<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 21, 1994
-----------------
MERCANTILE BANCORPORATION INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Missouri 0-6045 43-0951744
--------------- ---------------- ----------------
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
organization) Number)
P.O. Box 514, St. Louis, Missouri 63166-0524
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (314) 425-2525
--------------
<PAGE> 2
ITEM 5. OTHER EVENTS.
- ----------------------
Description of Terms of Proposed Agreement with
TCBankshares, Inc. On December 2, 1994, Mercantile
Bancorporation Inc., a Missouri corporation ("MBI"), and
TCBankshares, Inc., an Arkansas corporation ("TCB"), executed an
Agreement and Plan of Reorganization (the "Merger Agreement"),
whereby TCB will be merged with and into a wholly owned
subsidiary of MBI to be incorporated under the laws of the State
of Arkansas.
Under the terms of the Merger Agreement, the holders of
TCB common stock, $50.00 par value ("TCB Common Stock"), will
receive an aggregate of 4,750,000 shares of MBI common stock,
$5.00 par value ("MBI Common Stock"), the holders of TCB Series A
preferred stock, $10.00 par value, will receive an aggregate of
5,306 shares of MBI Series B-1 preferred stock, no par value, and
the holders of TCB Series B preferred stock, $10.00 par value,
will receive an aggregate of 9,500 shares of MBI Series B-2
preferred stock, no par value.
Consummation of the Merger is subject to certain
conditions, including: (i) receipt of requisite approval of the
shareholders of TCB of the Merger Agreement as required under
Arkansas law and the charter documents of TCB; (ii) receipt of
the approval of the Federal Reserve Board and various other
federal and state regulatory authorities; (iii) registration of
the shares of MBI Common Stock to be issued pursuant to the
Merger under the Securities Act of 1933, as amended, and all
applicable state securities laws; (iv) receipt of an opinion of
counsel that the Merger will qualify as a tax-free reorganization
under the Internal Revenue Code of 1986, as amended; and (v)
satisfaction of certain other closing conditions. Each of the
shareholders of the TCB Common Stock and the shareholders
of the TCB Preferred Stock have executed an agreement with
MBI whereby each such shareholder has agreed to vote all shares
of TCB Common Stock and TCB Preferred Stock owned by him in favor
of the approval of the Merger Agreement.
TCB is a multi-bank holding company located in North
Little Rock, Arkansas and owns all or substantially all of the
outstanding capital stock of six banks situated throughout north,
central and eastern Arkansas. At September 30, 1994, TCB
reported approximately $1.4 billion in consolidated total assets.
For additional information regarding the Merger
Agreement, please refer to the exhibits to this Current Report on
Form 8-K, which are incorporated by reference herein.
Historical Financial Statements of TCB. TCB's
historical financial statements as of and for the year ended
December 31, 1993 with the notes thereto and the auditors' report
- 2 -
<PAGE> 3
covering such financial statements are included as part of this
report. In addition, the unaudited interim financial statements
of TCB as of September 30, 1994 and for the nine months ended
September 30, 1994 and 1993 are included in this report.
<PAGE> 4
Report of Independent Auditors
The Board of Directors and Shareholders
TCBankshares, Inc.
We have audited the accompanying consolidated balance sheets of
TCBankshares, Inc. and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years
in the period ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of TCBankshares, Inc. and subsidiaries at December 31,
1993 and 1992, and the consolidated results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted
accounting principles.
March 7, 1994
/s/ Ernst & Young LLP
<PAGE> 5
<TABLE>
TCBankshares, Inc.
Consolidated Balance Sheets
<CAPTION>
December 31
1993 1992
---------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (Note 15) $ 36,014,642 $ 38,402,264
Federal funds sold 9,225,000 7,825,000
---------------------------------------
Total cash and cash equivalents 45,239,642 46,227,264
Interest bearing deposits with other banks 1,292,524 4,758,262
Investment securities (estimated market value:
1993--$590,576,558; 1992--$554,677,360)
(Notes 3 and 16) 576,885,431 544,162,081
Loans (Notes 4, 9, 10, 11, and 16):
Commercial, financial and agricultural 152,431,890 133,073,546
Real estate--construction 101,207,379 83,593,120
Real estate--mortgage 178,204,206 159,813,884
Installment 131,739,175 88,926,602
---------------------------------------
Total loans 563,582,650 465,407,152
Less:
Unearned income (1,585,040) (2,219,361)
Allowance for loan losses (Note 4) (7,922,797) (7,134,801)
---------------------------------------
Net loans 554,074,813 456,052,990
Premises and equipment, net (Note 5) 26,472,758 20,825,702
Accrued interest receivable 9,189,356 9,630,415
Intangible assets, less accumulated amortization
(1993--$3,373,498; 1992--$3,041,860) 4,428,366 4,760,004
Deferred income taxes (Note 8) 2,412,262 2,726,022
Other real estate owned 2,464,485 3,441,695
Other assets 2,827,074 3,167,244
---------------------------------------
Total assets $1,225,286,711 $1,095,751,679
=======================================
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
December 31
1993 1992
------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Noninterest bearing deposits $ 118,641,794 $ 106,841,560
Interest bearing deposits 966,833,570 873,835,485
------------------------------------
Total deposits (Notes 6 and 16) 1,085,475,364 980,677,045
Federal funds purchased and securities sold under
agreements to repurchase 35,346,432 24,130,052
Notes payable (Note 7) 7,494,500 8,240,000
Accrued interest payable 4,703,895 4,250,820
Other liabilities (Notes 14 and 16) 3,712,970 3,796,694
Capital notes (Note 7) 157,500 175,000
------------------------------------
Total liabilities 1,136,890,661 1,021,269,611
Commitments (Note 9)
Shareholders' equity (Notes 2, 7 and 12):
Preferred stock, Series A, non-cumulative, non-voting,
$10 par value; liquidation value--$500 per share:
Authorized shares--5,500;
Issued and outstanding shares--5,306 53,060 53,060
Preferred stock, Series B, 8.5%, cumulative, non-voting,
$10 par value; liquidation value--$1,000 per share:
Authorized shares--9,500;
Issued and outstanding shares--9,500 95,000 95,000
Common stock, $50 par value:
Authorized shares--5,500
Issued and outstanding shares--2,131.74 106,587 106,587
Capital surplus:
Common stock 9,181,762 9,181,762
Preferred stock 12,004,940 12,004,940
Retained earnings 66,954,701 53,040,719
------------------------------------
Total shareholders' equity 88,396,050 74,482,068
------------------------------------
Total liabilities and shareholders' equity $1,225,286,711 $1,095,751,679
====================================
See accompanying notes.
</TABLE>
<PAGE> 7
<TABLE>
TCBankshares, Inc.
Consolidated Statements of Income
<CAPTION>
Year ended December 31
1993 1992 1991
---------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans, including fees $42,067,313 $40,305,830 $43,754,310
Investment securities:
Taxable 31,074,144 30,959,869 23,609,326
Tax-exempt 5,741,381 5,234,755 5,123,004
Other 383,430 687,277 1,833,095
---------------------------------------------------
Total interest income 79,266,268 77,187,731 74,319,735
Interest expense (Note 13):
Deposits 32,353,747 34,229,856 40,529,750
Other 1,558,317 1,531,542 1,870,429
---------------------------------------------------
Total interest expense 33,912,064 35,761,398 42,400,179
---------------------------------------------------
Net interest income 45,354,204 41,426,333 31,919,556
Provision for loan losses (Note 4) 1,224,309 2,085,784 2,150,834
---------------------------------------------------
Net interest income after provision for loan losses 44,129,895 39,340,549 29,768,722
Other income:
Service charges on deposit accounts 5,470,535 4,803,668 4,469,073
Investment securities gains, net (Note 3) 1,379,402 2,633,851 567,551
Trust fees 792,896 686,351 603,637
Gain on sale of loans 880,546 318,858 118,057
Other 3,011,073 1,795,383 2,165,100
---------------------------------------------------
11,534,452 10,238,111 7,923,418
Other expenses:
Salaries and employee benefits(Note 14) 15,729,918 13,595,998 11,049,837
Net occupancy and equipment expense (Notes 5 and 9) 5,074,615 4,308,398 3,748,469
Amortization of intangible assets 331,638 390,013 329,138
Merchandising expense 2,923,013 2,472,070 2,020,049
Data processing expense 1,994,927 1,789,013 1,533,115
FDIC assessment 2,216,412 1,943,119 1,545,651
Other 6,767,122 6,740,951 5,513,416
---------------------------------------------------
35,037,645 31,239,562 25,739,675
---------------------------------------------------
Income before income taxes 20,626,702 18,339,098 11,952,465
Income taxes (Note 8) 5,437,576 4,940,997 2,664,614
---------------------------------------------------
Net income $15,189,126 $13,398,101 $ 9,287,851
===================================================
See accompanying notes.
</TABLE>
<PAGE> 8
<TABLE>
TCBankshares, Inc.
Consolidated Statements of Shareholders' Equity
<CAPTION>
Capital Surplus
-----------------------
Preferred Stock Common Common Preferred Retained
------------------------
Series A Series B Stock Stock Stock Earnings Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1991 $53,060 $95,000 $106,587 $9,181,762 $12,004,940 $32,904,651 $54,346,000
Net income - - - - - 9,287,851 9,287,851
Cash dividends:
Preferred stock, Series A - - - - - (212,240) (212,240)
Preferred stock, Series B - - - - - (807,500) (807,500)
Common stock - - - - - (255,000) (255,000)
--------------------------------------------------------------------------------------
Balance at December 31, 1991 53,060 95,000 106,587 9,181,762 12,004,940 40,917,762 62,359,111
Net income - - - - - 13,398,101 13,398,101
Cash dividends:
Preferred stock, Series A - - - - - (212,240) (212,240)
Preferred stock, Series B - - - - - (807,500) (807,500)
Common stock - - - - - (255,404) (255,404)
--------------------------------------------------------------------------------------
Balance at December 31, 1992 53,060 95,000 106,587 9,181,762 12,004,940 53,040,719 74,482,068
Net income - - - - - 15,189,126 15,189,126
Cash dividends:
Preferred stock, Series A - - - - - (212,240) (212,240)
Preferred stock, Series B - - - - - (807,500) (807,500)
Common stock - - - - - (255,404) (255,404)
--------------------------------------------------------------------------------------
Balance at December 31, 1993 $53,060 $95,000 $106,587 $9,181,762 $12,004,940 $66,954,701 $88,396,050
======================================================================================
See accompanying notes.
</TABLE>
<PAGE> 9
<TABLE>
TCBankshares, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
Year ended December 31
1993 1992 1991
------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 15,189,126 $ 13,398,101 $ 9,287,851
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,224,309 2,085,784 2,150,834
Provision for depreciation and losses on other
real estate 174,174 205,376 407,898
Depreciation and amortization 2,484,515 2,272,770 1,560,763
Amortization of intangible assets 331,638 390,013 329,138
Amortization of investment security premiums, net
of accretion of discounts 1,330,419 944,884 368,731
Deferred income tax benefit (365,100) (387,650) (294,709)
Gain on sale of loans (880,546) (318,858) (118,057)
(Gain) loss on sales of other real estate 8,282 (129,001) (309,809)
(Gain) loss on disposal of premises and equipment (27,737) 325,717 (97,420)
First mortgage loans held for resale:
Proceeds collected on loans sold 87,684,358 41,754,326 25,109,464
Loans made to customers (92,033,789) (45,039,094) (25,083,725)
Realized investment security gains (1,379,402) (2,633,851) (567,551)
(Increase) decrease in accrued interest receivable,
deferred taxes, and other assets 1,371,973 (1,781,846) 324,968
Increase (decrease) in accrued interest payable and
other liabilities 369,351 (5,198,918) 969,150
------------------------------------------------------------
Net cash provided by operating activities 15,481,571 5,887,753 14,037,526
Investing activities
Net increase in loans (93,831,937) (51,745,980) (6,139,674)
Purchases of premises and equipment (8,242,515) (4,349,200) (4,067,987)
Proceeds from sales of premises and equipment 226,797 901,057 133,916
Purchases of investment securities (240,031,967) (402,172,272) (281,295,752)
Proceeds from maturities of investment securities and
principal payments on mortgage-backed securities 202,578,198 145,804,117 105,223,082
Proceeds from sales of investment securities 4,779,402 105,529,913 107,786,441
Net (increase) decrease in interest bearing deposits
with other banks 3,465,738 17,217,051 (6,652,689)
Proceeds from sales of other real estate 610,536 2,281,929 2,021,367
------------------------------------------------------------
Net cash used in investing activities (130,445,748) (186,533,385) (82,991,296)
(continued)
<PAGE> 10
TCBankshares, Inc.
Consolidated Statements of Cash Flows (continued)
<CAPTION>
Year ended December 31
1993 1992 1991
------------------------------------------------------------
<S> <C> <C> <C>
Financing activities
Net increase in deposits $ 104,798,319 $ 201,563,407 $ 42,816,204
Net increase (decrease) in short-term borrowings 11,216,380 (1,639,196) 10,264,469
Cash dividends paid (1,275,144) (1,073,269) (1,274,740)
Principal payments on notes payable (745,500) (2,980,000) (1,275,000)
Proceeds from notes payable - 2,545,000 -
Principal payment on capital note (17,500) (17,500) (17,500)
------------------------------------------------------------
Net cash provided by financing activities 113,976,555 198,398,442 50,513,433
------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (987,622) 17,752,810 (18,440,337)
Cash and cash equivalents at beginning of year 46,227,264 28,474,454 46,914,791
------------------------------------------------------------
Cash and cash equivalents at end of year $ 45,239,642 $ 46,227,264 $ 28,474,454
============================================================
See accompanying notes.
</TABLE>
<PAGE> 11
TCBankshares, Inc.
Notes to Consolidated Financial Statements
December 31, 1993
1. Accounting Policies
Consolidation
The consolidated financial statements include the accounts of
TCBankshares, Inc. and its six majority-owned banking subsidiaries
(the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Investment Securities
Investment securities are stated at cost adjusted for amortization
of premiums and accretion of discounts. The adjusted cost of the
specific security sold is used to compute gain or loss on the sale
of investment securities.
Management determines the appropriate classification of investment
securities at the time of purchase. Management has the intent and
the Company has the ability to hold investment securities to
maturity or on a long-term basis. As such, these securities are
carried at amortized historical costs. If securities are acquired
with the intent of holding for an indefinite period or for sale
prior to maturity, the securities would be carried at the lower of
cost or market. (See "Future Application of Accounting Standards"
later in Note 1.)
Revenue Recognition
Interest on loans is accrued and credited to operations generally
based upon the principal amount outstanding. Interest on loans is
not accrued when amounts are considered doubtful of collection. If
the ultimate collectibility of principal is in doubt, any payment
received on a loan, on which the accrual of interest has been
suspended, is applied to reduce principal to the extent necessary
to eliminate such doubt. When interest accruals are discontinued,
interest credited to income on the loan in the current year is
reversed, and interest accrued in the prior year is charged to the
allowance for loan losses.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level management
believes is adequate to absorb potential losses in the loan
portfolio. Management's determination of the adequacy of the
allowance is based on an evaluation of potential losses in the
loan portfolio considering current economic conditions, past loan
loss experience, volume, growth and composition of the loan
portfolio, nonperforming loans, and other relevant factors. The
allowance is increased by provisions for loan losses charged
against income and reduced by charge-offs, net of recoveries.
<PAGE> 12
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Premises and Equipment
The Company's premises and equipment are stated at cost, less
accumulated depreciation and amortization. The provision for
depreciation and amortization is computed generally by the
straight-line method based upon the estimated useful lives of the
assets. The carrying amount of assets sold, retired or disposed of
and the related accumulated depreciation and amortization are
eliminated from the accounts and the resulting gain or loss is
recorded in operating results.
First Mortgage Real Estate Loans Held for Resale
First mortgage real estate loans held for resale ($10,741,693 at
December 31, 1993 and $5,511,716 at December 31, 1992) are
classified with real estate mortgage loans in the accompanying
consolidated balance sheet and are carried at the lower of cost or
fair market value on a net aggregate basis. These loans are
generally pre-sold or subject to firm purchase commitments.
Other Real Estate
Other real estate consists of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of
foreclosure. These properties are initially recorded at the lower
of cost or estimated fair market value based on appraised value at
the date acquired or transferred from loans less estimated selling
expenses. Losses arising from the acquisition of such property are
charged against the allowance for loan losses. Subsequent
valuation adjustments, if any, and gains or losses resulting from
sales are recorded in operating results.
The Company's state banking subsidiary is required to amortize
other real estate over sixty months, in accordance with state
banking regulations. The regulators may grant deferrals of this
required amortization, if requested by the Company. Net expenses
relating to other real estate (included in other expenses) were
$101,000, $211,000, and $249,000 during the years ended December
31, 1993, 1992, and 1991, respectively. These amounts include the
state regulators mandated amortization expense. Loans aggregating
approximately $(184,000), $643,000, and $5,131,000 were
transferred to (from) other real estate during 1993, 1992, and
1991, respectively.
<PAGE> 13
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Intangible Assets
Intangible assets consist of the unamortized excess cost of
purchased banking subsidiaries and premiums paid for the
acquisition of deposits from failed financial institutions.
Unamortized costs of purchased subsidiaries in excess of the fair
value of underlying net tangible assets acquired are being
amortized over 25 years using the straight-line method. Premiums
associated with the future earnings potential of acquired deposits
are being amortized, using the straight-line method, over the
estimated five to ten year life of the deposits. The net costs
associated with acquired deposits were $763,000 at December 31,
1993, $856,000 at December 31, 1992 and $81,500 at December 31,
1991.
Income Taxes
The Company and its subsidiaries file consolidated income tax
returns. It is the Company's practice to have its subsidiaries pay
to or receive from the Company and other affiliates amounts based
on the taxable income (or loss) of the subsidiary. Certain items,
primarily additions to the allowance for loan losses, are
recognized as income or expense in different periods for financial
and for income tax reporting purposes. Deferred taxes are provided
for such timing differences.
In February 1992, the Financial Accounting Standards Board issued
Statement No. 109, "Accounting for Income Taxes." The Company
adopted the provisions of the new standard in its consolidated
financial statements as of January 1, 1993. As permitted by the
Statement, prior year financial statements have not been restated
to reflect the change in accounting method. The effect as of
January 1, 1993 of adopting Statement 109 increased consolidated
net income by approximately $126,000. This amount is included as a
reduction of the provision for income taxes in the 1993
consolidated statement of income.
Under Statement 109, the liability method is used in accounting
for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Prior to the adoption of
Statement 109, income tax expense was determined using the
deferred method. Deferred tax expense was based on items of income
and expense that were reported in different years in the financial
statements and tax returns and were measured at the tax rate in
effect in the year the difference originated.
<PAGE> 14
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Statement of Cash Flows
Cash equivalents include amounts due from banks and federal funds
sold. Generally, federal funds are purchased and sold for one day
periods.
Future Application of Accounting Standards
In May 1993 the Financial Accounting Standards Board ("FASB")
issued Statement on Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities". Statement 115 will be adopted by the Company on
January 1, 1994 and requires that investments in debt and equity
securities be classified as held to maturity, trading, or
available for sale. Investments in debt securities classified as
held to maturity are to be reported at amortized cost. Investments
in debt and equity securities classified as trading are to be
reported at fair value with related unrealized gains and losses
included in net income. Investments in debt and equity securities
classified as available for sale are to be reported at fair value
with related unrealized gains and losses excluded from earnings
and reported as a separate component of shareholders' equity.
Management plans to classify its municipal securities as
investments held to maturity and the majority of the remainder of
its investment securities as available for sale. At December 31,
1993, adoption of Statement 115 would have increased shareholders'
equity by approximately $5,666,000 and have no impact on the
Companys net income for 1993.
Statement of Financial Accounting Standards (SFAS) No. 112,
"Employers' Accounting for Postemployment Benefits" requires
employers to recognize the obligation to provide postemployment
benefits if the obligation is attributable to employees services
already rendered, employees' rights to those benefits accumulate
or vest, payment of the benefits is probable, and the amount of
benefits can be reasonably estimated. The Company will be required
to adopt Statement 112 in 1994. The Company's initial assessment
is that the adoption of this new standard will not have a material
impact on its financial position or results of operations.
Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" requires that impaired
loans that are within the scope of the Statement be measured based
on the present value of expected future cash flows discounted at
the loan's effective rate, or, as a practical expedient, at the
loan's observable market price or the fair value of the collateral
if the loan is collateral dependent. The Company will be required
to adopt Statement 114 in 1995. Management does not believe the
adoption of this new standard will have a material impact on the
Company's financial position or results of operations.
<PAGE> 15
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Reclassifications
Certain amounts in the 1991 and 1992 consolidated financial
statements have been reclassified to conform to the reporting
format used for the 1993 consolidated financial statements.
2. Mergers and Acquisitions
On January 30, 1992, the Board of Directors of the Company
approved a plan of exchange with Twin City Bank whereby the
Company issued common and preferred stock in exchange for 267,395
shares of common stock and all of the preferred stock of Twin City
Bank based on an exchange ratio which valued the common stock of
the Company at 1.1 times book value per share and which valued
Twin City Bank's common stock at 1.09 times book value per share
on the date of exchange. As a result, Twin City Bank became a 99%-
owned subsidiary of TCBankshares, Inc.
The plan of exchange provided that Twin City Bank's outstanding
perpetual, nonvoting, 8.5% cumulative preferred stock be exchanged
for shares of perpetual, nonvoting, 8.5% cumulative preferred
stock of TCBankshares, Inc., with dividends and terms of
preference similar to the Twin City Bank's preferred stock
previously held. The plan of exchange was approved by the Federal
Reserve Bank of St. Louis and other appropriate regulatory
agencies and was accounted for as a pooling-of-interests. Twin
City Bank's financial statements are included in the consolidated
financial statements for all periods presented.
In March 1992, the Company was the successful bidder on
approximately $142 million of deposit accounts, previously held by
Home Federal Savings and Loan, in a liquidation sale conducted by
the Resolution Trust Corporation. The Company paid a deposit
premium of approximately $925,000, which will be amortized over 5
to 10 years. In conjunction with the purchase of the deposit
accounts, Twin City Bank paid a $2,500,000 special dividend of
which $2,475,880 was paid to the Company to enable the Company to
make an initial capital contribution to a newly chartered national
bank, The Community Bank of Batesville, Arkansas (Batesville).
Batesville was formed to purchase certain assets and assume
certain liabilities from the Resolution Trust Corporation in
connection with the Company's successful bid to acquire the
Batesville Branch of the former Home Federal Savings and Loan.
<PAGE> 16
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
3. Investment Securities
<TABLE>
The amortized cost and estimated market value of investment
securities at December 31, 1993 are as follows:
<CAPTION>
1993
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Values
-----------------------------------------------------------
<S> <C> <C> <C> <C>
United States Treasury securities and
obligations of United States Government
agencies and corporations $153,713,471 $ 6,706,738 $ (72,395) $160,347,814
Obligations of states and political subdivisions 99,496,415 5,367,324 (260,385) 104,603,354
Mortgage-backed securities 323,006,834 4,209,144 (2,259,299) 324,956,679
-----------------------------------------------------------
Total debt securities 576,216,720 16,283,206 (2,592,079) 589,907,847
SLMA stock 365,000 - - 365,000
Federal Reserve Bank stock 303,711 - - 303,711
-----------------------------------------------------------
Total investment securities $576,885,431 $16,283,206 $(2,592,079) $590,576,558
===========================================================
</TABLE>
<TABLE>
The amortized cost and estimated market value of investment
securities at December 31, 1992 are as follows:
<CAPTION>
1992
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Values
-----------------------------------------------------------
<S> <C> <C> <C> <C>
United States Treasury securities and obligations of
United States Government agencies and corporations $139,862,977 $ 3,529,224 $ (845,618) $142,546,583
Obligations of states and political subdivisions 80,546,757 3,675,941 (157,626) 84,065,072
Mortgage-backed securities 323,184,980 4,865,747 (552,389) 327,498,338
Other debt securities 267 - - 267
-----------------------------------------------------------
Total debt securities 543,594,981 12,070,912 (1,555,633) 554,110,260
SLMA stock 365,000 - - 365,000
Federal Reserve Bank stock 202,100 - - 202,100
-----------------------------------------------------------
Total investment securities $544,162,081 $12,070,912 $(1,555,633) $554,677,360
===========================================================
</TABLE>
<PAGE> 17
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
3. Investment Securities (continued)
The amortized cost and estimated market value of investment
securities at December 31, 1993, by contractual maturity, are
shown below. Expected maturities could differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
----------------------------------------
<S> <C> <C>
Due in one year or less $ 19,402,216 $ 19,677,137
Due in one year through five years 108,109,310 112,949,554
Due after five years through ten years 57,392,780 60,156,770
Due after ten years 68,305,580 72,167,707
----------------------------------------
253,209,886 264,951,168
Mortgage-backed securities 323,006,834 324,956,679
----------------------------------------
Total debt securities 576,216,720 589,907,847
SLMA stock 365,000 365,000
Federal Reserve Bank stock 303,711 303,711
----------------------------------------
Total investment securities $576,885,431 $590,576,558
========================================
</TABLE>
The Company maintains an allowance for permanent declines in value
on obligations of state and political subdivisions and the SLMA
preferred stock. The allowance was $90,000 and $2,240,000 at
December 31, 1993 and 1992, respectively. During 1992 and 1991,
provisions for permanent declines in value of $567,643 and
$955,837, respectively, were recorded and included in net
securities gains and losses. No such provisions were made in 1993.
Proceeds from sales of investments in debt securities during 1993,
1992 and 1991 were $4,779,402, $105,529,913 and $107,786,441,
respectively. Gross gains of $1,382,963, $3,178,678 and $1,640,375
and gross losses of $(3,561), $(544,827) and $(1,072,824) in 1993,
1992 and 1991, respectively, were realized on those sales.
Investment securities with a book value of approximately
$240,235,000 and $223,241,000 were pledged to secure public
deposits and for other purposes as required by law, at December
31, 1993 and 1992, respectively.
<PAGE> 18
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
4. Allowance for Loan Losses and Nonperforming Loans
<TABLE>
Summarized below are the transactions in the allowance for loan
losses:
<CAPTION>
1993 1992 1991
-------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $7,134,801 $ 6,236,160 $ 5,038,168
Provision for loan losses 1,224,309 2,085,784 2,150,834
Allowance for loan losses on loans purchased - - 228,289
Charge-offs (deduction) (812,381) (1,763,083) (1,568,680)
Recoveries 376,068 575,940 387,549
-------------------------------------------------------------
Net charge-offs (436,313) (1,187,143) (1,181,131)
-------------------------------------------------------------
Balance at December 31 $7,922,797 $ 7,134,801 $ 6,236,160
=============================================================
</TABLE>
<TABLE>
The following table presents information concerning the aggregate
amount of nonperforming loans:
<CAPTION>
1993 1992 1991
--------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $2,210,327 $4,810,139 $7,117,974
Accruing loans past due ninety days or
more as to interest or principal payments 2,444,667 626,881 1,160,913
Interest income that would have been
recorded under original terms for nonaccrual loans 180,134 445,401 625,430
Interest income recorded during the
period for nonaccrual loans 61,954 78,688 266,806
</TABLE>
Interest is not accrued on loans when principal or interest is in
default for 90 days or more unless the loans are well secured and
in the process of collection. The Company's state banking
subsidiary is required by state bank regulations to place on
nonaccrual status loans 105 days or more past due. There were no
significant commitments to lend additional funds to borrowers
included in the nonperforming loan categories.
<PAGE> 19
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
5. Premises and Equipment
<TABLE>
A summary of premises and equipment is as follows:
<CAPTION>
1993 1992
----------------------------------------
<S> <C> <C>
Land and land improvements $ 2,867,676 $ 2,499,296
Buildings and building improvements 18,171,774 15,923,501
Leasehold improvements 4,830,727 2,534,156
Furniture, fixtures and equipment 11,844,234 9,162,434
Construction in progress 1,352,787 1,089,149
Less accumulated depreciation and amortization (12,594,440) (10,382,834)
----------------------------------------
$ 26,472,758 $ 20,825,702
========================================
</TABLE>
Depreciation and amortization of bank premises and equipment was
$2,159,403, $1,832,593, and $1,411,276 in 1993, 1992, and 1991,
respectively.
6. Deposits
<TABLE>
The following summarizes information on deposits as of December 31:
<CAPTION>
1993 1992
------------------------------------------
<S> <C> <C>
Demand, noninterest bearing $ 118,641,794 $106,841,560
Demand, interest bearing:
NOW accounts 171,886,904 162,279,947
Money market accounts 99,803,557 90,129,469
Savings 65,920,899 53,937,162
Certificates of deposit 629,222,210 567,488,907
------------------------------------------
$1,085,475,364 $980,677,045
==========================================
Certificates of deposit of $100,000 or more $ 179,646,000 $157,156,141
==========================================
</TABLE>
<PAGE> 20
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
7. Notes Payable and Capital Notes
<TABLE>
Notes payable consists of the following:
<CAPTION>
1993 1992
-------------------------------------
<S> <C> <C>
Note payable at prime (6% at December 31, 1993),
payable $185,000 plus interest quarterly through
November 1, 1994; collateralized by the common
stock of subsidiary banks owned by the Company $5,205,000 $5,760,000
Amortizing revolving line of credit at LIBOR
plus 2.25% (5.5625% at December 31, 1993),
payable $63,625 plus interest quarterly through
November 1, 1995; collateralized by the common
stock of subsidiary banks owned by the Company 2,289,500 2,480,000
--------------------------------------
$7,494,500 $8,240,000
======================================
</TABLE>
Maturities of long-term debt are $5,459,500 in 1994 and $2,035,000
in 1995.
The loan agreements for both notes include, among other things,
provisions relative to additional borrowings, maintenance of
capital, and restrictions on the payment of cash dividends, which
are no more restrictive than those required by the bank regulators
(see Note 12). The amortizing revolving line of credit increased
to $8 million effective January 1, 1993 making $5,710,500
available to the Company at December 31, 1993.
Capital Notes are unsecured obligations which bear interest at
9.5% and are payable serially through June 30, 1995. Principal
payments are $17,500 in 1994 with the remaining balance of
$140,000 payable in 1995.
8. Income Taxes
<TABLE>
Effective January 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the
liability method as required by FASB Statement No. 109 (See Note
1). Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities
for financial reporting
<PAGE> 21
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
purposes and the amounts used for income tax purposes. The
significant components of the Companys deferred tax liabilities
and assets as of December 31, 1993 are as follows:
<S> <C>
Deferred tax liabilities:
Purchase accounting-basis differences $ 596,576
Prepaid assets 278,668
Prepaid pension 278,930
Other 10,577
--------------
Total deferred tax liabilities 1,164,751
Deferred tax assets:
Loan loss reserve 2,574,318
Other real estate owned 479,655
Other 523,040
--------------
Total deferred tax assets 3,577,013
--------------
Net deferred tax assets $2,412,262
==============
</TABLE>
<TABLE>
The income tax provision (benefit) consists of the following:
<CAPTION>
Liability
Method Deferred Method
1993 1992 1991
--------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $5,329,915 $4,854,262 $2,785,443
State 472,761 474,385 173,880
--------------------------------------------------------------
Total current provision 5,802,676 5,328,647 2,959,323
Deferred:
Federal (329,227) (314,805) (227,940)
State (35,873) (72,845) (66,769)
--------------------------------------------------------------
Total deferred benefit (365,100) (387,650) (294,709)
--------------------------------------------------------------
Provision for income taxes $5,437,576 $4,940,997 $2,664,614
==============================================================
</TABLE>
<PAGE> 22
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
<TABLE>
The sources of timing differences resulting in deferred income
taxes and the approximate income tax effect of each under the
deferred method of accounting for income taxes are as follows:
<CAPTION>
Deferred Method
--------------------------------------
1992 1991
--------------------------------------
<S> <C> <C>
Deferred compensation $ 425,192 $ 40,670
Depreciation (252,415) 8,564
Provision for possible loan losses (324,709) (361,640)
Net employee benefit accruals 16,962 76,552
Discounts on investment securities (144,394) (89)
Other (108,286) (58,766)
--------------------------------------
$(387,650) $(294,709)
======================================
</TABLE>
<TABLE>
The reasons for the difference between the effective income tax
rates and the statutory Federal income tax rate are as follows:
<CAPTION>
1993 1992 1991
---------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35.0% 34.0% 34.0%
Nontaxable interest income (9.5) (9.1) (13.6)
Other, net .9 2.0 1.9
---------------------------------------------------------
Effective income tax rate 26.4% 26.9% 22.3%
=========================================================
</TABLE>
The provision for income taxes includes income taxes applicable
to investment securities gains of $541,139 in 1993, $1,008,502 in
1992, and $210,696 in 1991.
The Company made income tax payments of approximately $5,208,000,
$4,474,000, and $1,921,000 during 1993, 1992, and 1991,
respectively.
9. Commitments
At December 31, 1993 future minimum payments under noncancelable
operating leases for branch or office locations with initial or
remaining terms of one year or more are $978,551, $954,941,
$904,859, $707,990, and $398,276 for l994 through 1998,
respectively, and $1,454,661 thereafter. Net rental expense for
all operating leases amounted to $1,031,538 in 1993, $735,780 in
1992 and $652,577 in 1991. The lease
<PAGE> 23
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
9. Commitments (continued)
agreements contain options to renew at various dates for periods
ranging from five to twenty-one years. Eight of the locations,
with future minimum lease payments totaling approximately
$2,537,000, are leased from officers and/or directors of the
Company.
At December 31, 1993, future minimum payments due under
noncancelable data processing agreements are approximately
$1,392,000, $1,479,000, $1,553,000, $1,630,000, and $1,712,000
for 1994 through 1998, respectively. Additional amounts may be
due based on the number of transactions processed by the servicer
and annual payments may increase by up to 5% based on the
Consumer Price Index.
In the normal course of business there are various commitments
outstanding, such as guarantees and commitments to extend credit,
including standby letters of credit to assure performance or to
support debt obligations, and loans sold subject to repurchase
agreements, which are not reflected in the accompanying
consolidated financial statements. These arrangements have credit
risk essentially the same as that involved in extending loans to
customers.
<TABLE>
The Company's exposure to credit loss in the event of
nonperformance by the other party to financial instruments for
commitments to extend credit, standby letters of credit, and
loans sold subject to repurchase agreements is represented by the
contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit
risk were as follows:
<CAPTION>
December 31
1993 1992
--------------------------------------
<S> <C> <C>
Commitments to extend credit $89,714,114 $66,278,842
Standby letters of credit 5,064,195 3,204,951
Loans sold subject to repurchase agreement 21,721,000 15,201,000
</TABLE>
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
some of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent
future cash requirements. The Company evaluates each customers
credit-worthiness on a case-by-case basis. The
<PAGE> 24
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
9. Commitments (continued)
amount of collateral obtained if deemed necessary by the Company
upon extension of credit is based on management's credit
evaluation of the counter-party. Collateral held varies but may
include real estate, accounts receivable, inventory, property,
plant and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support public and
private borrowing arrangements and similar transactions.
In 1993, the Company sold approximately $30,000,000 of loans to
third parties subject to repurchase agreements. These agreements
generally require the Company to repurchase loans that do not meet
the standards of the related sale agreements or that become 90
days delinquent within a stated period of time (90 to 365 days)
after being sold to the permanent investor. At December 31, 1993,
the Company did not hold any loans which it had been required to
repurchase.
10. Concentration of Credit Risk
Most of the Company's lending activity is with customers located
within the state of Arkansas. The loan portfolio is diversified
with no industry comprising greater than 10% of total loans. The
Company's subsidiary banks require collateral on most loans and
generally maintain loan to value ratios of no greater than 80%.
11. Transactions with Related Parties
The Company's bank subsidiaries have had, and expect to have in
the future, banking transactions in the ordinary course of
business with officers and directors of the Company and its
subsidiaries. Such transactions have been on similar terms,
including interest rates and collateral on loans, as those
prevailing at the time for comparable transactions with others,
and have involved no more than normal risk or other potential
unfavorable aspects. Loans made to such borrowers (including
companies in which they are principal owners) amounted to
approximately $15,171,000 at December 31, 1993 and $18,455,000 at
December 31, 1992.
12. Dividend Restrictions
The Company has five national bank subsidiaries and one state bank
subsidiary. National and state banking regulations place certain
restrictions on the ability of banks to pay dividends without
regulatory approvals. The approval of the Comptroller of the
Currency is required for national banks to pay dividends in excess
of earnings retained in the
<PAGE> 25
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
12. Dividend Restrictions (continued)
current year plus retained net profits for the preceding two
years. State-chartered banks may pay dividends up to 50% of
current year net income without obtaining regulatory approval.
13. Supplemental Cash Flow Information
The Company paid $33,458,989, $36,825,378, and $43,561,498 in
interest on deposits and other borrowings during 1993, 1992, and
1991, respectively.
14. Pension Plan
The Company provides a defined benefit pension plan which covers substantially
all employees of the Company meeting certain age and length of service
requirements. The benefits are based on years of service and the employee's
average compensation during the last five years of employment. The Company's
funding policy is to contribute annually the maximum that can be deducted
for federal income tax purposes. Contributions are intended to provide not
only for benefits attributed to service to date but also for those expected
to be earned in the future.
<TABLE>
The following table sets forth the plan's funded status:
<CAPTION>
December 31
1993 1992 1991
-------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $3,912,867 in 1993, $3,715,016
in 1992, and $3,325,998 in 1991 $(4,336,497) $(4,447,529) $(4,077,148)
=================================================
Projected benefit obligation for service rendered to date $(5,974,079) $(5,728,043) $(4,447,384)
Plan assets at fair value, primarily listed stocks and U.S.
bonds 5,140,385 4,521,834 4,099,032
-------------------------------------------------
Projected benefit obligation in excess of plan assets (833,694) (1,206,209) (348,352)
Unrecognized net loss 1,542,079 379,745 215,882
Unrecognized net asset at January 1 (51,841) (57,601) (63,361)
Unrecognized prior service cost (364,493) 897,121 134,592
-------------------------------------------------
Prepaid (accrued) pension cost $ 292,051 $ 13,056 $ (61,239)
=================================================
</TABLE>
<PAGE> 26
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
14. Pension Plan (continued)
<TABLE>
Net pension cost included the following components:
<CAPTION>
Year ended December 31
1993 1992 1991
----------------------------------------------
<S> <C>
Service cost--benefits earned during the year $ 326,636 $ 308,531 $ 278,025
Interest cost on projected benefit obligations 450,652 426,139 357,076
Actual return on plan assets (277,771) (165,314) (532,130)
Net amortization and deferral (173,255) (173,494) 149,104
----------------------------------------------
Net periodic pension cost $ 326,262 $ 395,862 $ 252,075
==============================================
</TABLE>
<TABLE>
Assumptions used in determining net periodic pension cost for the defined
benefit plan were:
<CAPTION>
Year ended December 31
1993 1992 1991
----------------------------------------------
<S> <C> <C> <C>
Weighted-average discount rate 7.50% 8.25% 8.25%
Annual compensation increases 5.00 5.00 5.00
Expected long-term rate of return on plan assets 10.00 10.00 10.00
</TABLE>
In 1993, the Company approved a defined contribution 401(k) plan
which covers all eligible employees who attain the age of eighteen
and are employed by the Company. The Company's policy is to match
employee contributions up to three percent of each participant's
annual compensation. Plan contribution expense for the year ended
December 31, 1993 was approximately $138,000.
15. Restrictions on Cash and Due from Banks
The Company is required to maintain reserve balances with the
Federal Reserve Bank. The average amount of those reserve balances
was approximately $10,764,000 in 1993 and $9,443,500 in 1992.
16. Fair Values of Financial Instruments
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance
sheet, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values
are based on estimates using
<PAGE> 27
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
16. Fair Values of Financial Instruments (continued)
present value, discounted cash flows, or other valuation
techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement 107 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value to the
Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
balance sheet for cash and short-term instruments approximate the
fair values of these assets.
Investment securities (including mortgage-backed securities): Fair
values of investment securities are primarily based on quoted
market prices (see Note 3).
Loans receivable: For variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values
approximate carrying amounts. The fair values for construction and
mortgage real estate, installment and commercial, financial and
agricultural loans, with fixed rates, are estimated using
discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar
credit quality.
<TABLE>
The carrying amount and estimated fair value of loans net of the
allowance for loan losses consisted of the following:
<CAPTION>
Carrying Estimated Fair
Amount Value
---------------------------------------
<S> <C> <C>
December 31, 1993 $554,074,813 $553,575,000
December 31, 1992 456,052,990 458,414,000
</TABLE>
Deposit liabilities: The fair values for demand deposits (e.g.,
interest and noninterest checking, passbook savings, and certain
types of money market accounts), are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their
carrying amounts). The carrying amounts for variable-rate, fixed
term money market
<PAGE> 28
TCBankshares, Inc.
Notes to Consolidated Financial Statements (continued)
16. Fair Values of Financial Instruments (continued)
accounts approximate their fair values at the reporting date. Fair
values for fixed rate certificates of deposit are estimated using
a discounted cash flow calculation that applies interest rates
currently being offered to a schedule of aggregated expected
monthly maturities of certificates of deposit.
<TABLE>
For deposits with no defined maturities, fair value is the amount
payable on demand. The carrying amounts reported in the balance
sheet for demand deposits, money market and passbook savings
accounts approximate their fair values. The carrying amount and
estimated fair value of certificates of deposit consisted of the
following:
<CAPTION>
Carrying Estimated Fair
Amount Value
---------------------------------------
<S> <C> <C>
December 31, 1993 $629,222,210 $630,984,000
December 31, 1992 567,488,907 568,723,000
</TABLE>
Short-term borrowings: The carrying amounts of federal funds
purchased, borrowings under repurchase agreements, and other
short-term borrowings approximate their fair values.
Off-balance sheet financial instruments: The Company has two types
of off-balance sheet financial instruments--commitments to extend
credit and standby letters of credit. These types of credit are
made at market rates; therefore, there would be no market risk
associated with these credits which would create a significant
fair value liability for the Company.
<PAGE> 29
<TABLE>
TCBankshares, Inc.
Consolidated Balance Sheets
<CAPTION>
SEPTEMBER 30
1994 1993
---------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 47,173,534 $ 33,644,359
Federal funds sold - 1,975,000
---------------------------------------------
Total cash and cash equivalents 47,173,534 35,619,359
Interest bearing deposits with other banks 299,919 3,290,960
Investment securities held to maturity--at
amortized cost (estimated market value):
1994--$265,405,540; 1993--$590,576,558) 269,965,563 559,066,471
Investment securities available for sale (net of
unrealized market depreciation of $15,631,643) 334,523,427 -
Loans, net of unearned income 659,049,901 536,149,080
Allowance for loan losses (8,203,448) (8,022,586)
---------------------------------------------
Net loans 650,846,453 528,126,494
Premises and equipment, net 27,660,565 24,768,720
Deferred tax asset 7,922,635 2,255,863
Other assets 19,855,628 19,492,443
---------------------------------------------
Total assets $1,358,247,724 $1,172,620,310
=============================================
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
SEPTEMBER 30
1994 1993
---------------------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits $ 126,902,971 $ 126,337,538
Interest bearing deposits 1,022,461,844 910,655,557
---------------------------------------------
Total deposits 1,149,364,815 1,036,993,095
Federal funds purchased and securities sold under
agreements to repurchase 53,005,126 32,107,265
Other borrowings 50,771,192 -
Notes payable 6,748,625 7,743,125
Other liabilities 8,918,015 10,868,963
---------------------------------------------
Total liabilities 1,268,807,773 1,087,712,448
Shareholders' equity:
Preferred stock, Series A, noncumulative,
non-voting, $10 par value; liquidation value--
$500 per share:
Authorized shares--5,500;
Issued and outstanding shares--5,306 53,060 53,060
Preferred stock, Series B, 8.5%, cumulative,
nonvoting, $10 par value; liquidation value--
$1,000 per share:
Authorized shares--9,500;
Issued and outstanding shares--9,500 95,000 95,000
Common stock, $50 par value:
Authorized shares--5,500
Issued and outstanding shares--2,131.74 106,587 106,587
Capital surplus:
Common stock 9,181,762 9,181,762
Preferred stock 12,004,940 12,004,940
Retained earnings 77,644,889 63,466,513
Reserve for unrealized depreciation on
investment securities available for sale (9,646,287) -
---------------------------------------------
Total shareholders' equity 89,439,951 84,907,862
---------------------------------------------
Total liabilities and shareholders' equity $1,358,247,724 $1,172,620,310
=============================================
</TABLE>
<PAGE> 31
<TABLE>
TCBankshares, Inc.
Consolidated Statements of Income
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1994 1993
---------------------------------------------
(Unaudited)
<S> <C> <C>
Interest income:
Loans, including fees $35,595,861 $30,332,755
Investment securities:
Taxable 23,049,499 23,465,999
Tax-exempt 4,600,622 4,269,610
Other 256,240 333,123
---------------------------------------------
Total interest income 63,502,222 58,401,487
Interest expense:
Deposits 26,044,230 23,946,245
Other 1,979,336 1,078,592
---------------------------------------------
Total interest expense 28,023,566 25,024,837
---------------------------------------------
Net interest income 35,478,656 33,376,650
Provision for loan losses 456,245 1,025,168
---------------------------------------------
Net interest income after provision for loan losses 35,022,411 32,351,482
Other income:
Service charges on deposit accounts 4,475,633 3,989,990
Investment securities gains, net 1,347,886 1,379,944
Trust fees 683,749 565,114
Gain on sale of loans 310,519 453,294
Other 2,900,187 1,933,015
---------------------------------------------
9,717,974 8,321,357
Other expenses:
Salaries and employee benefits 13,302,825 11,359,662
Net occupancy and equipment expense 4,291,884 3,540,322
Merchandising expense 2,119,651 1,999,831
FDIC assessment 1,818,749 1,649,951
Other 6,961,986 6,540,433
---------------------------------------------
28,495,095 25,090,199
---------------------------------------------
Income before income taxes 16,245,290 15,582,640
Income taxes 4,534,489 4,136,639
---------------------------------------------
Net income $11,710,801 $11,446,001
=============================================
</TABLE>
<PAGE> 32
<TABLE>
TCBankshares, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1994 1993
---------------------------------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,710,801 $ 11,446,001
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 456,245 1,025,168
Provision for depreciation and losses on other real estate 94,428 151,431
Depreciation and amortization 2,157,217 1,830,679
Amortization of intangible assets 209,175 202,925
Amortization of investment security premiums, net of
accretion of discounts (377,382) 1,018,600
Gain on sale of loans (310,519) (453,294)
(Gain) loss on sales of other real estate (455,273) 6,270
(Gain) loss on disposal of premises and equipment (37,400) (23,194)
First mortgage loans held for resale:
Proceeds collected on loans sold 48,885,348 55,724,695
Loans made to customers (41,144,803) (59,352,502)
Realized investment security gains (1,347,886) (1,379,944)
(Increase) decrease in other assets (2,865,725) 745,195
Increase in other liabilities 501,148 2,663,949
---------------------------------------------
Net cash provided by operating activities 17,475,374 13,605,979
INVESTING ACTIVITIES
Net increase in loans (105,108,511) (68,815,375)
Purchases of premises and equipment (3,524,331) (5,878,471)
Proceeds from sales of premises and equipment 319,553 189,847
Purchases of investment securities available for sale (111,969,957) -
Purchases of investment securities held to maturity (184,737,666) (157,019,206)
Proceeds from maturing investment securities held to
maturity 11,934,639 137,696,216
Proceeds from maturing investment securities available
for sale 90,258,821 -
Proceeds from sale of investment securities held to
maturity - 4,779,944
Proceeds from sales of investment securities available
for sale 153,004,229 -
Net (increase) decrease in interest bearing deposits with
other banks 992,605 1,467,302
Proceeds from sales of other real estate 2,893,785 607,178
---------------------------------------------
Net cash used in investing activities (145,936,833) (86,972,565)
FINANCING ACTIVITIES
Net increase in deposits 63,889,453 56,316,050
Net increase in short-term borrowings 17,658,694 7,977,213
Cash dividends paid (1,020,613) (1,020,207)
Net increase in other borrowings 50,771,192 -
Principal payments on notes payable (745,875) (496,875)
Principal payment on capital note (157,500) (17,500)
---------------------------------------------
Net cash provided by financing activities 130,395,351 62,758,681
---------------------------------------------
Increase (decrease) in cash and cash equivalents 1,933,892 (10,607,905)
Cash and cash equivalents at beginning of period 45,239,642 46,227,264
---------------------------------------------
Cash and cash equivalents at end of period $ 47,173,534 $ 35,619,359
=============================================
</TABLE>
<PAGE> 33
<TABLE>
TCBankshares, Inc.
Consolidated Statements of Shareholders' Equity
<CAPTION>
CAPITAL SURPLUS
------------------------
PREFERRED STOCK COMMON COMMON PREFERRED RETAINED
----------------------
SERIES A SERIES B STOCK STOCK STOCK EARNINGS TOTAL
-------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1993 $53,060 $95,000 $106,587 $9,181,762 $12,004,940 $53,040,719 $74,482,068
Cash dividends:
Preferred stock,
Series A - - - - - (212,240) (212,240)
Preferred stock,
Series B - - - - - (807,500) (807,500)
Common stock - - - - - (255,404) (255,404)
--------------------------------------------------------------------------------------
Balance at
December 31, 1993 53,060 95,000 106,587 9,181,762 12,004,940 66,954,701 88,396,050
Net income - - - - - 11,710,801 11,710,801
Depreciation on
investments
available-for-sale - - - - - (9,646,287) (9,646,287)
Cash dividends:
Preferred stock,
Series A - - - - - (159,180) (159,180)
Preferred stock,
Series B - - - - - (605,625) (605,625)
Common stock - - - - - (255,808) (255,808)
--------------------------------------------------------------------------------------
Balance at
September 30, 1994 $53,060 $95,000 $106,587 $9,181,762 $12,004,940 $67,998,602 $89,439,951
======================================================================================
</TABLE>
<PAGE> 34
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(a) Financial Statements -- The following historical financial
statements of TCB have been filed pursuant to "Item 5 --
Other Events" of the report:
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 1993 and 1992
Consolidated Statements of Income for the Years Ended
December 31, 1993, 1992 and 1991
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements--December 31, 1993
Consolidated Balance Sheets as of September 30, 1994 and
1993 (Unaudited)
Consolidated Statements of Income for the Nine Months Ended
September 30, 1994 and 1993 (Unaudited)
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1994 and 1993 (Unaudited)
Consolidated Statements of Stockholders' Equity for the
Nine Months Ended September 30, 1994 and 1993
(Unaudited)
(b) Not Applicable.
(c) Exhibits -- The following exhibits are filed with this
report:
2.1 Agreement and Plan of Reorganization, dated December
2, 1994, by and between MBI and TCB.
2.2 Support Agreement, dated December 2, 1994, by and
between MBI and Frank Lyon, Jr.
2.3 Support Agreement, dated December 2, 1994, by and
between MBI and T. Renaud.
20 Press Release, dated December 5, 1994, by MBI.
23.1 Consent of Ernst & Young LLP with regard to the use
of its report on TCB's financial statements.
- 4 -
<PAGE> 35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned heretofore duly authorized.
MERCANTILE BANCORPORATION INC.
Dated: December 21, 1994 By:/s/Michael T. Normile
-----------------------------------
Michael T. Normile
Senior Vice President and Treasurer
- 5 -
<PAGE> 36
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Reorganization,
dated December 2, 1994, by and between
MBI and TCB.
2.2 Support Agreement, dated December 2,
1994, by and between MBI and Frank Lyon,
Jr.
2.3 Support Agreement, dated December 2,
1994, by and between MBI and T. Renaud.
20 Press Release, dated December 5, 1994,
by MBI.
23.1 Consent of Ernst & Young LLP with regard
to the use of its report on TCB's
financial statements.
- 6 -
<PAGE> 1
=========================================================================
AGREEMENT AND PLAN OF REORGANIZATION
between
MERCANTILE BANCORPORATION INC.,
as Buyer,
and
TCBANKSHARES, INC.
as Seller
------------------------------
Dated December 2, 1994
=========================================================================
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
This AGREEMENT AND PLAN OF REORGANIZATION (this
"Agreement") is made and entered into on December 2, 1994 by and
between MERCANTILE BANCORPORATION INC., a Missouri corporation
("Buyer"), and TCBankshares, Inc., an Arkansas corporation
(together with its predecessors, "Seller").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Buyer 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 bank holding company
under the Holding Company Act; and
WHEREAS, the Board of Directors of Seller and the
Board of Directors of Buyer have approved the merger (the
"Merger") of Seller with and into a wholly owned subsidiary of
Buyer organized or to be organized under the laws of Arkansas
("Merger Sub") pursuant to the terms and subject to the con-
ditions of this Agreement; and
WHEREAS, as a condition to, and immediately after
the execution of this Agreement, Buyer, Frank Lyon, Jr. and
T.E. Renaud will enter into Support Agreements (the "Support
Agreements") in the form attached hereto as Exhibit A; and
<PAGE> 3
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 Arkansas Business
Corporation Act of 1987 (the "Arkansas Act") 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 Arkansas.
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 Buyer
and Seller shall agree (the "Closing Date").
-2-
<PAGE> 4
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 Arkansas in such
form as required by, and in accordance with, the relevant
provisions of the Arkansas Act. Subject to the terms and
conditions of this Agreement, the Effective Time shall occur
on such date as Buyer 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) subject to clause (i), 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,
Buyer and Seller shall cause a certificate or plan of merger
reflecting the terms of this Agreement to be delivered for
filing and recordation with other appropriate state or local
officials in the State of Arkansas in accordance with the
Arkansas Act.
1.04. Additional Actions. If, at any time after the
------------------
Effective Time, Buyer or the Surviving Corporation shall
consider or be advised that any further deeds, assignments or
-3-
<PAGE> 5
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
-4-
<PAGE> 6
following the Merger; such directors and officers shall hold
office in accordance with the Surviving Corporation's Bylaws
and applicable law.
1.07. Conversion of Securities. At the Effective
------------------------
Time, by virtue of the Merger and without any action on the
part of Buyer, Seller or the holder of any of the following
securities:
(i) Each share of the common stock, par value
$.01 per share, of Merger Sub that is issued and outstanding
immediately prior to the Effective Time shall remain out-
standing and shall be unchanged after the Merger and shall
thereafter constitute all of the issued and outstanding
capital stock of the Surviving Corporation; and
(ii) Each share of the common stock, par value
$50.00 per share ("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 2,228.2299 (the "Exchange
Ratio") of a share of common stock, par value $5.00 per
share ("Buyer Common Stock"), of Buyer; 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 Buyer or any of its wholly owned
Subsidiaries, in
-5-
<PAGE> 7
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 Buyer Common Stock; and
(iii) Each of the shares of Preferred Stock,
Series A, par value $10.00 per share of Seller (the "Seller
Series A Preferred Stock" and, collectively with the Seller
Series B Preferred Stock (as defined in clause (iv) below),
the "Seller Preferred Stock"), issued and outstanding imme-
diately prior to the Effective Time shall cease to be out-
standing and shall be converted into and become the right to
receive one share of preferred stock, no par value, of Buyer
designated as "Series B-1 Preferred Stock" (the "Buyer
Series B-1 Preferred Stock"), with the same terms, designa-
tions, preferences, limitations, privileges, and relative
rights as the Seller Series A Preferred Stock; and
(iv) Each of the shares of Preferred Stock,
Series B, par value $10.00 per share of Seller (the "Seller
Series B Preferred Stock" and, collectively with the Seller
Common Stock and the Seller Series A Preferred Stock, the
"Seller Capital Stock"), 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
one share of preferred stock, no par value, of Buyer
designated as "Series
-6-
<PAGE> 8
B-2 Preferred Stock" (the "Buyer Series B-2 Preferred Stock"
and, together with the Buyer Series B-1 Preferred Stock, the
"Buyer New Preferred Stock"), with the same terms,
designations, preferences, limitations, privileges, and
relative rights as the Seller Series B Preferred Stock.
1.08. Exchange Procedures. (a) At the Effective
--------------------
Time, holders of record of certificates formerly
representing shares of Seller Common Stock and Seller
Preferred Stock (the "Certificates") shall be instructed to
tender such Certificates to Buyer pursuant to a letter of
transmittal that Buyer shall deliver or cause to be
delivered to such holders. Such letters of transmittal
shall specify that risk of loss and title to Certificates
shall pass only upon delivery of such Certificates to Buyer.
(b) Subject to Section 1.09, after the Effective
Time, each previous holder of a Certificate that surrenders
such Certificate to the Buyer will, upon acceptance thereof
by Buyer be entitled to a certificate or certificates rep-
resenting the number of full shares of Buyer Common Stock or
Buyer New Preferred Stock, as appropriate, into which the
Certificate so surrendered shall have been converted
pursuant to this Agreement and any distribution theretofore
declared and not yet paid with respect to such shares of
Buyer Common
-7-
<PAGE> 9
Stock or Buyer New Preferred Stock, as appropriate, without
interest.
(c) Buyer shall accept Certificates upon compli-
ance with such reasonable terms and conditions as Buyer 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 Buyer may require.
(d) Each outstanding Certificate shall until duly
surrendered to Buyer be deemed to evidence ownership of the
consideration into which the stock previously represented by
such Certificate shall have been converted pursuant to this
Agreement.
(e) After the Effective Time, holders of Certif-
icates shall cease to have rights with respect to the stock
previously represented by such Certificates, and their sole
rights shall be to exchange such Certificates for the con-
sideration provided for in this Agreement. After the Ef-
fective Time, there shall be no further transfer on the
records of Seller of Certificates, and if such Certificates
are presented to Seller for transfer, they shall be
cancelled against delivery of the consideration provided
therefor in this Agreement. Buyer shall not be obligated to
deliver the consideration to which any former holder of
Seller Common
-8-
<PAGE> 10
Stock or Seller Preferred Stock is entitled as a result of
the Merger until such holder surrenders the Certificates as
provided herein. No dividends declared will be remitted to
any person entitled to receive Buyer Common Stock or Buyer
New Preferred Stock under this Agreement until such person
surrenders the Certificate representing the right to receive
such Buyer Common Stock and Buyer New Preferred Stock, at
which time such dividends shall be remitted to such person,
without interest and less any taxes that may have been
imposed thereon. Certificates surrendered for exchange
shall not be exchanged until Buyer has received a written
agreement from such person in the form attached as Exhibit
B. No party to this Agreement nor any affiliate thereof
shall be liable to any holder of stock represented by any
Certificate for any consideration paid to a public official
pursuant to applicable abandoned property, escheat or
similar laws. Buyer shall be entitled to rely upon the
stock transfer books of Seller to establish the identity of
those persons entitled to receive consideration specified in
this Agreement, which books shall be conclusive with respect
thereto. In the event of a dispute with respect to
ownership of stock represented by any Certificate, Buyer
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.
-9-
<PAGE> 11
1.09. No Fractional Shares. Notwithstanding any
--------------------
other provision of this Agreement, neither certificates nor
scrip for fractional shares of Buyer Common Stock shall be
issued in the Merger. Each holder who otherwise would have
been entitled to a fraction of a share of Buyer Common Stock
shall receive in lieu thereof cash (without interest) in an
amount determined by multiplying the fractional share in-
terest to which such holder would otherwise be entitled by
the Closing Price per share of Buyer Common Stock on the
last business day preceding the Effective Time. With
respect to a share of stock, "Closing Price" shall mean:
the closing price as reported on the Consolidated Tape (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. Anti-Dilution Adjustments. If prior to the
-------------------------
Effective Time Buyer shall declare a stock dividend or make
distributions upon or subdivide, split up, reclassify or
combine Buyer Common Stock or declare a dividend or make a
distribution on Buyer Common Stock in any security convert-
ible into Buyer Common Stock, appropriate adjustment or ad-
justments will be made to the Exchange Ratio.
-10-
<PAGE> 12
1.11. Reservation of Right to Revise Transaction.
------------------------------------------
Buyer may at any time change the method of effecting the ac-
quisition of Seller or Seller's Subsidiaries by Buyer
(including without limitation the provisions of this Article
I) if and to the extent it deems such change to be desirable,
including without limitation to provide for a merger of Seller
directly into Buyer, in which Buyer is the surviving
corporation, provided, however, that no such change shall (A)
-------- -------
alter or change the amount or kind of consideration to be is-
sued to holders of Seller Common Stock and Seller Preferred
Stock as provided for in this Agreement (the "Merger Consid-
eration"), (B) adversely affect, in the reasonable opinion of
Seller, the tax treatment to Seller shareholders as a result
of receiving the Merger Consideration, (C) materially impede
or delay receipt of any approval referred to in Section
6.01(b), (D) conflict with any other provision of this
Agreement, or (E) impede or prevent satisfaction of any
condition set forth in Article VI.
ARTICLE II
----------
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
Seller represents and warrants to and covenants
with Buyer as follows:
-11-
<PAGE> 13
2.01. Organization and Authority. Seller is a
--------------------------
corporation duly organized, validly existing and in good
standing under the laws of the State of Arkansas is duly
qualified to do business and is in good standing in all ju-
risdictions where its ownership or leasing of property or
the conduct of its business requires it to be so qualified
and has corporate power and authority to own its properties
and assets and to carry on its business as it is now being
conducted. Seller is registered as a bank holding company
with the Board of Governors of the Federal Reserve System
(the "Board") under the Holding Company Act. True and com-
plete copies of the Amended and Restated Articles of Incor-
poration and the Bylaws of Seller and of the Articles of
Incorporation and Bylaws of The Twin City Bank
(collectively, with the First National Bank of Cleburne
County, First National Bank of Conway County, First National
Bank of Crawford County, First Ozark National Bank and TCB
The Community Bank of Arkansas, N.A., the "Banks"), each as
in effect on the date of this Agreement, have been provided
to Buyer.
2.02. Subsidiaries. Schedule 2.02 sets forth,
------------
among other things, a complete and correct list of all of
Seller's Subsidiaries (each a "Seller Subsidiary" and col-
lectively the "Seller Subsidiaries"), all outstanding Equity
Securities of each of which, except as set forth on Schedule
2.02, are owned directly or indirectly by Seller. "Equity
-12-
<PAGE> 14
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 com-
mitments for any shares of its capital stock or other Equity
Securities. 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 those shares owned by Seller 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 ju-
risdiction where its ownership or
-13-
<PAGE> 15
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 its
Subsidiaries, taken as a whole. Except as set forth on
Schedule 2.02, Seller does not own beneficially, directly or
indirectly, any shares of any class of Equity Securities or
similar interests of any corporation, bank, business
trust, association or similar organization. All of the
Banks are national banking associations chartered by the
Office of the Comptroller of the Currency, except for The
Twin City Bank which is a state banking association
chartered under the laws of the State of Arkansas. The
deposits of each of the Banks are insured by the Bank
Insurance Fund ("BIF") or, to the extent transferred to a
Bank by the Resolution Trust Corporation, by the Savings
Association Insurance Fund, of the Federal Deposit Insurance
Corporation (the "FDIC"). Each of the Banks (other than The
Twin City Bank) is a member in good standing of the Federal
Reserve System. Except as set forth on Schedule 2.02,
neither Seller nor any Seller Subsidiary holds any interest
in a partnership or joint venture of any kind.
2.03. Capitalization. The authorized capital stock
--------------
of Seller consists of (i) 5,500 shares of Seller Common
Stock, of which, as of November 30, 1994, 2,131.737 shares
-14-
<PAGE> 16
were issued and outstanding and (ii) 5,500 shares of Seller
Series A Preferred Stock, of which as of November 30, 1994,
5,306 were issued and outstanding, and (iii) 9,500 shares of
Seller Series B Preferred Stock, of which as of November 30,
1994, 9,500 were issued and outstanding. Since November 30,
1994, no Equity Securities of Seller have been issued. Ex-
cept as set forth above, there are no other Equity
Securities of Seller outstanding. All of the issued and
outstanding shares of Seller Capital Stock are validly
issued, fully paid, and nonassessable, and have not been
issued in violation of any preemptive right of any share-
holder of Seller. Seller maintains no dividend reinvestment
or similar plan.
2.04. Authorization. (a) Seller has the corporate
-------------
power and authority to enter into this Agreement and,
subject to the approval of this Agreement by the
shareholders of Seller, to carry out its obligations
hereunder. The only shareholder vote required for Seller to
approve this Agreement is the affirmative vote of the
holders of at least a majority of the shares of Seller
Common Stock and the Seller Preferred 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. It being understood that the Merger is subject
to approval by the shareholders of
-15-
<PAGE> 17
Seller, this Agreement is a valid and binding obligation of
Seller enforceable against Seller in accordance with its
terms.
(b) Except as set forth on Schedule 2.04B, 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 material properties or assets of Seller or any
Seller Subsidiary under any of the terms, conditions or
provisions of (x) its articles or certificate of incorpora-
tion or bylaws or (y) any material note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Seller or any Seller Sub-
sidiary is a party or by which it may be bound, or to which
Seller or any Seller Subsidiary or any of the material
properties or assets of Seller or any Seller Subsidiary may
be subject, or (ii) subject to compliance with the statutes
and regulations referred to in paragraph (c) of this Section
2.04, to the best knowledge of Seller, violate
-16-
<PAGE> 18
any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to Seller or any
Seller Subsidiary or any of their respective material
properties or assets.
(c) Other than in connection or in compliance with
the provisions of the Arkansas Act, the Securities Act of
1933 and the rules and regulations thereunder (the "Securi-
ties 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, and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), or any required approvals of or filings with the
Arkansas State Bank Department or any other state bank
regulator ("State Bank Regulators"), no notice to, filing
with, exemption or review by, or authorization, consent or
approval of, any public body or authority is necessary for
the consummation by Seller of the transactions contemplated
by this Agreement.
2.05. Seller Financial Statements. The consoli-
---------------------------
dated balance sheets of Seller and its Subsidiaries as of
December 31, 1993, 1992 and 1991, related consolidated
statements of income, cash flows and changes in
shareholders' equity for each of the three years in the
three-year period
-17-
<PAGE> 19
ended December 31, 1993, together with the notes thereto,
audited by Ernst & Young LLP, Seller's independent
accountants ("Seller Auditors"), as previously provided to
Buyer, and the unaudited consolidated condensed balance
sheets of Seller and its Subsidiaries as of March
31, June 30, and September 30, 1994, and the related
unaudited consolidated condensed statements of income for
the periods then ended as previously provided to Buyer
(collectively, the "Seller Financial Statements"), have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods
involved ("GAAP") (except that the interim statements do not
include statements of cash flows or notes), present fairly
the consolidated financial position of Seller and its
Subsidiaries at the dates and the consolidated results of
operations, cash flows and changes in shareholders' equity
of Seller and its Subsidiaries for the periods stated
therein and are derived from the books and records of Seller
and its Subsidiaries, which are complete and accurate in all
material respects and have been maintained in all material
respects in accordance with applicable laws and regulations.
Except as set forth on Schedule 2.05, neither Seller nor any
of its Subsidiaries has any liabilities of any nature
(whether or not required to be disclosed or accrued under
SFAS No. 5) other than (i) those which have arisen in the
ordinary course since the date of the latest
-18-
<PAGE> 20
financial statements described above, (ii) those which are
reflected in the financial statements described above and
(iii) those that individually do not amount to more than
$750,000.
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 material amendments thereto, that it was required
to file with (i) the Board, (ii) the FDIC, (iii) the State
Bank Regulators, and (iv) 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 (iv)
together with the SEC, 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 its
respective date, each Seller 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
-19-
<PAGE> 21
therein, in light of the circumstances under which they were
made, not misleading.
2.07. Properties and Leases. Except as may be
---------------------
reflected in the Seller Financial Statements, except for any
Lien for current taxes not yet delinquent and except with
respect to assets classified as real estate owned, Seller
and its Subsidiaries have good title free and clear of any
material Lien to all the real and personal property
reflected in Seller's consolidated balance sheet as of
September 30, 1994 and, in each case, all real and personal
property acquired since such date, except such real and
personal property as has been disposed of in the ordinary
course of business. All leases material to Seller or any
Seller Subsidiary pursuant to which Seller or any Seller
Subsidiary, as lessee, leases real or personal property, are
valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any
material existing default by Seller or any Seller Subsidiary
or any event which, with notice or lapse of time or both,
would constitute such a material default. Substantially all
of Seller's and Seller Subsidiaries' buildings, structures
and equipment in regular use have been well maintained and
are in substantially good and serviceable condition, normal
wear and tear excepted.
-20-
<PAGE> 22
2.08. Taxes. Except as previously disclosed to
-----
Buyer, 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 its 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 financial
statements Seller has provided to Buyer 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 financial statements. Except as previously disclosed
in writing to Buyer, neither Seller nor any Seller Sub-
sidiary 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, as-
sessment or governmental charge have been proposed, asserted
or assessed (tentatively or definitely) against any of
Seller or any Seller Subsidiary which would not be covered
by existing reserves. Neither Seller nor any Seller
Subsidiary is materially delinquent in the payment of any
material tax, assessment or governmental charge, nor, except
as previously disclosed, has it requested any extension of
time within which to file any tax returns in
-21-
<PAGE> 23
respect of any fiscal year which have not since been filed
and no requests for waivers of the time to assess any tax
are pending. The federal and state income tax returns of
Seller and the Seller Subsidiaries have been audited and
settled by the Internal Revenue Service (the "IRS") or
appropriate state tax authorities for all periods ended
through December 31, 1986. Except as previously disclosed
in writing to Buyer, there is no deficiency or refund
litigation or matter in controversy with respect to Seller
Returns. Except as previously disclosed in writing to
Buyer, neither Seller nor any Seller Subsidiary has extended
or waived any statute of limitations on the assessment of
any tax due that is currently in effect.
2.09. Material Adverse Change. Since September 30,
-----------------------
1994, there has been no material adverse change in the Con-
dition of Seller and its Subsidiaries, taken as a whole,
except as may have resulted or may result from changes to
laws and regulations or changes in economic conditions
applicable to banking institutions generally or in general
levels of interest rates that affect Seller and its
Subsidiaries, taken as a whole, consistent with the manner
in which changes in the general levels of interest rates
since December 31, 1993 have affected Seller and its
Subsidiaries, taken as a whole.
-22-
<PAGE> 24
2.10. Commitments and Contracts. (a) Neither
-------------------------
Seller nor any Seller Subsidiary is a party or subject to
any of the following (whether written or oral, express or
implied):
(i) any material agreement, arrangement
or commitment (A) not made in the ordinary course
of business or (B) pursuant to which Seller or any
of its Subsidiaries is or may become obligated to
invest in or contribute capital to any Seller
Subsidiary;
(ii) any agreement, indenture or other
instrument not reflected in the Seller Financial
Statements relating to the borrowing of money by
Seller or any Seller Subsidiary or the guarantee
by Seller or any Seller Subsidiary of any such
obligation (other than trade payables or
instruments related to transactions entered into
in the ordinary course of business by any Seller
Subsidiary, such as deposits and Fed Funds bor-
rowings);
(iii) any contract, agreement or under-
standing with any labor union or collective bar-
gaining organization;
-23-
<PAGE> 25
(iv) any contract containing covenants
which limit the ability of Seller or any Seller
Subsidiary to compete in any line of business or
with any person or which involve any restriction
of the geographical area in which, or method by
which, Seller or any Seller Subsidiary may carry
on its business (other than as may be required by
law or any applicable Regulatory Authority); or
(v) any lease with annual rental payments
aggregating $250,000 or more;
except in case for those documents that are identified on
Schedule 2.10 and true and complete copies of which have
been provided to Buyer.
(b) Neither Seller nor any Seller Subsidiary 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 its Subsidiaries, taken as a
whole.
-24-
<PAGE> 26
2.11. Litigation and Other Proceedings. Except as
--------------------------------
set forth on Schedule 2.11, neither Seller nor any Seller
Subsidiary is a party to any pending or, to the best knowl-
edge 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 its Subsidiaries, taken as a whole, or which
purports or seeks to enjoin or restrain the transactions
contemplated by this Agreement. Without limiting the
generality of the foregoing, except as set forth on Schedule
2.11, there are no actions, suits, or proceedings pending
or, to the best knowledge of Seller, threatened against
Seller or any Seller Subsidiary or any of their respective
officers or directors by any shareholder of Seller or any
Seller Subsidiary (or any former shareholder of Seller or
any Seller Subsidiary) or involving claims under the
Securities Act, the Exchange Act, the Community Reinvestment
Act of 1977, as amended, or the fair lending laws.
2.12. Insurance. Set forth on Schedule 2.12 is a
---------
list of all insurance policies maintained by or for the
benefit of Seller or its Subsidiaries or their directors,
officers, employees or agents.
-25-
<PAGE> 27
2.13. Compliance with Laws. (a) Seller and each of
--------------------
its Subsidiaries have all permits, licenses, authorizations,
orders and approvals of, and have made all filings,
applications and registrations with, all Regulatory Author-
ities that are required in order to permit them to own or
lease their properties and assets and to carry on their
business as presently conducted and that are material to the
business of Seller and its Subsidiaries; all such permits,
licenses, certificates of authority, orders and approvals
are in full force and effect and, to the best knowledge of
Seller, no suspension or cancellation of any of them is
threatened; and all such filings, applications and regis-
trations are current.
(b) Except for failures to comply or defaults
which individually or in the aggregate would not have a
material adverse effect on the Condition of Seller and its
Subsidiaries, taken as a whole, (i) each of Seller and its
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, envi-
ronmental, 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
-26-
<PAGE> 28
trust company, all statutes, rules, regulations and policy
statements pertaining to the conduct of a banking, deposit-
taking, lending or related business, or to the exercise of
trust powers) and governing instruments applicable to them
and to the conduct of their business, and (ii) neither
Seller nor any Seller Subsidiary is in default under, and no
event has occurred which, with the lapse of time or notice
or both, could result in the default under, the terms of any
judgment, order, writ, decree, permit, or license of any
Regulatory Authority or court, whether federal, state,
municipal, or local and whether at law or in equity. Except
for liabilities which individually or in the aggregate
reasonably could not be expected to have a material adverse
effect on the Condition of Seller and its Subsidiaries,
taken as a whole, neither Seller nor any Seller Subsidiary
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
Seller Subsidiary) (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)
-27-
<PAGE> 29
on which any Toxic Substance has been stored, disposed of,
placed, or used in the construction thereof. "Property" of
a person shall include all property (real or personal,
tangible or intangible) owned or controlled by such person,
including without limitation property under foreclosure,
property held by such person or any Subsidiary of such
person in its capacity as a trustee and property in which
any venture capital or similar unit of such person or any
Subsidiary of such person has an interest. No claim,
action, suit, or proceeding is pending against Seller or any
Seller Subsidiary relating to Property of Seller before any
court or other Regulatory Authority or arbitration tribunal
relating to hazardous substances, pollution, or the
environment, and there is no outstanding judgment, order,
writ, injunction, decree, or award against or affecting
Seller or any Seller Subsidiary 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 Seller
Subsidiary which reasonably could be expected to have a
material adverse effect on the Condition of Seller and its
Subsidiaries, taken as a whole.
(c) From and after January 1, 1991, neither
Seller nor any Seller Subsidiary has received any
notification or communication which has not been resolved
from any Regulatory Authority (i) asserting that any Seller
or any Subsidiary of
-28-
<PAGE> 30
Seller, is not in substantial compliance with any of the
statutes, regulations or ordinances that such Regulatory
Authority enforces, except with respect to matters which (A)
are set forth on Schedule 2.13C or in any writing previously
furnished to Buyer and (B) reasonably could not be expected
to have a material adverse effect on the Condition of Seller
and its 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 its Subsidiaries, taken as a whole, including without
limitation such company's status as an insured depositary
institution under the Federal Deposit Insurance Act, or
(iii) requiring or threatening to require Seller or any of
its Subsidiaries, or indicating that Seller or any of its
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 its 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 Seller Subsidiary is
required by Section 32 of the Federal Deposit Insurance Act
to give prior notice to any federal banking agency of the
-29-
<PAGE> 31
proposed addition of an individual to its board of directors
or the employment of an individual as a senior executive
officer.
2.14. Labor. No work stoppage involving Seller or
-----
any Seller Subsidiary, is pending or, to the best knowledge
of Seller, threatened. Neither Seller nor any Seller Sub-
sidiary is involved in, or, to the best knowledge of Seller,
threatened with or affected by, any labor dispute, arbitra-
tion, lawsuit or administrative proceeding which reasonably
could be expected to have a material adverse affect on the
Condition of Seller and its Subsidiaries, taken as a whole.
Employees of neither Seller nor any Seller Subsidiary, are
represented by any labor union or any collective bargaining
organization.
2.15. Material Interests of Certain Persons. (a)
-------------------------------------
Except as set forth on Schedule 2.15A, 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 l4a-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 Subsidiary of Seller, which would be required
to be disclosed
-30-
<PAGE> 32
by Item 404 of Regulation S-K if such company had a class of
securities registered under Section 12 of the Exchange Act.
(b) Set forth on Schedule 2.15B is a list of all
loans from Seller or any Seller Subsidiary to any present
officer, director, employee or any associate or related in-
terest of any such person which was or would be required
under any rule or regulation to be approved by or reported
to Seller's or Seller Subsidiary's Board of Directors
("Insider Loans"). All outstanding Insider Loans from
Seller or any Seller Subsidiary were approved by or reported
to the appropriate board of directors in accordance with
applicable law and regulations.
2.16. Allowance for Loan and Lease Losses; Non-
-----------------------------------------
performing Assets. (a) The allowances for loan and lease
- ------------------
losses contained in the Seller Financial Statements were
established in accordance with the past practices and expe-
riences of Seller and its Subsidiaries, and the allowance
for loan losses shown on the consolidated condensed balance
sheet of Seller and its Subsidiaries dated September 30,
1994 is adequate in all material respects under the
requirements of GAAP to provide for possible losses on loans
(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.
-31-
<PAGE> 33
(b) The aggregate amount of all Nonperforming
Assets (as defined below) on the books of Seller and its
Subsidiaries does not exceed $6,000,000. "Nonperforming
Assets" shall mean (i) all loans (A) that are contractually
past due 90 days or more in the payment of principal and/or
interest, (B) that are on nonaccrual status, (C) where a
reasonable doubt exists, in the reasonable judgment of Seller,
as to the timely future collectibility of principal and/or in-
terest, whether or not interest is still accruing or the loan
is less than 90 days past due, (D) where the interest rate
terms have been reduced and/or the maturity dates have been
extended subsequent to the agreement under which the loan was
originally created due to concerns regarding the borrower's
ability to pay in accordance with such initial terms, or (E)
where a specific reserve allocation exists in connection
therewith, and (ii) all assets classified as real estate
acquired through foreclosure or repossession and other assets
acquired through foreclosure or repossession.
2.17. Employee Benefit Plans. (a) There are no
----------------------
existing stock option, stock purchase, stock ownership or
stock appreciation right plans or arrangements maintained by
or contributed to by Seller or any Seller Subsidiary.
Except as set forth in Schedule 2.17A, neither Seller nor
any Seller Subsidiary is a party to any existing employment,
management,
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<PAGE> 34
consulting, deferred compensation, change-in-control or other
similar contract. Schedule 2.17A lists all pension, retirement,
supplemental retirement, savings, profit sharing, deferred
compensation, consulting, bonus, medical, disability, workers'
compensation, vacation, group insurance, severance and other
material employee benefit, incentive and welfare policies,
contracts, plans and arrangements, and all trust agreements
related thereto, maintained (currently or at any time in the last
five years) by or contributed to by Seller or any Seller
Subsidiary in respect of any of the present or former directors,
officers, or other employees of and/or consultants to Seller or
any Seller Subsidiary (collectively, "Seller Employee Plans").
Seller has furnished Buyer 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 recent 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.
-33-
<PAGE> 35
(b) All Seller Employee Plans have been
maintained and operated materially in accordance with their
terms and with the material requirements of all applicable
statutes, orders, rules and final regulations, including
without limitation ERISA and the Internal Revenue 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 Internal Revenue 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 Internal Revenue Code; (ii) the
present value of all benefits vested and all benefits
accrued (Accumulated Benefit Obligation) under each Pension
Plan which is subject to Title IV of ERISA, valued using the
assumptions in the actuarial report dated as of December 31,
1993, did not, in each case, exceed the value of the assets
of the Pension Plan allocable to such vested or accrued
benefits dated as of December 31, 1993; (iii) to the best
knowledge of Seller, there has been no "prohibited
-34-
<PAGE> 36
transaction," as such term is defined in Section 4975 of the
Internal Revenue Code or Section 406 of ERISA, which could
subject any Pension Plan or associated trust, or the Seller
or any Seller Subsidiary, to any material tax or penalty; (iv)
except as set forth on Schedule 2.17C, no Pension Plan or
any trust created thereunder has been terminated, nor have
there been any "reportable events" with respect to any
Pension Plan, as that term is defined in Section 4043 of
ERISA on or after January 1, 1985; and (v) no Pension Plan or
any trust created thereunder has incurred any "accumulated
funding deficiency", as such term is defined in Section 302
of ERISA (whether or not waived). No Pension Plan is a
"multiemployer plan" as that term is defined in Section
3(37) of ERISA. With respect to each Pension Plan that is
described in Section 4063(a) of ERISA (a "Multiple Employer
Pension Plan"): (i) neither Seller nor any Seller
Subsidiary would have any liability or obligation to post a
bond under Section 4063 of ERISA if Seller and all Seller
Subsidiaries were to withdraw from such Multiple Employer
Pension Plan; and (ii) neither Seller nor any Seller Sub-
sidiary would have any liability under Section 4064 of ERISA
if such Multiple Employer Pension Plan were to terminate.
(d) Neither Seller nor any Seller Subsidiary has
any liability for any post-retirement health, medical or
-35-
<PAGE> 37
similar benefit of any kind whatsoever, except as required
by statute or regulation.
(e) Neither Seller nor any Seller Subsidiary has
any material liability under ERISA or the Internal Revenue
Code as a result of its being a member of a group described
in Sections 414(b), (c), (m) or (o) of the Internal Revenue
Code.
(f) Except as set forth on Schedule 2.17F,
neither the execution nor delivery of this Agreement, nor
the consummation of any of the transactions contemplated
hereby, will (i) result in any material payment (including
without limitation severance, unemployment compensation or
golden parachute payment) becoming due to any director or
employee of Seller or any Seller Subsidiary from any of such
entities, (ii) materially increase any benefit otherwise
payable under any of the Seller Employee Plans or (iii)
result in the acceleration of the time of payment of any
such benefit. Seller shall use its best efforts to insure
that no amounts paid or payable by Seller, Seller
Subsidiaries or Buyer to or with respect to any employee or
former employee of Seller or any Seller Subsidiary will fail
to be deductible for federal income tax purposes by reason
of Section 280G of the Internal Revenue Code.
-36-
<PAGE> 38
2.18. Conduct of Seller to Date. From and after
-------------------------
January 1, 1994 through the date of this Agreement, except
as set forth on Schedule 2.18 or in 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) Seller has
not issued, sold, granted, conferred or awarded any of its
Equity Securities, or any corporate debt securities which
would be classified under GAAP as long-term debt on the
balance sheets of Seller; (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 preferred or regular semi-annual common dividends)
or other distribution in respect of its capital stock, or
purchased, redeemed, retired, repurchased, or exchanged, or
otherwise acquired or disposed of, directly or indirectly,
any of its Equity Securities, whether pursuant to the terms
of such Equity Securities or otherwise; (v) neither Seller
nor any Seller Subsidiary has incurred any material obliga-
tion 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
-37-
<PAGE> 39
with past practice; (vi) neither Seller nor any Seller Subsidiary
has discharged or satisfied any material Lien or paid any
material obligation or liability (absolute or contingent), other
than in the ordinary course of business; (vii) neither Seller nor
any Seller Subsidiary has sold, assigned, transferred, leased,
exchanged, or otherwise disposed of any of its properties or
assets other than for a fair consideration in the ordinary course
of business; (viii) except as required by contract or law,
neither Seller nor any Seller Subsidiary 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, terminated, or substantially modified any
of the Seller Employee Plans or (C) 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 Seller Subsidiary has cancelled or compromised any
debt, except for debts charged off or compromised in
accordance with the past practice of Seller and its
Subsidiaries, and (xi) neither Seller nor any
-38-
<PAGE> 40
Seller Subsidiary has entered into any material transaction,
contract or commitment outside the ordinary course of its
business.
2.19. Proxy Statement, etc. None of the infor-
--------------------
mation regarding Seller or any Seller Subsidiary supplied or
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 Buyer for the purpose of registering the shares of
Buyer Common Stock to be exchanged for shares of Seller
Common Stock pursuant to the provisions of this Agreement
(the "Registration Statement"), (ii) the proxy or
information statement (the "Proxy Statement") to be mailed
to Seller's shareholders in connection with the transactions
contemplated by this Agreement 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 be-
comes effective and, with respect to the Proxy Statement,
when mailed, be false or misleading with respect to any ma-
terial 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
shareholders referred to in Section 5.03 (the "Meeting") (or,
-39-
<PAGE> 41
if no Meeting is held, at the time the Proxy Statement
is first furnished to Seller's shareholders), 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 the Meeting. All documents
which Seller or any Seller Subsidiary 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.
2.20. Registration Obligations. Neither Seller nor
------------------------
any Seller Subsidiary is under any obligation, contingent or
otherwise to register any of its securities under the Secu-
rities Act.
2.21. State Takeover Statutes. The transactions
-----------------------
contemplated by this Agreement are not subject to any
applicable state takeover law.
2.22 Accounting, Tax and Regulatory Matters.
--------------------------------------
Neither Seller nor any Seller Subsidiary has taken or agreed
to take any action or has any knowledge of any fact or cir-
cumstance that would (i) prevent the transactions contem-
plated hereby from qualifying (A) for pooling-of-interests
accounting treatment or (B) as a reorganization within the
meaning of Section 368 of the Internal Revenue Code or (ii)
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<PAGE> 42
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.
2.23. Brokers and Finders. Except for Stifel,
-------------------
Nicolaus & Company, Incorporated, neither Seller nor any
Seller Subsidiary nor any of their respective officers, di-
rectors 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
Seller Subsidiary in connection with this Agreement or the
transactions contemplated hereby.
2.24. Other Activities. (a) Except as set forth on
----------------
Schedule 2.24A, neither Seller nor any of its Subsidiaries
engages in any insurance activities other than acting as a
principal, agent or broker for insurance that is directly
related to an extension of credit by Seller or any of its
Subsidiaries and limited to assuring the repayment of the
balance due on the extension of credit in the event of the
death, disability or involuntary unemployment of the debtor.
(b) Except as set forth on Schedule 2.24B, to the
knowledge of Seller's management: each Subsidiary that is a
bank that performs personal trust, corporate trust and other
fiduciary activities ("Trust Activities") has done so with
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<PAGE> 43
requisite authority under applicable law of Regulatory Au-
thorities and in material accordance with the agreements and
instruments governing such Trust Activities, sound fiduciary
principles and applicable law and regulation (specifically
including but not limited to Section 9 of Title 12 of the
Code of Federal Regulations); there is no investigation or
inquiry by any governmental entity pending or threatened
against Seller or any of its Subsidiaries thereof relating
to the compliance by Seller or any of its Subsidiaries with
sound fiduciary principles and applicable law and regula-
tions; and each employee of any such bank had the authority
to act in the capacity in which such employee acted with
respect to Trust Activities in each case in which such em-
ployee was held out as a representative of such bank; and
such bank has established policies and procedures for the
purpose of complying with applicable laws of governmental
entities relating to Trust Activities, has followed such
policies and procedures in all material respects and has
performed appropriate internal audit reviews of Trust
Activities, which audits have disclosed no material viola-
tions of applicable laws of governmental entities or such
policies and procedures.
2.25. Interest Rate Risk Management Instruments.
-----------------------------------------
(a) Set forth on Schedule 2.25A is a list of all interest
rate swaps, caps, floors, and option agreements and other
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<PAGE> 44
interest rate risk management arrangements to which Seller
or any of its Subsidiaries is a party or by which any of
their properties or assets may be bound.
(b) All interest rate swaps, caps, floors and
option agreements and other interest rate risk management
arrangements to which Seller or any of its Subsidiaries is a
party or by which any of their properties or assets may be
bound were entered into in the ordinary course of business
and, to the knowledge of Seller's management, in accordance
with prudent banking practice and applicable rules, regula-
tions and policies of Regulatory Authorities and with coun-
terparties believed to be financially responsible at the
time and are legal, valid and binding obligations and are in
full force and effect. Seller and each of its Subsidiaries
has duly performed in all material respects all of its
obligations thereunder to the extent that such obligations
to perform have accrued, and to the knowledge of Seller's
management, there are no material breaches, violations or
defaults or allegations or assertions of such by any party
thereunder.
2.26. Accuracy of Information. The statements of
-----------------------
Seller 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
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<PAGE> 45
and correct 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 BUYER
Buyer represents, and warrants to and covenants
with Seller as follows:
3.01. Organization and Authority. Buyer and each
--------------------------
of its Subsidiaries is a corporation, bank, trust company or
other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of organization,
is duly qualified to do business and is in good standing in
all jurisdictions where its ownership or leasing of property
or the conduct of its business requires it to be so
qualified and has corporate power and authority to own its
properties and assets and to carry on its business as it is
now being conducted, except, in the case of the Buyer
Subsidiaries, where the failure to be so qualified would not
have a material adverse effect on the Condition of Buyer and
its Subsidiaries, taken as a whole. Buyer is registered as
a bank holding company with the Board under the Holding
Company Act. True and complete copies of the Articles of
Incorporation and Bylaws of Buyer, each in effect on the
date of this Agreement, have been provided to Seller.
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<PAGE> 46
3.02. Capitalization of Buyer. The authorized
-----------------------
capital stock of Buyer consists of (i) 100,000,000 shares of
Buyer Common Stock, of which, as of November 30, 1994,
43,290,784 shares were issued and outstanding and (ii)
5,000,000 shares of preferred stock, no par value ("Buyer
Preferred Stock"), issuable in series, of which none are
issued or outstanding. Buyer has designated 1,000,000
shares of Buyer Preferred Stock as "Series A Junior
Participating Preferred Stock" and has reserved such shares
under a Rights Agreement dated May 23, 1988 (the "Buyer
Rights Agreement"), between Buyer and Mercantile Bank of St.
Louis National Association, as Rights Agent. As of November
30, 1994 Buyer had reserved (i) 4,721,246 shares of Buyer
Common Stock for issuance under various employee stock
option and incentive plans ("Buyer Employee Stock Options"),
(ii) 970,000 shares of Buyer Common Stock for issuance upon
the acquisition of Wedge Bank ("Wedge") pursuant to the
Agreement and Plan of Reorganization dated as of July 6,
1994 between Buyer, Mercantile Bancorporation of Illinois
Inc., Wedge and The Wedge Holding Company, (iii) 1,731,142
shares of Buyer Common Stock for issuance upon the
acquisition of UNSL Financial Corp. ("UNSL") pursuant to the
Agreement and Plan or Reorganization dated July 12, 1994
between Buyer, Ameribanc, Inc. and UNSL, (iv) 2,625,533
shares of Buyer Common Stock for issuance upon acquisition
of Central Mortgage Bancshares,
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<PAGE> 47
Inc. ("CMBI") pursuant to Amended and Restated Agreement and Plan
of Merger dated as of November 1, 1994 between Buyer, Ameribanc,
Inc. and CMBI, and (v) 351,101 shares of Buyer Common Stock for
issuance upon conversion of Buyer's 8% Subordinated Capital
Convertible Notes due 1995. From November 30, 1994 through
the date of this Agreement, no shares of Buyer Common Stock
or other Equity Securities of Buyer have been issued
excluding any such shares which may have been issued
pursuant to stock-based employee benefit or incentive plans
and programs, or conversion of the Convertible Notes. Buyer
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, Buyer
may, depending on market conditions and other factors, oth-
erwise determine to issue equity, equity-linked or other
securities for financing purposes. Notwithstanding the
foregoing, Buyer 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
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<PAGE> 48
reorganization within the meaning of Section 368 of the
Internal Revenue Code or (ii) materially impede or delay re-
ceipt 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 for secu-
rities to be issued in connection with Buyer's pending ac-
quisitions of Wedge, UNSL and CMBI, and except pursuant to
the Buyer Rights Agreement, there are no other Equity Secu-
rities of Buyer outstanding. All of the issued and out-
standing shares of Buyer Common Stock are validly issued,
fully paid, and nonassessable, and have not been issued in
violation of any preemptive right of any stockholder of
Buyer. At the Effective Time, the Buyer Common Stock and
the Buyer New Preferred Stock to be issued in the Merger
will be duly authorized, validly issued, fully paid and non-
assessable, and will not be issued in violation of any
preemptive right of any stockholder of Buyer.
3.03. Authorization. (a) Subject to receipt of
-------------
approval from Buyer's Board of Directors of the terms of the
Buyer New Preferred Stock, Buyer has the corporate power and
authority to enter into this Agreement and to carry out its
obligations hereunder. No stockholder vote is required for
Buyer to approve this Agreement. Subject to receipt of ap-
proval from Buyer's Board of Directors of the terms of Buyer
New Preferred Stock, the execution, delivery and performance
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<PAGE> 49
of this Agreement by Buyer and the consummation by Buyer of
the transactions contemplated hereby have been duly autho-
rized by all requisite corporate action of Buyer. This
Agreement is a valid and binding obligation of Buyer en-
forceable against Buyer in accordance with its terms.
(b) Neither the execution, delivery and perfor-
mance by Buyer of this Agreement, nor the consummation by
Buyer of the transactions contemplated hereby, nor
compliance by Buyer 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 material properties or assets of Buyer or
any Buyer Subsidiary under any of the terms, conditions or
provisions of (x) its articles or certificate 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 Buyer
or any of the material properties or assets of Buyer is a
party or by which it may be bound, or to which Buyer may be
subject, or (ii) subject to compliance with the statutes and
regulations referred to in paragraph (c) of this Section
3.03, to the best knowledge of Buyer, violate any
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<PAGE> 50
judgment, ruling, order, writ, injunction, decree, statute, rule
or regulation applicable to Buyer or any of its Subsidiaries or
any of their respective material properties or assets.
(c) Other than in connection with or in compliance
with the provisions of the Missouri Act, the Arkansas Act,
the Securities Act, the Exchange Act, the securities or blue
sky laws of the various states or filings, consents,
reviews, authorizations, approvals or exemptions required
under the Holding Company Act, and the HSR Act, or any re-
quired 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 Buyer of the
transactions contemplated by this Agreement.
3.04. Buyer Financial Statements. The supplemental
--------------------------
consolidated and parent company only balance sheets of Buyer
and its Subsidiaries as of December 31, 1993, 1992 and 1991
and related supplemental consolidated and parent company
only statements of income, cash flows and changes in stock-
holders' equity 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 ("Buyer Auditors") and
included in Buyer's current report on Form 8-K dated June
17,
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<PAGE> 51
1994 as filed with the SEC, and the unaudited consolidated
balance sheets of Buyer and its Subsidiaries as of March 31, June
30, and September 30, 1994 and the related unaudited consolidated
statements of income and cash flows for the periods then ended
included in quarterly reports on Form 10-Q as filed with the SEC
(collectively, the "Buyer Financial Statements"), have been
prepared in accordance with GAAP, present fairly the consolidated
financial position of Buyer and its Subsidiaries at the dates and
the consolidated results of operations, changes in stockholders'
equity and cash flows of Buyer and its Subsidiaries for the
periods stated therein and are derived from the books and
records of Buyer and its Subsidiaries, which are complete
and accurate in all material respects and have been
maintained in all material respects in accordance with
applicable laws and regulations. Neither Buyer nor any of
its Subsidiaries has any material liabilities of any nature
(whether or not required to be disclosed or accrued under
SFAS No. 5) other than (i) those which have arisen in the
ordinary course since the date of the latest financial
statements described above, (ii) those which are reflected
in the financial statements described above and (iii) those
that do not individually amount to more than $750,000.
3.05. Buyer Reports. Since January 1, 1991, each
-------------
of Buyer and the Buyer Subsidiaries has filed all material
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<PAGE> 52
reports, registrations and statements, together with any
required material 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 "Buyer Reports." As
of its respective date, each Buyer Report complied in all
material respects with all the rules and regulations pro-
mulgated 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 nec-
essary in order to make the statements therein, in light of
the circumstances under which they were made, not
misleading.
3.06. Material Adverse Change. Since September 30,
-----------------------
1994, there has been no material adverse change in the Con-
dition of Buyer and its Subsidiaries, taken as a whole,
except as may have resulted or may result from changes to
laws and regulations or changes in economic conditions
applicable to banking institutions generally or in general
levels of interest rates affecting banking institutions
generally.
3.07. Commitments and Contracts. Neither Buyer nor
-------------------------
any of its Subsidiaries is in violation of its charter
documents or bylaws or in default under any material agree-
ment, commitment, arrangement, lease, insurance policy, or
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<PAGE> 53
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 Buyer and
its Subsidiaries, taken as a whole.
3.08. Litigation and Other Proceedings. Neither
--------------------------------
Buyer nor any Buyer Subsidiary is a party to any pending or,
to the best knowledge of Buyer, threatened claim, action,
suit, investigation or proceeding, or is subject to any or-
der, 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 Buyer and its Subsidiaries, taken as a whole, or which
purports or seeks to enjoin or restrain the transactions
contemplated by this Agreement. Without limiting the
generality of the foregoing, there are no actions, suits, or
proceedings pending or, to the best knowledge of Buyer,
threatened against Buyer or any Buyer Subsidiary or any of
their respective officers or directors involving claims
under the Community Reinvestment Act of 1977, as amended, or
the fair lending laws. No claim, action, suit, or
proceeding is pending against Buyer or any Buyer Subsidiary
relating to Property of Buyer before any court or Regulatory
Authority or
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<PAGE> 54
arbitration tribunal relating to hazardous substances, pollution,
or the environment, and there is no outstanding judgment, order,
writ, injunction, decree, or award against or affecting Buyer or
any Buyer Subsidiary with respect to the same. Except as
previously disclosed to Seller, since January 1, 1991, neither
Buyer nor any Buyer Subsidiary has received any notification or
communication which has not been resolved from any Regulatory
Authority (i) asserting that Buyer or any Subsidiary of Buyer, is
not in substantial compliance with any of the statutes,
regulations or ordinances that such Regulatory Authority
enforces, except with respect to matters which reasonably
could not be expected to have a material adverse effect on
the Condition of Buyer and its Subsidiaries, taken as a
whole, (ii) threatening to revoke any license, franchise,
permit or governmental authorization that is material to the
Condition of Buyer and its Subsidiaries, taken as a whole,
including without limitation such company's status as an
insured depositary institution under the Federal Deposit
Insurance Act or (iii) requiring or threatening to require
Buyer or any of its Subsidiaries, or indicating that Buyer
or any of its 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 Buyer or any of its
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<PAGE> 55
Subsidiaries, including without limitation any restriction on the
payment of dividends and no such cease and desist order,
agreement or memorandum of understanding or other agreement is
currently in effect.
3.09. Compliance with Laws. Each of Buyer and its
--------------------
Subsidiaries has complied with all laws, regulations, and
orders (including without limitation zoning ordinances,
building codes, ERISA, and securities, tax, environmental,
civil rights, and occupational health and safety laws and
regulations and including without limitation in the case of
any Buyer Subsidiary that is a bank, banking organization,
banking corporation or trust company, all statutes, rules
and regulations, pertaining to the conduct of a banking,
deposit-taking or lending or related business or to the
exercise of trust powers) and governing instruments
applicable to them and to the conduct of their business,
except where such failure to comply would not have a
material adverse effect on the Condition of Buyer and its
Subsidiaries, taken as a whole, and (ii) neither Buyer nor
any Buyer Subsidiary is in default under, and no event has
occurred which, with the lapse of time or notice or both,
could result in the default under, the terms of any
judgment, order, writ, decree, permit, or license of any
Regulatory Authority or court, whether federal, state,
municipal, or local and whether at law or in equity, except
where such default would not have a material
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<PAGE> 56
adverse effect on the Condition of Buyer and its Subsidiaries,
taken as a whole. Neither Buyer nor any Buyer Subsidiary is
subject to or reasonably likely to incur a liability as a result
of its ownership, operation, or use of any Property of Buyer
(whether directly or, to the best knowledge of Buyer, as a
consequence of such Property being part of the investment
portfolio of Buyer or any Buyer Subsidiary) (A) that is
contaminated by or contains any Toxic Substance, or (B) on
which any Toxic Substance has been stored, disposed of,
placed, or used in the construction thereof; and which, in
each case, reasonably could be expected to have a material
adverse effect on the Condition of Buyer and its Subsidiar-
ies, taken as a whole. Except for statutory or regulatory
restrictions of general application, no Regulatory Authority
has placed any restriction on the business of Buyer or any
Buyer Subsidiary which reasonably could be expected to have
a material adverse effect on the Condition of Buyer and its
Subsidiaries, taken as a whole.
3.10. Registration Statement, etc. None of the
---------------------------
information regarding Buyer or any of its Subsidiaries sup-
plied or to be supplied by Buyer 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
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<PAGE> 57
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 (or furnished to
shareholders of Seller), 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, 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 the Meeting.
All documents which Buyer or any of its Subsidiaries 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.
3.11. Brokers and Finders. Neither Buyer nor any
-------------------
of its 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 Buyer or any
of its Subsidiaries in connection with this Agreement or the
transactions contemplated hereby.
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<PAGE> 58
3.12. Accounting, Tax and Regulatory Matters.
--------------------------------------
Neither Buyer nor any Buyer Subsidiary 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 Section 368 of the Internal Revenue
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.
3.13. Accuracy of Information. The statements of
-----------------------
Buyer contained in this Agreement, the Schedules and in any
other written document executed and delivered by or on behalf
of Buyer 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, each of Buyer and Seller shall, and
shall cause each of their respective Subsidiaries to,
conduct its
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<PAGE> 59
business according to the ordinary and usual course consistent
with past practices and shall, and shall cause each such
Subsidiary to, use its best efforts to maintain and preserve its
business organization, employees and advantageous business
relationships and retain the services of its officers and key
employees.
4.02. Forbearances. Except as set forth on
------------
Schedule 4.02 or as otherwise contemplated by this
Agreement, during the period from the date of this Agreement
to the Effective Time, Seller shall not and shall not permit
any of its Subsidiaries to, without the prior written
consent of Buyer:
(a) declare, set aside or pay any dividends or
other distributions, directly or indirectly, in respect
of its capital stock (other than dividends from a Sub-
sidiary of Seller to Seller or another Subsidiary of
Seller), except that Seller may declare and pay (i)
cash dividends on the Seller Common Stock of not more
than (x) for dividends payable in 1994, $60 per share
per semi-annual period and (y) for dividends payable in
1995, per quarterly period, the greater of (A) $30 per
share or (B) an amount per share equal to the product
of the Exchange Ratio and the most recent quarterly
dividend paid by Buyer on the Buyer Common Stock, (ii)
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<PAGE> 60
quarterly cash dividends on the Seller Series A
Preferred Stock of not more than $10.00 per share and
(iii) quarterly cash dividends on the Seller Series B
Preferred Stock of not more than $21.25 per share;
provided, that Seller shall not declare or pay any
dividends on Seller Common Stock or Seller Preferred
Stock for any period in which its stockholders will be
entitled to receive any regular quarterly dividend on
the shares of Buyer Common Stock or Buyer New Preferred
Stock to be issued in the Merger; or,
(b) except as described on Schedule 2.05, 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; or,
(c) authorize, recommend (subject to the fiduciary
duties of Seller's Board of Directors, based upon
written advice of counsel to Seller, which counsel is
reasonably acceptable to Buyer), propose or announce an
intention to authorize, so recommend or propose, or
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<PAGE> 61
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; or
(d) propose or adopt any amendments to its arti-
cles of incorporation, association or other charter
document or bylaws; or
(e) issue, sell, grant, confer or award any of its
Equity Securities or effect any stock split or adjust,
combine, reclassify or otherwise change its capitali-
zation as it existed on the date of this Agreement; or
(f) purchase, redeem, retire, repurchase, or ex-
change, or otherwise acquire or dispose of, directly or
indirectly, any of its Equity Securities, whether pur-
suant to the terms of such Equity Securities or other-
wise; or
(g) (i) without first consulting with Buyer,
enter into, renew or increase any loan or credit com-
mitment (including stand-by letters of credit) to, or
invest or agree to invest in any person or entity or
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<PAGE> 62
modify any of the material provisions or renew or oth-
erwise extend the maturity date of any existing loan or
credit commitment (collectively, "Lend to") in an
amount in excess of $1,500,000 or in an amount which,
or when aggregated with any and all loans or credit
commitments to such person or entity, would be in
excess of $1,500,000; (ii) without first obtaining the
written consent of Buyer, lend to any person or entity
in an amount in excess of $3,000,000 or in an amount
which, when aggregated with any and all loans or credit
commitments to such person or entity, would be in
excess of $3,000,000; (iii) Lend to any person other than
in accordance with lending policies as in effect on the
date hereof; provided that in the case of clauses (ii)
--------
and (iii) Seller or any Seller Subsidiary may make any
such loan in the event (A) Seller or any Seller
Subsidiary has delivered to Buyer or its designated
representative a notice of its intention to make such
loan and such information as Buyer or its designated
representative may reasonably require in respect
thereof and (B) Buyer or its designated representative
shall not have reasonably objected to such loan by
giving written or facsimile notice of such objection
within two business days following the delivery to
Buyer of the notice of intention and information as
aforesaid; or (iv) Lend to
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<PAGE> 63
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 Seller Subsidiary (except those denoted "pass"
thereon), in an amount in excess of $250,000;
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 Buyer; or
(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
Seller Subsidiary or the acquisition of Equity
Securities of Seller or any Seller Subsidiary or the
merger of Seller or any Seller Subsidiary with any
person (other than Buyer) 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
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<PAGE> 64
Acquisition Transaction, and Seller shall promptly
notify Buyer 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; or
(i) [intentionally omitted]
(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; or
(k) restructure or materially change its investment
securities portfolio, through purchases, sales or
otherwise, or the manner in which the portfolio is
classified or reported; or
(l) 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
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<PAGE> 65
engaging in such activity, entering into such trans-
action, or taking or omitting such other act.
ARTICLE V
---------
ADDITIONAL AGREEMENTS
5.01. Access and Information. (a) Buyer and its
----------------------
Subsidiaries, on the one hand, and Seller and its Subsid-
iaries, on the other hand, shall each afford to each other,
and to the other's accountants, counsel and other represen-
tatives, full access during normal business hours, during
the period prior to the Effective Time, to all their
respective properties, books, contracts, commitments and
records and, during such period, each shall furnish promptly
to the other (i) a copy of each report, schedule and other
document filed or received by it during such period pursuant
to the requirements of federal and state securities laws and
(ii) all other information concerning its business,
properties and personnel as such other party may reasonably
request. Each party hereto shall, and shall cause its
advisors and representatives to, (A) hold confidential all
information obtained in connection with any transaction
contemplated hereby with respect to the other party which is
not otherwise public knowledge, (B) return all documents
(including copies thereof) obtained hereunder from the other
party to such
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<PAGE> 66
other party and (C) use its best efforts to cause all 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) Each party promptly following the date of this
Agreement shall commence its review of the other and the
respective operations, business affairs, prospects and
financial conditions of each, including, without limitation,
those matters which are the subject of Seller's representa-
tions and warranties (the "Due Diligence Review"). Each
party shall conclude such review by not later than thirty
(30) days after the date of this Agreement (the "Due Dili-
gence Period"), but the pendency of such Due Diligence
Review shall not delay Buyer's obligation pursuant to
Section 5.02 of this Agreement to file a Registration
Statement with the SEC and all other necessary applications
and filings with the appropriate federal and state
regulatory agencies. Each party shall promptly advise the
other of any situation, event, circumstance of other matter
which first came to the attention of Buyer after the date
hereof which could result in the termination of this
Agreement pursuant to Section 7.01 hereof, or, if
applicable, of the absence of any situation,
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<PAGE> 67
event, circumstance or other matter. Notwithstanding anything
herein or implied to the contrary, the Due Diligence Review
shall not limit, restrict or preclude, or be construed to
limit, restrict or preclude, either party, at any time or
from time to time thereafter, from conducting such further
reviews or from exercising any rights available to it here-
under 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 and which would
constitute a breach of any representation, warranty or
agreement under this Agreement.
5.02. Registration Statement; Regulatory Matters.
------------------------------------------
(a) Buyer 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
material) with respect to the shares of Buyer Common Stock to
be issued in the Merger. Buyer shall prepare and file an ap-
plication with the Federal Reserve Board as soon as reasonably
practicable. Buyer shall use all reasonable efforts to cause
the Registration Statement to become effective. Buyer 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 its Subsidiaries shall
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<PAGE> 68
furnish Buyer all information concerning Seller and its
Subsidiaries and the stockholders thereof as Buyer may reasonably
request in connection with any such action.
(b) Seller and Buyer shall cooperate and use their
respective best efforts to prepare all documentation, to
effect all filings and to obtain all permits, consents, ap-
provals and authorizations of all third parties and Regula-
tory Authorities necessary to consummate the transactions
contemplated by this Agreement and, as and if directed by
Buyer, to consummate such other mergers, consolidations or
asset transfers or other transactions by and among Buyer's
Subsidiaries and Seller's Subsidiaries concurrently with or
following the Effective Time.
5.03. Stockholder Approval. Seller shall call a
--------------------
meeting of its shareholders to be held as soon as
practicable for the purpose of voting upon the Merger or
take other action for shareholders to authorize the Merger.
In connection therewith, Buyer shall prepare the Proxy
Statement and, with the approval of each of Buyer and
Seller, the Proxy Statement shall be mailed to the
shareholders of Seller. The Board of Directors of Seller
shall submit for approval of Seller's shareholders the
matters to be voted upon in order to authorize the Merger.
The Board of Directors of Seller hereby does and will
recommend this Agreement and the
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<PAGE> 69
transactions contemplated hereby to shareholders of Seller and
will use its best efforts to obtain any vote of Seller's
shareholders that is necessary for the approval and adoption of
this Agreement and consummation of the transactions contemplated
hereby.
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 any material change in
its business or operations and of any governmental
complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the
institution or the threat of material litigation involving
such party, and shall keep the other party fully informed of
such events.
5.05. [Intentionally Omitted]
5.06. Expenses. Each party hereto shall bear its
--------
own expenses incident to preparing, entering into and car-
rying out this Agreement and to consummating the Merger.
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<PAGE> 70
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
Buyer, desirable for the consummation of the transactions
contemplated by this Agreement.
5.08. Employee Benefits. As soon as practicable,
-----------------
following the Effective Time, employees of Sellers and
Seller's Subsidiaries will receive employee benefits that
are substantially the same as benefits from time to time
provided to Buyer's similarly situated employees under its
employee plans and policies. The service with Seller and
Seller's Subsidiaries of the employees of Seller and
Seller's Subsidiaries shall be recognized for purposes of
vesting and
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<PAGE> 71
eligibility for participation in Buyer's employee benefit plans
generally made available to the other employees of Buyer and
Buyer Subsidiaries, except that such service shall not be
recognized for purposes of benefit accrual under any defined
benefit plan of Buyer or Buyer's Subsidiaries.
5.09. Press Releases. Except as may be required by
--------------
law, Seller and Buyer shall consult and agree with each
other as to the form and substance of any proposed press
release relating to this Agreement or any of the
transactions contemplated hereby.
5.10. State Takeover Statutes. Seller will take
-----------------------
all steps necessary to exempt the transactions contemplated
by this Agreement and any agreement contemplated hereby
from, and if necessary challenge the validity of, any
applicable state takeover law.
5.11. D&O Indemnification. Buyer agrees that the
-------------------
Merger shall not affect or diminish any of Seller's duties
and obligations of indemnification existing as of the Ef-
fective Time in favor of employees, agents, directors or
officers of Seller or its Subsidiaries arising by virtue of
its Certificate of Incorporation or Bylaws in the form in
effect at the date of this Agreement or arising by operation
of law or arising by virtue of any contract, resolution or
other agreement or document existing at the date of this
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<PAGE> 72
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.
5.12. Best Efforts. Each of Buyer and Seller
------------
undertakes and agrees to use its best efforts to cause the
Merger (i) to qualify (A) for pooling-of-interests
accounting treatment and (B) as a reorganization within the
meaning of Section 368 of the Internal Revenue Code
(including, if necessary, to take reasonable steps to
restructure the transactions contemplated by this Agreement
to so qualify) and (ii) to occur as soon as practicable.
Each of Buyer and Seller agrees to not take any action that
would materially impede or delay the consummation of the
transactions contemplated by this Agreement or the ability
of Buyer 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.
5.13. Insurance. As soon as practicable following
---------
the date hereof, Seller shall, and Seller shall cause its
Subsidiaries to, use its best efforts to maintain its
existing insurance and, if not already obtained, obtain (and
maintain through the Effective Time) insurance with respect
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<PAGE> 73
to fiduciary liability insurance in respect of employee
benefit matters and umbrella insurance in respect of
automobile fleet coverage for amounts as reasonably
requested by Buyer with financially sound and reputable
insurance companies.
5.14. Bank Minority Shares. Seller shall use its
--------------------
best efforts to cause all agreements pursuant to which any
shareholders of each of the Banks (other than Seller or its
Subsidiaries) hold shares of capital stock of such Banks,
whether as qualifying shares or otherwise, to be amended
and/or restated, in a manner and on terms reasonably
acceptable to Buyer, so as to provide Seller and its suc-
cessors an unqualified right to repurchase such shares at
any time and/or from time to time, subject only to payment
by Seller or its successors of the amounts specified in such
agreements for the repurchase thereof.
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:
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<PAGE> 74
(a) This Agreement shall have received the req-
uisite approval of shareholders of Seller.
(b) All requisite approvals of this Agreement and
the transactions contemplated hereby shall have been
received from the Federal Reserve Board, the State Bank
Regulators and any other Regulatory Authority.
(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 Buyer 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 Buyer and Seller shall have received,
from counsel reasonably satisfactory to it, an opinion
reasonably satisfactory in form and substance to it to
the effect that the Merger will constitute a reorgani-
zation within the meaning of Section 368 of the
Internal Revenue Code and that no gain or loss will be
recognized by the shareholders of Seller to the extent
they receive Buyer Common Stock solely in exchange for
shares of Seller Common Stock.
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<PAGE> 75
(f) Each of Buyer and Seller shall have received
an opinion of Buyer Auditors addressed to Buyer, sat-
isfactory in form and substance to Buyer, 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 repre-
------------------------------
sentations and warranties of Buyer 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 rep-
resentations and warranties are by their express pro-
visions made as of a specified date or period and (ii)
for the effect of transactions contemplated by this
Agreement) and Seller shall have received a certificate
of the chairman or vice chairman of Buyer to that
effect.
(b) Performance of Obligations. Buyer shall have
--------------------------
performed in all material respects all obligations re-
quired to be performed by it under this Agreement prior
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<PAGE> 76
to the Effective Time, and Seller shall have received a
certificate of the chairman or vice chairman of Buyer
to that effect.
6.03. Conditions to Obligations of Buyer To Effect
--------------------------------------------
the Merger. The obligations of Buyer 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 repre-
------------------------------
sentations 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 or period
and (ii) for the effect of transactions contemplated by
this Agreement) and Buyer shall have received a
certificate of the chairman of Seller and a certificate
of the president and chief executive officer of Seller
to that effect.
(b) Performance of Obligations. Seller shall have
--------------------------
performed in all material respects all obligations re-
quired to be performed by it under this Agreement prior
to the Effective Time, and Buyer shall have received a
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<PAGE> 77
certificate of the chairman of Seller and a certificate
of the president and chief executive officer of Seller
to that effect.
ARTICLE VII
-----------
TERMINATION, AMENDMENT AND WAIVER
7.01. Termination. This Agreement may be termi-
-----------
nated at any time prior to the Effective Time, whether
before or after any requisite stockholder approval:
(a) by mutual consent by the Executive Committee
of the Board of Directors of Buyer and the Board of
Directors of Seller;
(b) by the Executive Committee of the Board of
Directors of Buyer or the Board of Directors of Seller
at any time after the date that is ten months after the
date of this Agreement if the Merger shall not
theretofore have been consummated (provided that the
terminating party is not then in material breach of any
representation, warranty, covenant or other agreement
contained herein);
(c) by the Executive Committee of the Board of
Directors of Buyer or the Board of Directors of Seller
if the Federal Reserve Board has denied approval of the
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<PAGE> 78
Merger and such denial has become final and nonappeal-
able;
(d) by the Executive Committee of the Board of
Directors of Buyer in the event of a material breach by
Seller of any representation, warranty, covenant or
other agreement contained in this Agreement, which
breach is not cured within 30 days after written notice
thereof to Seller by Buyer;
(e) by the Executive Committee of the Board of
Directors of Buyer in the event that (i) Buyer's Due
Diligence Review of Seller and its Subsidiaries
discloses matters the impact of which affects Seller
and its Subsidiaries, taken as a whole, except as may
have resulted from changes to laws and regulations or
changes in economic conditions applicable to banking
institutions generally, or in general interest rates
that affect Seller and its Subsidiaries, taken as a
whole, consistent with the manner in which changes in
the general levels of interest rates since December 31,
1993 have affected Seller and its Subsidiaries, taken
as a whole, which the Executive Committee of the Board
of Directors of Buyer in the good faith exercise of its
reasonable judgment believes either (A) to be
inconsistent in any material and adverse respect with
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<PAGE> 79
any of the representations or warranties of Seller, or
(B) (x)to be of such significance as to materially and
adversely affect the Condition of Seller and its
Subsidiaries, taken as a whole, or (y) to deviate ma-
terially and adversely from the financial statements
for the year ended December 31, 1993 of Seller, (ii)
Buyer notifies Seller of such matters within 30 days of
the date of this Agreement, and (iii) such matters (A)
are not capable of being cured or (B) have not been
cured within 30 days after written notice thereof to
Seller by Buyer;
(f) by the Board of Directors of Seller in the
event that (i) Seller's Due Diligence Review of Buyer and
its Subsidiaries discloses matters the impact of which
affects Buyer and its Subsidiaries, taken as a whole,
except as may have resulted from changes to laws and
regulations or changes in economic conditions applicable
to banking institutions generally, or in general levels
of interest rates that affect Buyer and its Subsidiaries,
taken as a whole, consistent with the manner in which
changes in the general levels of interest rates since
December 31, 1993 has affected Buyer and its
Subsidiaries, taken as a whole, which the Board of
Directors of Seller in the good faith exercise of its
reasonable judgment believe either (A) to be inconsistent
in any material and adverse respect with any of the
representations or
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<PAGE> 80
warranties of Buyer, or (B)(x) to be of such significance as
to materially and adversely affect the Condition of Buyer
and its Subsidiaries, taken as a whole, or (y) to deviate
materially and adversely from the financial statement for
the year ended December 31, 1993 of Buyer, (ii) Seller
notifies Buyer of such matters within 30 days of the date
of this Agreement, and (iii) such matters (A) are not
capable of being cured or (B) have not been cured within
30 days after written notice thereof to Buyer; or
(g) by the Board of Directors of Seller in the
event of a material breach by Buyer of any
representation, warranty, covenant or other agreement
contained in this Agreement, which breach is not cured
within 30 days after written notice thereof is given to
Buyer by Seller.
7.02. Effect of Termination. In the event of ter-
---------------------
mination of this Agreement as provided in Sections 7.01(a)
through 7.01(c) and Section 7.01(e) above, this Agreement
shall forthwith become void and there shall be no liability or
obligation on the part of Buyer or Seller or their respective
officers or directors except as set forth in the second sen-
tence of Section 5.01 and in Section 5.06.
7.03. Amendment. This Agreement and the Schedules
---------
hereto may be amended by the parties hereto, by action taken
by or on behalf of their respective Boards of Directors, at
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<PAGE> 81
any time before or after approval of this Agreement by the
shareholders of Seller; provided, however, that after any
-------- -------
such approval by the shareholders of Seller no such modifi-
cation shall alter or change the amount or kind of consid-
eration to be received by holders of Seller Common Stock as
provided in this Agreement. This Agreement may not be
amended except by an instrument in writing signed on behalf
of each of Buyer and Seller.
7.04. 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 re-
strictions 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.
7.05. 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.
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<PAGE> 82
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 Buyer and Seller or in any instrument delivered
by Buyer or Seller pursuant to or in connection with this
Agreement shall expire at the Effective Time or upon termi-
nation of this Agreement in accordance with its terms or, in
the case of any other such instrument, in accordance with
the terms of such instrument. 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 and Section 7.02 shall survive
such termination.
8.02. Notices. All notices and other communica-
-------
tions hereunder shall be in writing and shall be deemed to
be duly received (i) on the date given if delivered
personally
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<PAGE> 83
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),
or (iv) on the business date after being delivered to a
reputable overnight delivery service, if by such service, 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 Buyer:
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
Attention: Ralph W. Babb, Jr.
Vice Chairman
Copies to:
Jon W. Bilstrom, Esq.
General Counsel
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Edward D. Herlihy, Esq.
Telecopy: (212) 403-2000
(ii) if to Seller:
One Riverfront Place #400
North Little Rock, Arkansas 72119
Attention: Frank Lyon, Jr.
Chairman
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<PAGE> 84
Copies to:
One Riverfront Place #400
Second Floor
North Little Rock, Arkansas 72119
Attention: T.E. Renaud
Chief Executive Officer
and President
and
Mitchell, Williams, Selig,
Gates & Woodward,
a Professional Limited Company
320 West Capitol Avenue,
Suite 1000
Little Rock, Arkansas 72201-3525
Attention: John S. Selig
Telecopy: (501) 688-8807
8.03. Miscellaneous. This Agreement (including the
-------------
Schedules and other written documents referred to herein or
provided hereunder) (i) constitutes the entire agreement and
supersedes all other prior agreements and understandings,
both written and oral, among the parties, or any of them,
with respect to the subject matter hereof, including any
confidentiality agreement between the parties hereto, (ii)
is not intended to confer upon any person not a party hereto
any rights or remedies hereunder, (iii) shall not be
assigned by operation of law or otherwise and (iv) shall be
governed in all respects by the laws of the State of
Missouri, except as otherwise specifically provided herein
or required by the Arkansas Act. This Agreement may be
executed in counterparts which together shall constitute a
single agreement.
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<PAGE> 85
IN WITNESS WHEREOF, Buyer and Seller have caused
this Agreement to be signed and, by such signature, ac-
knowledged by their respective officers thereunto duly au-
thorized, and such signatures to be attested to by their
respective officers thereunto duly authorized, all as of the
date first written above.
Attest: MERCANTILE BANCORPORATION INC.
- ------
/s/Jon W. Bilstrom By: /s/Ralph W. Babb, Jr.
- ---------------------- ------------------------
Jon W. Bilstrom Ralph W. Babb, Jr.
Attest: TCBANKSHARES, INC.
- ------
/s/Jay Morgan By: /s/Frank Lyon, Jr.
- ---------------------- ------------------------
Frank Lyon, Jr.
-84-
<PAGE> 1
Support Agreement
December 2, 1994
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
Dear Sirs:
Mercantile Bancorporation Inc. ("Buyer") and
TCBankshares, Inc. ("Seller") are entering into an Agreement and
Plan of Reorganization (the "Agreement") providing for, among
other things, a merger between a wholly-owned subsidiary of Buyer
and Seller (the "Merger"), in which all of the outstanding shares
of capital stock of Seller will be exchanged for capital stock of
Buyer.
The undersigned is a stockholder of Seller ("Stock-
holder") and is entering into this letter agreement to induce
Buyer to enter into the Agreement and to consummate the
transactions contemplated thereby. All capitalized terms used
herein and not otherwise defined shall have the meaning ascribed
thereto in the Agreement.
Stockholder confirms its agreement with Buyer as
follows:
1. Stockholder represents, warrants and agrees that
Schedule I annexed hereto sets forth the shares of the capital
stock of Seller of which Stockholder is the record or beneficial
owner (the "Shares") and that Stockholder is on the date hereof
the lawful owner of the number of shares set forth in Schedule I,
free and clear of all liens, charges, encumbrances, voting
agreements and commitments of every kind. Except as set forth in
Schedule I, Stockholder does not own or hold any rights to
acquire any additional shares of the capital stock of Seller or
of any Seller Subsidiary (by exercise of stock options or
otherwise) or any interest therein or any voting rights with
respect to any additional shares, other than as previously
disclosed to Buyer.
<PAGE> 2
2. Stockholder agrees that Stockholder will not, and
will not permit any company, trust or other entity controlled by
Stockholder to, contract to sell, sell or otherwise transfer or
dispose of any of the Shares or any interest therein or
securities convertible thereinto or any voting rights with
respect thereto, other than (i) pursuant to the Merger or (ii)
with Buyer's prior written consent.
3. Stockholder agrees that all of the Shares
beneficially owned by Stockholder, or over which Stockholder has
voting power or control, directly or indirectly, in each case at
the record date for any meeting of stockholders of Seller called
to consider and vote to approve the Agreement and/or the
transactions contemplated thereby will be voted by the
undersigned in favor thereof.
4. Stockholder agrees to, and will cause any company,
trust or other entity controlled by Stockholder to, cooperate
with Buyer in connection with the Agreement and the transactions
contemplated thereby. Stockholder agrees that Stockholder will
not, and will not permit any such company, trust or other entity
directly or indirectly (including through its officers,
directors, employees or other representatives) to 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 Seller
Subsidiary or the acquisition of Equity Securities of Seller or
any Seller Subsidiary or the merger of Seller or any Seller
Subsidiary with any person (other than Buyer) 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 or agree to or otherwise
assist in the effectuation of any Acquisition Transaction.
5. Stockholder agrees that he will execute and deliver a
certificate containing such representations as are reasonably
necessary and customary for tax counsel to each of Buyer and
Seller to render an opinion to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986 and that no gain or loss will
be recognized by the shareholders of Seller to the extent they
receive Buyer Common Stock and Buyer New Preferred Stock solely
in exchange for shares of Seller Common Stock and Seller
Preferred Stock.
- 2 -
<PAGE> 3
Stockholder has all necessary power and authority to
enter into this letter agreement. This agreement is the legal,
valid and binding agreement of the Stockholder, and is
enforceable against Stockholder in accordance with its terms.
This letter agreement shall terminate upon termination
of the Agreement. Please confirm that the foregoing correctly
states the understanding between us by signing and returning to
us a counterpart hereof.
Very truly yours,
By: /s/ Frank Lyon, Jr.
----------------------
AGREED AND ACCEPTED:
MERCANTILE BANCORPORATION INC.
By: /s/ Ralph W. Babb, Jr.
-----------------------
- 3 -
<PAGE> 4
Schedule I
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Stock Ownership
Owned Beneficially
- ------------------
Through James Frank Lyon, Jr., Revocable Trust:
2,473.9225 Shares of Series A Preferred Stock
4,429.375 Shares of Series B Preferred Stock
1,234.7734 Shares of Common Stock
Through Frank Lyon, Jr., Trust:
2,832.0775 Shares of Series A Preferred Stock
5,070.625 Shares of Series B Preferred Stock
808.6702 Shares of Common Stock
Owned of Record
- ---------------
None
<PAGE> 1
Support Agreement
December 2, 1994
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
Dear Sirs:
Mercantile Bancorporation Inc. ("Buyer") and
TCBankshares, Inc. ("Seller") are entering into an Agreement
and Plan of Reorganization (the "Agreement") providing for,
among other things, a merger between a wholly-owned
subsidiary of Buyer and Seller (the "Merger"), in which all
of the outstanding shares of capital stock of Seller will be
exchanged for capital stock of Buyer.
The undersigned is a stockholder of Seller
("Stockholder") and is entering into this letter agreement
to induce Buyer to enter into the Agreement and to con-
summate the transactions contemplated thereby. All capi-
talized terms used herein and not otherwise defined shall
have the meaning ascribed thereto in the Agreement.
Stockholder confirms its agreement with Buyer as
follows:
1. Stockholder represents, warrants and agrees that
Schedule I annexed hereto sets forth the shares of the
capital stock of Seller of which Stockholder is the record
or beneficial owner (the "Shares") and that Stockholder is
on the date hereof the lawful owner of the number of shares
set forth in Schedule I, free and clear of all liens,
charges, encumbrances, voting agreements and commitments of
every kind except for liens and rights of first refusal in
favor of Frank Lyon, Jr. or trusts for his benefit. Except
as set forth in Schedule I, Stockholder does not own or hold
any rights to acquire any additional shares of the capital
stock of Seller or of any Seller Subsidiary (by exercise of
stock options or otherwise) or any interest therein or any
voting rights with respect to any additional shares, other
than as previously disclosed to Buyer.
<PAGE> 2
2. Stockholder agrees that Stockholder will not,
and will not permit any company, trust or other entity con-
trolled by Stockholder to, contract to sell, sell or other-
wise transfer or dispose of any of the Shares or any
interest therein or securities convertible thereinto or any
voting rights with respect thereto, other than (i) pursuant
to the Merger or (ii) with Buyer's prior written consent or
(iii) to a grantor trust in which stockholder is trustee.
3. Stockholder agrees that all of the Shares
beneficially owned by Stockholder, or over which Stockholder
has voting power or control, directly or indirectly, in each
case at the record date for any meeting of stockholders of
Seller called to consider and vote to approve the Agreement
and/or the transactions contemplated thereby will be voted
by the undersigned in favor thereof.
4. Stockholder agrees to, and will cause any
company, trust or other entity controlled by Stockholder to,
cooperate with Buyer in connection with the Agreement and
the transactions contemplated thereby. Stockholder agrees
that Stockholder will not, and will not permit any such
company, trust or other entity directly or indirectly
(including through its officers, directors, employees or
other representatives) to 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 Seller Subsidiary or
the acquisition of Equity Securities of Seller or any Seller
Subsidiary or the merger of Seller or any Seller Subsidiary
with any person (other than Buyer) 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 or agree
to or otherwise assist in the effectuation of any
Acquisition Transaction.
5. Stockholder agrees that he will execute and
deliver a certificate containing such representations as are
reasonably necessary and customary for tax counsel to each
of Buyer and Seller to render an opinion to the effect that
the Merger will constitute a reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986
and that no gain or loss will be recognized by the
shareholders of Seller to the extent they receive Buyer
Common Stock and Buyer New
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<PAGE> 3
Preferred Stock solely in exchange for shares of Seller
Common Stock and Seller Preferred Stock.
Stockholder has all necessary power and authority
to enter into this letter agreement. This agreement is the
legal, valid and binding agreement of the Stockholder, and
is enforceable against Stockholder in accordance with its
terms.
This letter agreement shall terminate upon
termination of the Agreement. Please confirm that the
foregoing correctly states the understanding between us by
signing and returning to us a counterpart hereof.
Very truly yours,
By: /s/ T.E. Renaud
---------------
AGREED AND ACCEPTED:
MERCANTILE BANCORPORATION INC.
By: /s/ Ralph W. Babb, Jr.
----------------------
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<PAGE> 4
Schedule I
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Stock Ownership
Owned Beneficially
- ------------------
Owned of Record
- ---------------
88.2934 Shares of Common Stock
<PAGE> 1
FOR IMMEDIATE RELEASE: DECEMBER 5, 1994
CONTACT: PATRICK STRICKLER
(314) 425-3835
NYSE SYMBOL: MTL
IN NEWSPAPER STOCK TABLES GENERALLY MercBc or MercBcpMO
MERCANTILE BANCORPORATION TO ENTER ARKANSAS
THROUGH MERGER WITH TCBANKSHARES
Mercantile Bancorporation Inc., of St. Louis, today announced that it will
enter the Arkansas banking market by merging with TCBankshares Inc., the
state's third largest bank holding company.
TCBankshares, based in North Little Rock, had approximately $1.4 billion in
assets as of September 30, 1994, and owns six banks with 36 offices in central,
northern and western Arkansas. The company's lead bank, The Twin City Bank, is
the third largest bank in Little Rock/North Little Rock, the state's largest
metropolitan area. Its five other banks are among the top three institutions
in seven of the eight counties they serve.
Mercantile, one of the premier banking organizations in the U.S., had
September 30, 1994 assets of $12.2 billion. The corporation operates 41
Mercantile Banks located throughout the state of Missouri, and in eastern
Kansas, southern Illinois and northern Iowa.
--more--
<PAGE> 2
MERCANTILE TO MERGE WITH TCBANKSHARES--FIRST ADD
"Merging with TCBankshares will allow Mercantile to assume a solid market
share in the state's capital, and strong positions in several other attractive
and growing communities in Arkansas," explained Thomas H. Jacobsen, Mercantile's
chairman and chief executive officer. "TCBankshares' network adjoins existing
Mercantile markets north of the state line in Missouri, making it an excellent
complement to Mercantile's franchise. Mercantile's strength has always been its
strong sense of community banking and the involvement of local people as
directors of those banks."
"Mercantile's strong commitment to banking fundamentals and its tradition
of supporting the communities that it serves fit perfectly with the philosophy
that TCBankshares has followed over the years," noted Frank Lyon, Jr., chairman
of TCBankshares. "Further, it allows my family an expanded and more diversified
interest in the banking industry in addition to providing TCB with the
wherewithal to more aggressively pursue its growth and acquisition strategies to
better serve the financial needs of our customers."
"As we become part of the Mercantile organization, it is with the assurance
that Twin City Bank will continue to offer the quality of service and care to
our customers and employees that we have traditionally offered," said T.E.
Renaud, chairman and chief executive officer of the bank.
--more--
<PAGE> 3
MERCANTILE TO MERGE WITH TCBANKSHARES--SECOND ADD
"We will immediately begin to take advantage of the capital strength, range
of services and increased efficiency that this affiliation will provide, while
at the same time keeping Twin City Bank's present management structure, customer
service culture, and commitment to customers, employees and communities intact,"
Renaud said. He plans to remain as chairman and chief executive officer of
Twin City Bank and the local boards of directors of the banks within
TCBankshares will remain, Renaud added. Renaud is also chief executive officer
of TCBankshares.
In addition to North Little Rock-based Twin City Bank, TCBankshares owns
First National Bank of Crawford County, in Van Buren; The First National Bank
of Conway County, in Morrilton; First National Bank of Cleburne County, in Heber
Springs; 1st Ozark National Bank, in Flippin; and TCB--The Community Bank of
Arkansas, in Batesville.
According to the terms of the merger agreement, Mercantile will issue 4.75
million shares of its common stock in exchange for the common stock of
TCBankshares. In addition, Mercantile will assume, through an exchange,
outstanding, non-convertible preferred stock of TCBankshares with a value of
$12.1 million. The merger is subject to the approval of all appropriate
regulatory authorities.
# # #
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-4, No. 33-56603) and related Prospectus of Mercantile
Bancorporation, Inc. for the registration of 2,625,533 shares of its common
stock, our report dated March 7, 1994, with respect to the consolidated
financial statements of TCBankshares, Inc. included in Mercantile
Bancorporation, Inc.'s Current Report on Form 8-K dated December 21, 1994,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Little Rock, Arkansas
December 21, 1994
