"), in the case of a repurchase of Option
Shares, or the amount by which the Market Price exceeds the Option
Price, in the case of a repurchase of the Option, in each case plus out-
of-pocket expenses of MBI in connection with the Merger.
- 18 -
<PAGE> 21
In the event of any change in UNSL 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 UNSL Common Stock are issued after the date of the
Option Agreement (other than pursuant to an event described in the
preceding sentence or pursuant to the Option Agreement), the number of
shares of UNSL Common Stock subject to the Option will be adjusted so
that, after such issuance, it equals at least 19.9% of the number of
shares of UNSL Common Stock then issued and outstanding (without
considering any shares subject to or issued pursuant to the Option).
To the best of MBI's and UNSL's knowledge, no Purchase Event or
other Extension Event has occurred as of the date of this Proxy
Statement/Prospectus.
Stockholder Agreements. Concurrent with the execution of the
Merger Agreement, MBI and each of the directors of UNSL executed
separate Stockholder Agreements by which each such director agreed that
he will vote all of the shares of UNSL Common Stock that he then owned
or subsequently acquired 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 Stockholder Agreement or the
abandonment of the Merger, each director further agreed that he will not
vote any such shares in favor of the approval of any other competing
acquisition proposal involving UNSL and a third party. Each director
also agreed that he will not transfer shares of UNSL Common Stock owned
by him unless, prior to such transfer, the transferee executes a
Stockholder Agreement in substantially the same form.
BACKGROUND OF AND REASONS FOR THE MERGER; BOARD RECOMMENDATIONS
Reasons and Board Recommendation. In 1992, the Board of Directors
of UNSL ("Board") began addressing the future of UNSL in light of
increased economic and competitive pressures on community banks and
thrifts and the current trends, acquisitions and consolidations of
banking organizations within UNSL's service area. In response to this
review, the Board of UNSL determined to begin exploring options for
combining with a larger, stronger organization.
The Board instructed management to contact potential acquirors to
discuss a potential combination with UNSL. Contact was made with
numerous regional holding companies, including, among others, MBI. Some
had shown interest in a potential combination, but preliminary
discussions resulted in offers at prices that the Board felt were
inadequate. Finally, MBI made a firm proposal, which the Board of UNSL
determined was worthy of further consideration. The Board reviewed
MBI's respective businesses, the results of operations and financial
condition (including the assets, quality and capital levels), growth
prospects, products available to customers, historical dividend and
market price performance, and the fact that MBI's Common Stock was
traded on the New York Stock Exchange. The Board also considered the
management strength and depth of MBI, and the significant market
penetration that the combined organization would have within the
regional banking market. The Board also considered MBI's commitment to
serving the banking and other needs of UNSL's depositors, employees,
customers, and community, as well as MBI's policy emphasizing the local
character of community banks and continuing the involvement of members
of the Board, as well as members of management of such banks.
During June and July of 1994, representatives of MBI and UNSL and
their respective counsel negotiated the form of the Merger Agreement.
On July 6, 1994, the Board engaged Stifel to act as a financial advisor
and provide a fairness opinion in connection with the proposed
transaction with MBI. On July 12, 1994, the Board met to consider the
Merger Agreement. Based on a variety of factors described below, the
Board unanimously approved the Merger Agreement at such meeting. The
Merger
- 19 -
<PAGE> 22
Agreement was executed on July 12, 1994 by representatives of
UNSL, MBI and ABNK, and MBI publicly announced the execution of the
Merger Agreement. The Board determined that the Merger would result in
a combined entity that is (i) committed to serving banking and other
financial needs of UNSL's depositors, employees, customers, and the
community; (ii) capable of competing more effectively with larger
financial institutions that have exerted increased competitive pressure
on UNSL; and (iii) well capitalized and capable of enjoying significant
market penetration throughout the Southwest and Central Missouri bank
market.
The Board also believes that the Merger will provide UNSL
stockholders with an opportunity to receive a significant premium over
the book value of their shares immediately prior to the announcement of
the Merger, and over the price per share obtained on the most recent
sales of UNSL Common Stock on Nasdaq.
The Board also considered that to the extent that UNSL's
stockholders receive shares of MBI Common Stock, such stockholders will
participate in the expanded opportunities for growth and profitability
made possible by the Merger, and the ability of the combined
organization to pay dividends. In addition, the Merger is generally
intended to afford certain tax deferral benefits for income tax purposes
for the UNSL stockholders. The UNSL stockholders will hold an equity
interest in a substantially larger and more diversified bank holding
company than they presently do, and the shares of MBI Common Stock to be
received by them will be part of a more active and liquid trading
market.
On July 12, 1994, the closing sale price for MBI Common Stock as
reported on the NYSE Composite Tape was $35.375 per share, which is
equivalent to a value of $37.50 for the 1.0604 shares of MBI Common
Stock into which each share of UNSL Common Stock will be converted in
the Merger. The directors of UNSL have unanimously indicated that they
intend to vote the UNSL Common Stock that they hold in favor of the
Merger Agreement. See "INFORMATION REGARDING SPECIAL MEETING - Record
Date; Vote Required."
THE BOARD OF DIRECTORS OF UNSL RECOMMENDS THAT STOCKHOLDERS OF UNSL
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 UNSL 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 Southwest and
Central Missouri banking market through the acquisition of an
established banking organization having significant operations in the
targeted area. MBI's decision to pursue discussions with UNSL was
primarily a result of MBI's assessment of the value of UNSL's banking
franchise, its substantial asset base within that area and the
compatibility of the businesses of the two banking organizations.
OPINION OF FINANCIAL ADVISOR TO UNSL
Pursuant to an engagement letter, dated July 6, 1994 (the
"Engagement Letter"), UNSL retained Stifel to act as its financial
advisor in connection with the consideration by UNSL'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. UNSL selected Stifel as its financial
- 20 -
<PAGE> 23
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 UNSL stockholders, were negotiated by UNSL.
At the July 12, 1994 meeting of UNSL's Board of Directors, Stifel
delivered its oral opinion, subsequently confirmed in writing as of such
date, that the consideration to be received by the UNSL stockholders in
the Merger is fair to the UNSL stockholders from a financial point of
view. No limitations were imposed by UNSL on Stifel with respect to the
investigations made or procedures followed in rendering its opinion.
THE FULL TEXT OF STIFEL'S WRITTEN OPINION TO UNSL'S BOARD OF DIRECTORS
IS ATTACHED HERETO AS ANNEX B 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 UNSL'S BOARD OF
DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY UNSL
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE SPECIAL
MEETING.
Stifel reviewed with UNSL'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 UNSL and MBI,
including the consolidated financial statements for the last five years
and for the quarter ending March 31, 1994 and certain other relevant
financial operating data relating to UNSL and MBI made available to
Stifel from published sources and from the internal records of UNSL;
(ii) reviewed the Merger Agreement; (iii) reviewed certain historical
market prices and trading volumes of UNSL Common Stock and MBI Common
Stock as reported by Nasdaq and the NYSE, respectively; (iv) compared
UNSL and MBI from a financial point of view with certain other companies
in the financial services industry that Stifel deemed to be relevant;
(v) considered the financial terms, to the extent publicly available, of
selected recent acquisitions of financial institutions that Stifel
deemed to be reasonably similar, in whole or in part, to the Merger and
UNSL; (vi) reviewed and discussed with representatives of the management
of UNSL and MBI certain information of a business and financial nature
regarding UNSL and MBI, furnished to Stifel by UNSL and MBI, including
financial forecasts and related assumptions of UNSL; (vii) made
inquiries regarding and discussed the Merger and the Merger Agreement
and other matters related thereto with UNSL'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 UNSL provided to
Stifel by UNSL's management, Stifel assumed for purposes of its opinion
that they were reasonably prepared on bases reflecting the best
available estimates and judgments of UNSL's management at the time of
preparation as to the future financial performance of UNSL and that they
provided a reasonable basis upon which Stifel could form its opinion.
Stifel also assumed that there were no material changes in UNSL'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 UNSL as to all legal
matters with respect to UNSL, 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 UNSL 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 UNSL Common Stock or MBI
Common Stock might trade in the future.
- 21 -
<PAGE> 24
The following is a summary of the financial analyses performed by
Stifel in connection with providing its oral advice to UNSL's Directors
on July 12, 1994 and the written confirmation of that advice contained
in its written opinion, dated as of July 12, 1994.
Contribution Analysis. Stifel reviewed certain historical and
---------------------
estimated future 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 UNSL to the
pro forma combined figures for UNSL and MBI to the percentage of total
outstanding MBI Common Stock that would be owned by the UNSL
stockholders as a result of the Merger. The analysis showed the
following percentage contribution of UNSL to the pro forma combined
equity:
<TABLE>
<CAPTION>
PERCENTAGE CONTRIBUTION
-----------------------
Year Ended Quarter Ended Estimate
12/31/93 3/31/94 1994
---------- ------------- --------
<S> <C> <C> <C>
Common Stock Ownership 3.9% 3.9% 3.9%
Net Revenues(1) Before 3.0 2.3 2.3
Provision for Loan Loss)
Net Revenues(1) (After 3.6 2.5 2.5
Provision for Loan Loss)
Net Income Before 3.6 2.5 2.6
Extraordinary Items and
Preferred Dividend
Assets 4.0 3.6 3.9
Loans 5.8 5.1 5.6
Deposits 4.3 3.8 3.9
Total Equity 4.2 3.7 3.6
<FN>
- -----------
(1) 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 quarter ended March 31,
1994, and estimated future operating and financial information developed
by both UNSL and MBI for the year ended December 31, 1994. Based on
this analysis, Stifel compared UNSL's actual per share earnings, book
value, tangible book value and common stock dividends for the quarter
ended March 31, 1994 with such projected figures for the pro forma
combined entity for the year ending December 31, 1994. The Merger is
projected to be accretive on a pro forma basis with respect to earnings
- 22 -
<PAGE> 25
per share and common stock dividends per share of UNSL Common Stock and
generally neutral to slightly dilutive with respect to book value and
tangible book value, respectively.
Trading Liquidity Analysis. Stifel prepared an analysis
--------------------------
comparing the trading liquidity of UNSL 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 UNSL and
MBI, Stifel compared the calculated value of a UNSL share to the
calculated value of a share of the combined entity receivable in
exchange for UNSL Common Stock pursuant to the Merger Agreement. The
analysis was based upon a range of assumed returns on assets, 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 UNSL Common
Stock.
Summary Analysis of Thrift Merger Transactions. Stifel
----------------------------------------------
analyzed certain information relating to transactions in the thrift
industry, including median information for 118 acquisitions announced in
the U.S. since July 7, 1993, as well as for 33 thrift acquisitions
announced in the Midwest since July 7, 1993 (the "Selected
Transactions"). Stifel calculated the following ratios with respect to
the Merger and the Selected Transactions:
<TABLE>
<CAPTION>
UNSL/MBI U.S. Midwest Missouri
Ratios Merger Median Median Median
- ------- -------- ------ -------- --------
<S> <C> <C> <C> <C>
Deal Price per share/Book Value 150.4% 151.0% 158.0% 177.1%
Deal Price per share/ 151.2 155.0 158.0 177.3
Tangible Book Value
Deal Price per share/Last 14.2 13.4 14.0 10.3
12 months earnings per
share
Deal Price/Assets 13.1 12.0 12.0 13.5
Premiums over Tangible 6.0 5.7 6.4 6.8
Book Value/Deposits
Deal Price/Deposits 16.2 15.0 15.6 14.8
</TABLE>
The summary set forth above does not purport to be a complete
description of the presentation by Stifel to the UNSL 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
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 UNSL Board
of Directors. In addition, Stifel may have given various analyses more
or less weight than other analyses, and
- 23 -
<PAGE> 26
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 UNSL 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
UNSL 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 UNSL
stockholders from a financial point of view and were provided to the
UNSL 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 UNSL 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
UNSL Board of Directors were among the many factors taken into
consideration by the UNSL Board in making its determination to approve
the Merger.
For Stifel's services in connection with the Merger, UNSL has
paid Stifel $20,000 and will pay Stifel $55,000 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 UNSL 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 UNSL 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 a majority of the outstanding shares of UNSL Common
Stock at the Special Meeting.
(2) The Merger Agreement and the transactions
contemplated therein shall have been approved by the Federal
Reserve Board, the OTS, the MDOF and any other federal and/or
state regulatory agency whose approval is required for the
consummation of the transactions contemplated therein.
(3) The Registration Statement of which this 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.
- 24 -
<PAGE> 27
(4) Neither UNSL, MBI or 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.
(5) Each of UNSL, MBI and ABNK shall have received
from MBI's counsel an opinion reasonably satisfactory to
it to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the
Code and that no gain or loss will be recognized by the
UNSL stockholders to the extent they receive MBI Common
Stock solely in exchange for UNSL Common Stock.
(6) Each of UNSL, 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.
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 UNSL made
in the Merger Agreement shall be true and correct in all
material respects as of the Effective Time and all
obligations required to be performed by UNSL prior to the
Closing Date shall have been performed in all material
respects, and MBI shall have received an officers'
certificate from UNSL to that effect.
(2) UNSL shall have obtained any and all material
permits, authorizations, consents, waivers and approvals
required of UNSL for the lawful consummation of the
Merger.
(3) Since the date of the Merger Agreement, there
shall have been no material adverse change in the
business, financial condition or results of operations of
UNSL on a consolidated basis taken as a whole.
(4) Suelthaus & Kaplan, P.C., counsel to UNSL,
shall have delivered to MBI an opinion regarding certain
legal matters.
UNSL'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 as of the Effective Time
and all obligations required to be performed by MBI and
ABNK prior to the Effective Time shall have been
performed in all material respects, and UNSL 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 the date of the Merger Agreement, 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.
- 25 -
<PAGE> 28
(4) Thompson & Mitchell, counsel to MBI, shall have
delivered to UNSL an opinion regarding certain legal
matters.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior
to the Closing Date, whether before or after approval by the
stockholders of UNSL, by mutual consent of the Executive Committee
of the Board of Directors of MBI and the Boards of Directors of
UNSL and ABNK, or unilaterally by the Executive Committee of the
Board of Directors of MBI or the Boards of Directors of UNSL or
ABNK: (i) at any time after March 31, 1995, if the Merger has not
been consummated by such date, provided that the terminating party
is not then in any material breach of the Merger Agreement or
(ii) if the Federal Reserve Board, the OTS, the MDOF or any other
federal and/or state regulatory authority whose approval is
required for consummation of the Merger, or the stockholders of
UNSL, notwithstanding the favorable recommendation UNSL's Board of
Directors, have denied approval of the Merger. The Merger
Agreement may also be terminated by the Boards of Directors of UNSL
and ABNK or the Executive Committee of the Board of Directors of
MBI in the event of a breach of the Merger Agreement by the other
party, which breach is of such a magnitude as to be materially
adverse to the business, financial condition or results of
operations of the breaching party on a consolidated basis taken as
a whole and is not cured after 60 days following written notice of
such breach given by the other party. No assurance can be given
that the Merger will be consummated on or before March 31, 1995 or
that MBI, ABNK or UNSL will not elect to terminate the Merger
Agreement if the Merger has not been consummated on or before such
date.
In the event of the termination of the Merger Agreement,
it shall become void and there shall be no liability on the part of
either 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 - Option
Agreement," in the case of certain terminations of the Merger
Agreement, the Option Agreement will become exercisable and UNSL
may be obligated to repurchase the Option and any Option Shares.
INDEMNIFICATION
UNSL, MBI and ABNK have agreed to indemnify each other
against any claims or liabilities to which such party may become
subject under federal or state securities laws or regulations, to
the extent that such claim or liability arises out of information
furnished to the party subject to such liability by the other
party, or out of an omission by such other party to state a
necessary or material fact in the Registration Statement of which
this Proxy Statement/Prospectus is a part.
CLOSING DATE
The Merger will be consummated and become effective on
the Closing Date upon issuance of a certificate of merger by the
Missouri Secretary of State. Under the Merger Agreement, unless
the parties otherwise agree, the Closing Date shall be the first
business day of the month beginning at least five business days
after the month in which the last of the following events occurs
(i) the receipt of the requisite approval of the Merger Agreement
by stockholders of UNSL, (ii) the approval of the Merger by the
Federal Reserve Board, (iii) the approval of the Merger by the OTS,
(iv) the approval of the Merger by the MDOF, and (v) the approval
of any other federal and/or state bank regulatory agency that may
be necessary or appropriate.
- 26 -
<PAGE> 29
SURRENDER OF UNSL STOCK CERTIFICATES AND RECEIPT OF MBI COMMON
STOCK
At the Effective Time of the Merger, each outstanding
share of UNSL Common Stock will be converted into the right to
receive 1.0604 shares of MBI Common Stock. See "TERMS OF THE
PROPOSED MERGER - General Description of the Merger." Each holder
of UNSL 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 UNSL Common Stock, will be entitled to receive a stock
certificate evidencing the shares of MBI Common Stock to which such
shareholder is entitled.
As soon as practicable after the Effective Time of the
Merger, the Exchange Agent will mail to each former UNSL
stockholder 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 UNSL Common
Stock and the receipt of shares of MBI Common Stock pursuant to the
Merger.
Following the Effective Time of the Merger, it will be
the responsibility of each former holder of UNSL shares to submit
all certificates evidencing that former holder's shares of UNSL
Common Stock to the Exchange Agent. No dividends or other
distribution will be paid to a former UNSL stockholder with respect
to shares of MBI Common Stock until such stockholder's properly
completed letter of transmittal and stock certificates formerly
representing UNSL Common Stock, or documentation acceptable to the
Exchange Agent in lieu of a lost or destroyed certificate, is
delivered to the Exchange Agent. The Exchange Agent may also
require the stockholder of a lost or destroyed certificate to post
an insurance bond acceptable to the Exchange Agent. All dividends
or other distributions on the MBI Common Stock declared between the
Closing Date of the Merger and the date of the surrender of a UNSL
stock certificate will be held for the benefit of the stockholder
and will be paid to the stockholder, without interest thereon, upon
the surrender of such stock certificate or documentation and/or
insurance bond in lieu thereof.
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued
to the former stockholders of UNSL in connection with the Merger.
Each former holder of UNSL 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 UNSL stockholders in lieu of fractional
shares may give rise to taxable income. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER."
CERTAIN REGULATORY APPROVALS
In addition to the approval of the Merger Agreement by
the stockholders of UNSL, the obligations of the parties to effect
the Merger are subject to prior approval of the Federal Reserve
Board, the OTS and the MDOF. The Merger is subject to prior
approval by the Federal Reserve Board under Section 4(c)(8) of the
BHCA. MBI may acquire UNSL only after the Federal Reserve Board
has determined that the activities of UNSL are so closely related
to banking or to managing or controlling banks as to be a proper
incident thereto. The Federal Reserve Board has previously
approved the acquisition and operation of thrifts such as United
Savings (and thrift holding companies such as UNSL) and found,
generally, that their activities are closely related to banking.
Nonetheless, under the BHCA, the Federal Reserve Board may
disapprove the Merger if, among other things, it determines that
the proposed acquisition of and operation by MBI of UNSL is not a
proper incident to banking on the basis that the expected public
benefits are outweighed by the potential adverse effects associated
with the proposed activity. Under the BHCA, the Federal Reserve
Board
- 27 -
<PAGE> 30
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.
The Merger is also subject to the prior approval of the
OTS under HOLA. The OTS may disapprove the Merger based on the
financial and managerial resources and future prospects of MBI and
the effect of the Merger on United Savings and the insurance risk
posed by the Merger to the Savings Associated Insurance Fund or the
Bank Insurance Fund of the Federal Deposit Insurance Corporation
(the "FDIC"). In determining whether to approve the Merger, the
OTS may also consider the effect of the Merger on the convenience
and needs of the communities to be served, including community
reinvestment needs. In addition, under HOLA, the OTS may not
approve the Merger if it would result in a monopoly or have a
substantial anticompetitive effect unless the OTS finds the
anticompetitive effect of the Merger is clearly outweighed in the
public interest by the probable effect of the Merger in meeting the
convenience and needs of the communities to be served.
The Merger is also subject to the approval of the MDOF,
which is empowered to investigate the Merger to determine whether
the Merger is consistent with the interests of maintaining a sound
financial system and to determine that the Merger does not afford
a basis for supervisory objection.
Applications for such approvals have been filed with the
Federal Reserve Board, the OTS and the MDOF. MBI and UNSL 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 approval or
action will be timely received or taken, that no action will be
brought challenging such approval or action or, if such a challenge
is brought, the result thereof, or that any such approval or action
will not be conditioned in a manner that would cause the parties to
abandon the Merger. See "SUPERVISION AND REGULATION."
BUSINESS PENDING THE MERGER
The Merger Agreement provides that, during the period
from the date of the Merger Agreement to the Effective Time, UNSL
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, UNSL will
not, without the prior written consent of MBI:
(1) declare, set aside or pay any dividends or
other distributions, directly or indirectly, in respect
of its capital stock (other than dividends from any of
the UNSL subsidiaries to UNSL or to another of the UNSL
subsidiaries, except that UNSL may declare and pay
regular quarterly cash dividends of not more than $0.25
per share on the UNSL Common Stock), provided that UNSL
--------
shall not declare or pay its regular quarterly dividend
- 28 -
<PAGE> 31
for any quarter in which UNSL stockholders 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 UNSL
employee plans or grant any salary or wage increase or
materially increase any employee benefit (including
incentive or bonus payments), except normal individual
increases in compensation to employees consistent with
past practice, or as required by law or contract, except
for such increases of which UNSL notifies MBI in writing
and which MBI does not disapprove within ten days of the
receipt of such notice;
(3) authorize, recommend, propose or announce an
intention to authorize, recommend or propose, or enter
into an agreement in principle with respect to, any
merger, consolidation or business combination (other than
the Merger), any acquisition of a material amount of
assets or securities, any disposition of a material
amount of assets or securities or any release or
relinquishment of any material contract rights;
(4) propose or adopt any amendments to its articles
of incorporation, association or other charter document
or bylaws;
(5) issue, sell, grant, confer or award any of its
equity securities (except shares of UNSL Common Stock
issued upon exercise of UNSL employee stock options
outstanding on July 12, 1994) or effect any stock split
or adjust, combine, reclassify or otherwise change its
capitalization as it existed on July 12, 1994;
(6) purchase, redeem, retire, repurchase, or
exchange, or otherwise acquire or dispose of, directly or
indirectly, any of its equity securities, whether
pursuant to the terms of such equity securities or
otherwise;
(7) without first consulting with MBI,
(i) enter into or increase any loan or credit
commitment (including stand-by letters of credit)
to, or invest or agree to invest in any person or
entity or modify any of the material provisions or
renew or otherwise extend the maturity date of any
existing loan or credit commitment (collectively,
"Lend to") in an amount in excess of $250,000
provided no such consultation shall be required in
--------
respect of single-family residential loans or
credits not exceeding $500,000 that are saleable in
recognized secondary markets pursuant to UNSL's
lending policies as in effect on the date hereof;
(ii) enter into, or increase in an amount in
excess of $250,000, any commercial or multi-family
real estate loan or credit commitment (including
stand-by letters of credit) to, or invest or agree
to invest in any commercial or multi-family real
estate project or entity, or Lend to any person
other than in accordance with lending policies as
in effect on July 12, 1994, provided that UNSL or
--------
any of the UNSL Subsidiaries may make any such loan
in the event (x) UNSL or any UNSL Subsidiary has
delivered to MBI or its designated representative a
notice of its intention to make such loan and such
information as MBI or its designated representative
may reasonably require in respect thereof and (y)
MBI or its designated representative shall not have
reasonably objected to such loan by giving written
or facsimile notice of
- 29 -
<PAGE> 32
such objection within two business days following
the delivery to MBI or its designated
representative of the notice of intention and
information as aforesaid; or
(iii) Lend to any person or entity any of the
loans or other extensions of credit to which or
investments in which are on a "watch list" or
similar internal report of UNSL or any of the UNSL
Subsidiaries (except those denoted "pass" thereon),
in an amount in excess of $100,000; provided,
--------
however, that nothing described in this paragraph
-------
shall prohibit UNSL or any UNSL Subsidiary from
honoring any contractual obligation in existence on
July 12, 1994 or, with respect to loans described
in clause (i) above, making such loans after
consulting with MBI;
(8) directly or indirectly (including through its
officers, directors, employees or other representatives)
initiate, solicit or encourage any discussions, inquiries
or proposals with any third party relating to the
disposition of any significant portion of the business or
assets of UNSL or any of the UNSL Subsidiaries or the
acquisition of equity securities of UNSL or any of the
UNSL Subsidiaries or the merger of UNSL or any of the
UNSL Subsidiaries with any person (other than MBI) or any
similar transaction (each such transaction being referred
to herein as an "Acquisition Transaction"), or provide
any such person with information or assistance or
negotiate with any such person with respect to an
Acquisition Transaction, and UNSL shall promptly notify
MBI orally of all the relevant details relating to all
inquiries, indications of interest and proposals which it
may receive with respect to any Acquisition Transaction;
(9) take any action that would
(i) materially impede or delay the
consummation of the transactions contemplated by
the Merger Agreement or the ability of MBI or UNSL
to obtain any approval 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
(ii) prevent 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;
(10) other than in the ordinary course of business
consistent with past practice, incur any indebtedness for
borrowed money, assume, guarantee, endorse or otherwise
as an accommodation become responsible or liable for the
obligations of any other individual, corporation or other
entity;
(11) agree in writing or otherwise to take any of
the foregoing actions or engage in any activity, enter
into any transaction or take or omit to take any other
act which would make any of the representations and
warranties in the Merger Agreement untrue or incorrect in
any material respect if made anew after engaging in such
activity, entering into such transaction, or taking or
omitting such other act; or
(12) enter into, increase or renew any loan or
credit commitment (including standby letters of credit)
to any executive officer or director of UNSL or any of
the UNSL Subsidiaries, any UNSL stockholder, or any
entity controlled, directly or indirectly, by any of the
foregoing or engage in any transaction with any of the
foregoing which is of the type
- 30 -
<PAGE> 33
or nature sought to be regulated in 12 U.S.C. 371c and 12
U.S.C. 371c-1, without first obtaining the prior written
consent of MBI, which consent shall not be unreasonably
withheld.
WAIVER AND AMENDMENT
Any provision of the Merger Agreement, including, without
limitation, the conditions to the consummation of the Merger and
the restrictions described under "- Business Pending the Merger,"
may be (i) waived in writing at any time by the party that is, or
whose shareholders or stockholders are, entitled to the benefits
thereof or (ii) amended at any time by written agreement of the
parties approved by or on behalf of their respective Boards of
Directors or Executive Committees, whether before or after the
Special Meeting; provided, however, that after approval of the
-------- -------
Merger Agreement by the stockholders of UNSL at the Special Meeting
no such modification may alter or change the amount or form of
consideration to be received by the UNSL stockholders in the
Merger, or adversely affect the federal income tax treatment to
UNSL stockholders. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER" of this Proxy Statement/Prospectus.
ACCOUNTING TREATMENT
The Merger will be accounted for under the pooling-of-
interests method of accounting. Data regarding the financial
condition and results of operations of UNSL 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. KPMG Peat Marwick LLP, MBI's
independent accountants, will deliver to MBI, ABNK and UNSL an
opinion that the Merger will qualify for pooling-of-interests
accounting treatment.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
J.C. Benage, President and Chairman of the Board of UNSL,
has entered into an employment agreement with MBI dated July 12,
1994 (the "Employment Agreement"). The Employment Agreement
provides that Mr. Benage shall be employed by United Savings or any
successor thereto until he attains the age of 65, in the following
capacities: (i) for the first six months after the Effective Time,
Mr. Benage will serve as Chairman, President, Chief Executive
Officer and Director of United Savings and (ii) thereafter, Mr.
Benage shall serve as Chairman and Director of United Savings, in
which capacity he will make himself available for consultation and
other services with MBI in connection with banking matters in
United Savings' current banking markets. Mr. Benage will receive
a base salary of $130,000 per year, including director fees, and
employee benefits and customary perquisites equivalent to those
provided by MBI to similarly situated officers. The Employment
Agreement is intended to replace Mr. Benage's current employment
agreement with United Savings.
PROPOSED REORGANIZATION FOLLOWING THE MERGER
Immediately following the Merger, all of the assets and
liabilities of United Savings will be transferred to and assumed by
(the "P&A Transaction") a bank subsidiary of ABNK (the "New Bank")
to be located in Lebanon, Missouri. Consummation of the P&A Transaction
is subject to the approval of the FDIC and the MDOF. Consummation of
the Merger is not conditioned on such approvals. It is currently
contemplated that, in a series of transactions in the months following
the Merger, the assets and liabilities attributable to certain of the
branches of the New Bank will be transferred to and assumed by certain
other banking subsidiaries of ABNK.
- 31 -
<PAGE> 34
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 UNSL stockholders
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 UNSL
stockholders 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 UNSL 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 UNSL STOCKHOLDER IS URGED TO CONSULT HIS OR HER
OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO SUCH STOCKHOLDER.
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, UNSL and certain
stockholders of UNSL. 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 UNSL
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) UNSL stockholders will recognize no gain or
loss as a result of the exchange of their UNSL 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 UNSL stockholder 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 UNSL Common Stock surrendered.
(3) The holding period of the shares of MBI Common
Stock received by each UNSL stockholder 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 UNSL
Common Stock exchanged therefor.
(4) A UNSL stockholder 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.
- 32 -
<PAGE> 35
UNSL 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, UNSL, and certain
stockholders of UNSL. An opinion of counsel, unlike a private
letter ruling from the Internal Revenue Service (the "Service"),
has no binding effect on the Service. The Service could take a
position contrary to counsel's opinion and, if the matter is
litigated, a court may reach a decision contrary to the opinion.
The Service is not expected to issue a ruling on the tax 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 UNSL
STOCKHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL
INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY
NOT APPLY TO EACH UNSL STOCKHOLDER. IN VIEW OF THE INDIVIDUAL
NATURE OF INCOME TAX CONSEQUENCES, EACH UNSL STOCKHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER, 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.
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 UNSL and the
corresponding pro forma and pro forma equivalent per share amounts
giving effect to the proposed Merger, the proposed acquisitions of
Wedge and Central Mortgage 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 UNSL 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 had been consummated prior to the periods indicated.
- 33 -
<PAGE> 36
<TABLE>
<CAPTION>
MBI/ UNSL/
MBI/UNSL UNSL All Entities All Entities
MBI UNSL Pro Forma Pro Forma Pro Forma Pro Forma
Reported Reported Combined(1) Equivalent(2) Combined(3) Equivalent(2)
-------- -------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
June 30, 1994 $ 23.49 $ 25.91 $ 23.52 $ 24.94 $ 23.23 $ 24.63
December 31, 1993 22.40 25.03 22.44 23.80 22.16 23.50
Cash Dividends Declared per Share:
Six months ended June 30, 1994 $ .56 $ .50 $ .56 $ .59 $ .56 $ .59
Year ended December 31, 1993 .99 .96 .99 1.05 .99 1.05
Year ended December 31, 1992 .93 .65 .93 .99 .93 .99
Year ended December 31, 1991 .93 .60 .93 .99 .93 .99
Earnings per Share:
Six months ended June 30, 1994 $ 1.84 $ 1.32 $ 1.82 $ 1.93 $ 1.79 $ 1.90
Year ended December 31, 1993 2.80 2.82(4) 2.80 2.97 2.79 2.96
Year ended December 31, 1992 2.36 3.42 2.36 2.50 2.37 2.51
Year ended December 31, 1991 2.37 1.67 2.23 2.36 2.21 2.34
Market Price per Share:
At July 12, 1994 (5) $ 35.375 $ 33.25 -- $ 37.51 -- $ 37.51
At October 21, 1994 (5) 35.375 36.25 -- 37.51 -- 37.51
<FN>
- -------------------------------------
(1) Includes the effect of pro forma adjustments for UNSL and ABNK, as appropriate. See "PRO FORMA
FINANCIAL INFORMATION."
(2) Based on the pro forma combined per share amounts multiplied times 1.0604, the conversion
ratio applicable to one share of UNSL 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."
(3) Includes the effect of pro forma adjustments for UNSL, ABNK, Wedge and Central Mortgage,
as appropriate. See "PRO FORMA FINANCIAL INFORMATION."
(4) Net of effect of accounting change. See "UNSL Financial Corp. and Subsidiaries Consolidated Finanical
Statements."
(5) The market value of MBI and UNSL Common Stock was determined as of the last trading day
preceding the public announcement of the proposed acquisition and as of the latest
practicable 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
acquisition of Wedge, as if each of the mergers were
consummated on June 30, 1994.
MBI acquired ABNK on April 30, 1992, which acquisition was
accounted for under the purchase method of accounting.
Accordingly, the historical results of operations of MBI
include the results of operations of ABNK from May 1, 1992
forward. The following pro forma combined consolidated
income statements include the results of operations of ABNK
from January 1, 1991 through the date of acquisition.
The following pro forma combined consolidated income
statements for the six months ended June 30, 1994 and 1993
and for the years ended December 31, 1993, 1992 and 1991 set
forth the results of operations of MBI combined with the
results of operations of UNSL and Wedge as if the Merger and
the proposed acquisition 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.
- 34 -
<PAGE> 37
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, UNSL, Wedge, Central Mortgage and ABNK. The
historical interim financial information for the six months ended
June 30, 1994 and 1993, used as a basis for the pro-forma
combined consolidated financial statements, include all
necessary adjustments, which, in management's opinion, are
necessary to present the data fairly. These pro forma
combined consolidated financial statements may not be
indicative of the results of operations that actually would
have occurred if the completed and proposed mergers had been
consummated on the dates assumed above or of the results of
operations that may be achieved in the future.
- 35 -
<PAGE> 38
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
<CAPTION>
June 30, 1994
(Thousands)
(Unaudited)
MBI/UNSL
Pro Forma
UNSL Combined
MBI UNSL Adjustments(1) Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 556,843 $ 3,038 $ $ 559,881
Due from banks - interest
bearing 10,992 18,854 29,846
Federal funds sold and
repurchase agreements 113,939 0 113,939
Investments in debt and
equity securities
Trading 6,020 0 6,020
Available-for-sale 315,152 0 315,152
Held-to-maturity 2,980,348 16,026 2,996,374
----------- -------- ----------- ------------
Total 3,301,520 16,026 0 3,317,546
Loans and leases 7,619,002 420,274 8,039,276
Reserve for possible loan
losses (172,493) (3,631) (176,124)
----------- -------- ----------- ------------
Net Loans and Leases 7,446,509 416,643 0 7,863,152
Bank premises and equipment 203,040 5,923 208,963
Due from customers on
acceptances 12,174 0 12,174
Goodwill 54,678 70 54,748
Other intangibles 14,070 103 14,173
Other assets 220,136 3,267 38,577 (2) 223,403
(38,577)(3)
----------- -------- ----------- ------------
Total Assets $11,933,901 $463,924 $ 0 $ 12,397,825
=========== ======== =========== ============
<CAPTION>
Wedge MBI/All Entities
and Central Pro Forma
Central Mortgage Combined
Wedge Mortgage Adjustments(1) Consolidated
-------- -------- ----------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 7,825 $ 22,787 $ $ 567,706
Due from banks - interest
bearing 94 0 29,940
Federal funds sold and
repurchase agreements 0 11,025 113,939
Investments in debt and
equity securities
Trading 0 0 6,020
Available-for-sale 59,005 48,359 422,516
Held-to-maturity 23,950 146,919 3,167,243
-------- -------- -------- -----------
Total 82,955 195,278 0 3,595,779
Loans and leases 113,165 376,542 8,528,983
Reserve for possible loan
losses (1,399) (6,430) 183,953
-------- -------- -------- -----------
Net Loans and Leases 111,766 370,112 0 8,345,030
Bank premises and equipment 3,858 11,660 224,481
Due from customers on
acceptances 0 0 12,174
Goodwill 0 5,835 60,583
Other intangibles 0 0 14,173
Other assets 3,453 12,358 19,121 (4) 239,214
(19,121) (5)
51,224 (12)
(51,224)(13)
-------- -------- -------- -----------
Total Assets $209,951 $629,055 $ 32,103 $13,236,831
======== ======== ======== ===========
<FN>
This pro forma combined consolidated balance sheet is continued on the following page.
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 36 -
<PAGE> 39
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET (cont'd.)
<CAPTION>
June 30, 1994
(Thousands)
(Unaudited)
MBI/UNSL
Pro Forma
UNSL Combined
MBI UNSL Adjustments(1) Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
LIABILITIES
Deposits
Non-interest bearing $ 1,473,103 $ 10,218 $ $ 1,483,321
Interest bearing 7,551,827 365,365 7,917,192
Foreign 115,576 0 115,576
----------- -------- ----------- ------------
Total Deposits 9,140,506 375,583 0 9,516,089
Federal funds purchased and
repurchase agreements 673,345 0 673,345
Other short-term borrowings 628,374 45,000 673,374
Long-term debt 290,162 0 290,162
Bank acceptances outstanding 12,174 0 12,174
Other liabilities 175,897 4,764 180,661
----------- -------- ----------- ------------
Total Liabilities 10,920,458 425,347 0 11,345,805
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 215,734 1,744 7,892 (2) 223,626
(1,744)(3)
Capital surplus 168,140 7,180 (2,581)(2) 165,559
(7,180)(3)
Retained earnings 629,569 33,266 33,266 (2) 662,835
(33,266)(3)
Treasury Stock (3,613) 3,613 (3) 0
----------- -------- ----------- ------------
Total Stockholders'
Equity 1,013,443 38,577 0 1,052,020
----------- -------- ----------- ------------
Total Liabilities and
Stockholders' Equity $11,933,901 $463,924 $ 0 $ 12,397,825
=========== ======== =========== ============
<CAPTION>
Wedge MBI/All Entities
and Central Pro Forma
Central Mortgage Combined
Wedge Mortgage Adjustments(1) Consolidated
-------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
LIABILITIES
Deposits
Non-interest bearing $ 23,651 $ 74,197 $ $ 1,581,169
Interest bearing 138,740 467,908 8,523,840
Foreign 0 0 115,576
-------- ---------- ----------- ----------------
Total Deposits 162,391 542,105 0 10,220,585
Federal funds purchased and
repurchase agreements 26,380 22,309 722,034
Other short-term borrowings 0 1,100 674,474
Long-term debt 0 5,619 295,781
Bank acceptances outstanding 0 0 12,174
Other liabilities 2,059 6,698 189,418
-------- ---------- ----------- ----------------
Total Liabilities 190,830 577,831 0 12,114,466
STOCKHOLDERS' EQUITY
Preferred stock 430 430 (13) -
Common stock 1,443 3,735 4,850 (4) 241,604
(1,443)(5)
13,126 (12)
(3,735)(13)
Capital surplus 5,145 24,376 1,738 (4) 182,710
(5,145)(5)
15,413 (12)
24,376 (13)
Retained earnings 12,533 22,683 12,533 (4) 698,051
(12,533)(5)
22,683 (12)
(22,683)(13)
Treasury Stock 0 0
-------- ---------- ----------- ----------------
Total Stockholders'
Equity 19,121 51,224 0 1,122,365
-------- ---------- ----------- ----------------
Total Liabilities and
Stockholders' Equity $209,951 $ 629,055 $ 0 $ 13,236,831
======== ========== =========== ================
<FN>
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 37 -
<PAGE> 40
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
For the Six Months Ended June 30, 1994
(Thousands except per share data)
(Unaudited)
<CAPTION>
MBI/UNSL MBI/All Entities
Pro Forma Pro Forma
Combined Central Combined
MBI UNSL Consolidated Wedge Mortgage Consolidated
------------- ------------- ------------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income $ 402,464 $ 14,185 $ 416,649 $ 6,969 $ 21,195 $ 444,813
Interest Expense 150,346 7,342 157,688 2,685 8,861 169,234
------------- ------------- ------------- --------- ---------- ----------------
Net Interest Income 252,118 6,843 258,961 4,284 12,334 275,579
Provision for Possible Loan Losses 16,398 60 16,458 76 545 17,079
------------- ------------- ------------- --------- ---------- ----------------
Net Interest Income after Provision
for Possible Loan Losses 235,720 6,783 242,503 4,208 11,789 258,500
Other Income
Trust 31,574 0 31,574 212 0 31,786
Investment banking 4,632 0 4,632 0 0 4,632
Service charges 28,941 472 29,413 579 1,528 31,520
Credit card fees 11,598 0 11,598 0 0 11,598
Securities gains 433 20 453 184 0 637
Other 18,760 1,146 19,906 354 2,210 22,199
------------- ------------- ------------- --------- ---------- ----------------
Total Other Income 95,938 1,638 97,576 1,329 3,738 102,372
Other Expense
Salaries and employee benefits 110,964 2,526 113,490 2,131 5,465 121,086
Net occupancy and equipment 29,585 542 30,227 473 1,307 32,007
Other 65,838 2,128 67,966 933 3,889 72,788
------------- ------------- ------------- --------- ---------- ----------------
- -
Total Other Expense 206,487 5,196 211,683 3,537 10,661 225,881
------------- ------------- ------------- --------- ---------- ----------------
Income Before Income Taxes 125,171 3,225 128,396 1,729 4,866 134,991
Income Taxes 46,113 1,182 47,295 385 1,457 49,137
------------- ------------- ------------- --------- ---------- ----------------
Net Income $ 79,058 $ 2,043 $ 81,101 $ 1,344 $ 3,409 $ 85,854
============= ============= ============= ========= ========== ================
Per Share Data
Average Common Shares Outstanding 42,947,890 44,525,728 48,053,728
Net Income $ 1.84 $ 1.82 $ 1.79
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 38 -
<PAGE> 41
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
For the Six Months Ended June 30, 1993
(Thousands except per share data)
(Unaudited)
<CAPTION>
MBI/UNSL MBI/All Entities
Pro Forma Pro Forma
Combined Central Combined
MBI UNSL Consolidated Wedge Mortgage Consolidated
------------- ------------- ------------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income $ 421,512 $ 13,996 $ 435,508 $ 6,721 $ 15,008 $ 457,237
Interest Expense 171,140 7,055 178,195 2,568 6,483 187,246
------------- ------------- ------------- --------- ---------- ----------------
Net Interest Income 250,372 6,941 257,313 4,153 8,525 269,991
Provision for Possible Loan Losses 28,534 260 28,794 164 466 29,424
------------- ------------- ------------- --------- ---------- ----------------
Net Interest Income after Provision
for Possible Loan Losses 221,838 6,681 228,519 3,989 8,059 240,567
Other Income
Trust 30,619 0 30,619 197 0 30,816
Investment banking 4,775 0 4,775 0 0 4,775
Service charges 28,619 422 29,041 584 814 30,439
Credit card fees 11,850 0 11,850 0 0 11,850
Securities gains 2,679 0 2,679 10 0 2,689
Other 21,330 997 22,327 997 1,656 24,814
------------- ------------- ------------- --------- ---------- ----------------
Total Other Income 99,872 1,419 101,291 1,788 2,470 105,383
Other Expense
Salaries and employee benefits 105,842 2,470 106,110 2,000 3,994 114,104
Net occupancy and equipment 29,567 487 30,054 364 776 31,194
Other 80,169 1,484 81,653 901 2,535 85,089
------------- ------------- ------------- --------- ---------- ----------------
Total Other Expense 215,376 4,441 219,817 3,265 7,305 230,387
------------- ------------- ------------- --------- ---------- ----------------
Income Before Income Taxes 106,334 3,659 109,993 2,346 3,224 115,563
Income Taxes 39,422 1,352 40,774 638 891 42,303
------------- ------------- ------------- --------- ---------- ----------------
Net Income Before Change in
Accounting Principle $ 66,912 $ 2,307 $ 69,219 $ 1,708 $ 2,333 $ 73,260
============= ============= ============= ========= ========== ================
Per Share Data
Average Common Shares Outstanding 42,243,319 43,847,085 46,842,085
Net Income Before Change in
Accounting Principle $ 1.58 $ 1.58 $ 1.56
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 39 -
<PAGE> 42
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
For the Year Ended December 31, 1993
(Thousands except per share data)
(Unaudited)
<CAPTION>
MBI/UNSL MBI/All Entities
Pro Forma Pro Forma
Combined Central Combined
MBI UNSL Consolidated Wedge Mortgage Consolidated
------------- ------------- ------------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income $ 829,930 $ 27,834 $ 857,764 $ 15,258 $ 34,452 $ 907,474
Interest Expense 328,734 14,071 342,805 5,505 14,194 362,504
------------- ------------- ------------- --------- ---------- ----------------
Net Interest Income 501,196 13,763 514,959 9,753 20,258 544,970
Provision for Possible Loan Losses 61,013 320 61,333 240 956 62,529
------------- ------------- ------------- --------- ---------- ----------------
Net Interest Income after Provision
for Possible Loan Losses 440,183 13,443 453,626 9,513 19,302 482,441
Other Income
Trust 61,138 0 61,138 409 0 61,547
Investment banking 8,486 0 8,486 0 0 8,486
Service charges 58,511 908 59,419 1,300 2,254 62,973
Credit card fees 24,060 0 24,060 0 0 24,060
Securities gains 3,742 0 3,742 195 0 3,937
Other 43,221 2,261 45,482 948 3,615 50,045
------------- ------------- ------------- --------- ---------- ----------------
Total Other Income 199,158 3,169 202,327 2,852 5,869 211,048
Other Expense
Salaries and employee benefits 215,333 4,995 220,328 5,286 9,161 234,775
Net occupancy and equipment 62,638 1,037 63,675 822 2,162 66,659
Other 166,938 3,714 170,652 1,810 6,805 179,267
------------- ------------- ------------- --------- ---------- ----------------
Total Other Expense 444,909 9,746 454,655 7,918 18,128 480,701
------------- ------------- ------------- --------- ---------- ----------------
Income Before Income Taxes 194,432 6,866 201,298 4,447 7,043 212,788
Income Taxes 75,568 2,549 78,117 964 1,913 80,994
------------- ------------- ------------- --------- ---------- ----------------
Net Income Before Change in
Accounting Principle $ 118,864 $ 4,317 $ 123,181 $ 3,483 $ 5,130 $ 131,794
============= ============= ============= ========= ========== ================
Per Share Data
Average Common Shares Outstanding 42,439,298 44,027,436 47,248,436
Net Income Before Change in
Accounting Principle $ 2.80 $ 2.80 $ 2.79
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 40 -
<PAGE> 43
<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>
MBI/ABNK
ABNK Pro Forma
MBI 1/1/92- ABNK Combined
Consolidated 4/30/92(6) Adjustments(6) Consolidated UNSL
------------ ---------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
Interest Income $ 873,447 $ 30,729 $(1,692)(7) $ 902,395 $ 32,332
(89)(8)
Interest Expense 417,358 16,549 433,907 18,517
------------ --------- ------- -------------- --------
Net Interest Income 456,089 14,180 (1,781) 468,488 13,815
Provision for Possible Loan Losses 74,579 1,913 76,492 296
------------ --------- ------- -------------- --------
Net Interest Income after
Provision for Possible
Loan Losses 381,510 12,267 (1,781) 391,996 13,519
Other Income
Trust 57,501 613 58,114 0
Investment banking 8,918 136 9,054 0
Service charges 55,399 2,143 57,542 908
Credit card fees 21,487 87 21,574 0
Securities gains 5,518 0 5,518 0
Other 35,121 1,130 36,251 2,221
------------ --------- ------- -------------- --------
Total Other Income 183,944 4,109 0 188,053 3,129
Other Expense
Salaries and employee benefits 192,015 7,199 199,214 4,521
Net occupancy and equipment 55,588 2,027 57,584 944
Other 170,465 5,339 (93)(10) 175,711 3,415
------------ --------- ------- -------------- --------
Total Other Expense 418,068 14,565 (124) 432,509 8,880
------------ --------- ------- -------------- --------
Income Before Income Taxes 147,386 1,811 (1,657) 147,540 7,768
Income Taxes 52,346 513 (595)(11) 52,264 2,540
------------ --------- ------- -------------- --------
Net Income $ 95,040 $ 1,298 $(1,062) $ 95,276 $ 5,228
============ ========= ======= ============== ========
Per Share Data
Average Common Shares Outstanding 39,492,237 40,188,849
Net Income $ 2.36 $ 2.32
<CAPTION>
MBI/All Entities
MBI/UNSL Pro Forma
Pro Forma Central Combined
Combined Wedge Mortgage Consolidated
----------- ----------- ---------- ----------------
<S> <C> <C> <C> <C>
Interest Income $ 934,727 $ 15,931 $ 28,577 $ 979,235
Interest Expense 452,424 6,875 13,616 472,915
----------- ----------- ---------- ----------------
Net Interest Income 482,303 9,056 14,961 506,320
Provision for Possible Loan Losses 76,788 191 913 77,892
----------- ----------- ---------- ----------------
Net Interest Income after
Provision for Possible
Loan Losses 405,515 8,865 14,048 428,428
Other Income
Trust 58,114 444 0 58,558
Investment banking 9,054 0 0 9,054
Service charges 58,450 1,228 1,559 61,237
Credit card fees 21,574 0 0 21,574
Securities gains 5,518 439 0 5,957
Other 38,472 574 3,233 42,279
----------- ----------- ---------- ----------------
Total Other Income 191,182 2,685 4,792 198,659
Other Expense
Salaries and employee benefits 203,735 5,123 7,617 216,475
Net occupancy and equipment 58,528 771 1,630 60,929
Other 179,126 2,218 4,607 185,951
----------- ----------- ---------- ----------------
Total Other Expense 441,389 8,112 13,854 463,355
----------- ----------- ---------- ----------------
Income Before Income Taxes 155,308 3,438 4,986 163,732
Income Taxes 54,804 1,025 1,245 57,074
----------- ----------- ---------- ----------------
Net Income $ 100,504 $ 2,413 $ 3,741 $ 106,658
=========== =========== ========== ================
Per Share Data
Average Common Shares Outstanding 41,804,654 44,255,654
Net Income $ 2.36 $ 2.37
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 41 -
<PAGE> 44
<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>
MBI/ABNK
ABNK Pro Forma
MBI 1/1/92- ABNK Combined
Consolidated 4/30/92(6) Adjustments(6) Consolidated
------------ ---------- -------------- -----------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 879,471 $ 103,630 $(5,075)(7) $ 977,760 $ 39,191
(266)(8)
Interest Expense 506,916 63,042 569,958 26,417
------------ --------- ------- ----------- --------
Net Interest Income 372,555 40,588 (5,341) 407,802 12,774
Provision for Possible Loan Losses 58,076 2,477 60,553 1,263
------------ --------- ------- ----------- --------
Net Interest Income after
Provision for Possible
Loan Losses 314,479 38,111 (5,341) 347,249 11,511
Other Income
Trust 49,400 1,860 51,260 0
Investment banking 7,463 0 7,463 0
Service charges 47,504 6,008 53,512 952
Credit card fees 20,636 0 20,636 0
Securities gains 4,334 4 4,338 244
Other 26,359 3,389 29,748 1,705
------------ --------- ------- ----------- --------
Total Other Income 155,696 11,261 0 166,957 2,901
Other Expense
Salaries and employee benefits 172,155 21,245 193,400 3,895
Net occupancy and equipment 50,098 6,102 (92)(9) 56,106 973
Other 161,095 16,150 (280)(10) 176,965 5,263
------------ --------- ------- ----------- --------
Total Other Expense 383,348 43,497 (372) 426,473 10,131
------------ --------- ------- ----------- --------
Income Before Income Taxes 86,827 5,875 (4,969) 87,733 4,281
Income Taxes 18,673 1,466 (1,785)(11) 18,354 1,767
------------ --------- ------- ----------- --------
Net Income $ 68,154 $ 4,409 $(3,184) $ 69,379 $ 2,514
============ ========= ======= =========== ========
Per Share Data
Average Common Shares Outstanding 31,790,914 33,867,754
Net Income $ 2.37 $ 2.26
<CAPTION>
MBI/All Entities
MBI/UNSL Pro Forma
Pro Forma Central Combined
Combined Wedge Mortgage Consolidated
----------- ----------- ---------- ----------------
<S> <C> <C> <C> <C>
Interest Income $ 1,016,951 $ 16,461 $ 25,706 $ 1,059,118
Interest Expense 596,375 8,882 13,260 618,517
----------- ----------- ---------- ----------------
Net Interest Income 420,576 7,579 12,446 440,601
Provision for Possible Loan Losses 61,816 1,132 870 63,818
----------- ----------- ---------- ----------------
Net Interest Income after
Provision for Possible
Loan Losses 358,760 6,447 11,576 376,783
Other Income
Trust 51,260 442 0 51,702
Investment banking 7,463 0 0 7,463
Service charges 54,464 1,051 1,458 56,973
Credit card fees 20,636 0 0 20,636
Securities gains 4,582 493 0 5,075
Other 31,453 393 2,794 34,640
----------- ----------- ---------- ----------------
Total Other Income 169,858 2,379 4,252 176,489
Other Expense
Salaries and employee benefits 197,295 3,846 6,494 207,635
Net occupancy and equipment 57,081 754 1,549 59,384
Other 182,228 2,347 3,896 188,471
----------- ----------- ---------- ----------------
Total Other Expense 436,604 6,947 11,939 455,490
----------- ----------- ---------- ----------------
Income Before Income Taxes 92,014 1,879 3,889 97,782
Income Taxes 20,121 679 924 21,724
----------- ----------- ---------- ----------------
Net Income $ 71,893 $ 1,200 $ 2,965 $ 76,058
=========== =========== ========== ================
Per Share Data
Average Common Shares Outstanding 35,466,653 37,748,653
Net Income $ 2.23 $ 2.21
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 42 -
<PAGE> 45
MERCANTILE BANCORPORATION INC.
Notes to Pro Forma Combined Consolidated Financial Statements
(Unaudited)
(1) The acquisitions of UNSL, Wedge and Central Mortgage will be
accounted for as poolings-of-interests.
(2) 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.
(3) Elimination of MBI's investment in UNSL.
(4) Acquisition of Wedge with 970,000 shares of MBI Common
Stock.
(5) Elimination of MBI's investment in Wedge.
(6) 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.
(7) Amortization of purchase price adjustment of $7,690,000 on
investment securities portfolio.
(8) Interest income, at an estimated short-term interest rate of
3%, lost on cash of $8,851,000 paid to ABNK's stockholders.
(9) Reduced depreciation and amortization of bank premises and
equipment as a result of the valuation adjustment of
$1,102,000.
(10) 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.
(11) Tax effect of pro forma adjustments.
(12) 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. Prior to the acquisition, 43,000 shares of
Central Mortgage preferred stock were converted to 549,000
shares of Central Mortgage Common Stock.
(13) Elimination of MBI's investment in Central Mortgage.
- 43-
<PAGE> 46
INFORMATION REGARDING UNSL
--------------------------
BUSINESS
General. UNSL, a Delaware corporation which commenced
operations in 1989, is a savings and loan holding company organized
under HOLA, and is the owner of all issued and outstanding capital
stock of United Savings, a Missouri-chartered capital stock savings
and loan association. UNSL's only business at this time is
managing and being the parent holding company for United Savings.
United Savings began operations in 1924 as a mutual
association and converted into a stock association on July 9, 1984.
Its savings accounts are insured by the Savings Association
Insurance Fund ("SAIF"), a deposit insurance fund which is
administered by the FDIC. United Savings has been a member of the
Federal Home Loan Bank ("FHLB") System since 1933. United Savings
is subject to extensive regulation, supervision and examination by
the OTS, the FDIC and the MDOF. United Savings is also subject to
regulation as to certain matters by the Federal Reserve Board.
United Savings' operations are conducted through its home office in
Lebanon, Missouri and 20 full-service branch offices in
Springfield, Rolla, Osage Beach, Camdenton, Marshfield, Monett,
Forsyth, Laurie, St. Robert, Willard, Branson, Centralia, Columbia,
Boonville and Concordia, Missouri.
United Savings is primarily engaged in attracting
deposits from the general public and using these and other funds to
originate residential loans and, to a lesser extent, consumer and
commercial loans in the Southwest and Central Missouri lending
area. United Savings also invests in obligations of the United
States Government and federal agencies, bankers' acceptances and
other investments as permitted by applicable laws and regulations.
The principal sources of funds for United Savings'
lending activities are savings deposits, amortization and
prepayment of loans, FHLB advances and proceeds from the sale of
loans. United Savings' principal sources of income are interest on
loans and interest and dividends on investment securities. Its
principal expense is interest on savings deposits.
Through its subsidiaries, United Savings also engages in
the general insurance business, offering property and casualty
insurance for businesses and home, credit life, mortgage and
general life insurance, as well as residential real estate
appraisal services. See "Subsidiary Activities".
SUBSIDIARY ACTIVITIES
As a Missouri-chartered association, United Savings is
permitted by current regulations to invest an amount up to twenty
percent of its assets in stock, paid-in surplus and unsecured loans
in service corporations. As of December 31, 1993, United Savings'
total equity investment in subsidiaries was $537,665 and it had
total loans outstanding to them of $227,435.
In addition to the investment limitations imposed by
Missouri statutory law, and the regulations promulgated thereunder,
United Savings, as an SAIF-insured institution, is also subject to
the direct investment limitations imposed under OTS regulations.
See "Regulation -- Regulation of UNSL and United Savings." FIRREA
prohibits direct equity investments by state-chartered savings
associations of a type or in an amount not permissible for federal
associations, with certain exceptions. A state association may
invest in service corporations above the amount allowed for federal
associations if (a) the investment is permissible under state law,
(b) the FDIC determines that the service corporation's activities
and the amount of the proposed investment will pose no risk to the
deposit insurance fund and (c) the association is and continues to
be in compliance with fully phased in capital standards. United
Savings is presently in compliance with the restrictions governing
investments by federal associations.
- 44 -
<PAGE> 47
In 1977 the Board of Directors of United Savings
authorized the incorporation of United Southwest Service Agency,
Inc. ("USSA"). The officers of USSA are J.C. Benage, Chairman and
President and James L. Hays, Secretary-Treasurer. The Directors
are Mr. Benage, Mr. Hays, Mr. Strickland, Mr. Atkins, Mr. Hough and
Mr. Willard. The Board of Directors of USSA is appointed annually
by United Savings.
USSA is a Missouri corporation which acts as trustee on
deeds of trust for United Savings and which owns 100% of the
capital stock of United Insurers, Inc. ("UII"), also a Missouri
corporation. UII is engaged in the business of being a general
insurance agency selling insurance, including commercial, fire,
homeowners coverage, credit life and mortgage and general life
insurance on behalf of several different companies. USSA and UII
have grown through acquisition of existing independent insurance
agencies, including agencies in Springfield and Lebanon, Missouri.
Southwest Realty Services, Inc., a Missouri corporation,
formed by United Savings in 1983 to provide appraisals on
residential and commercial real estate, both for United Savings and
for outside parties, is no longer active.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the Six Months Ended June 30, 1994 and 1993
UNSL reported net income of $2,043,069 or $1.32 per share
for the six months ended June 30, 1994 as compared to $2,930,945 or
$1.90 per share for the six months ended June 30, 1993. This
decrease in net income resulted from the cumulative net effect of
implementing two accounting changes in 1993 as well as a $565,000
after-tax gain on the sale of foreclosed assets. Net interest
income remained relatively flat as increased loan balances offset
slightly lower interest rate margins. The provision for loan loss
decreased to $60,000 in 1994 from $260,000 in 1993. Total
noninterest income increased $219,000 or 15% as the result of a
gain of $103,500 from the sale of an office determined by
management to be unprofitable and increases of $102,500 and
$51,000, respectively, in commission income and service charge
income. Profit on the sale of loans decreased $80,000 due to
sharply lower levels of secondary market activity in 1994 due to
higher interest rates. Exclusive of the gains on foreclosed
assets, other noninterest expense increased $137,000, or 2.7%, for
the six-months period in 1994 with increases of $56,000 and
$55,000, respectively, in salary and employee benefits and
occupancy expense.
Effective January 1, 1994, UNSL adopted Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting for
Certain Investments in Debt and Equity Securities." SFAS 115
requires entities to classify debt and equity securities as either
held to maturity, available for sale, or trading securities. Under
SFAS 115, held to maturity securities are recorded at amortized
cost, while available for sale and trading securities are carried
at fair value. SFAS 115 further requires unrealized gains and
losses on available for sale securities to be reported, net of tax,
as a separate component of stockholders' equity. SFAS 115 did not
have an impact on either earnings or stockholders' equity because
UNSL has classified all of it debt securities as held to maturity.
It is the policy of UNSL to hold debt securities until maturity and
UNSL has the ability to do so. UNSL had no equity securities other
than the required investment in FHLB stock.
For the years ended December 31, 1993 and 1992
Operations for the year ended December 31, 1993 resulted
in a net income of $4,941,546 or $3.23 per share as compared to
$5,227,968 or $3.42 per share for the year ended December 31, 1992.
- 45 -
<PAGE> 48
This modest decrease in net income resulted from increased
noninterest expense in 1993 offsetting the net positive effect of
implementing two accounting changes. UNSL's net interest margins
and thus its net interest income did not vary substantially from
1992 to 1993.
Effective January 1, 1993, UNSL adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 106,
"Employer's Accounting for Post-Retirement Benefits Other Than
Pensions" and SFAS No. 109, "Accounting for Income Taxes." The
cumulative effect of changing to the new standards was recognized
in 1993. Prior years' financial statements were not restated.
SFAS No. 106 resulted in an after tax charge to income of $158,000,
while SFAS No. 109 resulted in an increase to earnings of $782,000.
Total noninterest expense increased 9.8% to $9.7 million
for the year ended December 31, 1993, from $8.9 million for the
year ended 1992. Increase in salary and employee benefits of
$473,000 and a decrease in foreclosed asset profits of $236,000
contributed to this increase. Approximately $180,000 of the salary
and benefit increase was associated with UNSL's multi-employer
retirement plan, which had previously been fully funded.
For the years ended December 31, 1992 and 1991
Operations for the year ended December 31, 1992 resulted
in a net income of $5,227,968 or $3.42 per share as compared to
$2,514,294 or $1.67 per share for the year ended December 31, 1991.
This over 100% increase in operating income was primarily due to
substantial increases in net interest income and decreases in
provision for loan losses and noninterest expense, resulting from
a gain in the sale of foreclosed assets.
UNSL's net yield on average interest-earning assets
increased to 3.39% for the year ended December 31, 1992 from 3.04%
for the year ended December 31, 1991, resulting in the increased
net interest income. The provision for loan losses decreased from
$1.26 million for the year ended December 31, 1991 to $296,000 for
the year ended December 31, 1992. The 1991 provisions consisted of
three substantial specific charge-offs and one major general
provision while major provisions to general or specific reserves
were not deemed necessary by management in 1992. Noninterest
expense decreased $1.2 million primarily due to a decrease of $1.9
million in UNSL's loss on foreclosed assets. In 1992, UNSL
recognized a $960,000 gain on a commercial property in Branson,
Missouri, while in 1991, several substantial provisions and charge-
downs were recorded.
CHANGES IN FINANCIAL CONDITION
Total assets of UNSL increased 6.8% to $463.9 million at
June 30, 1994 as compared to $434.3 million at December 31, 1993.
This resulted from an increase in the loan portfolio of 7.8%, from
$386.5 million at December 31, 1993 to $416.6 million at June 30,
1994 as United Savings originated approximately $91.4 million of
loans during the six month period. This increase in net loans
outstanding was primarily funded by an increase in outstanding
advances from the FHLB of $25.0 million, or 125% to $45.0 million
at June 30, 1994 from $20.0 million at December 31, 1993. Savings
deposits for the period increased .5% from $373.6 million at
December 31, 1993 to $375.6 million at June 30, 1994.
- 46 -
<PAGE> 49
SUPPLEMENTARY FINANCIAL INFORMATION
<TABLE>
Following is a summary of unaudited quarterly operating
results for the quarters ended March 31 and June 30, 1994.
<CAPTION>
1994
-------------------------------------------------------
Three Months Ended
-------------------------------------------------------
March 31 June 30
-------- -------
<S> <C> <C>
Interest income $ 6,999,920 $ 7,185,128
Interest expense $ 3,600,256 $ 3,742,105
Provision for loan losses $ 30,000 $ 30,000
Net income $ 1,011,269 $ 1,031,800
Earnings per common share $.66 $.66
</TABLE>
INFORMATION REGARDING MBI STOCK
-------------------------------
DESCRIPTION OF MBI COMMON STOCK AND ATTACHED PREFERRED SHARE
PURCHASE RIGHTS
GENERAL. MBI has authorized 5,000,000 shares of MBI
Preferred Stock, no par value, and 100,000,000 shares of MBI Common
Stock, $5.00 par value. At June 30, 1994, MBI had no issued or
outstanding shares of MBI Preferred Stock and 43,146,531 shares of
MBI Common Stock issued and outstanding. Under Missouri law, MBI's
Board of Directors may generally approve the issuance of authorized
shares of Preferred Stock and Common Stock without shareholder
approval.
MBI's Board of Directors is also authorized to fix the
number of shares and determine the designation of any series of
Preferred Stock and to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any series
of MBI Preferred Stock. Except for the designation and reservation
of Series A Junior Participating Preferred Stock pursuant to MBI's
Preferred Share Purchase Rights Plan described below, MBI's Board
of Directors has not acted to designate or issue any shares of MBI
Preferred Stock.
The existence of a substantial number of unissued and
unreserved shares of MBI Common Stock and undesignated shares of
MBI Preferred Stock may enable the Board of Directors to issue
shares to such persons and in such manner as may be deemed to have
an anti-takeover effect.
DIVIDENDS. The holders of MBI Common Stock are entitled
to share ratably in dividends when, as and if declared by the Board
of Directors from funds legally available therefor, after full
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."
- 47 -
<PAGE> 50
VOTING RIGHTS. Each holder of MBI Common Stock has one
vote for each share held on matters presented for consideration by
the shareholders, except that, in the election of directors, such
shareholders have cumulative voting rights which entitle each such
shareholder to the number of votes which equals the number of
shares held by the shareholder multiplied by the number of
directors to be elected. All such cumulative votes may be cast for
one candidate for election as a director or may be distributed
among two or more candidates.
PREEMPTIVE RIGHTS. The holders of MBI Common Stock have
no preemptive right to acquire any additional unissued shares or
treasury shares of MBI.
LIQUIDATION RIGHTS. In the event of liquidation,
dissolution or winding up of MBI, whether voluntary or involuntary,
the holders of MBI Common Stock will be entitled to share ratably
in any of its assets or funds that are available for distribution
to its shareholders after the satisfaction of its liabilities (or
after adequate provision is made therefor) and after preferences on
any outstanding MBI Preferred Stock.
ASSESSMENT AND REDEMPTION. Shares of MBI Common Stock
are and will be, when issued, fully paid and nonassessable. Such
shares do not have any redemption provisions.
PREFERRED SHARE PURCHASE RIGHTS PLAN. One preferred
share purchase right (a "Right") is attached to each share of MBI
Common Stock. The Rights trade automatically with shares of MBI
Common Stock, and become exercisable and will trade separately from
the MBI Common Stock on the tenth day after public announcement
that a person or group has acquired, or has the right to acquire,
beneficial ownership of 20% or more of the outstanding shares of
MBI Common Stock, or upon commencement or announcement of intent to
make a tender offer for 20% or more of the outstanding shares of
MBI Common Stock, in either case without prior written consent of
the Board. When exercisable, each Right will entitle the holder to
buy 1/100 of a share of MBI Series A Junior Participating Preferred
Stock at an exercise price of $100 per Right. In the event a
person or group acquires beneficial ownership of 20% or more of MBI
Common Stock, holders of Rights (other than the acquiring person or
group) may purchase MBI Common Stock having a market value of twice
the then current exercise price of each Right. If MBI is acquired
by any person or group after the Rights become exercisable, each
Right will entitle its holder to purchase stock of the acquiring
company having a market value of twice the current exercise price
of each Right. The Rights are designed to protect the interests of
MBI and its shareholders against coercive takeover tactics. The
purpose of the Rights is to encourage potential acquirors to
negotiate with MBI's Board of Directors prior to attempting a
takeover and to give the Board leverage in negotiating on behalf of
all shareholders the terms of any proposed takeover. The Rights
may deter certain takeover proposals. The Rights, which can be
redeemed by MBI's Board of Directors in certain circumstances,
expire by their terms on June 3, 1998.
CLASSIFICATION OF BOARD OF DIRECTORS. The Board of
Directors of MBI is divided into three classes, and the directors
are elected by classes to three-year terms, so that one of the
three classes 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
- 48 -
<PAGE> 51
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
UNSL will be limited in their right to resell the stock so
received. The term "affiliate" is defined to include any person
who, directly or indirectly, controls, or is controlled by, or is
under common control with UNSL at the time the Merger is submitted
to a vote of the stockholders of UNSL. Each affiliate of UNSL
(generally any director or executive officer or stockholder of UNSL
who beneficially owns a substantial number of outstanding shares of
UNSL 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 UNSL 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 UNSL in the Merger will be
legended as to the restrictions imposed upon resale of such stock.
COMPARISON OF THE RIGHTS OF STOCKHOLDERS OF MBI AND UNSL
MBI is incorporated under the laws of the State of
Missouri. UNSL is organized under the laws of the State of
Delaware. The rights of MBI's shareholders are governed by MBI's
Restated Articles of Incorporation and By-Laws and the General and
Business Corporation Act of the State of Missouri (the "Missouri
Act"). The rights of UNSL stockholders are governed by UNSL's
Certificate of Incorporation and By-Laws and by the General
Corporation Law of the State of Delaware (the "Delaware Corporation
Law"). The rights of UNSL stockholders 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 stockholders, and, where
applicable, the differences between the rights of MBI shareholders
and UNSL stockholders, are summarized below.
PREFERRED SHARE PURCHASE RIGHTS PLAN. As described above
under "INFORMATION REGARDING MBI STOCK - Preferred Share Purchase
Rights Plan," MBI Common Stock has attached Rights, which may deter
certain takeover proposals. UNSL 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.
- 49 -
<PAGE> 52
Amendment by the shareholders of MBI's Restated Articles or By-Laws
relating to (i) the number or qualification of directors; (ii) the
classification of the Board of Directors; (iii) the filling of vacancies on
the Board of Directors; or (iv) the removal of directors, requires the
affirmative vote of not less than 75% of the total votes of MBI's then
outstanding capital stock entitled to vote, voting together as a single
class, unless such amendment has previously been expressly approved by at
least 66 2/3% of the Board of Directors. The Restated Articles of MBI
additionally provide that, in addition to any shareholder vote
required under the Missouri Act, the affirmative vote of the
holders of not less than 75% of the total votes to which all of the
then outstanding shares of capital stock of MBI are entitled,
voting together as a single class (the "Voting Stock"), shall be
required for the approval of any Business Combination. A "Business
Combination" is defined generally to include sales, exchanges,
leases, transfers or other dispositions of assets, mergers or
consolidations, issuances of securities, liquidations or
dissolutions of MBI, reclassifications of securities or
recapitalizations of MBI, involving MBI on the one hand, and an
Interested Shareholder or an affiliate of an Interested Shareholder
on the other hand. An "Interested Shareholder" is defined
generally to include any person, firm, corporation or other entity
which is the beneficial owner of 5% or more of the voting power of
the outstanding Voting Stock. If, however, at least 66 2/3% of the
Board of Directors of MBI approve the Business Combination, such
Business Combination shall require only the vote of shareholders as
provided by Missouri law or otherwise. The amendment of the
provisions of MBI's Restated Articles relating to the approval of
Business Combinations requires the affirmative vote of the holders
of at least 75% of the Voting Stock unless such amendment has
previously been approved by at least 66 2/3% of the Board of
Directors.
To the extent that a potential acquiror's strategy
depends on the passage of proposals which require a supermajority
vote of MBI's shareholders, such provisions requiring a
supermajority vote may have the effect of discouraging takeover
attempts that do not have Board approval by making passage of such
proposals more difficult. UNSL's By-Laws include provisions
requiring a supermajority vote of stockholders with respect to
certain items, as follows: the affirmative vote of 80% of the
total outstanding shares of UNSL Common Stock is required to
authorize, adopt or approve certain actions, including the removal
of directors, the amendment to the By-Laws of UNSL and the
amendment or the adoption of any provision inconsistent with
provisions in UNSL's Certificate of Incorporation relating to (i)
the number, election and removal of directors and the filling of
vacancies on the Board of Directors, (ii) certain definitions set
forth in the Certificate of Incorporation, (iii) the prohibition
against stockholder action without a meeting, (iv) the calling of
special meetings of stockholders, (v) the adoption or amendment of
the By-Laws, (vi) the consummation of business combinations with
interested stockholders, (vii) the limitation of directors'
liability and indemnification of directors and officers, and (viii)
the amendment of the Certificate of Incorporation provision
governing amendments to the above referenced provisions.
VOTING FOR DIRECTORS. MBI's By-Laws provide for
cumulative voting in the election of directors. Cumulative voting
entitles each shareholder to cast an aggregate number of votes
equal to the number of voting shares held, multiplied by the number
of directors to be elected. Each shareholder may cast all such
votes for one nominee or distribute them among two or more
nominees, thus permitting holders of less than a majority of the
outstanding shares of voting stock to achieve board representation.
UNSL's Certificate of Incorporation and By-Laws also provide for
cumulative voting.
CLASSIFIED BOARD. As described under "INFORMATION
REGARDING MBI STOCK - 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.
UNSL also has a classified Board of Directors with three classes of
directors.
DISSENTERS' RIGHTS. Under the Missouri Act, a
shareholder of any corporation which is party to a merger or
consolidation, or which sells all or substantially all of its
assets, has the right to
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<PAGE> 53
dissent from such corporate action and to demand payment of the fair value
of such shares. Under Delaware Corporation Law, stockholders of UNSL are
not entitled to appraisal rights upon the Merger because UNSL Common Stock
is quoted on Nasdaq. The dissenters' rights provisions of the Missouri
Act, by contrast, do not have an exception from the dissenters' rights
provisions in circumstances in which the shareholder seeking to
exercise such rights owns shares in a widely held, publicly traded
corporation.
ANTI-TAKEOVER STATUTES. The Missouri Act contains
certain provisions applicable to Missouri corporations such as MBI
which may be deemed to have an anti-takeover effect. Such
provisions include Missouri's business combination statute and the
control share acquisition statute.
The Missouri business combination statute protects
domestic corporations from hostile takeovers by prohibiting certain
transactions once an acquiror has gained control. The statute
restricts certain "Business Combinations" between a corporation and
an "Interested Shareholder" or affiliates of the Interested
Shareholder for a period of five years unless certain conditions
are met. A "Business Combination" includes a merger or
consolidation, certain sales, leases, exchanges, pledges and
similar dispositions of corporate assets or stock and certain
reclassifications and recapitalizations. An "Interested
Shareholder" includes any person or entity which beneficially owns
or controls 20% or more of the outstanding voting shares of the
corporation.
During the initial five-year restricted period, no
Business Combination may occur unless such Business Combination or
the transaction in which an Interested Shareholder becomes
"interested" is approved by the board of directors of the
corporation. Business Combinations may occur during such five-year
period if: (i) prior to the stock acquisition by the Interested
Shareholder, the board of directors approves the transaction in
which the Interested Shareholder became such or approves the
Business Combination in question; (ii) the holders of a majority of
the outstanding voting stock, other than stock owned by the
Interested Shareholder, approve the Business Combination; or
(iii) the Business Combination satisfies certain detailed fairness
and procedural requirements.
The Missouri Act exempts from its provisions:
(i) corporations not having a class of voting stock registered
under Section 12 of the Exchange Act; (ii) corporations which adopt
provisions in their articles of incorporation or bylaws expressly
electing not to be covered by the statute; and (iii) certain
circumstances in which a shareholder inadvertently becomes an
Interested Shareholder. MBI's Restated Articles of Incorporation
and By-Laws do not "opt out" of the Missouri business combination
statute.
The Missouri Act also contains a "Control Share
Acquisition Statute" which provides that an "Acquiring Person" who
after any acquisition of shares of a publicly traded corporation
has the voting power, when added to all shares of the same
corporation previously owned or controlled by the Acquiring Person,
to exercise or direct the exercise of: (i) 20% but less than 33 1/3%,
(ii) 33 1/3% or more but less than a majority or (iii) a majority, of
the voting power of outstanding stock of such corporation, must
obtain shareholder approval for the purchase of the "Control
Shares." If approval is not given, the Acquiring Person's shares
lose the right to vote. The statute prohibits an Acquiring Person
from voting its shares unless certain disclosure requirements are
met and the retention or restoration of voting rights is approved
by both: (i) a majority of the outstanding voting stock, and (ii) a
majority of the outstanding voting stock after exclusion of
"Interested Shares." Interested Shares are defined as shares owned
by the Acquiring Person, by directors who are also employees, and
by officers of the corporation. Shareholders are given dissenters'
rights with respect to the vote on Control Share Acquisitions and
may demand payment of the fair value of their shares.
A number of acquisitions of shares are deemed not to
constitute Control Share Acquisitions, including good faith gifts,
transfers pursuant to wills, purchases pursuant to an issuance by
the corporation, mergers involving the corporation which satisfy
the other requirements of the Missouri Act, transactions with a
person who owned a majority of the voting power of the corporation
within the
- 51 -
<PAGE> 54
prior year, or purchases from a person who has previously satisfied the
provisions of the Control Share Acquisition Statute so long as the
transaction does not result in the purchasing party having voting power
after the purchase in a percentage range (such ranges are as set forth in
the immediately preceding paragraph) beyond the range for which the selling
party previously satisfied the provisions of the statute. Additionally,
a corporation may exempt itself from application of the statute by
inserting a provision in its articles of incorporation or bylaws
expressly electing not to be covered by the statute. MBI's
Restated Articles of Incorporation and By-Laws do not "opt out" of
the Control Share Acquisition Statute.
The Delaware Corporation Law applicable to UNSL contains
a business combination statute similar to that contained in the
Missouri Act. Like the Missouri business combination statute, the
Delaware business combination statute generally prohibits a
domestic corporation from engaging in mergers or other business
combinations with Interested Persons (as defined in the Delaware
Corporation Law) for a statutory time period. The prohibition can
be avoided if the business combination is approved by the board of
directors prior to the date on which the Interested Person acquires
the requisite percentage of stock. The Missouri Act imposes a
longer prohibition period on transactions with Interested Persons
(five years) than the Delaware Corporation Law (three years),
thereby potentially increasing the period during which a hostile
takeover may be frustrated. In addition, the Delaware Corporation
Law, unlike its Missouri counterpart, does not apply if the
Interested Person obtains at least 85% of the corporation's voting
stock upon consummation of the transactions which resulted in the
stockholder becoming an Interested Person. Thus, a person
acquiring at least 85% of the corporation's voting stock could
circumvent the defensive provisions of the Delaware Corporation Law
while being unable to do so under the Missouri Act. The Delaware
Corporation Law does not contain a control share acquisition
statute similar to that contained in the Missouri Act.
STOCKHOLDER'S RIGHT TO INSPECT. Under the Delaware
Corporation Law, any stockholder may inspect the corporation's
stock ledger, stockholder list and other books and records for any
proper purpose. A "proper purpose" is defined as a purpose
reasonably related to such person's interest as a stockholder. The
Delaware Corporation Law specifically provides that a stockholder
may appoint an agent for the purpose of examining the stock ledger,
list of stockholders or other books and records of the corporation.
A stockholder may apply to the Delaware Court of Chancery to compel
inspection in the event the stockholder's request to examine the
books and records is refused. In general, the stockholder has the
burden of proving a proper purpose when seeking to inspect books
and records other than the stock ledger and stockholder list, and
the corporation has the burden of proving an improper purpose where
a stockholder requests to examine the stockholder ledger or
stockholder list. The right of stockholders to inspect under the
Missouri Act is generally similar to that of stockholders under the
Delaware Corporation Law. Neither the Missouri Act nor Missouri
case law, however, provides any specific guidance as to whether a
shareholder may appoint an agent for the purpose of examining books
and records or the extent to which a shareholder must have a
"proper purpose." Accordingly, in comparison with the Delaware
Corporation Law, in a given situation a Missouri shareholder may be
provided with less guidance as to the scope of his or her ability
to inspect the books and records of the corporation.
SIZE OF BOARD OF DIRECTORS. As permitted under the
Missouri Act, the number of directors on the Board of Directors of
MBI is set forth in MBI's By-Laws which provide that the number of
directors may be fixed from time to time at not less than 12 nor
more than 24 by an amendment of the By-Laws or by a resolution of
the Board of Directors, in either case, adopted by the vote or
consent of at least 66 2/3% of the number of directors then
authorized under the By-Laws. Similarly to the Missouri Act, the
Delaware Corporation Law provides that a corporation may fix the
number of directors in its
- 52 -
<PAGE> 55
articles of incorporation or bylaws. UNSL's By-Laws provide that the number
of directors of the Board of Directors shall be fixed from time to time at
not less than six nor more than twelve 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.
- 53 -
<PAGE> 56
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.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, MBI is expected to
act as a source of financial strength to each subsidiary bank and
to commit resources to support each of the subsidiaries in
circumstances where it might not choose to do so absent such a
policy. In addition, any capital loans by MBI to any of its
subsidiaries would also be subordinate in right of payment to
deposits and certain other indebtedness of such subsidiary. This
support may be required at times when MBI may not find itself able
to provide it.
Consistent with this policy regarding bank holding
companies serving as a source of financial strength for their
subsidiary banks, the Federal Reserve Board has stated that, as a
matter of prudent banking, a bank holding company generally should
not maintain a rate of cash dividends unless its net income
available to common stockholders has been sufficient to fully fund
the dividends, and the
- 54 -
<PAGE> 57
prospective rate of earnings retention
appears consistent with the bank holding company's capital needs,
asset quality and overall financial condition.
FIRREA AND FDICIA
The Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") contains a cross-guarantee
provision which could result in insured depository institutions
owned by MBI being assessed for losses incurred by the FDIC in
connection with assistance provided to, or the failure of, any
other insured depository institution owned by MBI. Under FIRREA,
failure to meet the capital guidelines could subject a banking
institution to a variety of enforcement remedies available to
federal regulatory authorities, including the termination of
deposit insurance by the FDIC.
The Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") made extensive changes to the federal banking
laws. FDICIA instituted certain changes to the supervisory
process, including provisions that mandate certain regulatory
agency actions against undercapitalized institutions within
specified time limits, and contain various provisions that may
affect the operations of banks and savings institutions.
The prompt corrective action provision of FDICIA requires
the federal banking regulators to assign each insured institution
to one of five capital categories ("well capitalized," "adequately
capitalized" or one of three "undercapitalized" categories) and to
take progressively more restrictive actions as specified below.
Under FDICIA, capital requirements would include a leverage limit,
a risk-based capital requirement and any other measure of capital
deemed appropriate by the federal banking regulators for measuring
the capital adequacy of an insured depository institution. All
institutions, regardless of their capital levels, are restricted
from taking any capital distribution or paying any management fees
that would cause the institution to fail to satisfy the minimum
levels for any relevant capital measure. An institution that fails
to meet the minimum level for any relevant capital measure (an
"undercapitalized institution") may be: (i) subject to increased
monitoring by the appropriate federal banking regulator;
(ii) required to submit an acceptable capital restoration plan
within 45 days; (iii) subject to asset growth limits; and
(iv) required to obtain prior regulatory approval for acquisitions,
branching and new lines of businesses. The capital restoration
plan must include a guarantee by the institution's holding company
(under which the holding company would be liable up to the lesser
of 5% of the institution's total assets or the amount necessary to
bring the institution into capital compliance as of the date it
failed to comply with its capital restoration plan) that the
institution will comply with the plan until it has been adequately
capitalized on average for four consecutive quarters.
The FDIC and the Federal Reserve Board adopted capital-
related regulations under FDICIA. Under those regulations, a bank
will be well capitalized if it: (i) had a risk-based capital ratio
of 10% or greater; (ii) had a ratio of Tier 1 capital to risk-
adjusted assets of 6% or greater; (iii) had a ratio of Tier 1
capital to adjusted total assets of 5% or greater; and (iv) was not
subject to an order, 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).
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<PAGE> 58
Under FDICIA, a bank or savings institution that is
undercapitalized may not accept, renew or roll over deposits
obtained through a deposit broker, may not solicit deposits by
offering interest rates that are significantly higher than market
rates and cannot provide pass-through insurance on certain
collective deposits. Banks that are "adequately capitalized" but
are not "well capitalized" will be required to obtain a waiver from
the FDIC in order to accept, renew, or roll over brokered deposits,
and may not pay interest on deposits that significantly exceeds
market rates for deposits of similar maturity or provide pass-
through insurance.
FDICIA directs the FDIC to establish a risk-based
assessment system for deposit insurance by January 1, 1994. On
September 15, 1992, the Board of Directors of the FDIC approved a
transitional system of risk-based deposit insurance pursuant to
which the insurance assessments would vary depending upon the level
of capital of the institution and the degree to which it is the
subject of supervisory concern to the FDIC. Under the risk-based
insurance premium schedule approved by the FDIC's Board of
Directors, effective January 1, 1993, the assessment rate varies
from .23% of eligible deposits for "healthy" well capitalized banks
to .31% of eligible deposits for less than adequately capitalized
banks that pose substantial supervisory concerns.
FDICIA also makes extensive changes in existing rules
regarding audits, examinations and accounting. It generally
requires annual on-site, full scope examinations by each bank's
primary federal regulator. It also imposes new responsibilities on
management, the independent audit committee and outside accountants
to develop or approve reports regarding the effectiveness of
internal controls, legal compliance and off-balance sheet
liabilities and assets.
DEPOSITOR PREFERENCE STATUTE
Legislation enacted in August 1993 provides a preference
for deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution,
such as UNSL'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.
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 UNSL'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.
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<PAGE> 59
LEGAL MATTERS
-------------
Certain legal matters will be passed upon for MBI by
Thompson & Mitchell, St. Louis, Missouri and for UNSL by Suelthaus
& Kaplan, P.C., St. Louis, 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 UNSL Financial
Corp. 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.
OTHER MATTERS
-------------
The Board of Directors of UNSL, 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 UNSL.
SHAREHOLDER PROPOSALS
---------------------
If the Merger is approved, the other conditions to the
Merger are satisfied and the Merger is consummated, stockholders of
UNSL will become shareholders of MBI at the Effective Time. MBI
shareholders may submit to MBI proposals for formal consideration
at the 1995 annual meeting of MBI's shareholders and inclusion in
MBI's proxy statement for such meeting. All such proposals must be
received in writing by the Corporate Secretary at Mercantile
Bancorporation Inc., P.O. Box 524, St. Louis, Missouri 63166-0524
by November 22, 1994 in order to be considered for inclusion in
MBI's Proxy Statement and proxy for the 1995 annual meeting.
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<PAGE> 60
UNSL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
INDEX
-----
<CAPTION>
Page
----
<S> <C>
INDEPENDENT ACCOUNTANTS' REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1994 (UNAUDITED) AND DECEMBER 31, 1993 AND 1992 . . . . . . . . . . . . . . . . . . F-2
CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX
MONTHS ENDED JUNE 30, 1994 AND 1993 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 . . . . . . . . . . . . . . . . . . . . . . F-3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1994
(UNAUDITED) AND YEARS ENDED DECEMBER 31, 1993,
1992 AND 1991. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED JUNE 30, 1994 AND 1993 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 . . . . . . . . . . . . . . . . . . . . . . F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . .F-10 to F-32
</TABLE>
- 58 -
<PAGE> 61
Independent Accountants' Report
-------------------------------
Board of Directors
UNSL Financial Corp.
Lebanon, Missouri
We have audited the accompanying consolidated statements of
financial condition of UNSL FINANCIAL CORP. as of December 31, 1993 and
1992, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1993. These financial statements are the
responsibility of the Corporation'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 UNSL FINANCIAL CORP. 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.
As discussed in Note 9, in 1993 the Corporation changed its method
of accounting for income taxes and its method of accounting for certain
post-retirement benefits.
Baird, Kurtz & Dobson
February 9, 1994, except for Note 20
as to which the date is July 12, 1994
Springfield, Missouri
F-1
<PAGE> 62
<TABLE>
UNSL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1994 (UNAUDITED) AND
DECEMBER 31, 1993 AND 1992
ASSETS
------
<CAPTION>
June 30, December 31,
-------------------------------------
1994 1993 1992
----------- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash $ 3,037,749 $ 2,743,723 $ 2,131,365
Interest-bearing deposits in
other financial institutions 18,854,363 17,659,741 43,078,934
Short-term investment securities 2,481,719 3,973,465
--------------- --------------- ---------------
Cash and cash equivalents 21,892,112 22,885,183 49,183,764
Investment securities (estimated fair value
$16,060,000 - June 30, 1994;
$16,132,600 - December 31, 1993;
$14,768,700 - December 31, 1992)
(Notes 2 and 7) 16,025,652 15,889,619 14,616,428
Loans receivable, net (Notes 3, 7 and 12) 416,643,155 386,505,210 333,803,005
Foreclosed assets held for sale (Note 4) 869,999 1,093,297 2,053,341
Premises and equipment (Note 5) 5,922,746 5,895,434 5,738,473
Interest receivable:
Loans 1,461,273 896,294 785,133
Investments 140,134 114,844 176,560
Prepaid expenses and other assets 813,694 768,314 935,681
Deferred income taxes (Note 10) 155,250 228,495
--------------- --------------- ---------------
$ 463,924,015 $ 434,276,690 $ 407,292,385
=============== =============== ===============
See Notes to Consolidated Financial Statements
</TABLE>
F-2
<PAGE> 63
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
<CAPTION>
June 30, December 31,
------------------------------------
1994 1993 1992
----------- ---- ----
(Unaudited)
<S> <C> <C> <C>
Savings deposits (Notes 2 and 6) $ 375,582,512 $ 373,591,408 $ 368,800,599
Federal Home Loan Bank advances (Note 7) 45,000,000 20,000,000
Advance payments by borrowers
for taxes and insurance 2,277,034 919,363 975,848
Accounts payable and accrued expenses 2,370,749 2,288,281 2,024,740
Income taxes payable 116,335 263,981 428,790
Deferred income taxes (Note 10) 282,580
------------- --------------- -------------
Total Liabilities 425,346,630 397,063,033 372,512,557
============= =============== =============
Commitments and contingencies (Notes 10, 12 and 14)
Stockholders' equity (Notes 13 and 15)
Common stock, $1 par value; shares authorized
4,000,000; shares issued 1,743,854 -
June 30, 1994; 1,738,113 - December 31, 1993;
1,718,235 - December 31, 1992 1,743,854 1,738,113 1,718,235
Additional paid-in capital 7,179,634 7,017,882 6,637,002
Retained earnings, substantially restricted
(Notes 1 and 10) 33,267,080 31,967,933 28,464,504
Treasury stock, at cost
Common; 255,317 shares - June 30, 1994;
251,417 shares - December 31, 1993;
188,840 shares - December 31, 1992 (3,613,183) (3,510,271) (2,039,913)
-------------- --------------- --------------
Total Stockholders' Equity 38,577,385 37,213,657 34,779,828
-------------- --------------- --------------
$ 463,924,015 $ 434,276,690 $ 407,292,385
=============== =============== ==============
</TABLE>
F-2A
<PAGE> 64
<TABLE>
UNSL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1994 AND 1993 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
--------------------------------- --------------------------------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 13,472,033 $ 13,121,988 $ 26,282,580 $ 29,388,842 $ 35,374,864
Investment securities 451,162 440,175 909,989 894,462 1,278,240
Other 261,853 433,488 641,407 2,048,470 2,537,416
------------ ----------- ----------- ----------- -----------
14,185,048 13,995,651 27,833,976 32,331,774 39,190,520
------------ ----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits (Note 6) 6,793,316 7,054,943 13,921,085 18,517,196 26,404,422
Short-term borrowings 549,045 149,703 12,483
------------ ----------- ----------- ----------- -----------
7,342,361 7,054,943 14,070,788 18,517,196 26,416,905
------------ ----------- ----------- ----------- -----------
NET INTEREST INCOME 6,842,687 6,940,708 13,763,188 13,814,578 12,773,615
PROVISION FOR LOAN
LOSSES (Note 3) 60,000 260,000 320,000 295,742 1,263,109
------------ ----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,782,687 6,680,708 13,443,188 13,518,836 11,510,506
------------ ----------- ----------- ----------- -----------
NONINTEREST INCOME
Commissions 470,638 367,877 756,960 760,372 744,656
Service charge fees 472,312 421,741 908,079 907,848 951,944
Gain on sale of investments 20,000 243,953
Profit on sale of loans 167,536 247,845 659,766 587,777 325,657
Other income 507,692 381,544 843,717 873,051 635,013
------------ ------------ ----------- ----------- -----------
1,638,178 1,419,007 3,168,522 3,129,048 2,901,223
------------ ------------ ----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits 2,525,685 2,469,774 4,994,597 4,521,470 3,894,685
Occupancy 542,073 487,267 1,037,099 943,507 972,328
SAIF deposit insurance premiums 426,171 385,128 804,653 881,278 881,986
Data processing fees 301,162 294,287 597,493 599,067 607,020
FHLB charges 198,504 218,506 430,302 497,663 552,888
Advertising 248,636 208,861 444,209 378,369 311,802
Professional fees 160,861 136,493 325,601 342,568 387,901
(Profit) loss on foreclosed assets (35,529) (653,853) (666,211) (902,125) 1,030,983
Other expense 828,233 894,407 1,777,921 1,618,119 1,490,842
------------ ------------ ----------- ---------- -----------
5,195,796 4,440,870 9,745,664 8,879,916 10,130,435
------------ ------------ ----------- ---------- -----------
INCOME BEFORE INCOME TAXES 3,225,069 3,658,845 6,866,046 7,767,968 4,281,294
PROVISION FOR INCOME TAXES
(Note 10) 1,182,000 1,351,900 2,548,500 2,540,000 1,767,000
See Notes to Consolidated Financial Statements
</TABLE>
F-3
<PAGE> 65
<TABLE>
UNSL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1994 AND 1993 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
--------------------------------- --------------------------------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INCOME BEFORE CHANGES IN
ACCOUNTING PRINCIPLES $ 2,043,069 $ 2,306,945 $ 4,317,546 $ 5,227,968 $ 2,514,294
CHANGES IN ACCOUNTING
PRINCIPLES (Note 9)
Cumulative effect on years
prior to 1993 of change in
accounting for income taxes
and certain post-retirement
benefits 624,000 624,000
------------- ------------- ------------- ------------- ------------
NET INCOME $ 2,043,069 $ 2,930,945 $ 4,941,546 $ 5,227,968 $ 2,514,294
============= ============= ============= ============= ============
EARNINGS PER COMMON SHARE:
INCOME BEFORE CHANGES IN
ACCOUNTING PRINCIPLES $ 1.32 $ 1.49 $ 2.82 $ 3.42 $ 1.67
CHANGES IN ACCOUNTING
PRINCIPLES (Note 9)
Cumulative effect on years
prior to 1993 of change in
accounting for income taxes
and certain post-retirement
benefits .41 .41
------------- ------------- ------------- ------------- ------------
NET INCOME $ 1.32 $ 1.90 $ 3.23 $ 3.42 $ 1.67
============= ============= ============= ============= ============
See Notes to Consolidated Financial Statements
</TABLE>
F-4
<PAGE> 66
<TABLE>
UNSL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<CAPTION>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
------ ---------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1991 $ 1,671,651 $ 6,137,112 $ 22,616,506 $ (1,781,875) $ 28,643,394
Net income 2,514,294 2,514,294
Dividends paid,
$.60 per share (903,627) (903,627)
Shares issued for dividend
reinvestment plan 19,793 174,091 193,884
Shares issued under employee
stock option plan (Note 15) 2,020 19,210 21,230
Purchase of treasury stock (31,625) (31,625)
------------ ------------- ------------ ------------ -------------
BALANCE AT
DECEMBER 31, 1991 1,693,464 6,330,413 24,227,173 (1,813,500) 30,437,550
Net income 5,227,968 5,227,968
Dividends paid,
$.65 per share (990,637) (990,637)
Shares issued for dividend
reinvestment plan 13,971 202,989 216,960
Shares issued under employee
stock option plan (Note 15) 10,800 103,600 114,400
Purchase of treasury stock (226,413) (226,413)
------------ ------------- ------------ ------------ -------------
BALANCE AT
DECEMBER 31, 1992 1,718,235 6,637,002 28,464,504 (2,039,913) 34,779,828
Net income 4,941,546 4,941,546
Dividends paid,
$.96 per share (1,438,117) (1,438,117)
Shares issued for dividend
reinvestment plan 11,678 301,730 313,408
Shares issued under employee
stock option plan (Note 15) 8,200 79,150 87,350
Purchase of treasury stock (1,470,358) (1,470,358)
------------ ------------- ------------ ------------ -------------
BALANCE AT
DECEMBER 31, 1993 1,738,113 7,017,882 31,967,933 (3,510,271) 37,213,657
See Notes to Consolidated Financial Statements
</TABLE>
F-5
<PAGE> 67
<TABLE>
UNSL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<CAPTION>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
------ ---------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1993 $ 1,738,113 $ 7,017,882 $ 31,967,933 $ (3,510,271) $ 37,213,657
Net income (unaudited) 2,043,069 2,043,069
Dividends paid,
$.50 per share (unaudited) (743,922) (743,922)
Shares issued for dividend
reinvestment plan
(unaudited) 5,741 161,752 167,493
Purchase of treasury stock
(unaudited) (102,912) (102,912)
------------ ------------- ------------ ------------ -------------
BALANCE AT
JUNE 30, 1994 (UNAUDITED) $ 1,743,854 $ 7,179,634 $ 33,267,080 $ (3,613,183) $ 38,577,385
============ ============= ============ ============ =============
See Notes to Consolidated Financial Statements
</TABLE>
F-6
<PAGE> 68
<TABLE>
UNSL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994 AND 1993 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
------------------------------ ----------------------------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 2,043,069 $ 2,930,945 $ 4,941,546 $ 5,227,968 $ 2,514,294
Items not requiring (providing) cash:
Cumulative effect of changes
in accounting principles (624,000) (624,000)
Depreciation 277,004 204,031 492,881 427,288 451,660
Provision for loan losses 60,000 260,000 320,000 295,742 1,263,109
Amortization 57,007 47,224 104,925 69,690 159,952
Provision for foreclosed
asset losses 200,000 200,000 (20,961) 977,820
Gain on sale of investments (20,000) (243,953)
FHLB stock dividends received (134,500) (134,500) (284,100) (278,500)
Gain on sale of foreclosed assets (17,862) (917,315) (959,733) (984,621) (29,260)
Profit on sale of loans (167,536) (247,845) (659,766) (587,777) (325,657)
Gain on sale of premises and
equipment (138,131)
(Increase) decrease mortgage
loans held for delivery against
commitments 1,214,980 (2,057,440)
Noncash contribution 72,805 72,805
Deferred income taxes 73,245 287,500 362,925 89,000 75,000
Changes in:
Accrued interest receivable (590,269) 87,808 (49,445) 135,314 337,485
Prepaid expenses and other assets (85,768) 116,434 86,593 (118,768) (50,124)
Accounts payable and accrued
expenses 82,468 (306,344) 13,541 1,061,044 4,518
Income taxes payable or
refundable (147,646) (260,999) (164,809) 63,836 (5,040)
-------------- -------------- -------------- -------------- -------------
Net cash provided by operating
activities 2,778,692 1,715,744 1,945,523 5,235,524 4,851,304
-------------- -------------- -------------- -------------- -------------
See Notes to Consolidated Financial Statements
</TABLE>
F-7
<PAGE> 69
<TABLE>
UNSL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994 AND 1993 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
------------------------------ ----------------------------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (origination) repayment
of loans $ (31,032,463) $ (25,543,723) $ (50,242,488) $ 3,288,633 $ 14,852,346
Capitalized costs on foreclosed
assets (21,959) (56,793) (99,635) (212,433) (243,085)
Proceeds from the sale of
foreclosed assets 50,193 462,025 1,756,901 4,671,902 744,632
Purchase of premises and equipment (365,213) (351,808) (722,647) (312,631) (107,837)
Net proceeds from the sale
of equipment 60,897 272,750
Proceeds from the sale of
investment securities 1,020,000 22,297,286
Proceeds from maturing investment
securities 4,324,682 2,982,000 9,198,914 12,504,822 16,447,530
Purchase of investment securities (5,477,334) (5,172,152) (10,361,756) (13,982,731) (39,984,701)
-------------- -------------- -------------- -------------- -------------
Net cash provided by (used in)
investing activities (31,441,197) (27,680,451) (50,470,711) 6,230,312 14,006,171
-------------- -------------- -------------- -------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net increase (decrease) in demand
deposits, NOW accounts and
savings accounts (562,556) (2,916,214) 4,060,752 20,568,396 14,305,172
Net issuance (redemption) of
certificates of deposit 6,349,249 (2,101,683) 730,057 (42,014,629) (21,243,249)
Proceeds from FHLB advances 25,000,000 20,000,000
Proceeds from issuance of notes
payable 435,000
Repayment of note payable (935,000)
Advances from borrowers for
taxes and insurance 1,357,671 1,129,916 (56,485) 11,705 (33,452)
Dividends paid (743,922) (696,990) (1,438,117) (990,637) (903,627)
Stock options exercised 75,350 87,350 114,400 21,230
Dividend reinvestment 167,493 151,834 313,408 216,960 193,884
Purchase of treasury stock (102,912) (1,401,733) (1,470,358) (226,413) (31,625)
Sale of branch deposits (3,795,589) (4,551,565)
-------------- -------------- -------------- -------------- -------------
Net cash provided by (used in)
financing activities 27,669,434 (5,759,520) 22,226,607 (26,871,783) (8,191,667)
-------------- -------------- -------------- -------------- -------------
See Notes to Consolidated Financial Statements
</TABLE>
F-8
<PAGE> 70
<TABLE>
UNSL FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994 AND 1993 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
------------------------------ ----------------------------------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (993,071) $ (31,724,227) $ (26,298,581) $ (15,405,947) $ 10,665,808
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 22,885,183 49,183,764 49,183,764 64,589,711 53,923,903
-------------- -------------- -------------- -------------- -------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 21,892,112 $ 17,459,537 $ 22,885,183 $ 49,183,764 $ 64,589,711
============== ============== ============== ============== =============
See Notes to Consolidated Financial Statements
</TABLE>
F-9
<PAGE> 71
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF BUSINESS
- ------------------
UNSL Financial Corp. (the "Corporation") is a state-chartered
savings bank holding company. On June 5, 1989, stockholders of
United Savings Bank (the "Savings Bank"), formerly United Savings
and Loan Association, exchanged 100% of their stock for stock of
the holding company. The transaction has been accounted for as a
combination of interest under common control with equity balances
at the time of acquisition carried forward to the holding company.
The Savings Bank provides a full range of banking services to
individual and corporate customers in southwest and central
Missouri. The Savings Bank is subject to competition from other
financial institutions. The Corporation and its subsidiaries are
subject to the regulation of certain federal and state agencies and
undergo periodic examinations by those regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION
- -----------------------------------------
The financial statements have been prepared in accordance 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 real estate acquired in connection
with foreclosures or in satisfaction of loans. In connection with
the determination of the allowances for loan losses and the
valuation of foreclosed assets, management obtains independent
appraisals for significant properties.
Management believes that the allowances for losses on loans
and valuations of foreclosed assets are adequate and appropriate.
While management uses available information to recognize losses on
loans and foreclosed assets, future loss may be accruable based on
changes in economic conditions, particularly in southwest and
central Missouri. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Savings Bank's allowance for losses on loans and valuations of
foreclosed assets. Such agencies may require the Savings Bank to
recognize additional losses based on their judgments of information
available to them at the time of their examination.
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The consolidated financial statements include the accounts
of UNSL Financial Corp. and its wholly-owned subsidiaries, United
Savings Bank, United Southwest Service Agency, Inc., and Southwest
Realty Services, Inc. Another subsidiary, U. S. & L. Air Services
was merged into Southwest Realty Services, Inc. during 1992. All
significant intercompany balances and transactions have been
eliminated in consolidation.
F-10
<PAGE> 72
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
RECLASSIFICATIONS
- -----------------
Certain 1992 and 1991 amounts have been reclassified to
conform to the 1993 presentation. These reclassifications had no
effect on net income.
CASH AND INVESTMENT SECURITIES
- ------------------------------
Regulations require the Savings Bank to maintain an amount
equal to 5% of savings deposits (net of loans on savings deposits),
plus short-term borrowings in cash and U.S. government and other
approved securities.
Investments in debt securities intended to be held until
maturity are valued at cost, adjusted for amortization of premiums
and accretion of discounts, using a method which approximates the
level-yield method. Gain or loss on sale of investments is based
on the specific identification method. At December 31, 1993 and
1992, FHLMC preferred stock was recorded at the lower of cost or
market as it represents an equity security. No FHLMC preferred
stock was held at December 31, 1991.
In determining whether securities can be held until maturity,
management considers whether there are conditions which would
impair its ability to hold such securities until maturity. At
present, management is not aware of any such conditions.
Management has reviewed the securities individually to determine
whether there are permanent declines in net realizable values, and
reductions in carrying amounts have been recorded, if required.
MORTGAGE LOANS HELD FOR SALE
- ----------------------------
Mortgage loans held for sale are carried at the lower of cost
or fair value in the aggregate. Write-downs to fair 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 carrying 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 income
or expense when the loans are sold or when it becomes evident that
the commitment will not be used.
ALLOWANCE FOR LOAN LOSSES
- -------------------------
The allowance for loan losses is increased by provisions
charged to expense and reduced by loans charged off, net of
recoveries. The allowance is maintained at a level considered
adequate to provide for potential loan losses, based on management's
evaluation of the loan portfolio, as well as on prevailing and
F-11
<PAGE> 73
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
anticipated economic conditions and historical losses by
loan category. General allowances have been established,
based upon the aforementioned factors, and allocated to
the individual loan categories.
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. Management evaluates the value
of foreclosed assets periodically and increases the valuation
allowance for any subsequent declines in estimated fair value.
Changes in the valuation allowance are charged or credited to
noninterest expense. Costs for development and improvement of the
property are capitalized.
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.
PREMISES AND EQUIPMENT
- ----------------------
Premises and equipment are stated at cost less accumulated
depreciation and include expenditures for major betterments and
renewals. Maintenance, repairs and minor renewals are expensed as
incurred. When property is retired or sold, the cost and related
accumulated depreciation is removed from the accounts; gain or loss
is taken into income.
Depreciation and amortization are computed by use of
straight-line and accelerated methods over the estimated useful
lives of the assets.
INTANGIBLE ASSETS
- -----------------
Intangible assets included with prepaid expenses and other
assets on the accompanying balance sheets consist of insurance
policy expiration lists purchased by United Southwest Service
Agency, Inc. which amounted to $16,739 and $25,168 at 1993 and
1992, respectively. These expiration lists are amortized on the
straight-line basis over a seven-year period.
Intangible assets also include $121,829 (originally $251,000)
paid to the Resolution Trust Corporation for the right to assume
deposits and receive cash, investment securities and certain other
assets of the former Mid-Missouri Savings and Loan Association in
April 1990. The amount has been allocated to the future earnings
potential of acquired deposits and is being amortized over seven
years using the straight-line method. Amortization for the year
ended December 31, 1993, was $33,552. Amortization for the years
ended December 31, 1992 and 1991, was $35,857.
F-12
<PAGE> 74
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
INTEREST INCOME
- ---------------
Interest on loans is credited to income as earned. Interest
is not recognized on loans which are ninety days or more
contractually delinquent unless it can be determined that such
interest will be collectible. Such excluded interest, when
ultimately collected, is credited to income at the time of
recovery.
LOAN ORIGINATION FEES
- ---------------------
Loan origination fees, net of related costs, are deferred and
amortized over the contractual life of the loan using the
level-yield method as required by Statement of Financial Accounting
Standards No. 91, "Accounting for Nonrefundable Fees and Cost
Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases."
<TABLE>
RETAINED EARNINGS
- -----------------
Capital regulations require that all savings institutions have
tangible capital of 1.5% of adjusted total assets, a leverage ratio
(or core capital) of 3% of adjusted total assets and risk-based
capital of at least 8.0% of risk-weighted assets. Following is a
comparison of the Savings Bank's required and actual regulatory
capital at December 31, 1993:
<CAPTION>
Regulatory (In Thousands)
---------------------------------
Tangible Core Risk-Based
Capital Capital Capital
-------- -------- ----------
<S> <C> <C> <C>
GAAP capital $ 32,201 $ 32,201 $ 32,201
Nonallowable assets:
Goodwill - total (204) (204) (204)
Investments in nonincludable
subsidiaries (479) (479) (479)
Additional capital items:
General valuation allowances -
limited 3,041
-------- -------- --------
Regulatory capital - computed 31,518 31,518 34,559
Minimum capital requirement 6,515 13,022 19,442
-------- -------- --------
Regulatory capital - excess $ 25,003 $ 18,496 $ 15,117
======== ======== ========
</TABLE>
The amount of dividends that the Savings Bank may pay is subject
to various regulatory limitations. At December 31, 1993, there were
no earnings currently available for distribution as dividends to
UNSL Financial Corp.
F-13
<PAGE> 75
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
EXCESS OF COST OVER NET ASSETS OF ACQUIRED ASSOCIATION
- ------------------------------------------------------
The excess of cost over value assigned to net assets of
the association acquired in December 1987, amounting to $80,000
and $100,000 (originally $200,000) at December 31, 1993 and 1992,
respectively, is included with prepaid expenses and other assets on
the accompanying balance sheets. This amount is being amortized
over ten years using the straight-line method.
EARNINGS PER SHARE
- ------------------
For the years ended December 31, 1993, 1992 and 1991, earnings
per common share are based on the weighted average number of common
and common equivalent shares outstanding during the year less the
weighted average number of shares of treasury stock.
<TABLE>
Such average shares include the weighted average number of common
shares considered outstanding, plus the shares issuable upon
exercise of stock options after the assumed repurchase of common
shares with the related proceeds as follows:
<CAPTION>
Weighted Average
Number of Shares
Common Shares Issuable
---------------- --------
<S> <C> <C>
1993 1,497,678 32,359
1992 1,523,769 5,208
1991 1,507,826 1,591
</TABLE>
INCOME TAXES
- ------------
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.
CASH EQUIVALENTS
- ----------------
The Corporation considers all highly liquid interest-bearing
deposits in other financial institutions and investment securities
with an original maturity of three months or less to be cash
equivalents.
F-14
<PAGE> 76
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
INTERIM FINANCIAL INFORMATION
- -----------------------------
The consolidated financial statements as of June 30, 1994, and
for the six months ended June 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.
NOTE 2: INVESTMENT SECURITIES
<TABLE>
Investment securities consist of the following:
<CAPTION>
December 31, 1993
-----------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Debt Securities:
U.S. Treasury obligations $ 5,208,025 $ 3,275 $ -0- $ 5,211,300
FNMA debentures 4,998,980 190,120 5,189,100
FHLB certificates of deposit 1,085,000 1,085,000
Obligations of states and
political subdivisions 125,000 125,000
------------ --------- ------- ------------
Total Debt Securities 11,417,005 $ 193,395 $ -0- 11,610,400
------------ ========= ======= ------------
Equity Securities:
FHLB stock 3,472,100 3,472,100
FHLMC preferred stock 1,000,000 1,049,600
FNMA stock 514 500
------------ ------------
Total Equity Securities 4,472,614 4,522,200
------------ ------------
$ 15,889,619 $ 16,132,600
============ ============
</TABLE>
F-15
<PAGE> 77
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 2: INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1992
------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Debt Securities:
U.S. Treasury obligations $ 3,042,648 $ 3,752 $ -0- $ 3,046,400
FNMA debentures 4,998,666 118,534 5,117,200
FHLB certificates of deposit 1,762,000 1,762,000
Obligations of states and
political subdivisions 475,000 475,000
------------ --------- ------- ------------
Total Debt Securities 10,278,314 $ 122,286 $ -0- 10,400,600
------------ ========= ======= ------------
Equity Securities:
FHLB stock 3,337,600 3,337,600
FHLMC preferred stock 1,000,000 1,030,000
FNMA stock 514 500
------------ ------------
Total Equity Securities 4,338,114 4,368,100
------------ ------------
$ 14,616,428 $ 14,768,700
============ ============
</TABLE>
<TABLE>
Maturities of debt securities at December 31, 1993, were:
<CAPTION>
Amortized Cost Fair Value
-------------- ----------
<S> <C> <C>
In one year or less $ 6,408,028 $ 6,411,300
After one through five years 5,008,977 5,199,100
------------- -------------
$ 11,417,005 $ 11,610,400
============= =============
</TABLE>
There were no sales of debt securities for 1993 or 1992. Proceeds
from sales of debt securities were $22,285,609 with a resultant gross gain
of $243,953 for 1991.
The Savings Bank is a member of the Federal Home Loan Bank system.
As a member of this system, it is required to maintain an investment in
capital stock of the Federal Home Loan Bank in an amount equal to the
greater of 0.3% of its total assets, 1% of its outstanding home loans or
one-twentieth of its outstanding advances from the Bank. No ready
market exists for such stock, and it has no quoted market value. For
disclosure purposes, such stock is assumed to have a market value which
is equal to cost.
Investment securities with a carrying amount of $7,854,744 and
$8,828,113 at December 31, 1993 and 1992, respectively, were pledged to
secure public deposits. The approximate fair value of pledged
securities amounted to $7,869,300 and $8,848,000 at December 31, 1993
and 1992, respectively.
F-16
<PAGE> 78
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 3: LOANS RECEIVABLE
<TABLE>
Loans receivable consist of the following:
<CAPTION>
December 31,
------------------------------------
1993 1992
---- ----
<S> <C> <C>
Real estate mortgage loans $ 318,727,878 $ 279,207,038
Construction loans 10,864,515 6,230,376
Commercial loans 46,442,404 43,530,447
Loans on savings deposits 3,110,967 3,570,777
Education loans 11,978,943 5,990,081
Installment loans 4,143,084 3,784,142
Mortgage loans held for sale 2,057,440
--------------- ----------------
397,325,231 342,312,861
Allowance for loan losses (3,568,550) (3,377,006)
Undisbursed portion of loans-in-process (7,086,779) (4,331,038)
Deferred loan fees and gains, net (164,692) (801,812)
--------------- ----------------
$ 386,505,210 $ 333,803,005
=============== ================
</TABLE>
The weighted average interest rate on loans receivable at
December 31, 1993 and 1992, was 6.76% and 7.86%, respectively.
The Savings Bank serviced whole mortgage loans and participations
in mortgage loans for others amounting to $84,449,579, $60,302,697 and
$27,844,539 at December 31, 1993, 1992 and 1991, respectively.
<TABLE>
Changes in the allowance for loan losses were as follows:
<CAPTION>
Years Ended December 31,
--------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 3,377,006 $ 3,246,474 $ 3,703,974
Provision charged to operations 320,000 295,742 1,263,109
Charge-offs (187,669) (308,931) (1,897,834)
Recoveries 59,213 143,721 177,225
------------- ------------ -------------
Balance, end of year $ 3,568,550 $ 3,377,006 $ 3,246,474
============= ============ =============
</TABLE>
Loans on which the accrual of interest has been discontinued
amounted to $562,032, $2,219,452 and $2,705,746 at December 31, 1993,
1992 and 1991, respectively. If interest on these loans had been accrued,
such income would have approximated $35,000, $114,000 and $180,000 for the
years ended December 31, 1993, 1992 and 1991, respectively.
F-17
<PAGE> 79
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 3: LOANS RECEIVABLE (CONTINUED)
<TABLE>
Renegotiated loans for which interest has been reduced totaled
approximately $591,000, $932,000 and $3,240,000 at December 31, 1993,
1992 and 1991, respectively. Interest income that would have been
recorded under the original terms of such loans and the interest income
actually recognized for the years ended December 31, 1993, 1992 and
1991, are summarized below:
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Interest income that would have
been recorded $ 51,000 $ 99,000 $ 472,000
Interest income recognized 45,000 92,000 395,000
------------- ------------ -------------
Interest income foregone $ 6,000 $ 7,000 $ 77,000
============= ============ =============
</TABLE>
The Savings Bank is not committed to lend additional funds to
debtors whose loans have been modified.
NOTE 4: FORECLOSED ASSETS HELD FOR SALE
<TABLE>
Foreclosed assets held for sale consists of the following:
<CAPTION>
December 31,
----------------------------
1993 1992
---- ----
<S> <C> <C>
Real estate acquired by foreclosure $ 579,629 $ 1,892,174
Loans considered in-substance foreclosed 951,151 667,072
Valuation allowance (437,483) (505,905)
------------ -------------
$ 1,093,297 $ 2,053,341
============ =============
</TABLE>
<TABLE>
Changes in the valuation allowance for foreclosed assets were as
follows:
<CAPTION>
Years Ended December 31,
---------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 505,905 $ 711,285 $ 214,418
Provision (credit) charged to operations 200,000 (20,961) 977,820
Charge-offs (268,422) (184,419) (480,953)
---------- ---------- -----------
Balance, end of year $ 437,483 $ 505,905 $ 711,285
========== ========== ===========
</TABLE>
F-18
<PAGE> 80
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 5: PREMISES AND EQUIPMENT
<TABLE>
Premises and equipment consist of the following:
<CAPTION>
December 31,
-------------------------------
1993 1992
---- ----
<S> <C> <C>
Land $ 1,550,417 $ 1,588,417
Buildings and improvements 5,774,892 5,644,065
Furniture and equipment 3,659,542 3,156,898
-------------- --------------
10,984,851 10,389,380
Less accumulated depreciation 5,089,417 4,650,907
-------------- --------------
$ 5,895,434 $ 5,738,473
============== ==============
</TABLE>
Depreciation expense was $492,881, $427,288 and $451,660 for 1993,
1992 and 1991, respectively.
NOTE 6: SAVINGS DEPOSITS
<TABLE>
Savings deposits at December 31, 1993 and 1992, consist of the following:
<CAPTION>
Stated Rate 1993 1992
----------- ---- ----
<S> <C> <C> <C>
Balances by interest rate
Demand and NOW accounts,
including noninterest-bearing
deposits of $9,756,252 - 1993
and $5,709,924 - 1992 2.25% $ 49,836,901 $ 38,547,983
Super NOWs 2.35% 4,188,221
Passbook 2.50% and 2.75% 30,214,378 30,680,087
MMDAs 2.80% 39,059,131 41,641,041
-------------- --------------
119,110,410 115,057,332
-------------- --------------
Certificates of deposit
2% - 3.99% 139,842,660 96,427,385
4% - 5.99% 77,331,032 87,548,531
6% - 7.99% 33,520,115 53,143,155
8% - 9.99% 3,396,142 16,184,815
-------------- --------------
254,089,949 253,303,886
-------------- --------------
Accrued interest on savings deposits 391,049 439,381
-------------- --------------
$ 373,591,408 $ 368,800,599
============== ==============
</TABLE>
The weighted average interest rate on savings deposits at December 31,
1993 and 1992, was 3.70% and 4.09%, respectively.
F-19
<PAGE> 81
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 6: SAVINGS DEPOSITS (CONTINUED)
The aggregate amount of certificates of deposit in excess of $100,000
was approximately $5,496,000 and $5,332,000 at December 31, 1993 and 1992,
respectively.
<TABLE>
A summary of savings certificates by maturity at December 31, 1993, is
as follows:
<CAPTION>
Maturity Date
Year Ending December 31, Amount
------------------------ ------
<S> <C>
1994 $ 169,176,162
1995 38,511,830
1996 14,383,523
1997 and Thereafter 32,018,434
---------------
$ 254,089,949
===============
</TABLE>
<TABLE>
A summary of interest expense on deposits for the years ended
December 31, is as follows:
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
NOW, Super NOW and MMDA accounts $ 1,892,479 $ 2,205,497 $ 2,892,799
Savings accounts 790,092 960,936 1,273,979
Certificate accounts 11,311,771 15,411,114 22,296,635
Early withdrawal penalties (73,257) (60,351) (58,991)
------------- ------------- -------------
$ 13,921,085 $ 18,517,196 $ 26,404,422
============= ============= =============
</TABLE>
NOTE 7: FEDERAL HOME LOAN BANK ADVANCES
Advances from the Federal Home Loan Bank total $20,000,000 at
December 31, 1993, with a weighted average interest rate of 3.91%. These
advances mature in 1994. There were no advances from the Federal Home Loan
Bank at December 31, 1992.
Although no loans are specifically pledged, the FHLB requires the
Savings Bank to maintain FHLB stock, investment securities and first mortgage
loans free of pledges, liens and encumbrances in an amount equal to at least
170% of outstanding advances as collateral for such borrowings.
NOTE 8: 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:
F-20
<PAGE> 82
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 8: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
CASH AND CASH EQUIVALENTS
- -------------------------
The carrying amounts reported in the balance sheets for cash and
cash equivalents approximate those assets' fair value.
INVESTMENT SECURITIES
- ---------------------
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.
LOANS RECEIVABLE
- ----------------
The fair values for certain mortgages (e.g., one-to-four family
residential) and student loans are based on quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of all other types 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 are aggregated for purposes of the calculations. The
carrying amount of accrued interest approximates its fair value.
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.
DEPOSIT LIABILITIES
- -------------------
The fair value of demand deposits and savings accounts is the
amount payable on demand at the reporting date (i.e., their carrying
amounts). The fair value of fixed-maturity certificates of deposit is
estimated using a discounted cash flow calculation that applies the
rates currently offered for deposits of similar remaining maturities.
FEDERAL HOME LOAN BANK ADVANCES
- -------------------------------
Rates currently available to the Savings Bank for debt with similar
terms and remaining maturities are used to estimate fair value of
existing debt.
F-21
<PAGE> 83
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 8: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS 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 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 Savings
Bank'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 Savings Bank
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
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 22,885,183 $ 22,885,183 $ 49,183,764 $ 49,183,764
Investment securities 15,889,619 16,132,600 14,616,428 14,768,700
Interest receivable 1,011,138 1,011,138 961,693 961,693
Loans, net of allowance for
loan losses 386,505,210 391,448,000 333,803,005 337,535,000
Financial liabilities:
Deposits 373,591,408 375,392,496 368,800,599 371,216,255
Federal Home Loan Bank advances 20,000,000 20,000,000 -0- -0-
Unrecognized financial instruments
(net of contract amount):
Commitments to extend credit -0- -0- -0- -0-
Stand by letters of credit -0- -0- -0- -0-
Lines of credit -0- -0- -0- -0-
</TABLE>
F-22
<PAGE> 84
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 9: CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1993, the Savings Bank adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). As a result, the Savings Bank recorded income
for the accounting change of $874,000, which increased net deferred tax
assets as of that date.
SFAS 109 requires recognition of deferred tax liabilities and assets
for the difference between the financial statement and tax bases of
assets and liabilities. Under this new standard, a valuation allowance
is established to reduce deferred tax assets if it is more likely than
not that a deferred tax asset will not be realized.
Prior to 1993, deferred taxes were determined based on the
difference between taxes computed on income for financial reporting
purposes and taxes shown on tax returns.
Effective January 1, 1993, the Savings Bank adopted the provisions
of Statement of Financial Accounting Standards No. 106 "Employers'
Accounting for Post-Retirement Benefits Other Than Pensions." As a
result, the Savings Bank recorded a charge against income for the
accounting change of $250,000, which increased accrued expenses as of
that date.
SFAS 106 requires employers to use accrual accounting for post-
retirement benefits other than pensions covering current and former
employees and their families. The Savings Bank provides benefits to
certain current and former directors for health care premiums.
NOTE 10: INCOME TAXES
As of December 31, 1993, retained earnings include approximately
$10,600,000 for which no deferred income tax liability has been
recognized. These amounts represent an allocation of income to bad debt
deductions for tax purposes only. Reduction of amounts so allocated for
purposes other than tax bad debt losses or adjustments arising from
carryback of net operating losses would create income for tax purposes
only, which would be subject to the then-current corporate income-tax
rate. The unrecorded deferred income tax liability on the above amount
was approximately $3,922,000 at December 31, 1993.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Taxes currently payable $ 2,185,575 $ 2,451,000 $ 1,692,000
Deferred income taxes 362,925 89,000 75,000
-------------- -------------- --------------
$ 2,548,500 $ 2,540,000 $ 1,767,000
============== ============== ==============
</TABLE>
F-23
<PAGE> 85
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 10: INCOME TAXES (CONTINUED)
The tax effects of temporary differences related to deferred taxes
shown on the December 31, 1993, balance sheet were:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for loan and foreclosed asset losses $ 1,482,232
Excess mortgage servicing fees 32,259
Accrued compensated absences 38,850
Accrued post-retirement benefits 92,500
-----------------
1,645,841
-----------------
Deferred tax liabilities:
Tax loss reserves in excess of base year (1,015,398)
FHLB stock dividends (397,704)
Acquisition costs (4,244)
-----------------
(1,417,346)
-----------------
Net deferred tax asset $ 228,495
=================
</TABLE>
Reconciliations of the Corporation's provision for income taxes to the
statutory corporate tax rates are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate 34.0% 34.0% 34.0%
Special bad debt deduction, net of
nondeductible provision for losses (.3) 3.8
Nontaxable gain on sale of foreclosed assets (4.3)
State financial institution tax 2.5 3.2 3.2
Other .1 .1 .3
---- ---- ----
36.6% 32.7% 41.3%
==== ==== ====
</TABLE>
The consolidated federal income tax returns were most recently
examined by the Internal Revenue Service for calendar years 1981 and
1982. All proposed examination adjustments were settled in prior years.
State legislation provides that savings banks will be taxed based
on an annual privilege tax of 7% of net income. The 1993, 1992 and 1991
tax included in the provision for income taxes amounts to $264,000,
$371,000 and $212,000, respectively.
F-24
<PAGE> 86
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 11: PENSION PLAN AND POST-RETIREMENT BENEFITS
The Corporation participates in a multi-employer defined benefit
pension plan covering all employees who have met minimum service
requirements. The Corporation's policy is to fund pension cost accrued.
The annual contribution for 1993 and 1992 was $236,672 and $60,996,
respectively. No contributions were required for the year ended
December 31, 1991.
The Savings Bank participates in an unfunded group health
insurance plan covering all employees who have met minimum service
requirements. Premiums are paid by the Savings Bank during the
individual's employment period. No benefits are provided to employees
after retirement.
Certain of the Savings Bank's directors are eligible to
participate in the group health insurance plan. Benefits for these
directors will continue to be paid by the Savings Bank after retirement
if the individual was a board member prior to 1991 and if they serve as
director for at least 15 years. There are eight directors potentially
eligible for this coverage.
As stated in Note 9, effective January 1, 1993, the Savings Bank
implemented new accounting rules on post-retirement benefits. These
benefits are now accrued over the period the director provides services
to the Savings Bank. Prior to the change, costs were charged to expense
as incurred.
Post-retirement benefit expense was $13,585 for 1993, consisting
entirely of interest cost. The assumed discount rate used in
calculating the accumulated post-retirement benefit obligation (APBO) is
6%. The rate of increase in the per capita costs of covered health care
benefits is assumed to be 1% each year for the entire post-retirement
period. An increase of an additional 1% in this health care trend rate
would increase the APBO by $14,900 at December 31, 1993.
<TABLE>
The amounts recognized in the Company's balance sheet at
December 31, 1993, were as follows:
<CAPTION>
Accumulated post-retirement benefit obligation:
<S> <C>
Retirees $ 63,000
Fully eligible active plan participants 78,000
Other active plan participants 109,000
-----------
<CAPTION>
Post-retirement liability recognized in the balance sheet $ 250,000
===========
</TABLE>
NOTE 12: OFF-BALANCE SHEET AND CREDIT RISK
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since a portion
of the commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
F-25
<PAGE> 87
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 12: OFF-BALANCE SHEET AND CREDIT RISK (CONTINUED)
requirements. The Savings Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Savings Bank upon extension of credit, is
based on management's credit evaluation of the counter party.
Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment, commercial real estate and residential
real estate.
At December 31, 1993 and 1992, the Savings Bank had outstanding
commitments to originate loans aggregating approximately $5,700,000 and
$3,700,000, respectively. The commitments extend over varying periods
of time with the majority being disbursed within a thirty-day period.
At December 31, 1993 and 1992, loan commitments at fixed rates of
interest amounted to $1,606,000 and $363,000, respectively, with the
remainder at floating market rates.
Letters of credit are conditional commitments issued by the
Savings Bank 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.
The Savings Bank had outstanding letters of credit amounting to
$77,000 and $43,000 at December 31, 1993 and 1992, respectively, with
terms of one year.
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. The Savings Bank
evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Savings
Bank upon extension of credit, is based on management's credit
evaluation of the counter party. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment,
commercial real estate and residential real estate. The Savings Bank
uses the same credit policies in granting lines of credit as it does for
on-balance sheet instruments.
At December 31, 1993 and 1992, the Savings Bank had granted unused
lines of credit to commercial borrowers aggregating approximately
$1,656,000 and $1,543,000, respectively.
NOTE 13: STOCKHOLDERS' EQUITY
On July 9, 1984, the Savings Bank completed the sale of 765,320
shares of common stock pursuant to a Plan of Conversion to convert the
Savings Bank from a state-chartered mutual savings and loan association
to a state-chartered capital stock association. In the event of a
complete liquidation (and only
F-26
<PAGE> 88
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 13: STOCKHOLDERS' EQUITY (CONTINUED)
in such event), depositors who continued to maintain their deposits since
the conversion will be entitled to receive a liquidation distribution
before such distribution may be made to the stockholders.
The Corporation has authorized issuance of 1,000,000 shares of
preferred stock of which none were issued or outstanding at December 31,
1993.
NOTE 14: LITIGATION
The Corporation or its subsidiaries is a defendant in certain
lawsuits arising in the ordinary course of business. Management, after
review with its legal counsel, is of the opinion that the resolution of
these legal matters will not have a material adverse effect on the
Corporation's financial position.
NOTE 15: STOCK OPTION PLAN
In connection with the conversion of the Savings Bank from mutual
to stock form in July 1984, the Board of Directors adopted a stock
option plan, which authorizes the granting of options to purchase common
stock of the Company to certain officers, directors and employees of the
Company and any subsidiary of the Company. Stock options may be either
incentive stock options or nonincentive stock options. UNSL Financial
Corp. assumed the stock option plan on the effective date of the
reorganization.
At the annual meeting of stockholders in June 1993, stockholders
ratified a new stock option plan identified as "1992 Stock Option and
Incentive Plan." This plan authorizes the granting of options to
purchase common stock of the Company to the same group as the previous
plan. Stock options under this plan may also be either incentive or
nonincentive.
With respect to incentive stock options, the option price must be
at least equal to the fair value of the Company's common stock on the
date of grant. The term of such option shall not be more than 10 years.
With respect to nonincentive stock options, the stock option
committee shall determine option price on the date of grant. The term
of each option shall not be more than 10 years.
<TABLE>
Changes in stock options follow:
<CAPTION>
Number of Shares Option Price
---------------- ------------
<S> <C> <C>
Outstanding at January 1, 1991 37,750 $8.00 - $15.00
Exercised (2,020) 10.50 - 11.50
Forfeited (3,730) 11.50 - 15.00
------------ ------------------
F-27
<PAGE> 89
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 15: STOCK OPTION PLAN (CONTINUED)
Outstanding at December 31, 1991 32,000 8.00 - 13.25
Exercised (10,800) 8.00 - 13.25
Forfeited (10,000) 12.00
------------ ------------------
Outstanding at December 31, 1992 11,200 8.00 - 13.25
Granted 141,000 15.50 - 18.75
Exercised (8,200) 8.00 - 13.25
------------ ------------------
Outstanding at December 31, 1993 144,000 $10.50 - $18.75
============ ====== ======
</TABLE>
NOTE 16: FUTURE CHANGES IN ACCOUNTING PRINCIPLES
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 Savings
Bank 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 Savings Bank'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 stockholders' equity.
Unrealized gains and losses for securities held in trading accounts will
continue to be reflected in income. The Savings Bank expects to first
apply this statement during the year ending December 31, 1994. The
adoption of this statement is not expected to have a material effect on
the Savings Bank's financial statements.
<TABLE>
NOTE 17: ADDITIONAL CASH FLOW INFORMATION
<CAPTION>
1993 1992 1991
---- ---- ----
NONCASH INVESTING AND FINANCING ACTIVITIES
- ------------------------------------------
<S> <C> <C> <C>
Property acquired in settlement of loans
and in-substance foreclosed $1,146,012 $2,741,251 $5,522,853
Loans originated in disposition of
property acquired $1,208,523 $2,869,756 $1,429,234
F-28
<PAGE> 90
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 17: ADDITIONAL CASH FLOW INFORMATION (CONTINUED)
<CAPTION>
ADDITIONAL CASH PAYMENT INFORMATION
- -----------------------------------
Interest paid $14,119,120 $18,695,925 $26,664,939
Income taxes paid $2,350,399 $2,387,164 $1,697,240
</TABLE>
NOTE 18: SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
<TABLE>
Following is a summary of unaudited quarterly operating results
for the years ended December 31, 1993 and 1992:
<CAPTION>
1993
-------------------------------------------------------------------
Three Months Ended
-------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income $7,039,329 $6,956,322 $6,950,904 $6,887,421
Interest expense $3,582,398 $3,472,545 $3,475,179 $3,540,666
Provision for loan losses $30,000 $230,000 $30,000 $30,000
Net income $1,423,887 $1,507,058 $1,049,827 $960,774
Earnings per common share $.93 $.97 $.68 $.62
<CAPTION>
1992
-------------------------------------------------------------------
Three Months Ended
-------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Interest income $8,729,766 $8,294,325 $7,835,690 $7,471,993
Interest expense $5,390,697 $4,833,058 $4,382,307 $3,911,134
Provision for loan losses $45,472 $175,270 $75,000
Net income $940,140 $1,064,409 $1,108,654 $2,114,765
Earnings per common share $.62 $.70 $.72 $1.38
</TABLE>
NOTE 19: CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets at December 31, 1993 and 1992, and
statements of income and cash flows for the years ended December 31,
1993, 1992 and 1991, for the parent company, UNSL Financial Corp., are
as follows:
F-29
<PAGE> 91
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 19: CONDENSED PARENT COMPANY STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
BALANCE SHEETS
- --------------
Assets
Cash $ 4,978,719 $ 2,270,249
Investment in subsidiaries 32,200,534 32,458,252
Refundable income taxes 1,000
Prepaid expenses and other assets 43,631 50,327
------------- --------------
$ 37,222,884 $ 34,779,828
============= ==============
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses $ 1,227 $
Income taxes payable 8,000
Common stock 1,738,113 1,718,235
Additional paid-in capital 7,017,882 6,637,002
Retained earnings 31,967,933 28,464,504
Treasury stock (3,510,271) (2,039,913)
------------- --------------
$ 37,222,884 $ 34,779,828
============= ==============
</TABLE>
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
STATEMENTS OF INCOME
- --------------------
Income
Dividends from subsidiaries $ 5,180,000 $ 1,567,000 $ 2,574,000
Interest income 129,888 53,093 11,591
------------- ------------- -------------
Total Income 5,309,888 1,620,093 2,585,591
------------- ------------- -------------
Expense
Franchise and other taxes 24,000 21,000 2,500
Amortization of organization expense 12,960 12,960 12,960
Interest expenses 12,483
Other expenses 65,664 21,633 22,511
------------- ------------- -------------
Total Expense 102,624 55,593 50,454
------------- ------------- -------------
Income before income tax and equity in
undistributed earnings of subsidiaries 5,207,264 1,564,500 2,535,137
Provision (credit) for income taxes 8,000 (1,000) (13,000)
------------- ------------- -------------
Income before equity in undistributed
earnings of subsidiaries 5,199,264 1,565,500 2,548,137
Equity in undistributed earnings
of subsidiaries (257,718) 3,662,468 (33,843)
------------- ------------- -------------
Net income $ 4,941,546 $ 5,227,968 $ 2,514,294
============= ============= =============
</TABLE>
F-30
<PAGE> 92
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 19: CONDENSED PARENT COMPANY STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
STATEMENTS OF CASH FLOWS
- ------------------------
Cash Flows From Operating Activities
Net income $ 4,941,546 $ 5,227,968 $ 2,514,294
Items not requiring (providing) cash:
Amortization of organizational expenses 12,960 12,960 12,960
Equity in undistributed earnings of subsidiaries 257,718 (3,662,468) 33,843
Changes in:
Prepaid expenses and other assets (6,264) (4,952)
Income taxes payable/refundable 9,000 12,000 (21,500)
Accounts payable 1,227 (1,844) (6,064)
------------- ------------- -------------
Net cash provided by
operating activities 5,216,187 1,583,664 2,533,533
------------- ------------- -------------
Cash Flows From Financing Activities
Proceeds from short-term borrowings 435,000
Repayment of short-term borrowings (935,000)
Dividends paid (1,438,117) (990,637) (903,627)
Dividend reinvestment 313,408 216,960 193,884
Stock options exercised 87,350 114,400 21,230
Purchase of treasury stock (1,470,358) (226,413) (31,625)
------------- ------------- -------------
Net cash used in financing activities (2,507,717) (885,690) (1,220,138)
------------- ------------- -------------
Increase In Cash 2,708,470 697,974 1,313,395
Cash, Beginning of Year 2,270,249 1,572,275 258,880
------------- ------------- -------------
Cash, End of Year $ 4,978,719 $ 2,270,249 $ 1,572,275
============= ============= =============
ADDITIONAL CASH PAYMENT INFORMATION
- -----------------------------------
Interest paid $16,250
Income taxes paid (received) $(1,000) $(13,000) $8,500
</TABLE>
F-31
<PAGE> 93
UNSL FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE 20: AGREEMENT AND PLAN OF REORGANIZATION
On July 12, 1994, the Corporation entered into a merger agreement
with Mercantile Bancorporation Inc., St. Louis, Missouri, and its wholly-
owned subsidiary, Ameribanc, Inc., whereby each issued and outstanding
share of the Company's common stock shall be converted into the right
to receive 1.0604 shares of the common stock of Mercantile. The
merger is contingent upon certain conditions and events, including
among others, applicable shareholder approval, SEC and other
regulatory approvals and the occurrence of certain representations and
warranties.
F-32
<PAGE> 94
ANNEX A
-------
=================================================================
AGREEMENT AND PLAN OF REORGANIZATION
between
MERCANTILE BANCORPORATION INC.,
and AMERIBANC, INC.
as Buyers,
and
UNSL FINANCIAL CORP.
as Seller
------------------
Dated July 12, 1994
=================================================================
<PAGE> 95
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
This AGREEMENT AND PLAN OF REORGANIZATION (this
"Agreement") is made and entered into on July 12, 1994 by and
between MERCANTILE BANCORPORATION INC., a Missouri corporation
("Mercantile"), AMERIBANC, INC., a Missouri corporation ("Merger
Sub" and, collectively with Mercantile, the "Buyers") and UNSL
FINANCIAL CORP., a Delaware corporation ("Seller").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Merger Sub is a wholly owned subsidiary of
Mercantile, and each of Mercantile and Merger Sub is a registered
bank holding company under the Bank Holding Company Act of 1956, as
amended (the "Holding Company Act"); and
WHEREAS, Seller is a registered savings and loan holding
company under the Home Owners' Loan Act, as amended (the "HOLA");
and
WHEREAS, the respective Boards of Directors of Seller and
Merger Sub and the Executive Committee of the Board of Directors of
Mercantile have approved the merger (the "Merger") of Seller with
and into Merger Sub pursuant to the terms and subject to the
conditions of this Agreement; and
WHEREAS, the parties desire to provide for certain
undertakings, conditions, representations, warranties and covenants
in connection with the transactions contemplated by this Agreement.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the
parties agree as follows:
ARTICLE I
---------
THE MERGER
1.01. The Merger. (a) Subject to the terms and
----------
conditions of this Agreement, Seller shall be merged with and into
Merger Sub in accordance with The General and Business Corporation
Law of Missouri (the "Missouri Act") and the Delaware General
Corporation Law (the "DGCL") and the separate corporate existence
of Seller shall cease. Merger Sub shall be the surviving
corporation of the Merger (sometimes referred to herein as the
"Surviving Corporation") and shall continue to be governed by the
laws of the State of Missouri.
1.02. Closing. The closing (the "Closing") of the
-------
Merger shall take place at 10:00 a.m., local time, on the date that
the Effective Time (as defined in Section 1.03) occurs, or at such
other time, and at such place, as Buyers and Seller shall agree
(the "Closing Date").
<PAGE> 96
1.03. Effective Time. The Merger shall become
--------------
effective on the date and at the time (the "Effective Time") on
which a duly certified, executed and acknowledged copy of a
certificate of merger in respect of the Merger is filed with the
Secretary of State of the State of Missouri in such form as
required by, and in accordance with, the relevant provisions of the
Missouri Act. Unless otherwise mutually agreed in writing by
Buyers and Seller, subject to the terms and conditions of this
Agreement, the Effective Time shall occur on such date as Buyers
shall notify Seller in writing (such notice to be at least five
business days in advance of the Effective Time) but (i) not earlier
than the satisfaction of all conditions set forth in Section
6.01(a) and 6.01(b) (the "Approval Date") and (ii) not later than
the first business day of the first full calendar month commencing
at least five business days after the Approval Date. As soon as
practicable following the Effective Time, Buyers and Seller shall
cause the certificate of merger to be delivered for filing and
recordation with appropriate state or local officials in the State
of Delaware in accordance with the DGCL.
1.04. Additional Actions. If, at any time after the
------------------
Effective Time, Buyers or the Surviving Corporation shall consider
or be advised that any further deeds, assignments or assurances or
any other acts are necessary or desirable to (a) vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation its
right, title or interest in, to or under any of the rights,
properties or assets of Seller or Merger Sub or (b) otherwise carry
out the purposes of this Agreement, Seller and Merger Sub and each
of their respective officers and directors, shall be deemed to have
granted to the Surviving Corporation an irrevocable power of
attorney to execute and deliver all such deeds, assignments or
assurances and to do all acts necessary or desirable to vest,
perfect or confirm title and possession to such rights, properties
or assets in the Surviving Corporation and otherwise to carry out
the purposes of this Agreement, and the officers and directors of
the Surviving Corporation are authorized in the name of Seller or
otherwise to take any and all such action.
1.05. Articles of Incorporation and Bylaws. The
------------------------------------
Articles of Incorporation and Bylaws of Merger Sub in effect
immediately prior to the Effective Time shall be the Articles of
Incorporation and Bylaws of the Surviving Corporation following the
Merger until otherwise amended or repealed.
1.06. Boards of Directors and Officers. At the
--------------------------------
Effective Time, the directors and officers of Merger Sub
immediately prior to the Effective Time shall be directors and
officers, respectively, of the Surviving Corporation following the
Merger and such directors and officers shall hold office in
accordance with the Surviving Corporation's Bylaws and applicable
law.
- 2 -
<PAGE> 97
1.07. Conversion of Securities. At the Effective Time,
------------------------
by virtue of the Merger and without any action on the part of
Buyers, Seller or the holder of any of the following securities:
(a) Each share of the common stock, $1.00 par
value, of Merger Sub that is issued and outstanding immediately
prior to the Effective Time shall remain outstanding and shall be
unchanged after the Merger and shall thereafter constitute all of
the issued and outstanding capital stock of the Surviving
Corporation; and
(b) Each share of the common stock, $1.00 par
value, ("Seller Common Stock"), of Seller issued and outstanding
immediately prior to the Effective Time shall cease to be
outstanding and shall be converted into and become the right to
receive 1.0604 (the "Exchange Ratio") shares of common stock, $5.00
par value with associated "Rights" under the "Rights Agreement" (as
those terms are defined in Section 3.03 hereof)
(collectively, "Mercantile Common Stock"), of Mercantile with an
aggregate of 1,731,110 shares of Mercantile Common Stock to be
issued pursuant to the Merger; provided, however, that any shares
-------- -------
of Seller Common Stock held by Seller or any of its wholly owned
Subsidiaries (as defined in Rule 1-02 of Regulation S-X promulgated
by the Securities and Exchange Commission (the "SEC")), or Buyers
or any of their wholly owned Subsidiaries, in each case other than
in a fiduciary capacity or as a result of debts previously
contracted, shall be cancelled and shall not represent capital
stock of the Surviving Corporation and shall not be exchanged for
shares of Mercantile Common Stock.
1.08. Exchange Procedures.
-------------------
(a) Prior to the Closing Date, Buyers shall
appoint Society National Bank, or such other bank or trust company
selected by Buyers as the exchange agent and reasonably acceptable
to Seller (the "Exchange Agent") to effect the exchange of
certificates formerly representing shares of Seller Common Stock
(the "Certificates") for shares of Mercantile Common Stock to be
issued in the Merger. At the Effective Time, Mercantile shall have
granted the Exchange Agent the requisite power and authority to
effect for Buyers the issuance of the number of shares of
Mercantile Common Stock to be issued in the Merger.
(b) As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of
shares of Seller Common Stock as of the Closing Date, a notice of
the consummation of the Merger and a form of letter of transmittal
pursuant to which each such holder shall transmit the Certificate
or Certificates or, in lieu thereof, such evidence of lost, stolen
or mutilated Certificate or Certificates and such surety bond or
other security as the Exchange Agent may require. Such letters of
transmittal shall specify that risk of loss and
- 3 -
<PAGE> 98
title to the Certificate or Certificates shall pass only upon delivery
of such Certificate or Certificates to the Exchange Agent.
(c) Subject to Section 1.09, after the
Effective Time, each previous holder of a Certificate that
surrenders such Certificate or, in lieu thereof, the required
documentation for a lost, stolen or mutilated Certificate to the
Exchange Agent will, upon acceptance thereof by the Exchange Agent,
be entitled to a certificate or certificates representing the
number of full shares of Mercantile Common Stock into which the
shares of Seller Common Stock represented by the Certificate or
Certificates shall have been converted pursuant to the Merger.
(d) The Exchange Agent shall accept
Certificates or, in lieu thereof, the required documentation for
lost, stolen or mutilated Certificate 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. Certificates shall be appropriately endorsed
or accompanied by such instruments of transfer as the Exchange
Agent may require. If the tender of a Certificate or the required
documentation for a lost, stolen or mutilated Certificate is not in
compliance with such reasonable terms and conditions, the Exchange
Agent shall promptly return the Certificate or documentation with
instructions as to how to comply with such terms and conditions.
(e) Each outstanding Certificate shall until
duly surrendered to the Exchange Agent be deemed to evidence
ownership of the number of shares of Mercantile Common Stock into
which the shares of Seller Common Stock previously represented by
such Certificate shall have been converted pursuant to the Merger.
(f) After the Effective Time, holders of
Certificates shall cease to have rights with respect to the shares
of Seller Common Stock previously represented by such Certificates,
and such holder's sole rights shall be to exchange such
Certificates for the shares of Mercantile Common Stock issuable in
the Merger. After the Effective Time, there shall be no further
transfer on the records of Seller of Certificates, and if such
Certificates are presented to Seller for transfer, they shall be
cancelled against delivery of the shares of Mercantile Common Stock
issuable in the Merger. Neither Buyer nor the Exchange Agent shall
be obligated to deliver the shares of Mercantile Common Stock to
which any former holder of Seller Common Stock is entitled as a
result of the Merger until such holder surrenders the Certificates
as provided herein. No dividends or distributions declared after
the Effective Time (including any redemption by Mercantile of the
Rights associated therewith) will be remitted to any person
entitled to receive Mercantile Common Stock under this Agreement
until such person surrenders the Certificate or Certificates, at
which time such
- 4 -
<PAGE> 99
dividends shall be remitted to such person, without interest and less
any taxes that may have been imposed thereon. Certificates surrendered
for exchange by any person constituting an "affiliate" of Seller for
purposes of Rule 145 of the Securities Act of 1933, as amended (the
"Securities Act"), shall not be exchanged for certificates
representing Mercantile Common Stock until Mercantile has received a
written agreement from such person as specified in Section 5.05.
Neither the Exchange Agent nor any party to this Agreement nor any
affiliate thereof shall be liable to any holder of shares of Seller
Common Stock represented by any Certificate for any consideration
issuable or payable in the Merger paid to a public official pursuant
to applicable abandoned property, escheat or similar laws. Buyers and
the Exchange Agent shall be entitled to rely upon the stock transfer
books of Seller to establish the identity of those persons entitled to
receive shares of Mercantile Common Stock in the Merger, specified in
this Agreement, which books shall be conclusive with respect thereto.
In the event of a dispute with respect to ownership of the shares
of Seller Common Stock represented by any Certificate, Buyers and
the Exchange Agent shall be entitled to deposit any consideration
represented thereby in escrow with an independent third party and
thereafter be relieved with respect to any claims thereto. The
Exchange Agent shall not be entitled to vote or exercise any rights
of ownership with respect to shares of Mercantile Common Stock held
by it pursuant to this Section 1.08 from time to time hereunder.
(g) No transfer taxes shall be payable by any
of the holders of Seller Common Stock in respect to the issuance of
certificates for Mercantile Common Stock and no expenses shall be
imposed on such holders in connection with the conversion at the
Effective Time of shares of Seller Common Stock into shares of
Mercantile Common Stock pursuant to the Merger and the delivery of
such shares of Mercantile Common Stock to the former holders of
Seller Common Stock, except that (i) if any certificate evidencing
Mercantile Common Stock is to be issued in a name other than that
in which the Certificate or Certificates surrendered shall have
been registered, it shall be a condition to such issuance that the
person requesting such issuance shall pay to Buyers or the Exchange
Agent any transfer taxes payable by reason thereof or of any prior
transfer of such surrendered Certificate or Certificates or
establish to the satisfaction of Buyers or the Exchange Agent that
such taxes have been paid or are not payable, and (ii) nothing
herein shall relieve any of the holders of Seller Common Stock of
any expenses associated with surrendering such holder's Certificate
or Certificates to the Exchange Agent after the Effective Time.
1.09. No Fractional Shares. Notwithstanding any other
--------------------
provision of this Agreement, neither certificates nor scrip for
fractional shares of Mercantile Common Stock shall be issued in the
Merger. Each holder who otherwise would have been entitled to a
fraction of a share of Mercantile Common Stock shall receive in
lieu thereof cash (without interest) in an
- 5 -
<PAGE> 100
amount determined by multiplying the fractional share interest to
which such holder would otherwise be entitled by the Mercantile Share
Price on the last business day preceding the Effective Time. The
"Mercantile Share Price" shall mean the closing price of one share of
Mercantile Common Stock on The New York Stock Exchange -- Composite
Transactions List on the Closing Date (as reported in The Wall
--------
Street Journal or in the absence thereof, by any other
- --------------
authoritative source). No such holder shall be entitled to
dividends, voting rights or any other rights in respect of any
fractional share.
1.10. Closing of Stock Transfer Books. The stock
-------------------------------
transfer books of Seller shall be closed at the end of business on
the Business Day immediately preceding the Closing Date. In the
event of a transfer of ownership of Seller Common Stock which is
not registered in the transfer records prior to the closing of such
record books, the shares of Mercantile Common Stock issuable
pursuant to the Merger with respect to such stock may be delivered
to the transferee, if the Certificate or Certificates representing
such stock is presented to the Exchange Agent accompanied by all
documents required to evidence and effect such transfer and all
applicable stock transfer taxes are paid.
1.11. Anti-Dilution Adjustments. If, between the date
-------------------------
of this Agreement and the Effective Time, Mercantile shall declare
a stock dividend, or make distributions upon, or subdivide, split
up, reclassify or combine Mercantile Common Stock or declare a
dividend or make a distribution on Mercantile Common Stock in any
security convertible into Mercantile Common Stock, appropriate and
proportional adjustment or adjustments will be made to the Exchange
Ratio such that the adjusted Exchange Ratio shall result in the
issuance of that number of shares of Mercantile Common Stock or
other securities as if the declaration or payment of such dividend,
distribution, subdivision, split-up, reclassification or
combination of such shares of Mercantile Common Stock had a record
or payment date therefor immediately after the Effective Time.
1.12. Reservation of Right to Revise Transaction.
------------------------------------------
Buyers may at any time change the method of effecting the
acquisition of Seller by Buyers (including without limitation the
provisions of this Article I) if and to the extent Buyers deem such
change to be desirable, including without limitation to provide for
(i) a merger of Merger Sub with and into Seller, in which Seller is
the surviving corporation, or (ii) a merger of Seller directly into
Mercantile, in which Mercantile is the surviving corporation,
provided, however, that no such change shall (A) alter or change
- -------- -------
the amount or kind of consideration to be issued to holders of
Seller Common Stock as provided for in this Agreement (the "Merger
Consideration"), (B) adversely affect the tax treatment to Seller
stockholders as a result of receiving the Merger Consideration or
(C) materially impede or delay receipt of any approval referred to
in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement.
- 6 -
<PAGE> 101
ARTICLE II
----------
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
As an inducement to Buyers to enter into and perform
their respective obligations under this Agreement, and
notwithstanding any examination, inspection, audit or any other
investigation made by Buyers, Seller represents and warrants to and
covenants with Buyers as follows:
2.01. Organization and Authority. Seller is a
--------------------------
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, is duly qualified to do
business and is in good standing in all jurisdictions where its
ownership or leasing of property or the conduct of its business
requires it to be so qualified and has corporate power and
authority to own its properties and assets and to carry on its
business as it is now being conducted. Seller is registered as a
savings and loan holding company with the Office of Thrift
Supervision of the United States Department of Treasury (the "OTS")
under the HOLA. True and complete copies of the Certificate of
Incorporation and Bylaws of Seller and of the Articles of
Incorporation and Bylaws of United Savings Bank, its wholly owned,
Missouri-chartered stock savings and loan association ("United
Savings"), each as in effect on the date of this Agreement, have
been provided to Buyers.
2.02. Subsidiaries.
------------
(a) Schedule 2.02 sets forth, among other
-------------
things, a complete and correct list of all of Seller's Subsidiaries
(each a "Seller Subsidiary" and collectively the "Seller
Subsidiaries"), all outstanding Equity Securities (as defined in
Section 2.03) of each of which, except as set forth on Schedule
--------
2.02, are owned directly or indirectly by Seller. Except as set
- ----
forth on Schedule 2.02, all of the outstanding shares of capital
-------------
stock of the Seller Subsidiaries are validly issued, fully paid and
nonassessable and are owned free and clear of any lien, claim,
charge, option, encumbrance, agreement, mortgage, pledge, security
interest or restriction (a "Lien") with respect thereto. Each of
the Seller Subsidiaries is a corporation or association duly
incorporated or organized, validly existing, and in good standing
under the laws of its jurisdiction of incorporation or
organization, and has corporate power and authority to own or lease
its properties and assets and to carry on its business as it is now
being conducted. Each of the Seller Subsidiaries is duly qualified
to do business in each jurisdiction where its ownership or leasing
of property or the conduct of its business requires it so to be
qualified, except where the failure to so qualify would not have a
material adverse effect on the financial condition, results of
operations or business (collectively, the "Condition") of Seller
and the Seller Subsidiaries, taken as a whole. Except as set forth
on Schedule
--------
- 7 -
<PAGE> 102
2.02 and except for shares of stock of the Federal Home
- ----
Loan Bank of Des Moines (the "FHL Bank"), Seller does not own
beneficially, directly or indirectly, any shares of any class of
Equity Securities (as defined below) or similar interests of any
corporation, bank, business trust, association or similar
organization.
(b) United Savings is a stock savings and loan
association chartered by the State of Missouri. The deposits of
United Savings are insured by the Savings Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corporation (the "FDIC"). United
Savings is a member in good standing with the FHL Bank. United
Savings is a "domestic building and loan association" as defined in
Section 7701(a)(19) of the Internal Revenue Code of 1986, as
amended (the "Code"). Except as set forth on Schedule 2.02,
-------------
neither Seller nor any of the Seller Subsidiaries holds any
interest in a partnership or joint venture of any kind.
2.03. Capitalization. The authorized capital stock of
--------------
Seller consists of (i) 4,000,000 shares of Seller Common Stock, of
which, as of June 30, 1994, 1,488,537 shares were issued and
outstanding and (ii) 1,000,000 shares of preferred stock, $1.00 par
value ("Seller Preferred Stock"), of which none is issued or
outstanding. As of June 30, 1994, Seller had reserved 285,744
shares of Seller Common stock for issuance under Seller's stock
option and incentive plans, a list of which is set forth on
Schedule 2.03 (the "Seller Stock Plans"), pursuant to which options
- -------------
("Seller Employee Stock Options") covering 144,000 shares of Seller
Common Stock were outstanding as of June 30, 1994. Since June 30,
1994, no Equity Securities of Seller have been issued, other than
shares of Seller Common Stock which may have been issued upon the
exercise of Seller Employee Stock Options. "Equity Securities" of
an issuer means capital stock or other equity securities of such
issuer, options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities
or rights convertible into, shares of any capital stock or other
Equity Securities of such issuer, or contracts, commitments,
understandings or arrangements by which such issuer is or may
become bound to issue additional shares of its capital stock or
other Equity Securities of such issuer, or options, warrants, scrip
or rights to purchase, acquire, subscribe to, calls on or
commitments for any shares of its capital stock or other Equity
Securities. Except as set forth above, there are no other Equity
Securities of Seller outstanding. All of the issued and
outstanding shares of Seller Common Stock are validly issued, fully
paid, and nonassessable, and have not been issued in violation of
any preemptive right of any stockholder of Seller.
2.04. Authorization.
-------------
(a) Seller has the corporate power and
authority to enter into this Agreement and, subject to the
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<PAGE> 103
approval of this Agreement by the stockholders of Seller, to carry out
its obligations hereunder. The only stockholder vote required for
Seller to approve this Agreement is the affirmative vote of the
holders of at least a majority of the outstanding shares of Seller
Common Stock entitled to vote at a meeting called for such purpose.
The execution, delivery and performance of this Agreement by Seller
and the consummation by Seller of the transactions contemplated
hereby have been duly authorized by the Board of Directors of
Seller. Subject to the approval of Seller's stockholders and
subject to the receipt of such approvals of the Regulatory
Authorities (as defined in Section 2.06) as may be required by
statute or regulation, this Agreement is a valid and binding
obligation of Seller enforceable against Seller in accordance with
its terms.
(b) Neither the execution nor delivery nor
performance by Seller of this Agreement, nor the consummation by
Seller of the transactions contemplated hereby, nor compliance by
Seller with any of the provisions hereof, will (i) violate,
conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or
result in a right of termination or acceleration of, or result in
the creation of, any Lien upon any of the properties or assets of
Seller or any of the Seller Subsidiaries under any of the terms,
conditions or provisions of (x) its articles or certificate of
incorporation or bylaws or (y) any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or
obligation to which Seller or any of the Seller Subsidiaries is a
party or by which it may be bound, or to which Seller or any of the
Seller Subsidiaries or any of the properties or assets of Seller or
any of the Seller Subsidiaries may be subject, or (ii) subject to
compliance with the statutes and regulations referred to in
subsection (c) of this Section 2.04 violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation
applicable to Seller or any of the Seller Subsidiaries or any of
their respective properties or assets.
(c) Other than in connection or in compliance
with the provisions of the Missouri Act and the DGCL, 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 Holding Company Act, the Federal Deposit Insurance Act,
the HOLA and the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act"), or any required approvals of the Missouri
Division of Finance (the "MDOF"), no notice to, filing with,
exemption or review by, or authorization, consent or approval of,
any public body or
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<PAGE> 104
authority is necessary for the consummation by Seller of the
transactions contemplated by this Agreement.
2.05. Seller Financial Statements. The consolidated
---------------------------
balance sheets of Seller and its Subsidiaries as of December 31,
1993 and 1992 and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the
three years in the three-year period ended December 31, 1993,
together with the notes thereto, audited by Baird Kurtz & Dobson
and included in an annual report on Form 10-K as filed with the
SEC, and the unaudited consolidated condensed balance sheets of
Seller and the Seller Subsidiaries as of March 31, 1994, and the
related unaudited consolidated condensed statements of income and
cash flows for the periods ended March 31, 1994 and 1993 included
in quarterly reports on Form 10-Q (each a "Seller Form 10-Q") as
filed with the SEC (collectively, the "Seller Financial
Statements"), have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis
("GAAP"), present fairly the consolidated financial position of
Seller and of the Seller Subsidiaries at the dates and the
consolidated results of operations, changes in stockholders' equity
and cash flows of Seller and of the Seller Subsidiaries for the
periods stated therein and are derived from the books and records
of Seller and of the Seller Subsidiaries, which are complete and
accurate in all material respects and have been maintained in
accordance with good business practices. Neither Seller nor any of
the Seller Subsidiaries has any material contingent liabilities
that are not described in the Seller Financial Statements.
2.06. Seller Reports. Since January 1, 1991, each of
--------------
Seller and the Seller Subsidiaries has filed all material reports,
registrations and statements, together with any required amendments
thereto, that it was required to file with (i) the SEC, including,
but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy
statements, (ii) the OTS, (iii) the FHL Bank and the Federal Home
Loan Bank System (the "FHLBS"), (iv) the FDIC and (v) any other
federal, state, municipal, local or foreign government, securities,
banking, savings and loan, insurance and other governmental or
regulatory authority and the agencies and staffs thereof (the
entities in the foregoing clauses (i) through (v) being referred to
herein collectively as the "Regulatory Authorities" and
individually as a "Regulatory Authority"). All such reports and
statements filed with any such Regulatory Authority are
collectively referred to herein as the "Seller Reports." As of
each of their respective dates, the Seller Reports complied in all
material respects with all the rules and regulations promulgated by
the applicable Regulatory Authority and did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
2.07. Title to and Condition of Assets.
--------------------------------
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<PAGE> 105
(a) Except as may be reflected in the Seller
Financial Statements or as set forth on Schedule 2.07(a) and with
----------------
the exception of all "Real Property" (which is the subject of
Section 2.08 hereof), Seller or the Seller Subsidiaries has, and at
the Closing Date will have, good and marketable title to its
properties and assets, including, without limitation, those
reflected in the Seller Financial Statements, free and clear of any
Lien, except for Liens for taxes, assessments or other governmental
charges not yet delinquent.
(b) No material properties or assets that are
reflected as owned by Seller or the Seller Subsidiaries in the
Seller Financial Statements as of March 31, 1994 have been sold,
leased, transferred, assigned or otherwise disposed of since March
31, 1994, except in the ordinary course of business or as set forth
in Schedule 2.07(b) under the heading "Dispositions."
----------------
(c) All furniture, fixtures, vehicles,
machinery and equipment and computer software owned or used by
Seller or the Seller Subsidiaries, including any such items leased
as a lessee, (taken as a whole as to each of the foregoing with no
single item deemed to be of material importance) are fit for the
purposes for which they are intended, are in good operating order
and repair, free of defects and in good operating condition,
subject only to normal wear and tear. The operation by Seller or
the Seller Subsidiaries of such properties and assets is in
compliance in all material respects with all applicable laws,
ordinances and rules and regulations of any governmental authority
having jurisdiction over such use.
2.08. Real Property. Except as set forth in Schedule
------------- --------
2.08:
- ----
(a) The legal description of each parcel of
real property owned by Seller or any of the Seller Subsidiaries
(other than real property acquired in foreclosure or in lieu of
foreclosure in the course of the collection of loans and being held
by Seller or a Seller Subsidiary for disposition as required by
law) is set forth in Schedule 2.08(a) under the heading "Owned Real
----------------
Property" (such real property being herein referred to as the
"Owned Real Property"). The legal description of each parcel of
real property leased by Seller or any of the Seller Subsidiaries is
also set forth in Schedule 2.08(a) under the heading "Leased Real
----------------
Property" (such real property being herein referred to as the
"Leased Real Property"). Collectively, the Owned Real Property and
the Leased Real Property is herein referred to as the "Real
Property."
(b) There is no pending dispute involving
Seller or any of the Seller Subsidiaries as to the title of or the
right to use any of the Real Property.
- 11 -
<PAGE> 106
(c) Neither Seller nor any of the Seller
Subsidiaries has any interest in any other real property except
interests as a mortgagee, and except for any real property acquired
in foreclosure or in lieu of foreclosure and being held for
disposition as required by law.
(d) To the best knowledge of Seller, none of
the buildings, structures or other improvements located on the Real
Property encroaches upon or over any adjoining parcel of real
estate or any easement or right-of-way or "setback" line in any
material respect and all such buildings, structures and
improvements are located and constructed in conformity with all
applicable zoning ordinances and building codes.
(e) None of the buildings, structures or
improvements located on the Real Property are the subject of any
official complaint or notice by any governmental authority of
violation of any applicable zoning ordinance or building code and
there is no zoning ordinance, building code, use or occupancy
restriction or condemnation action or proceeding pending, or, to
the best knowledge of Seller, threatened, with respect to any such
building, structure or improvement. To the best knowledge of
Seller, 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 Seller
Financial Statements or with respect to such easements, Liens,
defects or encumbrances as do not individually or in the aggregate
materially adversely affect the use or value of the parcel of Real
Property, Seller and the Seller Subsidiaries have, and at the
Closing Date will have, good and marketable title to their
respective Real Properties.
2.09. Taxes. Seller and each Seller Subsidiary have
-----
timely filed or will timely (including extensions) file all
material tax returns required to be filed at or prior to the
Closing Date ("Seller Returns"). Each of Seller and the Seller
Subsidiaries has paid, or set up adequate reserves on the Seller
Financial Statements for the payment of, all taxes required to be
paid in respect of the periods covered by such returns and has set
up adequate reserves on the most recent Seller Financial Statements
for the payment of all taxes anticipated to be payable in respect
of all periods up to and including the latest period covered by
such Seller Financial Statements. Neither Seller nor any Seller
Subsidiary will have any liability material to the Condition of
Seller and the Seller Subsidiaries, taken as a whole, for any such
taxes in excess of the amounts so paid or reserves so established
and no material deficiencies for any tax, assessment or
governmental charge have been proposed, asserted or assessed
(tentatively or definitely) against any of Seller or any of the
Seller Subsidiaries which would not be covered by existing
reserves. Neither Seller nor any of the Seller Subsidiaries is
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<PAGE> 107
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. Except as set forth in Schedule 2.09., the
--------------
federal and state income tax returns of Seller and the Seller
Subsidiaries have not been audited by the Internal Revenue Service
(the "IRS") or appropriate state tax authorities. To the extent
that such returns have been so audited, such audits have been
completed and settled for all periods ended through December 31,
1981. There is no deficiency or refund litigation or matter in
controversy with respect to Seller Returns. Except as set forth on
Schedule 2.09, neither Seller nor any of the Seller Subsidiaries
- -------------
has extended or waived any statute of limitations on the assessment
of any tax due that is currently in effect.
2.10. Material Adverse Change. Since March 31, 1994,
-----------------------
there has been no material adverse change in the Condition of
Seller and the Seller Subsidiaries, taken as a whole, except as may
have resulted or may result from changes to laws and regulations,
or interpretations thereof, or changes in economic conditions,
including interest rates, applicable to depositary institutions
generally.
2.11. Loans, Commitments and Contracts.
--------------------------------
(a) Schedule 2.11(a) contains a complete and
----------------
accurate listing of all contracts entered into with respect to
deposits of $250,000 or more, by account or other identifying
number, and all loan agreements and commitments, notes, security
agreements, repurchase agreements, bankers' acceptances,
outstanding letters of credit and commitments to issue letters of
credit, participation agreements, and other documents relating to
or involving extensions of credit and other commitments to extend
credit by Seller or any of the Seller Subsidiaries with respect to
any on entity or related group of entities in excess of $250,000,
to which any of the foregoing is a party or by which it is bound,
by account or other identifying number, and, where applicable, such
other information as shall be necessary to identify any related
group of entities.
(b) Except for the contracts and agreements
required to be listed on Schedule 2.11(a) and except as set forth
----------------
in Schedule 2.11(b) or any other Schedule to this Agreement,
----------------
neither Seller nor any of the Seller Subsidiaries is a party to or
is bound by any:
(i) agreement, contract, arrangement,
understanding or commitment with any labor union;
(ii) franchise or license agreement;
(iii) written employment, severance or
termination pay, agency, consulting or similar
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<PAGE> 108
agreement or commitment in respect of personal services;
(iv) any material agreement, arrangement
or commitment (A) not made in the ordinary course of
business, or (B) pursuant to which Seller or any of the
Seller Subsidiaries is or may become obligated to invest
in or contribute to any Seller Subsidiary other than
pursuant to Seller Employee Plans (as that term is
defined in Section 2.18 hereof) and agreements relating
to joint ventures or partnerships set forth in Schedule
--------
2.02, true and complete copies of which have been
----
furnished to Buyers;
(v) any agreement, indenture or other
instrument not disclosed in the Seller Financial
Statements relating to the borrowing of money by Seller
or any of the Seller Subsidiaries or the guarantee by
Seller or any of the Seller Subsidiaries of any such
obligation (other than trade payables or instruments
related to transactions entered into in the ordinary
course of business by Seller or any of the Seller
Subsidiaries, such as deposits, Fed Funds borrowings, FHL
Bank advances and repurchase agreements), other than such
agreements, indentures or instruments providing for
annual payments of less than $100,000:
(vi) any contract containing covenants
which limit the ability of Seller or any of the Seller
Subsidiaries to compete in any line of business or with
any person or which involves any restrictions on the
geographical area in which, or method by which, Seller or
any of the Seller Subsidiaries may carry on their
respective businesses (other that as may be required by
law or any applicable Regulatory Authority);
(vii) any other contract or agreement
which is a "material contract" within the meaning of Item
601(b)(10) of Regulation S-K as promulgated by the SEC;
(viii)any lease with annual rental
payments aggregating $50,000 or more;
(ix) loans or other obligation payable or
owing to any officer, director or employee except (A)
salaries, wages and directors' fees incurred and accrued
in the ordinary course of business and (B) obligations
due in respect of any depository accounts maintained by
any of the foregoing at the Seller Subsidiaries in the
ordinary course of business;
(x) loans or debts payable or owing by
any executive officer or director of Seller or any of
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<PAGE> 109
the Seller Subsidiaries or any other person or entity deemed
an "executive officer" or a "related interest" of any of
the foregoing, as such terms are defined in Regulation O
of the Federal Reserve Board;
(xi) other agreement, contract,
arrangement, understanding or commitment involving an
obligation by Seller or any of the Seller Subsidiaries of
more than $50,000 and extending beyond six months from
the date hereof that cannot be cancelled without cost or
penalty upon notice of 30 days or less, other than
contracts entered into in respect of deposits, loan
agreements, and commitments, notes, security agreements,
repurchase agreements, bankers' acceptances, outstanding
letters of credit and commitments to issue letters of
credit, participation agreements and other documents
relating to transactions entered into by Seller or any of
the Seller Subsidiaries in the ordinary course of
business and not involving extensions of credit with
respect to any one entity or related group of entities in
excess of $250,000.
(c) Seller and/or the Seller Subsidiaries
carry property, liability, products liability and other insurance
coverage as set forth in Schedule 2.11(c) under the heading
----------------
"Insurance."
(d) True, correct and complete copies of the
agreements, contracts, leases, insurance policies and other
documents referred to in Schedules 2.11 (a), (b) and (c) shall be
-------------------------------
furnished or made available to Buyers.
(e) To the best knowledge of Seller, each of
the agreements, contracts, leases, insurance policies and other
documents referred to in Schedules 2.11 (a), (b) and (c) is a
-------------------------------
valid, binding and enforceable obligation of the parties sought to
be bound thereby, except as the enforceability thereof against the
parties thereto (other than Seller or any of the Seller
Subsidiaries) may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws now or hereafter in
effect relating to the enforcement of creditors' rights generally,
and except that equitable principles may limit the right to obtain
specific performance or other equitable remedies.
(f) Schedule 2.11(f) under the heading "Loans"
----------------
contains a true, correct and complete listing, as of the date of
this Agreement, by account or other identifying number, of (i) all
loans in excess of $100,000, of the Seller or any of the Seller
Subsidiaries which have been accelerated during the past twelve
months, (ii) all loan commitments or lines of credit of Seller and
any of the Seller Subsidiaries in excess of $100,000 which have
been terminated by Seller or any of the Seller Subsidiaries during
the past twelve months by reason of
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<PAGE> 110
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 Seller or any of the Seller Subsidiaries has
given written notice of its intent to terminate during the past twelve
months, (iv) with respect to all loans in excess of $100,000, all
notification letters and other written communications from Seller or
any of the Seller Subsidiaries to any of their respective borrowers,
customers or other parties during the past twelve months wherein
Seller or any of the Seller Subsidiaries has requested or demanded
that actions be taken to correct existing defaults or facts or
circumstances which may become defaults, (v) each borrower,
customer, or other party which has notified Seller or any of the
Seller Subsidiaries during the past twelve months of, or has
asserted against Seller or any of the Seller Subsidiaries, in
writing, any "lender liability" or similar claim, and, to the best
knowledge of Seller, each borrower, customer or other party which
has given Seller or any of the Seller Subsidiaries any oral
notification of, or orally asserted against Seller or any of the
Seller Subsidiaries, any such claim, and (vi) all loans in excess
of $100,000 (A) that are contractually past due 90 days or more in
the payment of principal and/or interest, (B) that are on non-
accrual status, (C) where a reasonable doubt exists as to the
timely future collectibility of principal and/or interest, whether
or not interest is still accruing or the loan is less than 90 days
past due, (D) the interest rate terms have been reduced and/or the
maturity dates have been extended subsequent to the agreement under
which the loan was originally created due to concerns regarding the
borrower's ability to pay in accordance with such initial terms, or
(E) where a specific reserve allocation exists in connection
therewith.
2.12 Absence of Defaults. Neither Seller nor any of
-------------------
the Seller Subsidiaries is in violation of its charter documents or
bylaws or in default under any material agreement, commitment,
arrangement, lease, insurance policy, or other instrument, whether
entered into in the ordinary course of business or otherwise and
whether written or oral, and there has not occurred any event that,
with the lapse of time or giving of notice or both, would
constitute such a default, except, in all cases, where such default
would not have a material adverse effect on the Condition of Seller
and the Seller Subsidiaries, taken as a whole.
2.13. Litigation and Other Proceedings. Except as set
--------------------------------
forth on Schedule 2.13, neither Seller nor any of the Seller
-------------
Subsidiaries is a party to any pending or, to the best knowledge of
Seller, threatened claim, action, suit, investigation or
proceeding, or is subject to any order, judgment or decree, except
for matters which, in the aggregate, will not have, or reasonably
could not be expected to have, a material adverse effect on the
Condition of Seller and the Seller Subsidiaries, taken as a whole,
or which purports or seeks to enjoin or
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<PAGE> 111
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 Seller, threatened
against Seller or any of the Seller Subsidiaries or any of their
respective officers or directors by any stockholder of Seller or any
of the Seller Subsidiaries (or any former stockholder of Seller or any
of the Seller Subsidiaries) or involving claims under the Securities
Act, the Exchange Act, the Community Reinvestment Act of 1977, as
amended, the fair lending laws or any other applicable laws.
2.14. Directors' and Officers' Insurance. Each of
----------------------------------
Seller and the Seller Subsidiaries has taken or will take all
requisite action (including without limitation the making of claims
and the giving of notices) pursuant to its directors' and officers'
liability insurance policy or policies in order to preserve all
rights thereunder with respect to all matters (other than matters
arising in connection with this Agreement and the transactions
contemplated hereby) occurring prior to the Effective Time that are
known to Seller, except for such matters which, individually or in
the aggregate, will not have and reasonably could not be expected
to have a material adverse effect on the Condition of Seller and
the Seller Subsidiaries, taken as a whole. Set forth on Schedule
--------
2.14 is a list of all insurance policies maintained by or for the
- ----
benefit of Seller or its Subsidiaries for their directors,
officers, employees or agents.
2.15. Compliance with Laws.
--------------------
(a) To the best knowledge of Sellers, Seller and
each of the Seller Subsidiaries have all permits, licenses,
authorizations, orders and approvals of, and have made all filings,
applications and registrations with, all Regulatory Authorities
that are required in order to permit them to own or lease their
respective properties and assets and to carry on their respective
businesses as presently conducted; all such permits, licenses,
certificates of authority, orders and approvals are in full force
and effect and no suspension or cancellation of any of them is
threatened; and all such filings, applications and registrations
are current.
(b) (i) To the best knowledge of Sellers,
each of Seller and the Seller Subsidiaries has complied with all
laws, regulations and orders (including without limitation zoning
ordinances, building codes, the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and securities, tax,
environmental, civil rights, and occupational health and safety
laws and regulations and including without limitation in the case
of any Seller Subsidiary that is a bank or savings association,
banking organization, banking corporation or trust company, all
statutes, rules, regulations and policy statements pertaining to
the conduct of a banking, deposit-taking, lending or related
business, or to the exercise of trust powers) and governing
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<PAGE> 112
instruments applicable to it and to the conduct of its business,
except where such failure to comply would not have a material
adverse effect on the Condition of Seller and the Seller
Subsidiaries, taken as a whole, and (ii) neither Seller nor any of
the Seller Subsidiaries is in default under, and no event has
occurred which, with the lapse of time or notice or both, could
result in the default under, the terms of any judgment, order,
writ, decree, permit, or license of any Regulatory Authority or
court, whether federal, state, municipal, or local and whether at
law or in equity, except where such default would not have a
material adverse effect on the Condition of Seller and the Seller
Subsidiaries, taken as a whole. To the best knowledge of Seller,
neither Seller nor any of the Seller Subsidiaries is subject to or
reasonably likely to incur a liability as a result of its
ownership, operation, or use of any Property (as defined below) of
Seller (whether directly or, to the best knowledge of Seller, as a
consequence of such Property being part of the investment portfolio
of Seller or any of the Seller Subsidiaries) (A) that is
contaminated by or contains any hazardous waste, toxic substance,
or related materials, including without limitation asbestos, PCBs,
pesticides, herbicides, and any other substance or waste that is
hazardous to human health or the environment (collectively, a
"Toxic Substance"), or (B) on which any Toxic Substance has been
stored, disposed of, placed, or used in the construction thereof;
and which, in each case, reasonably could be expected to have a
material adverse effect on the Condition of Seller and the Seller
Subsidiaries, taken as a whole. "Property" shall include all
property (real or personal, tangible or intangible) owned or
controlled by Seller or any of the Seller Subsidiaries, including
without limitation property under foreclosure, property held by
Seller or any of the Seller Subsidiaries in its capacity as a
trustee and property in which any venture capital or similar unit
of Seller or any of the Seller Subsidiaries has an interest. No
claim, action, suit, or proceeding is pending against Seller or any
of the Seller Subsidiaries relating to Property of Seller or any of
the Seller Subsidiaries before any court or other Regulatory
Authority or arbitration tribunal relating to Toxic Substances,
pollution, or the environment, and there is no outstanding
judgment, order, writ, injunction, decree, or award against or
affecting Seller or any of the Seller Subsidiaries with respect to
the same. Except for statutory or regulatory restrictions of
general application, no Regulatory Authority has placed any
restriction on the business of Seller or any of the Seller
Subsidiaries which reasonably could be expected to have a material
adverse effect on the Condition of Seller and the Seller
Subsidiaries, taken as a whole.
(c) Since December 31, 1991, neither Seller
nor any of the Seller Subsidiaries has received any notification or
communication which has not been resolved from any Regulatory
Authority (i) asserting that any Seller or any of the Seller
Subsidiaries is not in substantial compliance with any of the
statutes, regulations or ordinances that such Regulatory
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<PAGE> 113
Authority enforces, except with respect to matters which (A) are set
forth on Schedule 2.15(c) or in any writing previously furnished to
----------------
Buyers and (B) reasonably could not be expected to have a material
adverse effect on the Condition of Seller and the Seller Subsidiaries,
taken as a whole, (ii) threatening to revoke any license,
franchise, permit or governmental authorization that is material to
the Condition of Seller and the Seller Subsidiaries, taken as a
whole, including without limitation such company's status as an
insured depositary institution under the Federal Deposit Insurance
Act, (iii) requiring or threatening to require Seller or any of the
Seller Subsidiaries, or indicating that Seller or any of the Seller
Subsidiaries may be required, to enter into a cease and desist
order, agreement or memorandum of understanding or any other
agreement restricting or limiting or purporting to direct, restrict
or limit in any manner the operations of Seller or any of the
Seller Subsidiaries, including without limitation any restriction
on the payment of dividends. No such cease and desist order,
agreement or memorandum of understanding or other agreement is
currently in effect.
(d) Neither Seller nor any of the Seller
Subsidiaries is required by Section 32 of the Federal Deposit
Insurance Act to give prior notice to any federal banking agency of
the proposed addition of an individual to its board of directors or
the employment of an individual as a senior executive officer.
2.16. Labor. No work stoppage involving Seller or any
-----
of the Seller Subsidiaries is pending or, to the best knowledge of
Seller, threatened. Neither Seller nor any of the Seller
Subsidiaries is involved in, or, to the best knowledge of Seller,
threatened with or affected by, any labor dispute, arbitration,
lawsuit or administrative proceeding which reasonably could be
expected to have a material adverse affect on the Condition of
Seller and the Seller Subsidiaries, taken as a whole. None of the
employees of Seller or the Seller Subsidiaries are represented by
any labor union or any collective bargaining organization.
2.17. Material Interests of Certain Persons. Except as
-------------------------------------
set forth in Seller's Proxy Statement for its 1994 Annual Meeting
of Stockholders, to the best knowledge of Seller, no officer or
director of Seller or any Subsidiary of Seller, or any "associate"
(as such term is defined in Rule 14a-1 under the Exchange Act) of
any such officer or director, has any material interest in any
material contract or property (real or personal, tangible or
intangible), used in, or pertaining to the business of, Seller or
any of the Seller Subsidiaries, which in the case of Seller is
required to be disclosed by Item 404 of Regulation S-K promulgated
by the SEC or in the case of any of the Seller Subsidiaries would
be required to be so disclosed if Seller Subsidiary had a class of
securities registered under Section 12 of the Exchange Act.
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<PAGE> 114
2.18. Allowance for Loan and Lease Losses; Non-
-----------------------------------------
Performing Assets.
- -----------------
(a) Except as set forth in Schedule 2.18(a):
----------------
(i) all of the accounts, notes, and other receivables which are
reflected in the Seller Financial Statements as of March 31, 1994
were acquired in the ordinary course of business and, to the best
knowledge of Seller, are collectible in full in the ordinary course
of business, except for possible loan and lease losses which are
adequately provided for in the allowance for loan and lease losses
in such Seller Financial Statements and (ii) the collection
experience of Seller and the Seller Subsidiaries since March 31,
1994 to the date hereof has not been materially adverse to the
credit and collection experience of the Seller and the Seller
Subsidiaries, taken as a whole, in the three months ended March 31,
1994 and the year ended December 31, 1993.
(b) The allowances for loan losses contained
in the Seller Financial Statements were established in accordance
with the past practices and experiences of Seller and the Seller
Subsidiaries, and the allowance for loan and lease losses shown on
the consolidated condensed balance sheet of Seller and the Seller
Subsidiaries as of March 31, 1994 contained in the most recent
Seller Form 10-Q is adequate in all material respects under the
requirements of GAAP to provide for possible losses on loans and
leases (including without limitation accrued interest receivable)
and credit commitments (including without limitation stand-by
letters of credit) outstanding as of the date of such balance
sheet.
(c) Schedule 2.18(c) sets forth as of the date
----------------
of this Agreement all assets classified as real estate acquired
through foreclosure, including in-substance foreclosed real estate
("Non-Performing Assets")
(d) The aggregate amount of all loans and
leases described in Section 2.11(f)(vi) (regardless of dollar
amount) and all Non-Performing Assets pursuant to Section 2.18(c)
do not exceed one and one-half percent (1.5%) of (i) the gross
amounts of all loans and leases on the books of Seller and the
Seller Subsidiaries, taken as a whole, plus (ii) the aggregate book
value of all Non-Performing Assets.
2.19. Employee Benefit Plans.
----------------------
(a) Schedule 2.19(a) lists all pension,
----------------
retirement, supplemental retirement, stock option, stock purchase,
stock ownership, savings, stock appreciation right, profit sharing,
deferred compensation, consulting, bonus, medical, disability,
workers' compensation, vacation, group insurance, severance and
other employee benefit, incentive and welfare policies, contracts,
plans and arrangements, and all trust agreements related thereto,
maintained by or contributed to by Seller or any of the Seller
Subsidiaries in respect of any of
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<PAGE> 115
the present or former directors, officers, or other employees of
and/or consultants to Seller or any of the Seller Subsidiaries
(collectively, "Seller Employee Plans"). Seller has furnished Buyers
with the following documents with respect to each Seller Employee
Plan: (i) a true and complete copy of all written documents comprising
such Seller Employee Plan (including amendments and individual
agreements relating thereto) or, if there is no such written document,
an accurate and complete description of the Seller Employee Plan; (ii)
the most recently filed Form 5500 or Form 5500-C (including all
schedules thereto), if applicable; (iii) the most recent financial
statements and actuarial reports, if any; (iv) the summary plan
description currently in effect and all material modifications
thereof, if any; and (v) the most recent Internal Revenue Service
determination letter, if any. Without limiting the generality of the
foregoing, Seller has furnished Buyers with true and complete copies
of each form of stock option grant or stock option agreement that is
outstanding under any stock option plan of Seller or any of the
Seller Subsidiaries.
(b) To the best knowledge of Seller, all
Seller Employee Plans have been maintained and operated in all
material respects in accordance with their terms and the
requirements of all applicable statutes, orders, rules and final
regulations, including without limitation the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Code.
All contributions required to be made to Seller Employee Plans have
been made.
(c) With respect to each of the Seller
Employee Plans which is a pension plan (as defined in Section 3(2)
of ERISA) (the "Pension Plans"): (i) each Pension Plan which is
intended to be "qualified" within the meaning of Section 401(a) of
the Code has been determined to be so qualified by the Internal
Revenue Service and, to the knowledge of Seller, such determination
letter may still be relied upon, and each related trust is exempt
from taxation under Section 501(a) of the Code; (ii) the present
value of all benefits vested and all benefits accrued under each
Pension Plan which is subject to Title IV of ERISA did not, in each
case, as of the last applicable annual valuation date (as indicated
on Schedule 2.19(a)), exceed the value of the assets of the Pension
----------------
Plan allocable to such vested or accrued benefits; (iii) to the
best knowledge of Seller, there has been no "prohibited
transaction," as such term is defined in Section 4975 of the Code
or Section 406 of ERISA, which could subject any Pension Plan or
associated trust, or, to the best knowledge of Seller, the Seller
or any of the Seller Subsidiaries, to any tax or penalty; (iv) no
Pension Plan or any trust created thereunder has been terminated,
nor to the best knowledge of Seller have there been any "reportable
events" with respect to any Pension Plan, as that term is defined
in Section 4043 of ERISA since January 1, 1987; and (v) no Pension
Plan or any trust created thereunder has incurred any "accumulated
funding deficiency", as such term is defined in
- 21 -
<PAGE> 116
Section 302 of ERISA (whether or not waived). Except as set forth in
Schedule 2.19(c), no Pension Plan is a multiemployer plan" as that
- ----------------
term is defined in Section 3(37) of ERISA.
(d) Except as set forth on Schedule 2.19(d),
----------------
neither Seller nor any of the Seller Subsidiaries has any liability
for any post-retirement health, medical or similar benefit of any
kind whatsoever, except as required by statute or regulation.
(e) Neither Seller nor any of the Seller
Subsidiaries has any material liability under ERISA or the Code as
a result of its being a member of a group described in Sections
414(b), (c), (m) or (o) of the Code.
(f) Except as set forth on Schedule 2.19(f),
----------------
neither the execution nor delivery of this Agreement, nor the
consummation of any of the transactions contemplated hereby, will
(i) result in any payment (including without limitation severance,
unemployment compensation or golden parachute payment) becoming due
to any director or employee of Seller or any of the Seller
Subsidiaries from any of such entities, (ii) increase any benefit
otherwise payable under any of the Seller Employee Plans or (iii)
result in the acceleration of the time of payment of any such
benefit. No holder of an option to acquire stock of Seller has or
will have at any time through the Effective Time the right to
receive any cash or other payment (other than the issuance of stock
of Seller) in exchange for or with respect to all or any portion of
such option. Seller shall use its best efforts to insure that no
amounts paid or payable by Seller, the Seller Subsidiaries or
Buyers to or with respect to any employee or former employee of
Seller or any of the Seller Subsidiaries will fail to be deductible
for federal income tax purposes by reason of Section 280G of the
Code. No Seller Employee Stock Option has an associated
"Additional Option Right" or similar "reload" feature.
2.20. Conduct of Seller to Date. From and after March
-------------------------
31, 1994 through the date of this Agreement, except as set forth on
Schedule 2.20 or in the Seller Financial Statements: (i) Seller and
- -------------
the Seller Subsidiaries have conducted their respective businesses
in the ordinary and usual course consistent with past practices;
(ii) neither Seller nor any of the Seller Subsidiaries has issued,
sold, granted, conferred or awarded any of its Equity Securities
(except shares of Seller Common Stock upon exercise of Seller
Employee Stock Options), or any corporate debt securities which
would be classified under GAAP as long-term debt on the balance
sheets of Seller or the Seller Subsidiaries; (iii) Seller has not
effected any stock split or adjusted, combined, reclassified or
otherwise changed its capitalization; (iv) Seller has not declared,
set aside or paid any dividend (other than its regular quarterly
dividends) or other distribution in respect of its capital stock, or
purchased, redeemed, retired, repurchased, or exchanged, or otherwise
- 22 -
<PAGE> 117
acquired or disposed of, directly or indirectly, any of
its Equity Securities, whether pursuant to the terms of such Equity
Securities or otherwise; (v) neither Seller nor any of the Seller
Subsidiaries has incurred any obligation or liability (absolute or
contingent), except normal trade or business obligations or
liabilities incurred in the ordinary course of business, or
subjected to Lien any of its assets or properties other than in the
ordinary course of business consistent with past practice; (vi)
neither Seller nor any of the Seller Subsidiaries has discharged or
satisfied any Lien or paid any obligation or liability (absolute or
contingent), other than in the ordinary course of business; (vii)
neither Seller nor any of the Seller Subsidiaries has sold,
assigned, transferred, leased, exchanged, or otherwise disposed of
any of its properties or assets other than for a fair consideration
in the ordinary course of business; (viii) except as required by
contract or law, neither Seller nor any of the Seller Subsidiaries
has (A) increased the rate of compensation of, or paid any bonus
to, any of its directors, officers, or other employees, except
merit or promotion increases in accordance with existing policy,
(B) entered into any new, or amended or supplemented any existing,
employment, management, consulting, deferred compensation,
severance, or other similar contract, (C) entered into, terminated,
or substantially modified any of the Seller Employee Plans or (D)
agreed to do any of the foregoing; (ix) neither Seller nor any
Seller Subsidiary has suffered any material damage, destruction, or
loss, whether as the result of fire, explosion, earthquake,
accident, casualty, labor trouble, requisition, or taking of
property by any Regulatory Authority, flood, windstorm, embargo,
riot, act of God or the enemy, or other casualty or event, and
whether or not covered by insurance; (x) neither Seller nor any of
the Seller Subsidiaries has cancelled or compromised any debt,
except for debts charged off or compromised in accordance with the
past practice of Seller and the Seller Subsidiaries, and (xi)
neither Seller nor any of the Seller Subsidiaries has entered into
any material transaction, contract or commitment outside the
ordinary course of its business.
2.21. Absence of Undisclosed Liabilities. Except as
----------------------------------
disclosed in Schedule 2.21 or in any other Schedule to this
-------------
Agreement:
(a) As of the date of this Agreement, neither
Seller nor any of the Seller Subsidiaries 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:
(i) liabilities reflected on the Seller
Financial Statements; and
(ii) debts, liabilities or obligations
incurred since March 31, 1994 in the ordinary and usual
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<PAGE> 118
course of their respective businesses, none of which are
for breach of contract, breach of warranty, torts,
infringements or lawsuits and none of which have a
material adverse effect on the Condition of the Seller
and the Seller Subsidiaries, taken as a whole.
(b) To the best knowledge of the Seller,
neither Seller nor any of the Seller Subsidiaries was as of March
31, 1994 and since such date has become a party to, any contract or
agreement which affected, affects or may reasonably be expected to
affect, materially and adversely, the Condition of the Seller and
the Seller Subsidiaries, taken as a whole.
2.22. Proxy Statement, etc. None of the information
--------------------
regarding Seller or any of the Seller Subsidiaries to be supplied
by Seller for inclusion or included in (i) the Registration
Statement on Form S-4 to be filed with the SEC by Mercantile for
the purpose of registering the shares of Mercantile Common Stock to
be exchanged for shares of Seller Common Stock pursuant to the
provisions of this Agreement (the "Registration Statement"), (ii)
the Proxy Statement to be mailed to Seller's stockholders in
connection with the meeting to be called to consider the Merger
(the "Proxy Statement") or (iii) any other documents to be filed
with any Regulatory Authority in connection with the transactions
contemplated hereby will, at the respective times such documents
are filed with any Regulatory Authority and, in the case of the
Registration Statement, when it becomes effective and, with respect
to the Proxy Statement, when mailed, be false or misleading with
respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading
or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the meeting of Seller's
stockholders 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 Seller or any of the Seller
Subsidiaries is responsible for filing with any Regulatory
Authority in connection with the Merger will comply as to form in
all material respects with the provisions of applicable law.
2.23. Registration Obligations. Except as set forth on
------------------------
Schedule 2.23, neither Seller nor any of the Seller Subsidiaries is
- -------------
under any obligation, contingent or otherwise, which will survive
the Effective Time by reason of any agreement to register any
transaction involving any of its securities under the Securities
Act.
2.24. Accounting, Tax and Regulatory Matters. Neither
--------------------------------------
Seller nor any of the Seller Subsidiaries has taken or agreed to
take any action or has any knowledge of any fact or circumstance
that would (i) prevent the transactions contemplated hereby from
qualifying (A) for pooling-of-interests accounting treatment or (B)
as a reorganization within the meaning of
- 24 -
<PAGE> 119
Section 368 of the Code or (ii) materially impede or delay receipt of
any approval referred to in Section 6.01(b) or the consummation of the
transactions contemplated by this Agreement.
2.25. Brokers and Finders. Except for Stifel, Nicolaus
-------------------
& Company Incorporated, neither Seller nor any of the Seller
Subsidiaries nor any of their respective officers, directors or
employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees,
commissions or finder's fees, and no broker or finder has acted
directly or indirectly for Seller or any of the Seller Subsidiaries
in connection with this Agreement or the transactions contemplated
hereby.
2.26. Accuracy of Information. The statements
-----------------------
contained in this Agreement, the Schedules and any other written
document executed and delivered by or on behalf of Seller pursuant
to the terms of this Agreement are true and correct as of the date
hereof or as of the date delivered in all material respects, and
such statements and documents do not omit any material fact
necessary to make the statements contained therein not misleading.
ARTICLE III
-----------
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS
As an inducement to Seller to enter into and perform its
obligations under this Agreement, and notwithstanding any
examination, inspection, audit or other investigation made by
Seller, Buyers jointly and severally represent and warrant to and
covenant with Seller as follows:
3.01. Organization and Authority. Buyer and Merger Sub
--------------------------
are each corporations duly organized, validly existing and in good
standing under the laws of the State of Missouri, are each
qualified to do business and are each in good standing in all
jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and has
corporate power and authority to own its properties and assets and
to carry on its business as it is now being conducted, except where
the failure to be so qualified would not have a material adverse
effect on the Condition of Mercantile and its Subsidiaries, taken
as a whole. Each of Mercantile and Merger Sub is registered as a
bank holding company with the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") under the Holding
Company Act. True and complete copies of the Articles of
Incorporation and Bylaws of Mercantile, each in effect on the date
of this Agreement, have been provided to Seller.
3.02. Capitalization of Mercantile. The authorized
----------------------------
capital stock of Mercantile consists of (i) 100,000,000 shares of
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<PAGE> 120
Mercantile Common Stock, of which, as of June 30, 1994, 43,146,531
shares were issued and outstanding and (ii) 5,000,000 shares of
preferred stock, no par value ("Mercantile Preferred Stock"),
issuable in series, of which none are issued or outstanding.
Mercantile has designated 1,000,000 shares of Mercantile Preferred
Stock as "Series A Junior Participating Preferred Stock" and has
reserved such shares under a Rights Agreement dated May 23, 1988
(the "Mercantile Rights Agreement"), between Mercantile and
Mercantile Bank of St. Louis National Association, as Rights Agent.
As of June 30, 1994, Mercantile had reserved (i) 4,608,735 shares
of Mercantile Common Stock for issuance upon the exercise of
options ("Mercantile Employee Stock Options") under the Mercantile
stock option and incentive plans and (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. As of
June 30, 1994, there were outstanding $10,088,000 aggregate
principal amount of Convertible Subordinated Capital Notes due 1995
(the "Convertible Notes") and, as of such date, Mercantile had
reserved 388,135 shares of Mercantile Common Stock for issuance
upon conversion of the Convertible Notes. From June 30, 1994
through the date of this Agreement, no Equity Securities of
Mercantile have been issued excluding any shares of Mercantile
Common Stock which may have been issued upon exercise of Mercantile
Employee Stock Options or conversion of the Convertible Notes.
Mercantile continually evaluates possible
acquisitions and may prior to the Effective Time enter into one or
more agreements providing for, and may consummate, the acquisition
by it of another bank, association, bank holding company, savings
and loan holding company or other company (or the assets thereof)
for consideration that may include equity securities. In addition,
prior to the Effective Time, Mercantile may, depending on market
conditions and other factors, otherwise determine to issue equity,
equity-linked or other securities for financing purposes.
Notwithstanding the foregoing, Mercantile will not take any action
that would (i) prevent the transactions contemplated hereby from
qualifying (A) for pooling-of-interests accounting treatment or (B)
as a reorganization within the meaning of Section 368 of the Code
or (ii) materially impede or delay receipt of any approval referred
to in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement. Except as set forth above and
except pursuant to the Mercantile Rights Agreement, there are no
other Equity Securities of Mercantile outstanding. All of the
issued and outstanding shares of Mercantile Common Stock are
validly issued, fully paid, and nonassessable, and have not been
issued in violation of any preemptive right of any stockholder of
Mercantile. At the Effective Time, the Mercantile Common Stock to
be issued in the Merger will be duly authorized, validly issued,
fully paid and nonassessable, and will not be issued in violation
of any preemptive right of any stockholder of Mercantile.
- 26 -
<PAGE> 121
3.03. Authorization.
-------------
(a) Mercantile and Merger Sub each have the
corporate power and authority to enter into this Agreement and to
carry out their respective obligations hereunder. The execution,
delivery and performance of this Agreement by Mercantile and Merger
Sub and the consummation by Mercantile and Merger Sub of the
transactions contemplated hereby have been duly authorized by all
requisite corporate action of Mercantile and Merger Sub. Subject
to the receipt of such approvals of the Regulatory Authorities as
may be required by statute or regulation, this Agreement is a valid
and binding obligation of Mercantile and Merger Sub enforceable
against each in accordance with its terms.
(b) Neither the execution, delivery and
performance by Mercantile and Merger Sub of this Agreement, nor the
consummation by Mercantile and Merger Sub of the transactions
contemplated hereby, nor compliance by Mercantile and Merger Sub
with any of the provisions hereof, will (i) violate, conflict with
or result in a breach of any provisions of, or constitute a default
(or an event which, with notice or lapse of time or both, would
constitute a default) or result in the termination of, or
accelerate the performance required by, or result in a right of
termination or acceleration of, or result in the creation of, any
Lien upon any of the properties or assets of Mercantile or Merger
Sub under any of the terms, conditions or provisions of (x) their
respective Articles of Incorporation or Bylaws, or (y) any material
note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which Mercantile or
Merger Sub is a party or by which they may be bound, or to which
Mercantile or Merger Sub or any of their respective properties or
assets may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in subsection (c) of this
Section 3.03, to the best knowledge of Buyers, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to Mercantile or Merger Sub or any of their
respective properties or assets.
(c) Other than in connection with or in
compliance with the provisions of the Missouri Act and the DGCL,
the Securities Act, the Exchange Act, the securities or blue sky
laws of the various states or filings, consents, reviews,
authorizations, approvals or exemptions required under the Holding
Company Act, the Federal Deposit Insurance Act, the HOLA and the
HSR Act, or any required approvals of any other Regulatory
Authority, no notice to, filing with, exemption or review by, or
authorization, consent or approval of, any public body or authority
is necessary for the consummation by Mercantile and Merger Sub of
the transactions contemplated by this Agreement.
3.04. Mercantile Financial Statements. The
-------------------------------
supplemental consolidated and parent company only balance sheets of
Mercantile and its Subsidiaries as of December 31, 1993, 1992
- 27 -
<PAGE> 122
and 1991 and related supplemental consolidated and parent company only
statements of income, changes in shareholders' equity and cash
flows for each of the three years in the three-year period ended
December 31, 1993, together with the notes thereto, audited by KPMG
Peat Marwick and included in Mercantile's current report on Form 8-
K dated June 17, 1994 as filed with the SEC, and the unaudited
consolidated balance sheets of Mercantile and its Subsidiaries as
of March 31, 1994 and the related unaudited consolidated statements
of income and cash flows for the periods ended March 31, 1994 and
1993 included in the quarterly report on Form 10-Q as filed with
the SEC (collectively, the "Mercantile Financial Statements"), have
been prepared in accordance with GAAP, present fairly the
consolidated financial position of Mercantile and its Subsidiaries
at the dates and the consolidated results of operations, changes in
shareholders' equity and cash flows of Mercantile and its
Subsidiaries for the periods stated therein and are derived from
the books and records of Mercantile and its Subsidiaries, which are
complete and accurate in all material respects and have been
maintained in accordance with good business practices. Neither
Mercantile nor any of its Subsidiaries has any material contingent
liabilities that are not described in the Mercantile Financial
Statements.
3.05. Mercantile Reports. Since January 1, 1991, each
------------------
of Mercantile and its Subsidiaries has filed all reports,
registrations and statements, together with any required
amendments thereto, that it was required to file with any
Regulatory Authority. All such reports and statements filed with
any such Regulatory Authority are collectively referred to herein
as the "Mercantile Reports." As of its respective date, each
Mercantile Report complied in all material respects with all the
rules and regulations promulgated by the applicable Regulatory
Authority and did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
3.06. Material Adverse Change. Since March 31, 1994,
-----------------------
there has been no material adverse change in the Condition of
Mercantile and its Subsidiaries, taken as a whole, except as may
have resulted or may result from changes to laws and regulations,
or interpretations thereto, or changes in economic conditions,
including interest rates, applicable to depositary institutions
generally.
3.07. Legal Proceedings or Other Adverse Facts. There
----------------------------------------
is no legal action or other governmental proceeding or
investigation pending or, to the best knowledge of Buyers,
threatened against Mercantile or any of its Subsidiaries that could
prevent or adversely affect in a material manner or seeks to
prohibit the consummation of the transactions contemplated herein,
nor is Mercantile or any of its Subsidiaries subject to any order
of a court or governmental authority having any such
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<PAGE> 123
effect. To the best knowledge of Buyers, there is no other fact that
could prevent or adversely affect the consummation of the transactions
contemplated herein.
3.08. Registration Statement, etc. None of the
---------------------------
information regarding Mercantile or any of its Subsidiaries to be
supplied by Buyers for inclusion or included in (i) the
Registration Statement, (ii) the Proxy Statement, or (iii) any
other documents to be filed with any Regulatory Authority in
connection with the transactions contemplated hereby will, at the
respective times such documents are filed with any Regulatory
Authority and, in the case of the Registration Statement, when it
becomes effective and, with respect to the Proxy Statement, when
mailed, be false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the
statements therein not misleading or, in the case of the Proxy
Statement or any amendment thereof or supplement thereto, at the
time of the meeting of stockholders referred to in Section 5.03, be
false or misleading with respect to any material fact, or omit to
state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy
for such meeting. All documents which Mercantile or Merger Sub are
responsible for filing with any Regulatory Authority in connection
with the Merger will comply as to form in all material respects
with the provisions of applicable law.
3.09. Brokers and Finders. Neither Mercantile, Merger
-------------------
Sub nor any of their respective officers, directors or employees
has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's
fees, and no broker or finder has acted directly or indirectly for
Mercantile or Merger Sub in connection with this Agreement or the
transactions contemplated hereby.
3.10. Accuracy of Information. The statements
-----------------------
contained in this Agreement, the Schedules and in any other written
document executed and delivered by or on behalf of Buyers pursuant
to the terms of this Agreement are true and correct in all material
respects, and such statements and documents do not omit any
material fact necessary to make the statements contained herein or
therein not misleading.
ARTICLE IV
----------
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.01. Conduct of Businesses Prior to the Effective
--------------------------------------------
Time. During the period from the date of this Agreement to the
- ----
Effective Time, Seller shall, and shall cause each of the Seller
Subsidiaries to, conduct their respective businesses according to
the ordinary and usual course consistent with past practices and
shall, and shall cause each such Subsidiary to, use its best
efforts to maintain and preserve its business organization,
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<PAGE> 124
employees and advantageous business relationships and retain the
services of its officers and key employees.
4.02. Forbearances of Seller. Except as set forth in
----------------------
Schedule 4.02 or with the prior written consent of Buyers, during
- -------------
the period from the date of this Agreement to the Effective Time,
Seller shall not and shall not permit any of the Seller
Subsidiaries to:
(a) declare, set aside or pay any dividends or
other distributions, directly or indirectly, in respect of its
capital stock (other than dividends from any of the Seller
Subsidiaries to Seller or to another of the Seller Subsidiaries),
except that Seller may declare and pay regular quarterly cash
dividends of not more than $0.25 per share on the Seller Common
Stock, provided that Seller shall not declare or pay its regular
--------
quarterly dividend for any quarter in which Seller stockholders
will be entitled to receive a regular quarterly dividend on the
shares of Mercantile Common Stock to be issued in the Merger;
(b) enter into or amend any employment,
severance or similar agreement or arrangement with any director or
officer or employee, or materially modify any of the Seller
Employee Plans or grant any salary or wage increase or materially
increase any employee benefit (including incentive or bonus
payments), except normal individual increases in compensation to
employees consistent with past practice, or as required by law or
contract, except for such increases of which Seller notifies Buyers
in writing and which Buyers do not disapprove within 10 days of the
receipt of such notice;
(c) authorize, recommend, propose or announce
an intention to authorize, so recommend or propose, or enter into
an agreement in principle with respect to, any merger,
consolidation or business combination (other than the Merger), any
acquisition of a material amount of assets or securities, any
disposition of a material amount of assets or securities or any
release or relinquishment of any material contract rights;
(d) propose or adopt any amendments to its
articles of incorporation, association or other charter document or
bylaws;
(e) issue, sell, grant, confer or award any of
its Equity Securities (except shares of Seller Common Stock issued
upon exercise of Seller Employee Stock Options outstanding on the
date of this Agreement) or effect any stock split or adjust,
combine, reclassify or otherwise change its capitalization as it
existed on the date of this Agreement;
(f) purchase, redeem, retire, repurchase, or
exchange, or otherwise acquire or dispose of, directly or
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<PAGE> 125
indirectly, any of its Equity Securities, whether pursuant to the
terms of such Equity Securities or otherwise;
(g) (i) without first consulting with Buyers,
enter into or increase any loan or credit commitment (including
stand-by letters of credit) to, or invest or agree to invest in any
person or entity or modify any of the material provisions or renew
or otherwise extend the maturity date of any existing loan or
credit commitment (collectively, "Lend to") in an amount in excess
of $250,000 provided no such consultation shall be required in
--------
respect of single-family residential loans or credits not exceeding
$500,000 that are saleable in recognized secondary markets pursuant
to Seller's lending policies as in effect on the date hereof; (ii)
enter into, or increase in an amount in excess of $250,000, any
commercial or multi-family real estate loan or credit commitment
(including stand-by letters of credit) to, or invest or agree to
invest in any commercial or multi-family real estate project or
entity, or Lend to any person other than in accordance with lending
policies as in effect on the date hereof, provided that Seller or
--------
any of the Seller Subsidiaries may make any such loan in the event
(A) Seller or any Seller Subsidiary has delivered to Buyers or
their designated representative a notice of its intention to make
such loan and such information as Buyers or their designated
representative may reasonably require in respect thereof and (B)
Buyers or their designated representative shall not have reasonably
objected to such loan by giving written or facsimile notice of such
objection within two business days following the delivery to Buyers
or their designated representative of the notice of intention and
information as aforesaid; or (iii) Lend to any person or entity any
of the loans or other extensions of credit to which or investments
in which are on a "watch list" or similar internal report of Seller
or any of the Seller Subsidiaries (except those denoted "pass"
thereon), in an amount in excess of $100,000; provided, however,
-------- -------
that nothing in this paragraph shall prohibit Seller or any Seller
Subsidiary from honoring any contractual obligation in existence on
the date of this Agreement or, with respect to loans described in
clause (i) above, making such loans after consulting with Buyers;
(h) directly or indirectly (including through
its officers, directors, employees or other representatives)
initiate, solicit or encourage any discussions, inquiries or
proposals with any third party relating to the disposition of any
significant portion of the business or assets of Seller or any of
the Seller Subsidiaries or the acquisition of Equity Securities of
Seller or any of the Seller Subsidiaries or the merger of Seller or
any of the Seller Subsidiaries with any person (other than Buyers)
or any similar transaction (each such transaction being referred to
herein as an "Acquisition Transaction"), or provide any such person
with information or assistance or negotiate with any such person
with respect to an Acquisition Transaction, and Seller shall
promptly notify Buyers orally of all the relevant details relating
to all inquiries,
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<PAGE> 126
indications of interest and proposals which it may receive with
respect to any Acquisition Transaction;
(i) take any action that would (A) materially
impede or delay the consummation of the transactions contemplated
by this Agreement or the ability of Buyers or Seller to obtain any
approval of any Regulatory Authority required for the transactions
contemplated by this Agreement or to perform its covenants and
agreements under this Agreement or (B) prevent the transactions
contemplated hereby from qualifying as a pooling-of-interests for
accounting purposes or as a reorganization within the meaning of
Section 368 of the Code;
(j) other than in the ordinary course of
business consistent with past practice, incur any indebtedness for
borrowed money, assume, guarantee, endorse or otherwise as an
accommodation become responsible or liable for the obligations of
any other individual, corporation or other entity;
(k) agree in writing or otherwise to take any
of the foregoing actions or engage in any activity, enter into any
transaction or take or omit to take any other act which would make
any of the representations and warranties in Article II of this
Agreement untrue or incorrect in any material respect if made anew
after engaging in such activity, entering into such transaction, or
taking or omitting such other act; or
(l) enter into, increase or renew any loan or
credit commitment (including standby letters of credit) to any
executive officer or director of Seller or any of the Seller
Subsidiaries, any Seller stockholder, or any entity controlled,
directly or indirectly, by any of the foregoing or engage in any
transaction with any of the foregoing which is of the type or
nature sought to be regulated in 12 U.S.C. 371c and 12 U.S.C. 371c-
1, without first obtaining the prior written consent of Buyers,
which consent shall not be unreasonably withheld. For purposes of
this subsection (l), "control" shall have the meaning associated
with that tern under 12 U.S.C. 371c.
4.03. Forbearances of Buyers. During the period from
----------------------
the date of this Agreement to the Closing Date, Buyers shall not,
without the prior written consent of Seller, agree in writing or
otherwise engage in any activity, enter into any transaction or
take or omit to take any other action 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.
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<PAGE> 127
ARTICLE V
---------
ADDITIONAL AGREEMENTS
5.01. Access and Information.
----------------------
(a) Seller and the Seller Subsidiaries shall
each afford to Buyers, and to Buyers' accountants, counsel and
other representatives, full access during normal business hours,
during the period prior to the Effective Time, to all their
respective properties, books, contracts, commitments and records
and, during such period, each shall furnish promptly to Buyers (i)
a copy of each report, schedule and other document filed or
received by it during such period pursuant to the requirements of
federal and state securities laws and (ii) all other information
concerning its business, properties and personnel as Buyers may
reasonably request. Buyers shall, and shall cause its advisors and
representatives to, (A) hold confidential all information obtained
in connection with any transaction contemplated hereby with respect
to Seller or any of the Seller Subsidiaries which is not otherwise
public knowledge, (B) in the event of a termination of this
Agreement, return all documents (including copies thereof) obtained
hereunder from Seller or any of the Seller Subsidiaries to them and
(C) use their respective best efforts to cause all of Seller's
confidential information obtained pursuant to this Agreement or in
connection with the negotiation of this Agreement to be treated as
confidential and not use, or knowingly permit others to use, any
such information unless such information becomes generally
available to the public.
(b) Buyers shall promptly following the date
of this Agreement, commence its review of Seller and the Seller
Subsidiaries and their respective operations, business affairs,
prospects and financial condition, including, without limitation,
those matters which are the subject of the Seller's representations
and warranties (the "Due Diligence Review"). Buyers shall conclude
such review by not later than 25 business days after the date of
this Agreement (the "Due Diligence Review Period"), but the
pendency or such Due Diligence Review shall not delay Mercantile's
obligation pursuant to Section 5.02 of this Agreement to file a
Registration Statement with the SEC and all other necessary
applications and filings with the appropriate Regulatory
Authorities. Buyers shall advise Seller of any situation, event,
circumstance or other matter which first comes to the attention of
Buyers during the Due Diligence Review which could potentially
result in the termination of this Agreement by Buyer pursuant to
Section 7.01(d) hereof, or, if applicable, of the absence of any
situation, event, circumstance or other matter, it being the
intention of Buyers to provide notice to Seller as promptly as
possible of any perceived impediment to the consummation of the
Merger. Notwithstanding anything hereinabove contained or implied
to the contrary, the Due Diligence Review shall not limit, restrict
or preclude Buyers, at any time or from time to time thereafter,
from conducting further such reviews or
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<PAGE> 128
from exercising any rights available to it hereunder as a result of
the existence or occurrence prior to the Due Diligence Period of any
event or condition which was not detected in the Due Diligence Review
by Buyers and which constitutes a breach of any representation,
warranty or agreement of Seller under this Agreement.
5.02. Registration Statement; Regulatory Matters.
------------------------------------------
(a) Mercantile shall prepare and, subject to the
review and consent of Seller with respect to matters relating to
Seller, file with the SEC as soon as is reasonably practicable the
Registration Statement (or the equivalent in the form of
preliminary proxy materials) with respect to the shares of
Mercantile Common Stock to be issued in the Merger. Mercantile
shall prepare and, subject to the review and consent of Seller with
respect to matters relating to Seller, use its best efforts to file
as soon as is reasonably practicable an application with the
Federal Reserve Board and the OTS and shall use its best efforts to
cause the Registration Statement to become effective. Mercantile
shall also take any action required to be taken under any
applicable state blue sky or securities laws in connection with the
issuance of such shares, and Seller and the Seller Subsidiaries
shall furnish Mercantile all information concerning Seller and the
Seller Subsidiaries and the stockholders thereof as Mercantile may
reasonably request in connection with any such action.
(b) Seller and Buyers shall cooperate and use
their respective best efforts to prepare all documentation, to
effect all filings and to obtain all permits, consents, approvals
and authorizations of all third parties and Regulatory Authorities
necessary to consummate the transactions contemplated by this
Agreement (including any requisite approval of the OTS under 12
C.F.R. " 563b.3(i)) and, as and if directed by Mercantile, to
consummate such other mergers, consolidations or asset transfers or
other transactions by and among Mercantile's Subsidiaries and the
Seller Subsidiaries concurrently with or following the Effective
Time (including without limitation the conversion of United Savings
to a federal savings bank or similar organization), provided that
--------
such actions do not materially impede or delay (i) the receipt of
any approval referred to in Section 6.01(b) or (ii) the
consummation of the transactions contemplated by this Agreement.
5.03. Stockholder Approval. Seller shall call a
--------------------
meeting of its stockholders to be held as soon as practicable for
the purpose of voting upon the Merger. In connection with such
meetings, Mercantile shall prepare, subject to the review and
consent of Seller, the Proxy Statement (which shall be part of the
Registration Statement to be filed with the SEC by Mercantile) and
mail the same to the stockholders of Seller. The Board of
Directors of Seller shall submit for approval of Seller's
stockholders the matters to be voted upon at such
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<PAGE> 129
meeting. The Board of Directors of Seller hereby does and will
recommend this Agreement and the transactions contemplated hereby to
stockholders of Seller and will use its best efforts to obtain any
vote of Seller's stockholders necessary for the approval and adoption
of this Agreement.
5.04. Current Information. During the period from the
-------------------
date of this Agreement to the Effective Time, each party shall
promptly furnish the other with copies of all 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) an event which would
cause any representation or warranty of such party or any Schedule,
statement, report, notice, certificate or other writing furnished
by such party to be untrue or misleading in any material respect,
(b) any material change in its business financial condition,
results of operations or prospects, (c) the issuance or
commencement of any governmental complaint, investigation or
hearing (or any communication indicating that the same may be
contemplated), or (d) the institution or threat of material
litigation involving such party, and shall keep the other party
fully informed of such events.
5.05. Agreements of Affiliates. As soon as practicable
------------------------
after the date of this Agreement, Seller shall deliver to
Mercantile a letter identifying all persons whom Seller believes
will be, at the time this Agreement is submitted to a vote of the
stockholders of Seller, "affiliates" of Seller for purposes of Rule
145 under the Securities Act. Seller shall use its best efforts to
cause each person who is so identified as an "affiliate" to deliver
to Mercantile as soon as practicable thereafter, and in any event
no later than the publication of notice in the Federal Register of
Mercantile's application with the Federal Reserve Board referred to
in Section 5.02, a written agreement in substantially the form set
forth as Appendix A to this Agreement, providing that from the date
----------
of this Agreement each such person will agree not to sell, pledge,
transfer or otherwise dispose of any shares of Seller Common Stock
held by such person or any shares of Mercantile Common Stock to be
received by such person in the Merger except in compliance with the
applicable provisions of the Securities Act and until such time as
financial results covering at least 30 days of combined operations
of Mercantile and Seller shall have been published. Prior to the
Effective Time, Seller shall amend and supplement such letter and
use its best efforts to cause each additional person who is
identified as an "affiliate" to execute a written agreement as set
forth in this Section 5.05.
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<PAGE> 130
5.06. Expenses. Each party hereto shall bear its own
--------
expenses incident to preparing, entering into and carrying out this
Agreement and to consummating the Merger, provided, however, that
-------- -------
Buyers shall pay all printing and mailing expenses and filing fees
associated with the Registration Statement and the Proxy Statement.
5.07. Miscellaneous Agreements and Consents. Subject
-------------------------------------
to the terms and conditions herein provided, each of the parties
hereto agrees to use its respective best efforts to take, or cause
to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as possible,
including without limitation using its respective best efforts to
lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the
transactions contemplated hereby. Each party shall, and shall
cause each of its respective subsidiaries to, use its best efforts
to obtain consents of all third parties and Regulatory Authorities
necessary or, in the opinion of Buyers, desirable for the
consummation of the transactions contemplated by this Agreement.
5.08. Employee Agreements and Benefits.
--------------------------------
(a) Following the Effective Time, Buyers shall
cause the Surviving Corporation to honor in accordance with their
terms all employment, severance and other compensation contracts
set forth on Schedule 5.08 between Seller, any of the Seller
-------------
Subsidiaries, and any current or former director, officer, employee
or agent thereof, and all provisions for vested benefits or other
vested amounts earned or accrued through the Effective Time under
the Seller Employee Plans.
(b) Except as provided in Section 5.09, the
provisions of the Seller Stock Plans and of any other plan, program
or arrangement providing for the issuance or grant of any other
interest in respect of the capital stock of Seller or any of the
Seller Subsidiaries shall be deleted and terminated as of the
Effective Time, and Seller shall ensure that following the
Effective Time no holder of Seller Employee Stock Options or any
participant in any Seller Stock Plan shall have any right
thereunder to acquire any securities of Seller or any of the Seller
Subsidiaries.
(c) Except as set forth in Section 5.08(b)
hereof, the Seller Employee Plans shall not be terminated by reason
of the Merger but shall continue thereafter as plans of the
Surviving Corporation until such time as the employees of the
Seller and the Seller Subsidiaries are integrated into Mercantile's
employee benefit plans that are available to other employees of
Mercantile and its Subsidiaries, subject to the terms and
conditions specified in such plans and to such changes
- 36 -
<PAGE> 131
therein as may be necessary to reflect the consummation of the Merger.
Mercantile shall take such steps as are necessary or required to
integrate the employees of Seller and the Seller Subsidiaries in
the Mercantile's employee benefit plans available to other
employees of Mercantile and its Subsidiaries as soon as practicable
after the Effective Time.
5.09. Employee Stock Options. At the Effective Time,
----------------------
all rights with respect to Seller Common Stock pursuant to Seller
Employee Stock 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 all Seller Employee Stock Options in accordance with
the terms of the Seller Stock Plan under which it was issued and
the Seller Employee Stock Option Agreement by which it is
evidenced. From and after the Effective Time, (i) each Seller
Employee Stock Option assumed by Mercantile shall be exercised
solely for shares of Mercantile Common Stock, (ii) the number of
shares of Mercantile Common Stock subject to each Seller Employee
Stock Option shall be equal to the number of shares of Seller
Common Stock subject to such Seller Employee Stock Option
immediately prior to the Effective Time multiplied by the Exchange
Ratio and (iii) the per share exercise price under each Seller
Employee Stock Option shall be adjusted by dividing the per share
exercise price under such Seller Employee Stock Option by the
Exchange Ratio and rounding down to the nearest cent; provided,
--------
however, that the terms of each Seller Employee Stock Option shall,
- -------
in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend,
recapitalization 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 the Code, as to any Seller Employee Stock Option that
is an "incentive stock option" as defined under the Code.
5.10. Press Releases. Except as may be required by
--------------
law, Seller and Mercantile shall consult and agree with each other
as to the form and substance of any proposed press release relating
to this Agreement or any of the transactions contemplated hereby.
5.11. State Takeover Statutes. Seller will take all
-----------------------
steps necessary to exempt the transactions contemplated by this
Agreement and any agreement contemplated hereby from, and if
necessary challenge the validity of, any applicable state takeover
law.
5.12. Directors' and Officers' Indemnification.
----------------------------------------
Mercantile agrees that the Merger shall not affect or diminish any
of Seller's duties and obligations of indemnification existing as
of the Effective Time in favor of employees, agents, directors or
officers of Seller or any of the Seller Subsidiaries arising by
virtue of its Certificate of Incorporation or Bylaws
- 37 -
<PAGE> 132
in the form in effect at the date of this Agreement or arising by
operation of law or arising by virtue of any contract, resolution or
other agreement or document existing at the date of this Agreement,
and such duties and obligations shall continue in full force and
effect for so long as they would (but for the Merger) otherwise
survive and continue in full force and effect. To the extent that
Seller's existing directors' and officers' liability insurance policy
would provide coverage for any action or omission occurring prior to
the Effective Time, Seller agrees to give proper notice to the
insurance carrier and to Mercantile of a potential claim thereunder
so as to preserve Seller's rights to such insurance coverage.
Mercantile represents that the directors' and officers' liability
insurance policy maintained by it provides for coverage of "prior
acts" for directors and officers of entities acquired by
Mercantile.
5.13. Best Efforts to Insure Pooling. Each of Buyers
------------------------------
and Seller undertakes and agrees to use its best efforts to cause
the Merger to qualify for pooling-of-interests accounting
treatment.
ARTICLE VI
----------
CONDITIONS
6.01. Conditions to Each Party's Obligation To Effect
-----------------------------------------------
the Merger. The respective obligations of each party to effect the
- ----------
Merger shall be subject to the fulfillment or waiver at or prior to
the Effective Time of the following conditions:
(a) This Agreement shall have received the
requisite approval of stockholders of Seller at the meeting of
stockholders called pursuant to Section 5.03 of this Agreement.
(b) All requisite approvals of this Agreement
and the transactions contemplated hereby shall have been received
from the Federal Reserve Board, the OTS and the MDOF, including any
requisite approval under 12 C.F.R. " 563b.3(i).
(c) The Registration Statement shall have been
declared effective and shall not be subject to a stop order or any
threatened stop order.
(d) Neither Seller nor Buyers shall be subject
to any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits the consummation
of the Merger.
(e) Each of Buyers and Seller shall have
received from Mercantile's counsel an opinion reasonably
satisfactory in form and substance to it to the effect that the
Merger will constitute a reorganization within the meaning of
Section 368 of the Code and that no gain or loss will be
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<PAGE> 133
recognized by the stockholders of Seller to the extent they receive
Mercantile Common Stock solely in exchange for shares of Seller Common
Stock.
(f) Each of Buyers and Seller shall have
received an opinion of KPMG Peat Marwick, satisfactory in form and
substance to Mercantile, that the Merger will qualify for pooling-
of-interests accounting treatment, which opinion shall not have
been withdrawn.
6.02. Conditions to Obligations of Seller To Effect the
-------------------------------------------------
Merger. The obligations of Seller to effect the Merger shall be
- ------
subject to the fulfillment or waiver at or prior to the Effective
Time of the following additional conditions:
(a) Representations and Warranties. The
------------------------------
representations and warranties of Buyers set forth in Article III
of this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective
Time (as though made on and as of the Effective Time except (i) to
the extent such representations and warranties are by their express
provisions made as of a specified date and (ii) for the effect of
transactions contemplated by this Agreement) and Seller shall have
received a certificate of the Vice Chairman of Mercantile, signing
solely in his capacity as an officer of Mercantile, to that effect.
(b) Performance of Obligations. Buyers shall
--------------------------
have performed in all material respects all obligations required to
be performed by it under this Agreement prior to the Effective
Time, and Seller shall have received a certificate of the Vice
Chairman of Mercantile, signing solely in his capacity as an
officer of Mercantile, to that effect.
(c) Permits, Authorizations, etc. Buyers
-----------------------------
shall have obtained any and all material permits, authorizations,
consents, waivers and approvals required for the lawful
consummation of the Merger.
(d) No Material Adverse Change. Since the
--------------------------
date of this Agreement, there shall have been no material adverse
change to the Condition of Mercantile and its Subsidiaries, taken
as a whole.
(e) Opinion of Counsel. Mercantile shall have
------------------
delivered to Seller an opinion of Mercantile's counsel dated as of
the Closing Date or a mutually agreeable earlier date in
substantially the form set forth as Appendix B to this Agreement.
----------
6.03. Conditions to Obligations of Buyers To Effect the
-------------------------------------------------
Merger. The obligations of Buyers to effect the Merger shall be
- ------
subject to the fulfillment or waiver at or prior to the
- 39 -
<PAGE> 134
Effective Time of the following additional conditions:
(a) Representations and Warranties. The
------------------------------
representations and warranties of Seller set forth in Article II of
this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Effective Time (as
though made on and as of the Effective Time except (i) to the
extent such representations and warranties are by their express
provisions made as of a specific date and (ii) for the effect of
transactions contemplated by this Agreement) and Buyers shall have
received a certificate of the President and the Chief Financial
Officer of Seller, acting in their capacities as officers of
Seller, to that effect.
(b) Performance of Obligations. Seller shall
--------------------------
have performed in all material respects all obligations required to
be performed by it under this Agreement prior to the Effective
Time, and Buyers shall have received a certificate of the President
and the Chief Financial Officer of Seller acting solely in their
capacities as officers of Seller, to that effect.
(c) Permits, Authorizations, etc. Seller
----------------------------
shall have obtained any and all material permits, authorizations,
consents, waivers and approvals required for the lawful
consummation of the Merger.
(d) No Material Adverse Change. Since the
--------------------------
date of this Agreement, there shall have been no material adverse
change to the Condition of Seller and the Seller Subsidiaries,
taken as a whole.
(e) Opinion of Counsel. Seller shall have
------------------
delivered to Buyers an opinion of Seller's counsel dated as of the
Closing Date or a mutually agreeable earlier date in substantially
the form set forth as Appendix C to this Agreement.
----------
ARTICLE VII
------------
TERMINATION, AMENDMENT AND WAIVER
7.01. Termination. This Agreement may be terminated at
-----------
any time prior to the Effective Time, whether before or after
approval by Seller stockholders:
(a) by mutual consent by the Executive
Committee of the Board of Directors of Mercantile and by the
respective Boards of Directors of Seller and Merger Sub;
(b) by the Executive Committee of the Board of
Directors of Mercantile or the respective Boards of Directors of
Seller or Merger Sub at any time after March 31, 1995 if the Merger
shall not theretofore have been consummated (provided that the
terminating party is not then in material breach of any
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<PAGE> 135
representation, warranty, covenant or other agreement contained
herein);
(c) by the Executive Committee of the Board of
Directors of Mercantile or the respective Boards of Directors of
Seller of Merger Sub if (i) the Federal Reserve Board, the OTS or
the MDOF has denied approval of the Merger and such denial has
become final and nonappealable or (ii) stockholders of Seller shall
not have approved this Agreement at the meeting referred to in
Section 5.03 following a favorable recommendation of Seller's Board
of Directors;
(d) by the Executive Committee of the Board of
Directors of Mercantile or the Board of Directors of Merger Sub at
any time prior to the end of the Due Diligence Period, in the event
any situation, event, circumstance or other matter shall come to
the attention of Mercantile or Merger Sub during the course of the
Due Diligence Review conducted pursuant to Section 5.01(b) hereof
which Mercantile or Merger Sub shall, in a good faith exercise of
its reasonable discretion, determine to be of a type or nature
which is of such a magnitude as to be materially adverse to the
Condition of Seller and the Seller Subsidiaries, taken as a whole,
and is not capable of being expeditiously or effectively resolved
or remedied in a manner acceptable to Mercantile or Merger Sub; or
(e) by the Executive Committee of the Board of
Directors of Mercantile or the Board of Directors of Merger Sub, on
the one hand, or by the Board of Directors of Seller, on the other
hand, in the event of a breach by the other party to this Agreement
of any representation, warranty or agreement contained herein,
which breach is of such a magnitude as to be materially adverse to
the Condition of the breaching party and its subsidiaries, taken as
a whole, and is not cured within 60 days after written notice
thereof is given to the breaching party by the non-breaching party
or is not waived by the non-breaching party during such period.
7.02. Effect of Termination. In the event of
---------------------
termination of this Agreement as provided in Section 7.01 hereof,
this Agreement shall forthwith become void and there shall be no
liability on the part of Buyers or Seller or their respective
officers or directors except as set forth in the second sentence of
Section 5.01(a) and in Sections 5.06 and 8.02, and except that no
termination of this Agreement pursuant to Section 7.01(e) shall
relieve the breaching party of any liability to the non-breaching
party hereto arising from the intentional, deliberate and willful
non-performance of any covenant contained herein, after giving
notice to such breaching party and an opportunity to cure as set
forth in Section 7.01(e).
7.03. Amendment. This Agreement and the Schedules
---------
hereto may be amended by the parties hereto, by action taken by or
on behalf of the Executive Committee of the Board of Directors
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<PAGE> 136
of Mercantile and the respective Boards of Directors of Merger Sub or
Seller, at any time before or after approval of this Agreement by
the stockholders of Seller; provided, however, that (a) after any
-------- -------
such approval by the stockholders of Seller no such modification
shall (i) alter or change the amount or kind of Merger
Consideration to be received by holders of Seller Common Stock as
provided in this Agreement or (ii) adversely affect the tax
treatment to Seller stockholders as a result of the Merger
Consideration and (b) before the submission of this Agreement for
approval by the stockholders of Seller, Buyers may make such
amendments as are permitted by Section 1.12 and Seller's Board of
Directors shall approve those amendments specified in this clause
(b). This Agreement may not be amended except by an instrument in
writing signed on behalf of each of Buyers and Seller.
7.04. Waiver. Any term, condition or provision of this
------
Agreement may be waived in writing at any time by the party which
is, or whose stockholders 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 Buyers and Seller or in any
instrument delivered by Buyers or Seller pursuant to or in
connection with this Agreement shall expire at the Effective Time
or upon termination of this Agreement in accordance with its terms.
In the event of consummation of the Merger, the agreements
contained in or referred to in Sections 5.02(b), 5.07, 5.08, 5.09
and 5.12 shall survive the Effective Time. In the event of
termination of this Agreement in accordance with its terms, the
agreements contained in or referred to in the second sentence of
Section 5.01, Section 5.06, Section 7.02 and Section 8.02 shall
survive such termination.
8.02. Indemnification. Buyers and Seller (hereinafter,
---------------
in such capacity being referred to as the "Indemnifying Party")
agree to indemnify and hold harmless each other and their officers,
directors and controlling persons (each such other party being
hereinafter referred to, individually and/or collectively, as the
"Indemnified Party") against any and all losses,
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<PAGE> 137
claims, damages or liabilities, joint or several, to which the
Indemnified Party may become subject under the Securities Act, the
Exchange Act or other federal or state law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof): (a) arise out of any
information furnished to the Indemnified Party by the Indemnifying
Party or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement
as originally filed or in any amendment thereof, or in the Proxy
Statement, or in any amendment thereof or supplement thereto, and
provided for inclusion thereof by the Indemnifying Party or (b) arise
out of or are based upon the omission or alleged omission by the
Indemnifying Party to state therein a material fact required to be
stated therein or necessary to make the statements made therein not
misleading, and agrees to reimburse each such Indemnified Party, as
incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim,
damage, liability or action.
8.03. No Assignment; Successors and Assigns. This
-------------------------------------
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, but
neither this Agreement nor any right or obligation set forth in any
provision hereof may be transferred or assigned by any party hereto
without the prior written consent of the other party, and any
purported transfer or assignment in violation of this Section 8.03
shall be void and of no effect. There shall not be any third party
beneficiaries of any provisions hereof except for Sections 1.08,
5.08, 5.09 and 8.02, which may be enforced against Buyers or Seller
by the parties therein identified.
8.04. No Implied Waiver. No failure or delay on the
-----------------
part of either party hereto to exercise any right, power or
privilege hereunder or under any instrument executed pursuant
hereto shall operate as a waiver nor shall any single or partial
exercise of any right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power
or privilege.
8.05. Headings. Article, section, subsection and
--------
paragraph titles, captions and headings herein are inserted only as
a matter of convenience and for reference, and in no way define,
limit, extend or describe the scope of this Agreement or the intent
or meaning of any provision hereof.
8.06. Entire Agreement. This Agreement and the
----------------
Exhibits, Appendices and Schedules hereto constitute the entire
agreement between the parties with respect to the subject matter
hereof, supersede all prior negotiations, representations,
warranties, commitments, offers, letters of interest or intent,
proposal letters, contracts, writings or other agreements or
understandings with respect thereto. No waiver, and no
modification or amendment of any provision of this Agreement shall
be effective unless specifically made in writing and duly signed by
all parties thereto.
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<PAGE> 138
The parties acknowledge that the Schedules referenced in
Article II are not included with this Agreement as of the date of
this Agreement. Seller shall provide such Schedules to Buyers by
not later than ten business days after the date of this Agreement
for review and consideration. The obligations on the part of
Buyers under this Agreement are expressly conditioned upon, and
subject to, acceptance by Buyers not later than the end of the
fifth business day after the date of the actual delivery of the
Schedules to Buyers of the form and substance of the Schedules, in
each case in the reasonable discretion of Buyers.
8.07. Counterparts. This Agreement may be executed in
------------
one or more counterparts, and any party to this Agreement may
executed and deliver this Agreement by executing and delivering any
of such counterparts, each of which when executed and delivered
shall be deemed to be an original and all of which taken together
shall constitute one and the same instrument.
8.08. Notices. All notices and other communications
-------
hereunder shall be in writing and shall be deemed to be duly
received (i) on the date given if delivered personally or (ii) upon
confirmation of receipt, if by facsimile transmission or (iii) on
the date received if mailed by registered or certified mail (return
receipt requested), to the parties at the following addresses (or
at such other address for a party as shall be specified by like
notice):
(i) if to Buyers:
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
Attention: Ralph W. Babb, Jr.
Vice Chairman
Telecopy: (314) 425-8108
Copies to:
Jon W. Bilstrom, Esq.
General Counsel
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
Telecopy: (314) 425-1386
and
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<PAGE> 139
Thompson & Mitchell
One Mercantile Center
St. Louis, Missouri 63101
Attention: Robert M. LaRose, Esq.
Telecopy: (314) 342-1717
(ii) if to Seller:
UNSL Financial Corp.
201 North Jefferson
Lebanon, Missouri 65536
Attention: J.C. Benage
Chairman of the Board and President
Telecopy: (417) 588-1896
Copies to:
Suelthaus & Kaplan, P.C.
7733 Forsyth Boulevard
St. Louis, Missouri 63105
Attention: Thomas M. Walsh, Esq.
Telecopy: (314) 727-7166
8.09. Severability. Any term, provision, covenant or
------------
restriction contained in this Agreement held by a court or a
Regulatory Authority of competent jurisdiction to be invalid,
void or unenforceable, shall be ineffective to the extent of such
invalidity, voidness or unenforceability, but neither the
remaining terms, provisions, covenants or restrictions contained
in this Agreement nor the validity or enforceability thereof in
any other jurisdiction shall be affected or impaired thereby.
Any term, provision, covenant or restriction contained in this
Agreement that is so found to be so broad as to be unenforceable
shall be interpreted to be as broad as is enforceable.
8.10. Governing Law. This Agreement shall be governed
-------------
by and controlled as to validity, enforcement, interpretation,
effect and in all other respects by the internal laws of the
State of Missouri applicable to contracts made in such state,
except as otherwise specifically provided herein or as required
by the DGCL.
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<PAGE> 140
IN WITNESS WHEREOF, Buyer and Seller have caused this
Agreement to be signed and, by such signature, acknowledged by
their respective officers thereunto duly authorized, and such
signatures to be attested to by their respective officers
thereunto duly authorized, all as of the date first
"BUYERS"
MERCANTILE BANCORPORATION INC.
By: /s/ Ralph W. Babb, Jr.
------------------------------
Ralph W. Babb, Jr.
Vice Chairman
AMERIBANC, INC.
By: /s/ Ralph W. Babb, Jr.
------------------------------
Ralph W. Babb, Jr.
Chairman
"SELLER"
UNSL FINANCIAL CORP.
By: /s/ J.C. Benage
------------------------------
J.C. Benage
Chairman of the Board and
President
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<PAGE> 141
ANNEX B
-------
OPINION OF STIFEL, NICOLAUS & COMPANY, INCORPORATED REGARDING THE
FAIRNESS OF THE FINANCIAL TERMS OF THE MERGER
[STIFEL, NICOLAUS & COMPANY, INCORPORATED]
July 12, 1994
Board of Directors
UNSL Financial Corp.
201 N. Jefferson
Lebanon, Missouri 65536
Members of the Board:
We understand that UNSL Financial Corp. ("UNSL") is contemplating
entering into an Agreement and Plan of Reorganization (the "Agreement")
by and among Ameribanc, Inc., a wholly owned subsidiary of Mercantile
Bancorporation Inc., and Mercantile Bancorporation Inc. ("MBI") to
be executed not later than July 12, 1994. As is set forth in the
Agreement each outstanding share of common stock of UNSL will be
exchanged for 1.0604 common shares of MBI ("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 UNSL.
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 UNSL
and MBI and material prepared in connection with the proposed
transaction, including among other things, the following: the
Agreement; certain publicly available information concerning UNSL
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 March 31, 1994, for such
institutions; the nature and terms of recent sale and merger
transactions involving banks, thrifts and holding companies for
such institutions that we consider relevant; historical and current
market data for UNSL and MBI common stock, and financial and other
information provided to us by management of UNSL and MBI. In
addition, we have conducted meetings with members of the senior
management of UNSL and MBI. We evaluated the pro forma ownership
of MBI common stock by UNSL stockholders, relative to the pro forma
contribution of UNSL'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 and thrift 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 UNSL and
MBI. With respect to the financial forecasts of UNSL provided to
us by UNSL's management, we assumed for purposes of our opinion
that they were reasonably prepared on bases reflecting the best
available estimates and judgments of UNSL's management at the time
of preparation as to the future financial performance of UNSL and
that they provided a reasonable basis upon which we could form our
opinion. We also assumed that there were no material changes in
UNSL'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
UNSL as to all legal matters with respect to UNSL, the Merger and
the Merger Agreement. In addition, we did not make or obtain an
independent evaluation, appraisal or
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<PAGE> 142
physical inspection of the assets, individual properties or liabilities
of UNSL or MBI, nor were we furnished with any such appraisal. Further,
our opinion is based on economic, monetary, market and other conditions
existing as of the date hereof. No opinion is expressed as to the prices
at which UNSL Common Stock or MBI 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 stockholders of UNSL, as
described in the Agreement, is fair to the stockholders of UNSL
from a financial point of view.
Sincerely,
STIFEL, NICOLAUS & COMPANY, INCORPORATED
B-2
