<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 1996
Registration No. 333-----------
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------
MERCANTILE BANCORPORATION INC.
(Exact name of registrant as specified in its charter)
MISSOURI 6712 43-0951744
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number)
P.O. Box 524
St. Louis, Missouri 63166-0524
(314) 425-2525
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
JON W. BILSTROM, ESQ.
General Counsel and Secretary
Mercantile Bancorporation Inc.
P.O. Box 524
St. Louis, Missouri 63166-0524
(314) 425-2525
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
JOHN Q. ARNOLD ROBERT M. LaROSE, ESQ.
Chief Financial Officer Thompson Coburn
Mercantile Bancorporation Inc. Suite 3400
P.O. Box 524 One Mercantile Center
St. Louis, Missouri 63166-0524 St. Louis, Missouri 63101
(314) 425-2525 (314) 552-6000
THOMAS C. ERB, ESQ.
Lewis, Rice & Fingersh L.C.
500 North Broadway
Suite 2000
St. Louis, Missouri 63102
(314) 444-7600
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
==========================================================================================================================
<CAPTION>
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per unit <F2> aggregate offering price <F3> registration fee
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $5.00 258,783 $27.44 $7,100,934.00 $2,448.59
par value <F1> shares
==========================================================================================================================
<FN>
<F1> Includes one attached Preferred Share Purchase Right per share.
<F2> The proposed maximum offering price per unit has been determined by
dividing the proposed maximum aggregate offering price by the
number of shares being registered.
<F3> Estimated solely for purposes of computing the Registration Fee
pursuant to the provisions of Rule 457(f), and based upon the
$10,435,934.00 aggregate book value of the 76,927 shares of common
stock, $0.10 par value, of First Financial Corporation of
America issued and outstanding as of July 31, 1996, less the
respective portion of such aggregate book value ($3,335,000.00) to
be paid in cash by the Registrant in connection with the exchange.
</TABLE>
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
===============================================================================
<PAGE> 2
MERCANTILE BANCORPORATION INC.
<TABLE>
CROSS REFERENCE SHEET FURNISHED PURSUANT TO ITEM 501(b)
OF REGULATION S-K SHOWING HEADING OR LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-4
-----------------------------------------------------------
<CAPTION>
Form S-4 Item Number and Caption Heading or Location in Prospectus
- -------------------------------- ---------------------------------
<S> <C>
A. Information about the Transaction
1. Forepart of Registration Statement Facing Page; Cross Reference Sheet; Outside
and Outside Front Cover Page of Prospectus Front Cover Page of Prospectus
2. Inside Front and Outside Back Available Information; Incorporation of
Cover Pages of Prospectus Certain Information by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings Summary Information; Pro Forma Financial
to Fixed Charges and Other Information Information
4. Terms of the Transaction Summary Information; Incorporation of
Certain Information by Reference; Terms of
the Proposed Merger; Certain Federal
Income Tax Consequences of the Merger;
Information Regarding MBI Common Stock
5. Pro Forma Financial Information Pro Forma Financial Information
6. Material Contacts with the Summary Information; Terms of the
Company Being Acquired Proposed Merger
7. Additional Information Required Not Applicable
for Reoffering by Persons and
Parties Deemed to be Underwriters
8. Interests of Named Experts and Legal Matters
Counsel
9. Disclosure of Commission Not Applicable
Position on Indemnification for
Securities Act Liabilities
<PAGE> 3
<CAPTION>
Form S-4 Item Number and Caption Heading or Location in Prospectus
- -------------------------------- ---------------------------------
<S> <C>
B. Information About the Registrant
10. Information with Respect to S-3 Incorporation of Certain Information by
Registrants Reference; Summary Information;
Information Regarding MBI Common Stock
11. Incorporation of Certain Incorporation of Certain Information by
Information by Reference Reference
12. Information with Respect to S-2 Not Applicable
or S-3 Registrants
13. Incorporation of Certain Not Applicable
Information by Reference
14. Information with Respect to Not Applicable
Registrants Other Than S-3 or
S-2 Registrants
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Not Applicable
Companies
16. Information with Respect to S-2 Not Applicable
or S-3 Companies
17. Information with Respect to Summary Information; Information
Companies Other Than S-3 or Regarding First Financial
S-2 Companies
D. Voting and Management Information
18. Information if Proxies, Consents Information Regarding Special Meeting;
or Authorizations are to be Incorporation of Certain Information by
Solicited Reference; Appraisal Rights of Shareholders
of First Financial; Information Regarding
First Financial
19. Information if Proxies, Consents Not Applicable
or Authorizations are not to be
Solicited in an Exchange Offer
</TABLE>
- ii -
<PAGE> 4
[LETTERHEAD OF FIRST FINANCIAL CORPORATION OF AMERICA]
--------------, 1996
Dear Fellow Shareholder:
On behalf of the Board of Directors and management of
First Financial Corporation of America ("First Financial"), I
cordially invite you to attend a Special Meeting of Shareholders of
First Financial to be held at --:-0 -.m., Central Time, on
- -----------, -------------, 1996, at
- --------------------------------------------, Salem, Missouri (the
"Special Meeting"). At this important meeting, you will be asked
to consider and vote upon the Agreement and Plan of Merger, dated
July 9, 1996 (the "Merger Agreement"), and each of the transactions
contemplated thereby, pursuant to which First Financial will be
merged (the "Merger") with and into Ameribanc, Inc., a Missouri
corporation and wholly owned subsidiary of Mercantile
Bancorporation Inc. ("MBI"). Upon consummation of the Merger, each
share of First Financial common stock will be converted into the
right to receive, and each First Financial shareholder will have
the opportunity to elect whether to receive per share of First
Financial common stock as consideration in the Merger, one of the
following: (i) an amount in cash equal to $194.73; (ii) 4.2963
shares of MBI common stock; or (iii) both an amount in cash equal
to $42.26 and 3.364 shares of MBI common stock, all as more fully
described in the accompanying Proxy Statement/Prospectus. In
certain circumstances, First Financial shareholders may receive
Merger consideration of a different type or in a different
proportion than they have elected to receive.
I have enclosed the following items relating to the
Special Meeting and the Merger:
1. A Proxy Statement/Prospectus;
2. A proxy card;
3. An election form and a certification regarding
certain tax matters;
4. A white pre-addressed return envelope to First
Financial for the proxy card; and
5. A blue pre-addressed return envelope to KeyCorp
Shareholder Services, Inc., the Exchange Agent, for
the election form and tax certification, if
applicable.
The Proxy Statement/Prospectus and related proxy
materials set forth, or incorporate by reference, financial data
and other important information relating to First Financial and MBI
and describe the terms and conditions of the proposed Merger. The
Board of Directors requests that you carefully review these
materials before completing the enclosed proxy card and election
form or attending the Special Meeting.
THE BOARD OF DIRECTORS OF FIRST FINANCIAL HAS CAREFULLY
CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE MERGER
AGREEMENT. THE BOARD HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTEREST OF FIRST FINANCIAL AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE
---
THE MERGER AGREEMENT.
The investment banking firm of Alex Sheshunoff & Co.
Investment Banking has issued its written opinion, dated July 9,
1996, to your Board of Directors regarding the fairness from a
financial point of view of the consideration to be paid by MBI
pursuant to the Merger Agreement.
It is very important that your shares are represented at
the Special Meeting, whether or not you plan to attend in person.
The affirmative vote of at least two-thirds of the outstanding
First Financial common
<PAGE> 5
stock is required for approval of the Merger Agreement. A failure to vote for
approval of the Merger Agreement will have the same effect as a vote against the
Merger Agreement. Therefore, I urge you to execute, date and return the enclosed
proxy card in the enclosed postage-paid envelope as soon as possible to assure
that your shares will be voted at the Special Meeting.
The Board of Directors and management of First Financial appreciate
your continued support and look forward to seeing you at the Special Meeting.
If you have any questions or require assistance, please contact
- ---------------------- at (---) -------------.
Very truly yours,
W. CHARLES WHITMIRE
President and Chief Executive Officer
<PAGE> 6
FIRST FINANCIAL CORPORATION OF AMERICA
403 NORTH JACKSON STREET
SALEM, MISSOURI 65560
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON -------------, 1996
TO THE SHAREHOLDERS OF FIRST FINANCIAL:
Notice is hereby given that a Special Meeting of
Shareholders of First Financial Corporation of America, a Missouri
corporation ("First Financial"), will be held at the -------------
- ----------------------------------, Salem, Missouri, on
- ------------, -------------, 1996, at --:-0 -.m., Central Time, for
the following purposes:
(1) To consider and vote upon the adoption and approval
of the Agreement and Plan of Merger (the "Merger Agreement"), dated
July 9, 1996, and each of the transactions contemplated thereby,
pursuant to which First Financial will be merged (the "Merger")
with and into Ameribanc, Inc. ("Ameribanc"), a wholly owned
subsidiary of Mercantile Bancorporation Inc. ("MBI"), and the
business and operations of First Financial will be continued
through Ameribanc, and whereby, upon consummation of the Merger,
each share (other than shares as to which a shareholder has
perfected dissenters' rights) of First Financial common stock will
be converted into the right to receive, and each shareholder will
have the opportunity to elect per share of First Financial common
stock as consideration in the Merger, one of the following: (i) an
amount in cash equal to $194.73; (ii) 4.2963 shares of MBI common
stock; or (iii) both an amount in cash equal to $42.26 and 3.364
shares of MBI common stock. In certain circumstances, First
Financial shareholders may receive Merger consideration of a
different type or in a different proportion than they have elected
to receive.
(2) To transact such other business as may properly come
before the Special Meeting or any adjournments or postponements
thereof.
The record date for determining the shareholders entitled
to receive notice of, and to vote at, the Special Meeting or any
adjournments or postponements thereof has been fixed as of the
close of business on --------------, 1996.
In the event the Merger is approved and consummated, each
holder of First Financial common stock will have the right to
dissent from the Merger and demand payment of the fair value of his
or her shares. The right of a shareholder to receive such payment
is contingent upon strict compliance with the requirements of
Section 351.455 of The General and Business Corporation Law of
Missouri, the full text of which is attached as Annex A to the
-------
accompanying Proxy Statement/Prospectus. For a summary of these
requirements, see "APPRAISAL RIGHTS OF SHAREHOLDERS OF FIRST
FINANCIAL" in the accompanying Proxy Statement/Prospectus.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN
IT TO FIRST FINANCIAL IN THE ACCOMPANYING ENVELOPE.
By Order of the Board of Directors
-------------------------------------
Secretary
- ----------, 1996
<PAGE> 7
MERCANTILE BANCORPORATION INC.
PROSPECTUS
------------------------
FIRST FINANCIAL CORPORATION OF AMERICA
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON -------------, 1996
This Prospectus of Mercantile Bancorporation Inc., a
Missouri corporation ("MBI"), relates to up to 258,783 shares of
common stock, $5.00 par value (the "MBI Stock"), and attached
preferred share purchase rights (the "MBI Rights"), of MBI (the MBI
Stock and MBI Rights are collectively referred to herein as the
"MBI Common Stock"), to be issued to the shareholders of First
Financial Corporation of America, a Missouri corporation ("First
Financial"), upon consummation of the proposed merger (the
"Merger") of First Financial with and into Ameribanc, Inc., a
Missouri corporation and wholly owned subsidiary of MBI
("Ameribanc"). Upon receipt of the requisite shareholder and
regulatory approvals, the Merger will be consummated in accordance
with the terms and conditions of the Agreement and Plan of Merger
(the "Merger Agreement"), dated July 9, 1996, by and among MBI,
Ameribanc and First Financial. This Prospectus also serves as the
Proxy Statement for First Financial in connection with the Special
Meeting of Shareholders of First Financial (the "Special Meeting"),
which will be held on -------------, 1996, at the time and place
and for the purposes stated in the Notice of Special Meeting of
Shareholders accompanying this Proxy Statement/Prospectus.
Pursuant to the Merger Agreement, MBI will issue up to an
aggregate of 258,783 shares of MBI Common Stock. Upon consummation
of the Merger, the business and operations of First Financial will
be continued through Ameribanc and each share (other than shares as
to which a shareholder has perfected dissenters' rights) of the
common stock, $0.10 par value, of First Financial (the "First
Financial Common Stock") will be converted into the right to
receive, and each First Financial shareholder will have the
opportunity to elect whether to receive per share of First
Financial Common Stock as consideration in the Merger, one of the
following: (i) an amount in cash equal to $194.73 (the "Cash
Distribution"); (ii) 4.2963 shares of MBI Common Stock (the "Stock
Distribution"); or (iii) both an amount in cash equal to $42.26 and
3.364 shares of MBI Common Stock (the "Combined Distribution") (the
aggregate of all Cash Distributions, Stock Distributions and
Combined Distributions is sometimes hereinafter referred to as the
"Merger Consideration"), all as more fully described in detail at
pages ---- to ---- of this Proxy Statement/Prospectus. In certain
circumstances, First Financial shareholders who have elected to
receive the Cash Distribution, the Combined Distribution or the
Stock Distribution or who have been deemed to have elected the Cash
Distribution will receive Merger Consideration of a different type
or in a different proportion than they have elected or have been
deemed to have elected to receive. See "TERMS OF THE PROPOSED
MERGER - General Description of the Merger." No fractional shares
of MBI Common Stock will be issued in the Merger, but cash will be
paid in lieu of fractional shares. See "TERMS OF THE PROPOSED
MERGER - Fractional Shares."
The Merger is intended to qualify as a reorganization
under Section 368 of the Internal Revenue Code of 1986, as amended
(the "Code"), and is intended to achieve certain federal income tax
tax-deferral benefits for First Financial shareholders with respect
to shares of MBI Common Stock received in the Merger. See "SUMMARY
INFORMATION - Certain Federal Income Tax Consequences" and "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER." Because a First
Financial shareholder who elects to receive the Stock Distribution
may nevertheless, under certain circumstances, receive a
combination of MBI Common Stock and cash, such shareholder may
recognize taxable income with respect to any such cash received.
See "TERMS OF THE PROPOSED MERGER -General Description of the
Merger."
<PAGE> 8
MBI Common Stock is traded on the New York Stock Exchange
(the "NYSE") under the symbol "MTL." On -------------, 1996, the
closing sale price for MBI Common Stock as reported on the NYSE
Composite Tape was $------ per share. This Proxy
Statement/Prospectus, the Notice of Special Meeting, the form of
proxy and the election form were first mailed to the shareholders
of First Financial on or about ----------, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY
STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE SHARES OF MBI COMMON STOCK OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-
BANK SUBSIDIARY AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER FEDERAL OR STATE
GOVERNMENTAL AGENCY.
All information contained in this Proxy
Statement/Prospectus with respect to MBI has been supplied by MBI
and all information with respect to First Financial has been
supplied by First Financial.
The date of this Proxy Statement/Prospectus is
- -----------, 1996.
- 2 -
<PAGE> 9
AVAILABLE INFORMATION
---------------------
MBI is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and, in accordance therewith, files with the Commission reports,
proxy statements and other information. Such reports, proxy
statements and other information filed with the Commission by MBI
can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at
Suite 1300, Seven World Trade Center, New York, New York 10048 and
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. MBI Common Stock is listed on the NYSE, and such
reports, proxy statements and other information concerning MBI are
available for inspection and copying at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
This Proxy Statement/Prospectus does not contain all of
the information set forth in the Registration Statement on Form S-4
and exhibits thereto (the "Registration Statement") covering the
securities offered hereby which has been filed by MBI with the
Commission. As permitted by the rules and regulations of the
Commission, this Proxy Statement/Prospectus omits certain
information contained or incorporated by reference in the
Registration Statement. Statements contained in this Proxy
Statement/Prospectus provide a summary of the contents of any
contract or other document referenced herein but are not
necessarily complete and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement. For such further information, reference is
made to the Registration Statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
-------------------------------------------------
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE
DOCUMENTS RELATING TO MBI WHICH ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. SUCH DOCUMENTS, EXCLUDING EXHIBITS UNLESS
SPECIFICALLY INCORPORATED THEREIN, ARE AVAILABLE WITHOUT CHARGE TO
ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF STOCK OF MBI TO WHOM
THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST, TO JON W. BILSTROM, GENERAL COUNSEL AND SECRETARY,
MERCANTILE BANCORPORATION INC., P.O. BOX 524, ST. LOUIS, MISSOURI
63166-0524, TELEPHONE (314) 425-2525. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY REQUEST
SHOULD BE MADE BY ----------------, 1996.
The following documents filed with the Commission by MBI
under the Exchange Act are incorporated herein by reference:
(a) MBI's Annual Report on Form 10-K for the year ended
December 31, 1995.
(b) MBI's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996 and June 30, 1996.
(c) MBI's Current Reports on Form 8-K dated January 16,
1996 and March 11, 1996.
(d) The description of the MBI Stock set forth in
Item 1 of MBI's Registration Statement on Form 8-A,
dated March 5, 1993, and any amendment or report
filed for the purpose of updating such description.
- 3 -
<PAGE> 10
(e) The description of the MBI Rights set forth in Item
1 of MBI's Registration Statement on Form 8-A,
dated March 5, 1993, and any amendment or report
filed for the purpose of updating such description.
Such incorporation by reference shall not be deemed to
incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K.
All documents filed by MBI pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date hereof and
until the date of the Special Meeting shall be deemed to be
incorporated by reference herein and made a part hereof from the
date any such document is filed. The information relating to MBI
contained in this Proxy Statement/Prospectus does not purport to be
complete and should be read together with the information in the
documents incorporated by reference herein. Any statement
contained herein or in a document incorporated herein by reference
shall be deemed to be modified or superseded for purposes hereof to
the extent that a subsequent statement contained herein or in any
other subsequently filed document incorporated by reference herein
modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part hereof.
Any statements contained in this Proxy
Statement/Prospectus involving matters of opinion, whether or not
expressly so stated, are intended as such and not as
representations of fact.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
MBI OR FIRST FINANCIAL. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OTHER THAN THE SHARES OF MBI COMMON STOCK TO WHICH
IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES PURSUANT
HERETO SHALL IMPLY OR CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF MBI OR FIRST FINANCIAL OR ANY OF THEIR
SUBSIDIARIES OR IN THE INFORMATION SET FORTH HEREIN SUBSEQUENT TO
THE DATE HEREOF.
- 4 -
<PAGE> 11
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE. . . . . . . 3
SUMMARY INFORMATION. . . . . . . . . . . . . . . . . . . . . . 7
Business of MBI. . . . . . . . . . . . . . . . . . . . . . 7
Business of Ameribanc. . . . . . . . . . . . . . . . . . . 8
Business of First Financial. . . . . . . . . . . . . . . . 8
The Proposed Merger. . . . . . . . . . . . . . . . . . . . 8
Voting Agreements. . . . . . . . . . . . . . . . . . . . . 13
Interests of Certain Persons in the Merger . . . . . . . . 13
Special Meeting of First Financial Shareholders. . . . . . 13
Reasons for the Merger . . . . . . . . . . . . . . . . . . 14
Opinion of Financial Advisor to First Financial. . . . . . 14
Fractional Shares. . . . . . . . . . . . . . . . . . . . . 14
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . 14
Waiver and Amendment . . . . . . . . . . . . . . . . . . . 15
Certain Federal Income Tax Consequences. . . . . . . . . . 15
Regulatory Approvals . . . . . . . . . . . . . . . . . . . 15
Accounting Treatment . . . . . . . . . . . . . . . . . . . 15
Markets and Market Prices. . . . . . . . . . . . . . . . . 16
Comparative Unaudited Per Share Data . . . . . . . . . . . 17
Summary Financial Data . . . . . . . . . . . . . . . . . . 18
INFORMATION REGARDING SPECIAL MEETING. . . . . . . . . . . . . 21
General. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Date, Time and Place . . . . . . . . . . . . . . . . . . . 21
Record Date; Vote Required . . . . . . . . . . . . . . . . 21
Voting and Revocation of Proxies . . . . . . . . . . . . . 21
Solicitation of Proxies. . . . . . . . . . . . . . . . . . 22
TERMS OF THE PROPOSED MERGER . . . . . . . . . . . . . . . . . 23
General Description of the Merger. . . . . . . . . . . . . 23
Voting Agreements. . . . . . . . . . . . . . . . . . . . . 27
Background of and Reasons for the Merger; Board
Recommendations. . . . . . . . . . . . . . . . . . . . . 28
Opinion of Financial Advisor to First Financial. . . . . . 30
Conditions to the Merger . . . . . . . . . . . . . . . . . 34
Termination of the Merger Agreement. . . . . . . . . . . . 36
Indemnification. . . . . . . . . . . . . . . . . . . . . . 36
Effective Time; Closing Date . . . . . . . . . . . . . . . 37
Surrender of First Financial Stock Certificates and
Receipt of MBI Common Stock and/or Cash. . . . . . . . . 37
Fractional Shares. . . . . . . . . . . . . . . . . . . . . 38
Regulatory Approvals . . . . . . . . . . . . . . . . . . . 38
Business Pending the Merger. . . . . . . . . . . . . . . . 38
Divestiture of West Pointe Stock . . . . . . . . . . . . . 42
Waiver and Amendment . . . . . . . . . . . . . . . . . . . 42
Accounting Treatment . . . . . . . . . . . . . . . . . . . 42
- 5 -
<PAGE> 12
<CAPTION>
Page
----
<S> <C>
Interests of Certain Persons in the Merger . . . . . . . . 42
Effect on Employment Contracts and Benefit Plans . . . . . 44
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. . . . . 44
DISSENTERS' RIGHTS OF SHAREHOLDERS OF FIRST FINANCIAL. . . . . 48
PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . 50
Comparative Unaudited Per Share Data . . . . . . . . . . . 50
Pro Forma Combined Consolidated Financial Statements
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . 51
INFORMATION REGARDING FIRST FINANCIAL. . . . . . . . . . . . . 57
Business . . . . . . . . . . . . . . . . . . . . . . . . . 57
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . 57
Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . 70
INFORMATION REGARDING MBI STOCK. . . . . . . . . . . . . . . . 72
Description of MBI Common Stock and Attached Preferred
Share Purchase Rights. . . . . . . . . . . . . . . . . . 72
Restrictions on Resale of MBI Stock by Affiliates. . . . . 74
Comparison of the Rights of Shareholders of MBI and First
Financial. . . . . . . . . . . . . . . . . . . . . . . . 74
SUPERVISION AND REGULATION . . . . . . . . . . . . . . . . . . 77
General. . . . . . . . . . . . . . . . . . . . . . . . . . 77
Certain Transactions with Affiliates . . . . . . . . . . . 78
Payment of Dividends . . . . . . . . . . . . . . . . . . . 78
Capital Adequacy . . . . . . . . . . . . . . . . . . . . . 78
FDIC Insurance Assessments . . . . . . . . . . . . . . . . 78
Proposals to Overhaul the Savings Association Industry . . 79
Support of Subsidiary Banks. . . . . . . . . . . . . . . . 79
FIRREA and FDICIA. . . . . . . . . . . . . . . . . . . . . 80
Depositor Preference Statute . . . . . . . . . . . . . . . 81
The Interstate Banking and Community Development
Legislation. . . . . . . . . . . . . . . . . . . . . . . 81
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS. . . . . . . . . . . 81
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 81
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 82
SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . 82
CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . 83
ANNEX A -- Appraisal Rights Provisions of The General and
Business Corporation Law of Missouri. . . . . . . .A-1
ANNEX B -- Opinion of Alex Sheshunoff & Co. Investment
Banking . . . . . . . . . . . . . . . . . . . . . .B-1
</TABLE>
- 6 -
<PAGE> 13
SUMMARY INFORMATION
-------------------
THE FOLLOWING SUMMARY OF THE IMPORTANT TERMS OF THE
PROPOSED MERGER AND RELATED INFORMATION DISCUSSED ELSEWHERE IN THIS
PROXY STATEMENT/PROSPECTUS DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED
INFORMATION WHICH APPEARS ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN. SHAREHOLDERS OF FIRST FINANCIAL ARE URGED TO READ THIS
PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY. ALL MBI PER SHARE DATA
REFLECT A THREE-FOR-TWO STOCK SPLIT DISTRIBUTED IN THE FORM OF A
STOCK DIVIDEND ON APRIL 11, 1994.
BUSINESS OF MBI
MBI, a Missouri corporation, was organized in 1970 and is
a registered bank holding company under the federal Bank Holding
Company Act of 1956, as amended (the "BHCA"). MBI is also a
savings and loan holding company under the Home Owners' Loan Act of
1933, as amended (the "HOLA"). At June 30, 1996, MBI owned,
directly or indirectly, all of the capital stock of Mercantile Bank
of St. Louis National Association ("Mercantile Bank") and 61 other
commercial banks which operate from 435 banking offices and 400
Fingertip Banking automated teller machines located throughout
Missouri, Illinois, eastern Kansas, northern Arkansas and Iowa.
MBI's services concentrate in four major lines of business --
consumer, corporate, investment banking and trust services. MBI
also operates non-banking subsidiaries which provide related
financial services, including investment management, brokerage
services and asset-based lending. As of June 30, 1996, MBI had
62,673,041 shares of its Common Stock outstanding and reported, on
a restated consolidated basis, total assets of $18.0 billion, total
deposits of $14.3 billion, total loans and leases of $11.9 billion
and shareholders' equity of $1.6 billion.
On January 2, 1996, MBI completed the acquisitions of (i)
Hawkeye Bancorporation ("Hawkeye"), an Iowa corporation and
registered bank holding company under the BHCA, located in Des
Moines, Iowa, and (ii) First Sterling Bancorp, Inc. ("Sterling"),
an Illinois corporation and registered bank holding company under
the BHCA, located in Sterling, Illinois. These acquisitions were
accounted for under the pooling-of-interests method of accounting.
As of January 2, 1996, Hawkeye and Sterling reported total assets
of $2.0 billion and $168 million, respectively.
On February 9, 1996 and March 7, 1996, respectively, MBI
completed the acquisitions of (i) Security Bank of Conway, F.S.B.
("Conway"), a federal stock savings bank located in Conway,
Arkansas, and (ii) Metro Savings Bank, F.S.B. ("Metro"), a federal
stock savings bank located in Wood River, Illinois. These
acquisitions were accounted for under the purchase method of
accounting. As of February 9, 1996, Conway reported total assets
of $103 million. As of March 7, 1996, Metro reported total assets
of $81 million.
In connection with the acquisition of Hawkeye, MBI
restated its consolidated financial statements as of and for the
years ended December 31, 1995, 1994 and 1993. MBI filed
supplemental financial statements as of and for the years ended
December 31, 1995, 1994 and 1993 in a Current Report on Form 8-K,
dated March 11, 1996, which has been incorporated by reference into
this Proxy Statement/Prospectus. Due to the immateriality of the
financial condition and results of operations of Sterling to that
of MBI, the supplemental consolidated financial statements of MBI
do not reflect the acquisition of Sterling.
On December 19, 1995, MBI entered into an agreement to
acquire Peoples State Bank ("Peoples"), a Kansas state-chartered
bank, located in Topeka, Kansas. As of June 30, 1996, Peoples
reported total assets of $94 million, total deposits of $74
million, total loans and leases of $52 million and shareholders'
equity of $8 million.
- 7 -
<PAGE> 14
On March 19, 1996, MBI entered into an agreement to
acquire TODAY'S BANCORP, INC. ("TODAY'S"), a Delaware corporation,
located in Freeport, Illinois. As of June 30, 1996, TODAY'S
reported total assets of $510 million, total deposits of $438
million, net loans and leases of $360 million and shareholders'
equity of $48 million.
MBI's principal executive offices are located at One
Mercantile Center, St. Louis, Missouri 63101 and its telephone
number is (314) 425-2525.
BUSINESS OF AMERIBANC
Ameribanc, a Missouri corporation which was organized in
1991, is a wholly owned subsidiary of MBI and registered bank
holding company under the BHCA. At June 30, 1996, Ameribanc owned,
directly or indirectly, all of the capital stock of 30 banks and
one trust company, which together operate from 253 locations in
Missouri, Kansas and Iowa. Ameribanc will be the surviving
corporation upon consummation of the Merger.
BUSINESS OF FIRST FINANCIAL
First Financial, a Missouri corporation, was organized in
1988 and is registered as a bank holding company under the BHCA.
First Financial currently owns all of the issued and outstanding
shares of capital stock of The First National Bank of Salem ("First
National"), a national banking association, located in Salem,
Missouri. As of June 30, 1996, 76,927 shares of First Financial
Common Stock were issued and outstanding and First Financial
reported, on a consolidated basis, total assets of $88 million,
total deposits of $76 million, total loans and leases of $48
million and shareholders' equity of $10 million. See "INFORMATION
REGARDING FIRST FINANCIAL."
First Financial's principal executive offices are located
at 403 North Jackson Street, Salem, Missouri 65560 and its
telephone number is (573) 729-6617.
THE PROPOSED MERGER
Subject to the satisfaction of the terms and conditions
set forth in the Merger Agreement, which are described below, First
Financial will be merged with and into Ameribanc. Upon
consummation of the Merger, First Financial's corporate existence
will terminate and Ameribanc will continue as the surviving entity.
Simultaneously with the effectiveness of the Merger, and subject to
elections of shareholders and certain other adjustments intended to
accommodate the tax-deferred nature of the transaction for those
shareholders who receive solely shares of MBI Common Stock, each
share of First Financial Common Stock (other than shares as to
which a First Financial shareholder has perfected dissenters'
rights pursuant to Section 351.455 of The General and Business
Corporation Law of the State of Missouri ("Dissenting Shares"))
will be converted into the right to receive one of the following:
(i) the Cash Distribution (cash equal to $194.73); (ii) the Stock
Distribution (4.2963 shares of MBI Common Stock); or (iii) the
Combined Distribution (cash equal to $42.26 and 3.364 shares of MBI
Common Stock).
Each First Financial shareholder will have the
opportunity to elect whether to receive per share of First
Financial Common Stock as consideration in the Merger: (i) the
Cash Distribution (a "Cash Election," in which case such
shareholder's shares of First Financial Common Stock shall be
deemed "Cash Election Shares"); (ii) the Stock Distribution (a
"Stock Election," in which case such shareholder's shares of First
Financial Common Stock shall be deemed "Stock Election Shares"); or
(iii) the Combined Distribution (a "Combined Election," in which
case such shareholder's shares of First Financial Common Stock
shall be deemed "Combined Election Shares"). Enclosed with this
Proxy Statement/Prospectus is an election form (the "Election Form"),
whereby each First Financial shareholder may indicate a Cash
- 8 -
<PAGE> 15
Election, a Stock Election or a Combined Election. The Election
Form will also be sent to those persons who become holders of
First Financial Common Stock after the Record Date. In order
for an Election Form to be effective, the Election Form must be
properly completed and duly executed by a First Financial
shareholder and returned to KeyCorp Shareholder Services, Inc. (the
"Exchange Agent") by 3:00 p.m., Central Time, on the date of the
Special Meeting (the "Election Deadline"). FIRST FINANCIAL
SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR OWN FINANCIAL AND TAX
ADVISORS PRIOR TO RETURNING THEIR ELECTION FORMS TO THE EXCHANGE
AGENT TO DETERMINE THE BEST ALTERNATIVE FOR THEM.
Each separate entry on the First Financial list of
shareholders shall be presumed to represent a separate and distinct
holder of record of First Financial Common Stock. Shares held of
record by a bank, trust company, broker, dealer or other recognized
nominee shall be deemed to be held by a single holder unless the
nominee advises the Exchange Agent otherwise, in which case each
beneficial owner represented by such nominee will be treated as a
separate holder and, either directly or through such nominee, may
submit a separate Election Form. An election pursuant to a
previously submitted Election Form may be revoked or changed by a
holder or any other person to whom the subject shares are
subsequently transferred by written notice by such holder or
transferee to the Exchange Agent at or prior to the Election
Deadline.
Any shareholder who fails to deliver a properly completed
and duly executed Election Form to the Exchange Agent by the
Election Deadline will be deemed to have made no election (a "No
Election," in which case such holder's shares shall be deemed to be
"No Election Shares"). No Election Shares will be treated as Cash
Election Shares for purposes of determining the type and amount of
Merger Consideration payable to the holders of No Election Shares;
provided, however, that if the aggregate amount of cash payable to
the holders of Cash Election Shares is reduced and replaced with
shares of MBI Common Stock, as described below, the cash payable to
the holders of No Election Shares will be reduced and replaced with
shares of MBI Common Stock before the cash payable to the holders
of Cash Election Shares is so reduced and replaced. Dissenting
Shares will also be treated as Cash Election Shares, unless the
aggregate amount of cash payable to the holders of Cash Election
Shares is reduced and replaced with shares of MBI Common Stock, as
described below, in which case such Dissenting Shares will not be
so reduced and replaced.
The actual Merger Consideration paid to each First
Financial shareholder upon consummation of the Merger may differ in
form or proportion from the Merger Consideration elected by each
such shareholder pursuant to an Election Form in the event that (i)
the aggregate number of shares of MBI Common Stock issuable as
Merger Consideration on the basis of the shareholders' elections
exceeds 258,783 (an "Over-Election") or (ii) the aggregate number
of shares of MBI Common Stock issuable as Merger Consideration on
the basis of the shareholders' elections is less than 258,783
and would be insufficient to allow Thompson Coburn, counsel to
- ---
MBI ("MBI Counsel"), to render an opinion (the "Tax Opinion") that
the Merger will qualify as a reorganization under Section 368 of
the Code for federal income tax purposes (an "Under-Election"). In
the event of an Over-Election, the aggregate number of shares of
MBI Common Stock issuable as a portion of all Combined
Distributions (and, if necessary, in all Stock Distributions) will
be reduced pro rata and the Cash Distribution will be issued in
lieu thereof, such that the aggregate number of shares of MBI
Common Stock issuable as Merger Consideration in all Stock
Distributions and Combined Distributions equals 258,783. In the
event of an Under-Election, the Cash Distribution payable to the
holders of No Election Shares (and, if necessary, to the holders
of, first, the Combined Election Shares and, second, the Cash
Election Shares) will be reduced pro rata and the Stock
Distribution will be issued in lieu thereof, such that the
aggregate number of shares of MBI Common Stock necessary for MBI
Counsel to render the Tax Opinion will be issued as Merger
Consideration. In all other cases, including the event in which
the aggregate number of shares of MBI Common Stock issuable as
Merger Consideration on the basis of the shareholders' elections is
less than
- 9 -
<PAGE> 16
258,783 but is sufficient to allow MBI Counsel to render
Tax Opinion, the Merger Consideration paid to each First Financial
shareholder will be paid in the same form and proportion as such
shareholder has elected on an Election Form (or has been deemed to
have elected, in the case of No Election Shares or shares held by
certain holders of 1% or more of First Financial Common Stock). A
more detailed description of the process through which the Merger
Consideration will be determined and paid to the First Financial
shareholders, including the terms and conditions under which a
particular type of Merger Consideration elected by a First
Financial shareholder may be replaced by another type of Merger
Consideration, is set forth below.
In the event that the number of shares of MBI Common
Stock issuable as Merger Consideration to the holders of Stock
Election Shares and Combined Election Shares is less than 258,783,
then:
(i) the Stock Election Shares will be converted
into the right to receive the Stock Distribution; and
(ii) the Cash Election Shares and the Combined
Election Shares will be converted into the right to
receive the Cash Distribution and the Combined
Distribution, respectively; provided, however, that in
the event of an Under-Election whereby the number of
shares of MBI Common Stock issuable to the holders of the
Stock Election Shares and Combined Election Shares is
insufficient, in the opinion of MBI Counsel, to allow MBI
Counsel to render the Tax Opinion required by the Merger
Agreement (see "CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER"), then MBI Counsel will notify the
Exchange Agent (the "Notice") as soon as practicable on
or after the date of the closing of the Merger (the
"Closing Date") as to the number of additional shares of
MBI Common Stock that will be required to be issued in
the Merger in order to allow MBI Counsel to render the
Tax Opinion in its reasonable judgment (the "Share
Deficit"). Upon the receipt of the Notice, the Exchange
Agent shall:
(A) first, (x) reallocate the Merger
Consideration payable to each holder of No Election
Shares on a pro rata basis (based upon the ratio of
No Election Shares owned by each such holder to the
total number of No Election Shares) such that the
holders of No Election Shares receive an aggregate
number of shares of MBI Common Stock equal to the
Share Deficit, and (y) issue to each such holder of
No Election Shares the balance of the Merger
Consideration due to such holder, if any, in the
form of cash equal to an amount determined by
subtracting the value of the shares of MBI Common
Stock received in the reallocation (using a deemed
value of $45.325 per share) from the product of the
number of No Election Shares held by such holder on
the Closing Date and $194.73;
(B) second, if the reallocation set forth in
paragraph (A) above does not result in the issuance
of an aggregate number of shares of MBI Common
Stock equal to the Share Deficit, (x) reallocate
the Merger Consideration payable to each holder of
Combined Election Shares on a pro rata basis (based
upon the ratio of Combined Election Shares owned by
each such holder to the total number of Combined
Election Shares), such that the holders of Combined
Election Shares receive an aggregate number of
shares of MBI Common Stock equal to the Share
Deficit less the shares of MBI Common Stock
issuable pursuant to paragraph (A) above, and (y)
issue to each such holder of Combined Election
Shares the balance of the Merger Consideration, if
any, in the form of cash equal to an amount
- 10 -
<PAGE> 17
determined by subtracting the value of the shares
of MBI Common Stock received in the reallocation
(using a deemed value of $45.325 per share) from
the product of the number of No Election Shares
held by such holder on the Closing Date and
$194.73; and
(C) third, if the reallocations set forth in
paragraphs (A) and (B) above do not result in the
issuance of an aggregate number of shares of MBI
Common Stock equal to the Share Deficit, (x)
reallocate the Merger Consideration payable to each
holder of Cash Election Shares, other than holders
of No Election Shares and Dissenting Shares, on a
pro rata basis (based upon the ratio of Cash
Election Shares, other than No Election Shares and
Dissenting Shares, owned by each such holder to the
total number of Cash Election Shares, other than No
Election Shares and Dissenting Shares), such that
the holders of such Cash Election Shares receive an
aggregate number of shares of MBI Common Stock
equal to the Share Deficit less the shares of MBI
Common Stock issued pursuant to paragraphs (A) and
(B) above, and (y) issue to each such holder of
Cash Election Shares, other than holders of No
Election Shares and Dissenting Shares, the balance
of the Merger Consideration due to such holder, if
any, in the form of cash equal to an amount
determined by subtracting the value of the shares
of MBI Common Stock received in the reallocation
(using a deemed value of $45.325 per share) from
the product of the number of No Election Shares
held by such holder on the Closing Date and
$194.73.
In the event of an Over-Election, whereby the number of
shares of MBI Common Stock issuable as Merger Consideration to the
holders of Stock Election Shares and Combined Election Shares is
greater than 258,783, then:
(i) all Cash Election Shares will be converted into
the right to receive the Cash Distribution; and
(ii) the Exchange Agent shall determine the number
by which the shares of MBI Common Stock issuable pursuant
to the Stock Distribution and the Combined Distribution
exceeds 258,783 (the "Share Surplus") and shall:
(A) first, (x) reallocate the Merger
Consideration payable to each such holder of
Combined Election Shares on a pro rata basis (based
upon the ratio of the number of Combined Election
Shares owned by each such holder to the total
number of Combined Election Shares), such that the
total number of shares of MBI Common Stock received
by the holders of Combined Election Shares is
reduced by the Share Surplus and (y) in lieu of the
issuance of the MBI Common Stock portion of the
Combined Distribution for each share of First
Financial Common Stock, issue to each such holder
of Combined Election Shares a cash payment equal to
$194.73; and
(B) second, (x) if the reallocation set forth
in paragraph (A) above does not result in the
elimination of the Share Surplus, eliminate the
Share Surplus by reallocating the Merger
Consideration payable to each holder of Stock
Election Shares, on a pro rata basis (based upon
the ratio of the number of Stock Election Shares
owned by each such holder to the total number of
Stock Election Shares), such that the total number
of shares of MBI Common Stock received by the
holders of Stock Election Shares is reduced by the
Share Surplus less the
- 11 -
<PAGE> 18
number of shares reduced pursuant to paragraph (A)
above, and (y) in lieu of the issuance of the Stock
Election for each share of First Financial Common
Stock, issue to each such holder of Stock Election
Shares a cash payment equal to $194.73.
Pursuant to the Merger Agreement, any holder of 1% or
more of First Financial Common Stock (determined as of the Closing
Date) who has not, at or before the Election Deadline, delivered to
the Exchange Agent a properly executed certification regarding
certain tax matters (which certification will be provided to the
First Financial shareholders with the Election Form) shall be
deemed to have made a timely election to receive the Cash
Distribution, and all shares of First Financial Common Stock held
by such holder shall be deemed to be Cash Election Shares. A
LESS-THAN-1% HOLDER WHO ACQUIRES ADDITIONAL SHARES OF FIRST
FINANCIAL COMMON STOCK AFTER THE ELECTION DEADLINE AND THEREBY
BECOMES A HOLDER OF 1% OR MORE OF FIRST FINANCIAL COMMON STOCK WILL
ALSO BE DEEMED TO HAVE MADE A TIMELY ELECTION TO RECEIVE THE CASH
DISTRIBUTION AND WILL BE PRECLUDED FROM RECEIVING THE STOCK
DISTRIBUTION OR COMBINED DISTRIBUTION UNLESS SUCH HOLDER, IN
ANTICIPATION OF SUCH ACQUISITION OF ADDITIONAL SHARES OF FIRST
FINANCIAL COMMON STOCK, HAS DELIVERED TO THE EXCHANGE AGENT AT OR
BEFORE THE ELECTION DEADLINE A PROPERLY EXECUTED CERTIFICATION
REGARDING CERTAIN TAX MATTERS.
Following consummation of the Merger, the Exchange Agent
will distribute the applicable Merger Consideration in exchange for
shares of First Financial Common Stock. See "TERMS OF THE PROPOSED
MERGER - Surrender of First Financial Stock Certificate and Receipt
of MBI Common Stock and/or Cash."
The Merger Agreement also provides that MBI will cause
Ameribanc to honor all severance and other compensation contracts
and provisions for vested benefits earned or accrued through the
Effective Time (as defined below) under the employee plans of First
Financial and its subsidiaries. MBI will take such steps as are
necessary to integrate the former employees of First Financial and
its subsidiaries into MBI's employee benefit plans as soon as
practicable after the Effective Time. See "TERMS OF THE PROPOSED
MERGER - Effect on Employment Contracts and Benefit Plans."
In addition, the Merger Agreement provides that the
consummation of the Merger is subject to certain terms and
conditions, including the approval of the Merger Agreement by an
affirmative vote of the holders of at least two-thirds of the
outstanding shares of First Financial Common Stock and the receipt
of both the requisite regulatory approvals and an opinion of MBI
Counsel regarding certain federal income tax aspects of the
transaction. For a discussion of each of the conditions to the
Merger, see "TERMS OF THE PROPOSED MERGER - Conditions to the
Merger."
The Merger will be consummated and become effective on
the date and at the time (the "Effective Time") of the issuance of
a certificate of merger by the Office of the Secretary of State of
the State of Missouri. Unless MBI, Ameribanc and First Financial
otherwise agree in writing, the Effective Time shall occur no later
than the first business day of the first full calendar month
commencing after the following events occur: (i) the approval of
the Merger Agreement by the shareholders of First Financial and
(ii) the approval of the Merger by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") and any other
bank regulatory authority that may be necessary or appropriate (the
Federal Reserve Board and any other bank regulatory agency that may
be necessary or appropriate are collectively referred to herein as
the "Regulatory Authorities" and, individually, as a "Regulatory
Authority"), and the expiration of all waiting periods following
such approvals. The Closing Date shall occur upon the date that
the Effective Time occurs. See "TERMS OF THE PROPOSED MERGER -
Regulatory Approvals."
- 12 -
<PAGE> 19
The Merger Agreement may be terminated at any time prior
to the Effective Time by the mutual consent of the parties or
unilaterally by either party upon the occurrence of certain events
or if the Merger is not consummated by July 1, 1997. See "TERMS OF
THE PROPOSED MERGER - Conditions to the Merger" and "- Termination
of the Merger Agreement."
VOTING AGREEMENTS
In addition to and contemporaneously with the Merger
Agreement, MBI and each of the directors and certain other
affiliates of First Financial executed separate Voting Agreements
(the "Voting Agreements") pursuant to which each director or such
other affiliate agreed that he, she or it will vote all of the
shares of First Financial Common Stock then owned or subsequently
acquired and over which he, she or it has, or, prior to the Record
Date (as herein defined) acquires, voting control in favor of the
approval of the Merger Agreement at the Special Meeting. In
addition, until the earliest to occur of the Effective Time, the
termination of the Merger Agreement or the abandonment of the
Merger by mutual agreement of MBI and First Financial, each such
director or affiliate further agreed not to vote any such shares in
favor of the approval of any other agreement relating to the merger
or sale of substantially all of the assets of First Financial to
any person other than MBI. Each such director and affiliate also
agreed not to transfer such shares of First Financial Common Stock
unless, prior to such transfer, the transferee executes an
agreement with respect to the transferred shares in substantially
the same form as the Voting Agreement and reasonably satisfactory
to MBI. As of the Record Date, such directors and affiliates of
First Financial owned beneficially an aggregate of 37,370 shares
of First Financial Common Stock, or approximately 48.6% of the
issued and outstanding shares. See "TERMS OF THE PROPOSED MERGER -
Other Agreements - Voting Agreements."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
MBI has entered into employment agreements with each of
Gerald W. Craig, President of First National, W. Charles Whitmire,
Chairman of First National and Rhonda M. Land, Vice President and
Operations Officer of First National, whereby each such executive
officer will continue to be employed in his or her present position
by First National following the Effective Time. See "TERMS OF THE
PROPOSED MERGER - Interests of Certain Persons in the Merger."
SPECIAL MEETING OF FIRST FINANCIAL SHAREHOLDERS
The Special Meeting will be held on -------------, 1996,
at --:-- -.m. Central Time, at ----------------------------------
- ------------------, Salem, Missouri. Approval by the First
Financial shareholders of the Merger Agreement requires the
affirmative vote of the holders of at least two-thirds of the
outstanding shares of First Financial Common Stock. Only holders
of record of First Financial Common Stock at the close of business
on -----------------, 1996 (the "Record Date") will be entitled to
notice of, and to vote at, the Special Meeting. At such date,
there were 76,927 shares of First Financial Common Stock
outstanding.
As of the Record Date, the directors and executive
officers of First Financial and their affiliates owned beneficially
an aggregate of 24,700 shares of First Financial Common Stock, or
approximately 32.1% of the shares entitled to vote at the Special
Meeting. Each of the directors and certain other affiliates of
First Financial, pursuant to the terms of his, her or its Voting
Agreement, has committed to vote his, her or its shares of First
Financial Common Stock for the approval of the Merger Agreement.
As of the Record Date, the directors and affiliates owned
beneficially an aggregate of 37,370 shares of First Financial
Common Stock, or approximately 48.6% of the issued and outstanding
shares.
- 13 -
<PAGE> 20
THE BOARD OF DIRECTORS OF FIRST FINANCIAL HAS CAREFULLY
CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE MERGER. THE
BOARD HAS DETERMINED THAT THE MERGER IS IN THE BEST INTEREST OF
FIRST FINANCIAL AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER
---
AGREEMENT.
REASONS FOR THE MERGER
The Board of Directors of First Financial believes that
a business combination with a larger financial institution and more
geographically diversified regional bank holding company such as
MBI would, in addition to providing significant value to all
shareholders, enable First Financial to compete more effectively in
its market area and participate in the expanded opportunities for
growth that the Merger would make possible.
The Board of Directors of MBI believes that the Merger
will enable MBI to (i) increase its presence in southern Missouri
through the acquisition of an established banking organization and
(ii) enhance its ability to compete in the increasingly competitive
banking and financial services industry. See "TERMS OF THE
PROPOSED MERGER - Background of and Reasons for the Merger; Board
Recommendations."
OPINION OF FINANCIAL ADVISOR TO FIRST FINANCIAL
Alex Sheshunoff & Co. Investment Banking ("Sheshunoff")
has served as financial advisor to First Financial and has rendered
an opinion to the Board of Directors of First Financial that the
consideration to be received by the First Financial shareholders in
the Merger is fair to the First Financial shareholders from a
financial point of view. A copy of such opinion is attached hereto
as Annex B and should be read in its entirety with respect to
-------
the assumptions made, other matters considered and limitations on
the reviews undertaken. See "TERMS OF THE PROPOSED MERGER -
Opinion of Financial Advisor to First Financial."
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued
to the shareholders of First Financial in connection with the
Merger. Each holder of First Financial Common Stock who otherwise
would have been entitled to receive a fraction of a share of MBI
Common Stock shall receive in lieu thereof cash, without interest,
in an amount equal to the holder's fractional share interest
multiplied by $45.325, the average of the closing stock price of
MBI Common Stock on the NYSE Composite Tape as reported in The Wall
Street Journal for the five trading days prior to July 9, 1996, the
date of execution of the Merger Agreement (the "Average MBI Stock
Price"). Cash received by First Financial shareholders in lieu of
fractional shares may give rise to taxable income. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
DISSENTERS' RIGHTS
Under the Missouri Act, each holder of First Financial
Common Stock may, in lieu of receiving the Merger Consideration,
seek the fair value of his or her shares and, if the Merger is
consummated, receive payment of such fair value in cash by
following certain procedures set forth in Section 351.455 of the
Missouri Act, the text of which is attached hereto as Annex A.
-------
Failure to follow such procedures may result in a loss of such
shareholder's dissenters' rights. Any First Financial shareholder
returning a blank executed proxy card will be deemed to have
approved the Merger
- 14 -
<PAGE> 21
Agreement, thereby waiving any such dissenters' rights. See
"DISSENTERS' RIGHTS OF SHAREHOLDERS OF FIRST FINANCIAL."
WAIVER AND AMENDMENT
Any provision of the Merger Agreement, including, without
limitation, the conditions to the consummation of the Merger and
the restrictions described under the caption "TERMS OF THE PROPOSED
MERGER - Business Pending the Merger," may be (i) waived in writing
at any time by the party that is, or whose shareholders are,
entitled to the benefits thereof or (ii) amended at any time by
written agreement of the parties approved by or on behalf of their
respective Executive Committee or Board of Directors, as the case
may be, whether before or after the approval of the Merger
Agreement by the First Financial shareholders at the Special
Meeting; provided, however, that after such approval, no such
modification may (i) alter or change the amount or kind of the
Merger Consideration to be received by the First Financial
shareholders or (ii) adversely affect the tax treatment of the
First Financial shareholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
MBI Counsel has delivered the Tax Opinion to the effect
that, assuming the Merger occurs in accordance with the Merger
Agreement and conditioned on the accuracy of certain
representations made by MBI, First Financial and certain holders of
First Financial Common Stock, the Merger will constitute a
"reorganization" for federal income tax purposes and that,
accordingly, no gain or loss will be recognized by First Financial
shareholders who exchange their shares of First Financial Common
Stock solely for shares of MBI Common Stock in the Merger.
However, First Financial shareholders who receive cash in exchange
for First Financial Common Stock (whether in lieu of fractional
shares or pursuant to a Cash Distribution or Combined Distribution)
may recognize taxable income, but not in excess of the amount of
cash received. EACH FIRST FINANCIAL SHAREHOLDER IS URGED TO
CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
REGULATORY APPROVALS
An application regarding the Merger will be filed with
the Federal Reserve Board. The Merger cannot be consummated until
receipt of approval from such agency. In reviewing the Merger, the
Federal Reserve Board will consider various factors, including
possible anticompetitive effects of the Merger, and will examine
the financial and managerial resources and future prospects of the
combined organization. There can be no assurance that the
necessary regulatory approval will be received or as to the timing
of such approval. See "TERMS OF THE PROPOSED MERGER - Regulatory
Approval" and "SUPERVISION AND REGULATION."
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase
method of accounting. See "TERMS OF THE PROPOSED MERGER -
Accounting Treatment."
- 15 -
<PAGE> 22
MARKETS AND MARKET PRICES
MBI Common Stock is currently traded on the NYSE under
the symbol "MTL." The last sale price reported for MBI Common
Stock on July 9, 1996, the last trading date preceding the public
announcement of the Merger, was $45.00.
There is no established public trading market for First
Financial Common Stock. The last sale price for First Financial
Common Stock known to management prior to the public announcement
of the Merger was $105 per share in 1992. Because of this lack of
established trading market for shares of First Financial Common
Stock, management of First Financial does not have knowledge of the
prices paid in all transactions involving its shares and has not
necessarily verified the prices indicated in the table with both
parties to the relevant transaction. Thus, the sale prices listed
below may not reflect the prices that would have been paid in an
active market. As of the Record Date, First Financial had 107
shareholders of record.
The following table sets forth for the periods indicated
the high and low prices per share of MBI Common Stock as reported
on the NYSE and of First Financial Common Stock as known to
management of First Financial, along with the quarterly cash
dividends per share declared. The per share prices do not include
adjustments for retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
MBI First Financial
-------------------------------- -----------------------------
SALES PRICE CASH SALES PRICE CASH
------------------ DIVIDEND ---------------- DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1994
- ----
First Quarter $34.125 $29.875 $.28 <F2> <F2> $1.25
Second Quarter 38.125 31.125 .28 <F2> <F2> 1.25
Third Quarter 39.250 34.875 .28 <F2> <F2> 1.25
Fourth Quarter 36.875 29.500 .28 <F2> <F2> 7.25
1995
- ----
First Quarter $37.250 $31.250 $.33 <F2> <F2> $1.25
Second Quarter 44.875 36.000 .33 <F2> <F2> 1.25
Third Quarter 47.000 41.625 .33 <F2> <F2> 1.25
Fourth Quarter 46.500 41.500 .33 <F2> <F2> 7.25
1996
- ----
First Quarter $46.500 $41.500 $.41 <F2> <F2> $1.25
Second Quarter 47.875 43.500 .41 <F2> <F2> 1.25
Third Quarter (through <F2> <F2> 1.25
- --------, 1996)<F1>
<FN>
- -----------------
<F1> For recent sale prices of MBI Common Stock, see page 2 of this Proxy Statement/Prospectus.
<F2> No trades known to management of First Financial.
</TABLE>
- 16 -
<PAGE> 23
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated
selected historical per share data of MBI and First Financial and
the corresponding pro forma and pro forma equivalent per share
amounts, giving effect to the proposed Merger and the proposed
acquisitions of Peoples and TODAY'S. The data presented is based
upon the supplemental consolidated financial statements and
consolidated financial statements and related notes of MBI and the
consolidated financial statements and related notes of First
Financial included in this Proxy Statement/Prospectus or in
documents incorporated herein by reference and the pro forma
combined consolidated balance sheet and income statements,
including the notes thereto, appearing elsewhere herein. This
information should be read in conjunction with such historical and
pro forma financial statements and related notes thereto. The
assumptions used in the preparation of this table appear in the
notes to the pro forma financial information appearing elsewhere in
this Proxy Statement/Prospectus. See "PRO FORMA FINANCIAL
INFORMATION - Notes to Pro Forma Combined Consolidated Financial
Statements." These data are not necessarily indicative of the
results of the future operations of the combined organization or
the actual results that would have occurred if the proposed Merger
or the proposed acquisitions of Peoples and TODAY'S had been
consummated prior to the periods indicated.
<TABLE>
<CAPTION>
MBI/First MBI/First MBI/All MBI/
First Financial Financial Entities All Entities
MBI Financial Pro Forma Pro Forma Pro Forma Pro Forma
Reported Reported Combined <F1> Equivalent <F2> Combined <F3> Equivalent <F2>
--------- --------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
June 30, 1996 $ 25.64 $135.76 $25.64 $110.16 $25.65 $110.20
December 31, 1995 26.04 136.48 26.04 111.88 26.05 119.92
Cash Dividends Declared per Share:
Six Months ended June 30, 1996 $ .82 $ 2.50 $ .82 $ 3.52 $ .82 $ 3.52
Year ended December 31, 1995 1.32 11.00 1.32 5.67 1.32 5.67
Earnings per Share:
Six Months ended June 30, 1996 $ 1.10 $ 6.84 $ 1.10 $ 4.73 $ .99 $ 4.25
Year ended December 31, 1995 3.74 12.97 3.75 16.11 3.63 15.60
Market Price per Share:
At July 9, 1996 <F4> $45.000 $ n/a n/a n/a n/a n/a
At --------, 1996 <F4> n/a n/a n/a n/a n/a
<FN>
- --------------------
<F1> Includes the effect of pro forma adjustments for First Financial, as appropriate. See "PRO FORMA FINANCIAL
INFORMATION - Notes to Pro Forma Combined Consolidated Financial Statements."
<F2> Based on the pro forma combined per share amounts multiplied by 4.2963, the Stock Distribution. Further
explanation of the assumptions used in the preparation of the pro forma combined consolidated financial statements is
included in the notes to pro forma financial statements. See "PRO FORMA FINANCIAL INFORMATION - Notes to Pro Forma
Combined Consolidated Financial Statements."
<F3> Includes the effect of pro forma adjustments for First Financial, Peoples and TODAY'S, as appropriate. See "PRO
FORMA FINANCIAL INFORMATION - Notes to Pro Forma Combined Consolidated Financial Statements."
<F4> The market price per share of MBI Common Stock was determined as of July 9, 1996, the last trading day preceding
the public announcement of the proposed Merger and as of the latest available date prior to the filing of the Proxy
Statement/Prospectus, based on the last sale price as reported on the NYSE Composite Tape. There are no publicly
available quotations of First Financial Common Stock.
</TABLE>
- 17 -
<PAGE> 24
SUMMARY FINANCIAL DATA
The following table sets forth for the periods indicated
certain summary historical consolidated financial information for
MBI and First Financial. The balance sheet data and income
statement data of MBI included in the summary financial data as of
and for the five years ended December 31, 1995 are taken from the
audited supplemental consolidated financial statements of MBI as of
the end of and for each such year. The balance sheet data and
income statement data of First Financial included in the summary
financial data as of and for the five years ended December 31, 1995
are taken from the audited consolidated financial statements of
First Financial as of the end of and for each such year. The
balance sheet data and income statement data included in the
summary financial data as of and for the six months ended June 30,
1996 and 1995 are taken from the unaudited consolidated financial
statements and supplemental consolidated financial statements of
MBI and the unaudited consolidated financial statements of First
Financial as of and for the six months ended June 30, 1996 and
1995. These data include all adjustments which are, in the opinion
of the respective managements of MBI and First Financial, necessary
to present a fair statement of these periods and are of a normal
recurring nature. Results for the six months ended June 30, 1996
are not necessarily indicative of results for the entire year. The
following information should be read in conjunction with the
supplemental consolidated financial statements of MBI and the
consolidated financial statements of First Financial, and the
related notes thereto, included herein or in documents incorporated
herein by reference, and in conjunction with the unaudited pro
forma combined consolidated financial information, including the
notes thereto, appearing elsewhere in this Proxy Statement/
Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE" and "PRO FORMA FINANCIAL INFORMATION."
- 18 -
<PAGE> 25
<TABLE>
MERCANTILE BANCORPORATION INC.
SUMMARY FINANCIAL DATA
<CAPTION>
As of or for the
Six Months Ended As of or for the
June 30 Year Ended December 31
--------------------- -----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER COMMON SHARE DATA
Net income<F1> $ 1.10 $ 1.86 $ 3.74 $ 3.19 $ 2.79 $ 2.40 $ 2.34
Dividends declared .82 .66 1.32 1.12 .99 .93 .93
Book value at period end 25.64 24.49 26.04 23.32 21.59 19.44 18.12
Average common shares
outstanding (thousands) 62,916 60,722 61,884 59,757 58,751 55,050 47,159
EARNINGS (THOUSANDS)
Interest income $ 655,572 $ 633,296 $1,293,944 $1,118,069 $1,094,611 $1,139,807 $1,156,821
Interest expense 309,114 295,986 620,534 450,950 444,573 549,642 668,578
--------- --------- ---------- ---------- ---------- ---------- ----------
Net interest income 346,458 337,310 673,410 667,119 650,038 590,165 488,243
Provision for possible loan losses 43,806 20,673 36,530 43,265 64,302 79,551 64,028
Other income 137,441 127,611 273,653 236,561 245,589 224,456 195,237
Other expense 326,094 271,214 553,748 555,176 570,182 529,645 486,490
Income taxes 44,358 59,714 124,109 113,165 96,074 69,681 28,418
--------- --------- ---------- ---------- ---------- ---------- ----------
Net income $ 69,641 $ 113,320 $ 232,676 $ 192,074 $ 165,069 $ 135,744 $ 104,544
========= ========= ========== ========== ========== ========== ==========
ENDING BALANCE SHEET (MILLIONS)
Total assets $ 18,038 $ 17,274 $ 17,928 $ 16,724 $ 16,293 $ 16,033 $ 14,045
Earning assets 16,651 16,039 16,264 15,427 14,980 14,678 12,854
Investment securities 4,429 4,199 4,211 4,280 4,670 4,632 3,412
Loans and leases,
net of unearned income 11,948 11,378 11,731 10,904 9,809 9,570 8,809
Deposits 14,333 13,052 13,714 12,865 13,243 13,260 11,685
Long-term debt 312 320 325 330 316 336 238
Shareholders' equity 1,607 1,500 1,640 1,409 1,295 1,143 939
Reserve for possible loan losses 206 201 202 216 206 199 176
SELECTED RATIOS
Return on average assets .77% 1.32% 1.33% 1.17% 1.03% .89% .78%
Return on average equity 8.48 15.50 15.14 14.06 13.46 12.76 11.81
Net interest rate margin 4.29 4.38 4.28 4.53 4.52 4.33 4.12
Equity to assets 8.91 8.68 9.15 8.42 7.95 7.13 6.68
Reserve for possible loan losses to:
Outstanding loans 1.72 1.77 1.72 1.98 2.10 2.08 2.00
Non-performing loans 322.71 431.32 245.18 583.17 290.02 154.17 109.79
Dividend payout ratio 74.55 35.48 35.29 35.11 35.48 38.75 39.74
<FN>
<F1> Based on weighted average common shares outstanding.
</TABLE>
- 19 -
<PAGE> 26
<TABLE>
FIRST FINANCIAL CORPORATION OF AMERICA
SUMMARY FINANCIAL DATA
<CAPTION>
As of or for the
Six Months Ended As of or for the
June 30 Year Ended December 31
--------------------- -----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income $ 6.84 $ 4.74 $ 12.97 $ 13.79 $ 14.53 $ 14.34 $ 11.11
Dividends declared 2.50 2.50 11.00 11.00 10.99 9.05 1.60
Book value at period end 135.76 135.19 136.48 118.79 132.78 129.33 124.04
Average common shares
outstanding 76,927 76,927 76.927 76.927 76,877 76,830 76,830
EARNINGS (THOUSANDS)
Interest income $ 3,228 $ 2,955 $ 6,103 $ 5,303 $ 5,378 $5,745 $ 6,266
Interest expense 1,429 1,294 2,693 1,963 1,959 2,523 3,330
--------- --------- --------- --------- --------- --------- ---------
Net interest income 1,799 1,661 3,410 3,340 3,419 3,222 2,936
Provision for possible loan losses 12 60 90 110
Other income 215 224 711 693 531 491 389
Other expense 1,198 1,359 2,693 2,566 2,465 2,168 2,008
Income taxes 278 161 430 406 308 354 353
--------- --------- --------- --------- --------- --------- ---------
Net income $ 526 $ 365 $ 998 $ 1,061 $ 1,117 $ 1,101 $ 854
========= ========= ========= ========= ========= ========= =========
ENDING BALANCE SHEET (THOUSANDS)
Total assets $ 87,508 $ 80,778 $ 81,672 $ 78,997 $ 78,730 $ 76,643 $ 72,370
Earning assets 80,772 75,127 76,853 72,949 74,564 73,144 68,739
Investment and mortgage-backed
securities 33,101 29,868 27,105 30,183 37,866 35,148 33,940
Loans and leases,
net of unearned income 521 44,558 47,373 41,466 36,048 33,996 32,169
Borrowings and advances
from Federal Home Loan Bank
Shareholders' equity 10,443 10,400 10,499 9,139 10,209 9,937 9,531
Reserve for possible loan losses 660 666 647 665 659 613 563
SELECTED RATIOS
Return on average assets 1.24% 0.91% 1.23% 1.33% 1.44% 1.48% 1.20%
Return on average equity 5.03 3.74 10.17 10.97 11.09 11.32 9.31
Net interest rate margin 4.60 4.54 4.59 4.61 4.83 4.73 4.48
Equity to assets 11.93 12.87 12.85 11.57 12.97 12.96 13.17
Reserve for possible loan losses to:
Outstanding loans 1.39 1.49 1.36 1.60 1.83 1.80 1.75
Non-performing loans 417.44 251.21 444.61 404.61 349.59 261.44 536.41
Cash dividend payout 36.55 52.71 84.78 79.74 75.68 63.13 14.40
</TABLE>
- 20 -
<PAGE> 27
INFORMATION REGARDING SPECIAL MEETING
-------------------------------------
GENERAL
This Proxy Statement/Prospectus is being furnished to
holders of First Financial Common Stock in connection with the
solicitation of proxies by the Board of Directors of First
Financial for use at the Special Meeting and any adjournments or
postponements thereof at which the shareholders of First Financial
will consider and vote upon a proposal to approve the Merger
Agreement and each of the transactions contemplated thereby and any
other business which may properly be brought before the Special
Meeting or any adjournments or postponements thereof. Each copy of
this Proxy Statement/Prospectus is accompanied by a Notice of
Special Meeting of Shareholders, a proxy card, an Election Form,
tax certification and related instructions, a self-addressed return
envelope to First Financial for the proxy card and a self-addressed
return envelope to the Exchange Agent for the Election Form and tax
certification, if applicable.
This Proxy Statement/Prospectus is also furnished by MBI
to each holder of First Financial Common Stock as a prospectus in
connection with the issuance by MBI of shares of MBI Common Stock
upon the consummation of the Merger. This Proxy
Statement/Prospectus and the Notice of Special Meeting, proxy card,
Election Form and related materials are being first mailed to
shareholders of First Financial on --------------, 1996.
DATE, TIME AND PLACE
The Special Meeting will be held at --------------------
- ---------------------------, Salem, Missouri, on ------------,
- -------------, 1996, at ------ ---.m., Central Time.
RECORD DATE; VOTE REQUIRED
On the Record Date, there were 76,927 shares of First
Financial Common Stock outstanding and entitled to vote at the
Special Meeting. Each such share is entitled to one vote on each
matter properly brought before the Special Meeting. The
affirmative vote of the holders of at least two-thirds of the
outstanding shares of First Financial Common Stock is required to
approve the Merger Agreement.
As of the Record Date, the directors and executive
officers of First Financial and their affiliates owned beneficially
an aggregate of 24,700 shares of First Financial Common Stock, or
approximately 32.1% of the outstanding shares of First Financial
Common Stock entitled to vote at the Special Meeting. Each of the
directors and certain other affiliates of First Financial, pursuant
to the terms of his, her or its respective Voting Agreement, has
committed to vote his, her or its shares of First Financial Common
Stock for the approval of the Merger Agreement. As of the Record
Date, such directors and affiliates of First Financial owned
beneficially an aggregate of 37,370 shares of First Financial
Common Stock, or approximately 48.6% of the issued and outstanding
shares.
VOTING AND REVOCATION OF PROXIES
Shares of First Financial Common Stock which are
represented by a properly executed proxy card received prior to the
vote at the Special Meeting will be voted at such Special Meeting
in the manner directed on the proxy card, unless such proxy
designation is revoked in the manner set forth herein in advance of
the vote at the Special Meeting. ANY FIRST FINANCIAL SHAREHOLDER
RETURNING AN EXECUTED PROXY CARD WHICH DOES NOT PROVIDE
INSTRUCTIONS TO VOTE AGAINST THE APPROVAL OF THE MERGER
- 21 -
<PAGE> 28
AGREEMENT WILL BE DEEMED TO HAVE APPROVED THE MERGER AGREEMENT.
Failure to return a properly executed proxy card or to vote in
person at the Special Meeting will have the practical effect of a
vote against the approval of the Merger Agreement.
Shares subject to abstentions will be treated as shares
that are present and voting at the Special Meeting for purposes of
determining the presence of a quorum and as voted for the purposes
of determining the base number of shares voting on the proposal.
Such shares will, therefore, have the effect of votes against the
approval of the Merger Agreement. Broker "non-votes" (i.e.,
proxies from brokers or nominees indicating that such persons have
not received instructions from the beneficial owners or other
persons entitled to vote shares with respect to which such brokers
or nominees do not have discretionary power to vote) will be
considered as present for purposes of determining the presence of
a quorum but will not be considered as voting at the Special
Meeting. Broker non-votes, therefore, will also have the effect of
votes against the approval of the Merger Agreement.
Any shareholder of First Financial giving a proxy may
revoke it at any time prior to the vote at the Special Meeting.
Shareholders of First Financial wishing to revoke a proxy prior to
the vote may do so by delivering to the Secretary of First
Financial at 403 North Jackson Street, Salem, Missouri 65560, at or
before the Special Meeting, a written notice of revocation bearing
a later date than the proxy or a later dated proxy relating to the
same shares, or by attending the Special Meeting and voting the
same shares in person. Attendance at the Special Meeting will not
in itself constitute the revocation of a proxy.
The Board of Directors of First Financial is not
currently aware of any business to be brought before the Special
Meeting other than that described herein. If, however, other
matters are properly brought before such Special Meeting, or any
adjournments or postponements thereof, the persons appointed as
proxies will have discretionary authority to vote the shares
represented by duly executed proxies in accordance with their
discretion and judgment as to the best interest of First Financial.
SOLICITATION OF PROXIES
First Financial will bear its own costs of soliciting
proxies, except that MBI will pay printing and mailing expenses and
registration fees incurred in connection with preparing this Proxy
Statement/Prospectus. Proxies will initially be solicited by mail,
but directors, officers and selected other employees of First
Financial may also solicit proxies in person or by telephone.
Directors, executive officers and any other employees of First
Financial who solicit proxies will not be specially compensated for
such services. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward proxy materials to
beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy materials to beneficial owners.
HOLDERS OF FIRST FINANCIAL COMMON STOCK ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
- 22 -
<PAGE> 29
TERMS OF THE PROPOSED MERGER
----------------------------
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS AND
CONDITIONS OF THE MERGER AGREEMENT, WHICH DOCUMENT IS INCORPORATED
BY REFERENCE HEREIN. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
THE FULL TEXT OF THE MERGER AGREEMENT. MBI, UPON WRITTEN OR ORAL
REQUEST, WILL FURNISH A COPY OF THE MERGER AGREEMENT, WITHOUT
CHARGE, TO ANY PERSON WHO RECEIVES A COPY OF THIS PROXY
STATEMENT/PROSPECTUS. SUCH REQUESTS SHOULD BE DIRECTED TO JON W.
BILSTROM, GENERAL COUNSEL AND SECRETARY, MERCANTILE BANCORPORATION
INC., P.O. BOX 524, ST. LOUIS, MISSOURI 63166-0524, TELEPHONE
(314) 425-2525.
GENERAL DESCRIPTION OF THE MERGER
Subject to the satisfaction of the terms and conditions
set forth in the Merger Agreement, which are described below, First
Financial will be merged with and into Ameribanc. Upon
consummation of the Merger, First Financial's corporate existence
will terminate and Ameribanc will continue as the surviving entity.
At the Effective Time, and subject to the elections of
the First Financial shareholders and other adjustments intended to
accommodate the tax-deferred nature of the transaction under the
federal income tax laws for those First Financial shareholders who
receive solely shares of MBI Common Stock, each share of First
Financial Common Stock will be converted into the right to receive
one of the following: (i) an amount in cash equal to $194.73;
(ii) 4.2963 shares of MBI Common Stock; or (iii) both an amount in
cash equal to $42.26 and 3.364 shares of MBI Common Stock.
Accordingly, each First Financial shareholder will have the
opportunity to elect whether to receive as consideration in the
Merger the Cash Distribution, the Stock Distribution or the
Combined Distribution. Enclosed with this Proxy
Statement/Prospectus is an Election Form whereby the First
Financial shareholders may indicate their election. In order for
an Election Form to be effective, the Election Form must be
properly completed and duly executed by a First Financial
shareholder and returned to the Exchange Agent by the Election
Deadline.
Each separate entry on the First Financial list of
shareholders shall be presumed to represent a separate and distinct
holder of record of First Financial Common Stock. Shares held of
record by a bank, trust company, broker, dealer or other recognized
nominee shall be deemed to be held by a single holder unless the
nominee advises the Exchange Agent in writing otherwise, in which
case, each beneficial owner will be treated as a separate holder
and, either directly or through such nominee, may submit a separate
Election Form. Any election may be revoked or changed by the
person submitting an Election Form or any other person to whom the
subject shares are subsequently transferred by written notice to
the Exchange Agent by such holder or transferee, which notice is
received by the Exchange Agent by the Election Deadline. FIRST
FINANCIAL SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR OWN
FINANCIAL AND TAX ADVISORS PRIOR TO RETURNING THEIR ELECTION FORMS
TO THE EXCHANGE AGENT TO DETERMINE THE BEST ALTERNATIVE FOR THEM.
No Election Shares will be treated as Cash Election
Shares for purposes of determining the type and amount of Merger
Consideration payable to the holders of No Election Shares;
provided, however, that if the aggregate amount of cash payable to
the holders of Cash Election Shares is reduced and replaced with
shares of MBI Common Stock, as described below, the cash payable to
the holders of No Election Shares will be reduced and replaced with
shares of MBI Common Stock before the cash payable to the holders
of Cash Election Shares is so reduced and replaced. Dissenting
Shares will also be treated as Cash Election Shares, unless the
aggregate amount of cash payable to the holders of Cash
- 23 -
<PAGE> 30
Election Shares is reduced and replaced with shares of MBI Common
Stock, as described below, in which case such Dissenting Shares will
not be so reduced and replaced.
The actual Merger Consideration paid to each First
Financial shareholder upon consummation of the Merger may differ in
form or proportion from the Merger Consideration elected by each
such shareholder pursuant to an Election Form in the event of
either: (i) an Over-Election, whereby the aggregate number of
shares of MBI Common Stock issuable as Merger Consideration on the
basis of the shareholders' elections exceeds 258,783; or (ii) an
Under-Election, whereby the aggregate number of shares of MBI
Common Stock issuable as Merger Consideration pursuant to the
shareholders' elections is less than 258,783 and would be
insufficient to allow MBI Counsel to render an opinion that the
Merger will qualify as a reorganization under Section 368 of the
Code for federal income tax purposes. In the event of an Over-
Election, the aggregate number of shares of MBI Common Stock
issuable as a portion of all Combined Distributions (and, if
necessary, in all Stock Distributions) will be reduced pro rata and
the Cash Distribution will be issued in lieu thereof, such that the
aggregate number of shares of MBI Common Stock issuable as Merger
Consideration in all Stock Distributions and Combined Distributions
equals 258,783. In the event of an Under-Election, the Cash
Distribution payable to the holders of No Election Shares (and, if
necessary, to the holders of first the Combined Election Shares
and, second, the Cash Election Shares) will be reduced pro rata and
the Stock Distribution will be issued in lieu thereof, such that
the aggregate number of shares of MBI Common Stock necessary for
MBI Counsel to render the Tax Opinion will be issued as Merger
Consideration. In all other cases, the Merger Consideration paid
to each First Financial shareholder will be in the same form and
proportion as such shareholder has elected on an Election Form (or
has been deemed to have elected in the case of No Election Shares
or shares held by certain holders of 1% or more of First Financial
Common Stock). A more detailed description of the process through
which the Merger Consideration will be determined and paid to the
First Financial shareholders, including the terms and conditions
under which a particular type of Merger Consideration elected by a
First Financial shareholder may be replaced by another type of
Merger Consideration, is set forth below.
In the event that the number of shares of MBI Common
Stock issuable as Merger Consideration to the holders of Stock
Election Shares and Combined Election Shares is less than 258,783,
then:
(i) the Stock Election Shares will be converted
into the right to receive the Stock Distribution; and
(ii) the Cash Election Shares and the Combined
Election Shares will be converted into the right to
receive the Cash Distribution and the Combined
Distribution, respectively; provided, however, that in
the event of an Under-Election, whereby the number of
shares of MBI Common Stock issuable to the holders of the
Stock Election Shares and Combined Election Shares is
insufficient, in the opinion of MBI Counsel, to allow MBI
Counsel to render the Tax Opinion (see "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER"), then MBI Counsel
will provide the Notice to the Exchange Agent as soon as
practicable on or after the Closing Date as to the number
of additional shares of MBI Common Stock that will be
required to be issued in the Merger in order to allow MBI
Counsel to render the Tax Opinion in its reasonable
judgment. Upon the receipt of the Notice, the Exchange
Agent shall:
(A) first, (x) reallocate the Merger
Consideration payable to each holder of No Election
Shares on a pro rata basis (based upon the ratio of No
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<PAGE> 31
Election Shares owned by each such holder to the
total number of No Election Shares), such that the
holders of No Election Shares receive an aggregate
number of shares of MBI Common Stock equal to the
Share Deficit, and (y) issue to each such holder of
No Election Shares the balance of the Merger
Consideration due to such holder, if any, in the
form of cash equal to an amount determined by
subtracting the value of the shares of MBI Common
Stock received in the reallocation (using a deemed
value of $45.325 per share) from the product of the
number of No Election Shares held by such holder on
the Closing Date and $194.73;
(B) second, if the reallocation set forth in
paragraph (A) above does not result in the issuance
of an aggregate number of Shares of MBI Common
Stock equal to the Share Deficit, (x) reallocate
the Merger Consideration payable to each holder of
Combined Election Shares on a pro rata basis (based
upon the ratio of Combined Election Shares owned by
each such holder to the total number of Combined
Election Shares), such that the holders of Combined
Election Shares receive an aggregate number of
shares of MBI Common Stock equal to the Share
Deficit less the shares of MBI Common Stock
issuable pursuant to paragraph (A) above, and (y)
issue to each such holder of Combined Election
Shares the balance of the Merger Consideration, if
any, in the form of cash equal to an amount
determined by subtracting the value of the shares
of MBI Common Stock received in the reallocation
(using a deemed value of $45.325 per share) from
the product of the number of No Election Shares
held by such holder on the Closing Date and
$194.73; and
(C) third, if the reallocations set forth in
paragraphs (A) and (B) above do not result in the
issuance of an aggregate number of shares of MBI
Common Stock equal to the Share Deficit, (x)
reallocate the Merger Consideration payable to each
holder of Cash Election Shares, other than holders
of No Election Shares and Dissenting Shares, on a
pro rata basis (based upon the ratio of Cash
Election Shares, other than No Election Shares and
Dissenting Shares, owned by each such holder to the
total number of Cash Election Shares, other than No
Election Shares and Dissenting Shares), such that
the holders of such Cash Election Shares receive an
aggregate number of shares of MBI Common Stock
equal to the Share Deficit less the shares of MBI
Common Stock issued pursuant to paragraphs (A) and
(B) above, and (y) issue to each such holder of
Cash Election Shares, other than holders of No
Election Shares and Dissenting Shares, the balance
of the Merger Consideration due to such holder, if
any, in the form of cash equal to an amount
determined by subtracting the value of the shares
of MBI Common Stock received in the reallocation
(using a deemed value of $45.325 per share) from
the product of the number of No Election Shares
held by such holder on the Closing Date and
$194.73.
In the event of an Over-Election, whereby the number of
shares of MBI Common Stock issuable as Merger Consideration to the
holders of Stock Election Shares and Combined Election Shares is
greater than 258,783, then:
(i) all Cash Election Shares will be converted into
the right to receive the Cash Distribution; and
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<PAGE> 32
(ii) the Exchange Agent will determine the Share
Surplus, the number by which the shares of MBI Common
Stock issuable pursuant to the Stock Distribution and the
Combined Distribution exceeds 258,783 and will:
(A) first, (x) reallocate the Merger
Consideration payable to each such holder of
Combined Election Shares on a pro rata basis (based
upon the ratio of the number of Combined Election
Shares owned by each such holder to the total
number of Combined Election Shares), such that the
total number of shares of MBI Common Stock received
by the holders of Combined Election Shares is
reduced by the Share Surplus, and (y) in lieu of
the issuance of such MBI Common Stock portion of
the Combined Distribution for each share of First
Financial Common Stock, issue to each such holder
of Combined Election Shares a cash payment equal to
$194.73; and
(B) second, (x) if the reallocation set forth
in paragraph (A) above does not result in the
elimination of the Share Surplus, the Exchange
Agent shall eliminate the Share Surplus by
reallocating the Merger Consideration payable to
each holder of Stock Election Shares, on a pro rata
basis (based upon the ratio of the number of Stock
Election Shares owned by each such holder to the
total number of Stock Election Shares), such that
the total number of shares of MBI Common Stock
received by the holders of Stock Election Shares is
reduced by the Share Surplus less the number of
shares reduced pursuant to paragraph (A) above, and
(y) in lieu of the issuance of such MBI Common
Stock for each share of First Financial Common
Stock, issue to each such holder of Stock Election
Shares a cash payment equal to $194.73.
Pursuant to the Merger Agreement, any holder of 1% or
more of First Financial Common Stock (determined as of the Closing
Date) who has not, at or before the Election Deadline, delivered to
the Exchange Agent a properly executed certification regarding
certain tax matters (which certification will be provided to the
First Financial shareholders with the Election Form) shall be
deemed to have made a timely election to receive the Cash
Distribution, and all shares of First Financial Common Stock held
by such holder shall be deemed to be Cash Election Shares. A
LESS-THAN-1% HOLDER WHO ACQUIRES ADDITIONAL SHARES OF FIRST
FINANCIAL COMMON STOCK AFTER THE ELECTION DEADLINE AND THEREBY
BECOMES A HOLDER OF 1% OR MORE OF FIRST FINANCIAL COMMON STOCK WILL
ALSO BE DEEMED TO HAVE MADE A TIMELY ELECTION TO RECEIVE THE CASH
DISTRIBUTION AND WILL BE PRECLUDED FROM RECEIVING THE STOCK
DISTRIBUTION OR COMBINED DISTRIBUTION UNLESS SUCH HOLDER, IN
ANTICIPATION OF SUCH ACQUISITION OF ADDITIONAL SHARES OF FIRST
FINANCIAL COMMON STOCK, HAS DELIVERED TO THE EXCHANGE AGENT AT OR
BEFORE THE ELECTION DEADLINE A PROPERLY EXECUTED CERTIFICATION
REGARDING CERTAIN TAX MATTERS.
The amount and nature of the Merger Consideration was
established through arm's-length negotiations between MBI,
Ameribanc and First Financial, and reflects the balancing of a
number of countervailing factors. The total amount of the Merger
Consideration reflects a price both parties concluded was
appropriate. See "- Background of and Reasons for the Merger;
Board Recommendations."
NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET
VALUE OF MBI COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET
VALUE OF MBI COMMON STOCK ON THE DATE SUCH STOCK IS RECEIVED BY A
FIRST FINANCIAL SHAREHOLDER OR AT ANY OTHER TIME. THE FAIR MARKET
VALUE OF MBI COMMON STOCK AT THE TIME IT IS RECEIVED BY A FIRST
FINANCIAL
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<PAGE> 33
SHAREHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR
MARKET VALUE OF MBI COMMON STOCK DUE TO NUMEROUS MARKET FACTORS.
Within ten days following the Closing Date, the Exchange
Agent will mail to each First Financial shareholder a notice of
consummation of the Merger and a form of letter of transmittal,
together with instructions and a return envelope to facilitate the
exchange of such holder's certificate(s) formerly representing
First Financial Common Stock for such holder's portion of the
Merger Consideration. Each such shareholder will be required to
submit to the Exchange Agent a properly executed letter of
transmittal and surrender to the Exchange Agent the stock
certificate(s) formerly representing the shares of First Financial
Common Stock held by such shareholder. Upon such submittal, each
shareholder will receive from the Exchange Agent, within ten days
after the date the Exchange Agent received such shareholder's
letter of transmittal and certificate, the cash and/or a
certificate representing MBI Common Stock to which such shareholder
is entitled as Merger Consideration. No interest will be accrued
or paid with respect to the cash component of the Merger
Consideration. No dividends or other distributions declared after
the Effective Time will be paid to a former First Financial
shareholder with respect to the MBI Common Stock issuable as Merger
Consideration until such shareholder's letter of transmittal and
stock certificates, or documentation reasonably acceptable to the
Exchange Agent in lieu of lost or destroyed certificates formerly
representing First Financial Common Stock, are delivered to the
Exchange Agent. Upon such delivery, all such dividends or other
distributions declared after the Effective Time with respect to MBI
Common Stock will be remitted to such shareholders (without
interest and less any taxes that may have been imposed thereon).
See "- Surrender of First Financial Stock Certificates and Receipt
of MBI Common Stock and/or Cash." No fractional shares of MBI
Common Stock will be issued in the Merger, but cash, calculated by
multiplying the holder's fractional share interest by $45.325, the
Average MBI Stock Price, will be paid in lieu of fractional shares.
See "- Fractional Shares." The shares of MBI Common Stock issued
as Merger Consideration will be freely transferable except by
certain shareholders of First Financial who are deemed to be
"affiliates" of First Financial. The shares of MBI Common Stock
issued as the Stock Distribution or as a portion of the Combined
Distribution to such affiliates will be restricted in their
transferability in accordance with the rules and regulations
promulgated by the Commission. See "INFORMATION REGARDING MBI
STOCK - Restrictions on Resale of MBI Stock by Affiliates."
VOTING AGREEMENTS
In addition to and contemporaneously with the Merger
Agreement, MBI and each of the directors and certain other
affiliates of First Financial executed separate Voting Agreements
pursuant to which each such director and affiliate agreed that he,
she or it will vote all of the shares of First Financial Common
Stock that he, she or it then owns or subsequently acquires and
over which he, she or it then has, or prior to the Record Date
acquires, voting control in favor of the approval of the Merger
Agreement at the Special Meeting. In addition, until the earliest
to occur of the Effective Time, the termination of the Merger
Agreement or the abandonment of the Merger by the mutual agreement
of First Financial and MBI, each such director further agreed that
he, she or it will not vote any such shares in favor of the
approval of any other agreement relating to the merger or sale of
substantially all the assets of First Financial to any person other
than MBI or its affiliates. Each such director and affiliate also
agreed that he, she or it will not transfer shares of First
Financial Common Stock unless, prior to such transfer, the
transferee executes an agreement with respect to the transferred
shares in substantially the same form as the Voting Agreement and
reasonably satisfactory to MBI. As of the Record Date, such
directors and affiliates of First Financial owned beneficially an
aggregate of 37,370 shares of First Financial Common Stock
(excluding option shares), or approximately 48.6% of the issued and
outstanding shares.
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<PAGE> 34
BACKGROUND OF AND REASONS FOR THE MERGER; BOARD RECOMMENDATIONS
BACKGROUND OF THE MERGER. The banking industry in
general has experienced substantial and rapid change in recent
years as there has been considerable consolidation activity in
which institutions of First Financial's size have been acquired by
large regional banking organizations with access to capital and
resources substantially greater than First Financial. The Board of
Directors of First Financial, mindful of the realities of the
banking industry, has continually evaluated the future prospects
and viability of First Financial as an independent community
banking organization in Salem, Missouri, and the strategic
alternatives available to the organization, including possible
business combinations with other banking organizations. Although
the Board of Directors of First Financial determined that it would
entertain offers from prospective acquirors which were reflective
of the true value of First Financial and in the best interests of
all shareholders, it was the consensus of the Board that, in order
to keep all of its strategic options open, it would not, as a
general matter, actively solicit or pursue a business combination
involving First Financial.
Several years ago, First Financial was approached, in
separate instances, by a local banking organization and a regional
banking organization regarding possible business combinations with
First Financial. The expressions of interest were informal in
nature, no firm or binding offers were presented, no due diligence
was conducted by either party and discussions did not ensue.
Representatives of First Financial advised
representatives of MBI at an informal industry function in mid-1993
that First Financial would entertain an offer from MBI for an
acquisition of First Financial. The Board of Directors of First
Financial was generally familiar with the business philosophy and
method of operation of MBI based upon, among other things, the
correspondent relationship between First Financial's subsidiary
bank, The First National Bank of Salem, and MBI's lead subsidiary
bank, Mercantile Bank of St. Louis, N.A. At a meeting in Salem,
Missouri in September 1993, representatives of MBI advised
representatives of First Financial that an acquisition of First
Financial did not, at that time, fit into MBI's acquisition program
and strategy and, as a result, no offer was made by MBI.
In October 1995, the Board of Directors of First
Financial retained the services of a nationally recognized firm of
certified public accountants to provide an analysis of the range of
values which could be expected in an acquisition of First
Financial. The Board intended to use the analysis to gauge the
adequacy of any future acquisition proposals, although no offers
were then outstanding or anticipated. Representatives of the
accounting firm presented its report and analysis to the Board of
Directors of First Financial in December 1995.
In early 1996, First Financial was approached by a
publicly traded thrift organization located in southeast Missouri
regarding a possible acquisition of First Financial. The initial
non-binding expression of interest presented by the thrift
organization was a cash offer in an amount that the Board of
Directors considered inadequate. Discussions with the thrift
organization did not continue after representatives of First
Financial advised the offeror of the inadequacy of its offer and
that the Board of Directors preferred a tax-free transaction (which
would not have been possible under the terms of the proposed all-
cash transaction). Also in early 1996, the Executive Committee of
the Board of Directors of First Financial informally approached a
large publicly-traded Missouri-based financial organization (which
was not MBI) to inquire as to its interest in a possible
acquisition of First Financial. The organization informed First
Financial that First Financial did not meet its acquisition
criteria because it was not located on a major interstate and no
further discussions were held.
During this same time period in early 1996,
representatives of First Financial were contacted by
representatives of MBI regarding First Financial's interest in a
possible business combination.
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<PAGE> 35
Although MBI's preliminary and initial valuation of First Financial
for purposes of an acquisition was considered inadequate by the
Board of Directors of First Financial, the Board concluded that the
shareholders of First Financial could benefit from a combination
with a large, publicly- traded, regional banking organization such
as MBI and, therefore, authorized representatives of First Financial
to continue to explore the possibility of a business combination
with MBI which the Board could recommend to the First Financial
shareholders and which, preferably, would be an all-stock
transaction (the initial proposal by MBI included 40% cash as part
of the consideration).
Negotiations between representatives of MBI and First
Financial continued during April through June 1996. The Executive
Committee of the Board of Directors of First Financial reviewed,
during early May 1996, a summary prepared by its representatives of
other MBI acquisitions completed during 1995 and concluded that the
amount of the consideration offered by MBI in the proposed
combination with First Financial compared favorably to the amount
of consideration paid by MBI in comparable recent transactions.
The Executive Committee also reviewed and analyzed, during this
period, the other factors described below under "- First
Financial's Reasons and Board Recommendations." Several days
later, representatives of MBI and First Financial met in Rolla,
Missouri to discuss further the amount and type of consideration
(stock and/or cash) to be paid by MBI in a proposed transaction
with First Financial. During late May 1996, representatives of MBI
and First Financial reached an agreement in principle as to the
structure and pricing of the proposed business combination (which
terms are reflected in the Merger Agreement) and, at a meeting of
the Board of Directors of First Financial on May 28, 1996, the
Board of Directors determined to permit MBI to conduct an on-site
due diligence investigation of First Financial, subject to the
execution by MBI and First Financial of a satisfactory
confidentiality agreement. MBI concluded its due diligence
investigation of First Financial during the first week of June
1996.
The status of the negotiations with MBI was reviewed by
the Board of Directors of First Financial at a meeting on June 11,
1996. In mid-June 1996, a draft of the proposed definitive Merger
Agreement was circulated by counsel for MBI. On June 26, 1996,
First Financial's Executive Committee and certain other executive
officers met with First Financial's legal counsel and accountant to
review and discuss the proposed definitive agreement and the
structure and terms of the proposed transaction. On June 27, 1996,
First Financial retained the services of Alex Sheshunoff & Co.
Investment Banking ("Sheshunoff") to advise the Board of Directors
of First Financial as to the adequacy and fairness of the MBI
offer.
Representatives of First Financial and MBI continued
discussions and negotiations regarding the terms of the definitive
Merger Agreement and, on July 9, 1996, the definitive Merger
Agreement was presented to the Board of Directors of First
Financial at a regularly scheduled meeting. At the meeting, the
Board of Directors reviewed the status of the negotiations with MBI
and First Financial's legal counsel and accountant reviewed and
discussed the terms of the definitive Merger Agreement and the
structure and timing of the proposed transaction generally.
Sheshunoff then presented its analyses of the proposed transaction
and orally advised the Board of Directors that the Merger
Consideration to be received by shareholders of First Financial in
the Merger was fair to First Financial and its shareholders from a
financial point of view. See "-- Opinion of Financial Advisor to
First Financial," below. Following discussion and deliberation,
the Board of Directors of First Financial, with all directors
present, voted unanimously to approve the definitive Merger
Agreement. The Merger Agreement was executed by the parties on
July 9, 1996 and publicly announced on July 10, 1996.
FIRST FINANCIAL'S REASONS AND BOARD RECOMMENDATIONS. The
decision of the Board of Directors of First Financial to approve
the Merger and the Merger Agreement was made after thorough
deliberation and careful consideration of numerous factors. The
Board of Directors of First Financial believes that a business
combination with a larger financial institution and more
geographically diversified
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<PAGE> 36
regional bank holding company such as MBI would, in addition to
providing significant value to all shareholders, enable First
Financial to compete more effectively in its market area and
participate in the expanded opportunities for growth that the Merger
would make possible. In the course of reaching its determination to
approve the Merger and the Merger Agreement, the Board of Directors
of First Financial, without assigning relative or specific weights,
considered a number of factors, including the following material
considerations: (a) First Financial's business, results of
operations, financial position and prospects for it to remain
independent; (b) economic conditions and prospects for the market in
which First National operates in light of, among other things,
intensifying competitive pressures in the financial services
industry in general; (c) the MBI Common Stock is traded on the New
York Stock Exchange and the shareholders of First Financial who
receive stock in the Merger would have increased liquidity in their
holdings; (d) the Merger should provide shareholders of First
Financial with a significant premium over the book value and recent
known trading prices of shares of First Financial Common Stock; (e)
the management, business, results of operations and financial
condition and prospects of MBI; (f) the historical dividends paid on
First Financial Common Stock and MBI Common Stock, and the increase
in regular quarterly dividends which would result to First Financial
shareholders who receive MBI stock in the Merger; (g) the
availability of additional capital and financial resources and
provision of a broader range of products and services to customers
of the Bank; and (h) the expectation that the Merger would be a
tax-free transaction for shareholders of First Financial who
receive MBI Common Stock in the Merger (to the extent described
under "CERTAIN FEDERAL INCOME TAX CONSEQUENCES," below).
For the reasons set forth above, the Board of Directors
of First Financial believes that the Merger is in the best interest
of the shareholders of First Financial and, accordingly,
unanimously recommends that the holders of First Financial Common
Stock vote for "FOR" approval of the Merger Agreement.
MBI'S REASONS AND BOARD RECOMMENDATIONS. The Executive
Committee of the Board of Directors of MBI considered a number of
factors, including, among other things, the financial condition of
First Financial and projected synergies which MBI anticipates will
result from the Merger. The Executive Committee concluded that the
Merger presents an unique opportunity for MBI to increase its
presence in southern Missouri through the acquisition of an
established banking organization having significant operations in
the targeted area. MBI's decision to pursue discussions with First
Financial was primarily a result of MBI's assessment of the value
of First Financial banking franchise, its asset base within that
area and the compatibility of the businesses of the two banking
organizations.
OPINION OF FINANCIAL ADVISOR TO FIRST FINANCIAL
GENERAL. First Financial retained Alex Sheshunoff & Co.
Investment Banking ("Sheshunoff") to act as its financial advisor
in connection with the Merger and related matters based upon its
qualifications, expertise and reputation. At the July 9, 1996
meeting of the First Financial Board, Sheshunoff rendered its oral
opinion to the Board that, as of such date, the consideration to be
received in the Merger Agreement was fair from a financial point of
view to the holders of First Financial's Common Stock. Sheshunoff
has subsequently confirmed its July 9, 1996 opinion by delivery to
First Financial's Board of a written opinion (the "Sheshunoff
Opinion").
The full text of the Sheshunoff Opinion, which sets
forth, among other things, assumptions made, procedures followed,
matters considered, and limitations on the review undertaken, is
attached as Annex B to this Joint Proxy Statement/Prospectus.
-------
First Financial's shareholders are urged to read the Sheshunoff
Opinion carefully and in its entirety. The Sheshunoff Opinion is
addressed to First Financial's Board of Directors and does not
constitute a recommendation to any shareholder of First Financial
as to how such shareholder should vote at the First Financial
Meeting.
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<PAGE> 37
In connection with rendering the Sheshunoff Opinion,
Sheshunoff, among other things: (i) analyzed certain internal
financial statements and other financial and operating data
concerning First Financial prepared by the management of First
Financial; (ii) analyzed certain publicly available financial
statements, both audited and unaudited, and other information of
First Financial and MBI, including those included in their
respective Annual Reports for the three years ended December 31,
1995, and their Quarterly Reports for the periods ended June 30,
1995, September 30, 1995, and March 31, 1996; (iii) analyzed certain
financial projections of First Financial prepared by the management of
First Financial; (iv) discussed the past and current operations and
financial condition of First Financial with senior executives; (v)
reviewed the reported stock prices and trading activity for MBI's Common
Stock; (vi) compared the financial performance of MBI's price and trading
activity with that of certain other comparable publicly-traded companies
and their securities; (vii) reviewed and compared certain security
analysis reports of MBI's Common Stock prepared by various
investment banking firms; (viii) reviewed the financial terms, to
the extent publicly available, of certain comparable precedent
transactions; (ix) reviewed the Merger Agreement; and (x) performed
such other analyses as deemed appropriate.
In connection with its review, Sheshunoff relied upon and
assumed the accuracy and completeness of all of the foregoing
information provided to it or made publicly available, and has not
assumed any responsibility for independent verification of such
information. With respect to the financial projections, Sheshunoff
assumed that they have been reasonably prepared on the basis
reflecting the best currently available estimates and judgments of
the future financial performance of First Financial. Sheshunoff
has not made any independent valuation or appraisal of the assets
or liabilities of First Financial nor been furnished with any such
appraisals, and has not examined any individual loan files of First
Financial. With respect to MBI, Sheshunoff relied solely upon
publicly available data and did not conduct discussions with the
management of MBI regarding MBI's financial condition, performance,
and prospects. Sheshunoff did not conduct any independent
evaluation or appraisal of the assets, liabilities or business
prospects of MBI, was not furnished with any evaluations or
appraisals, and did not review any individual credit files.
Sheshunoff is not an expert in the evaluation of loan portfolios
for the purposes of assessing the adequacy of the allowance for
losses with respect thereto and has assumed that such allowances
for each of the companies are in the aggregate adequate to cover
such losses. The Sheshunoff Opinion is necessarily based on
economic, market and other conditions as in effect on, and the
information made available to Sheshunoff as of, the date of the
opinion.
In connection with rendering its opinion, Sheshunoff
performed a variety of financial analyses. The preparation of a
fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and,
therefore, such an opinion in not readily susceptible to partial
analysis of summary description. Moreover, the evaluation of the
fairness, from a financial point of view, of the Merger
Consideration to the holders of First Financial was to some extent
a subjective one based on the experience and judgment of Sheshunoff
and not merely the result of mathematical analysis of financial
data. Accordingly, notwithstanding the separate factors summarized
below, Sheshunoff believes that its analyses must be considered as
a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and
factors, could create an incomplete view of the evaluation process
underlying its opinion. The ranges of valuations resulting from
any particular analysis described below should not be taken to be
Sheshunoff's view of the actual value of First Financial.
In performing its analyses, Sheshunoff made numerous
assumptions with respect to industry performance, business and
economic conditions and other matters, many of which are beyond the
control of First Financial. The analyses performed by Sheshunoff
are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by
such analyses. The analyses do not purport to be appraisals or to
reflect the prices at which a company might
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<PAGE> 38
actually be sold. In addition, Sheshunoff's analyses should not be
viewed as determinative of the opinion of the First Financial Board
of Director's or Management's opinion with respect to the value of
First Financial.
The following is a summary of the analyses performed by
Sheshunoff in connection with its opinion delivered to the First
Financial Board of Directors on July 9, 1996:
ANALYSIS OF SELECTED TRANSACTIONS. Sheshunoff performed
an analysis of premiums paid in selected pending or recently
completed acquisitions of banking organizations in Missouri and the
Midwest with comparable characteristics to the First Financial and
MBI transaction. Two sets of comparable transactions were analyzed
to ensure a thorough comparison.
The first set of comparable transactions was comprised to
reflect the capital structure, asset size and regional location of
First Financial. The guideline transactions specifically consisted
of 44 mergers and acquisitions of banking organizations in the
Midwest from June 1, 1994 to July 2, 1996 with seller's total
assets less than $250 million and seller's total equity to total
assets ratio greater than 10%. Based on the average of the closing
stock price of MBI Common Stock for the five trading days prior to
July 8, 1996 and First Financial's financial data as of June 30,
1996, the analysis yielded ratios of the transactions' purchase
price as a multiple of: (i) book value ranging from 0.90 times to
2.16 times with an average of 1.45 times and a median of 1.43 times
(compared with First Financial's deal of 1.46 times June 30, 1996
book value); (ii) trailing last 12 months earnings ranging from
7.84 times to 24.76 times with an average of 15.50 times and a
median of 15.34 times (compared with First Financial's deal of
13.43 times annualized June 30, 1996 earnings and 14.58 times
projected 1996 earnings); and (iii) seller's average and median
equity to asset ratio of 12.28% and 11.42%, respectively, compared
to 11.99% for First Financial.
The second set of comparable transactions were comprised
to reflect the asset size and specific state of domain for First
Financial. These guideline transactions specifically consisted of
15 mergers and acquisitions of banking organizations in Missouri
from June 1, 1994 to July 2, 1996 with seller's total assets less
than $250 million. Again, based on the average of the closing
stock price of MBI's Common Stock for the five trading days prior
to July 8, 1996 and First Financial's financial data as of June 30,
1996, the analysis yielded ratios of the transactions' purchase
price as a multiple of: (i) book value ranging from 1.00 times to
2.58 times with an average of 1.63 times and a median of 1.48 times
(compared with First Financial's deal of 1.46 times June 30, 1996
book value); (ii) trailing last 12 months earnings ranging from
9.29 times to 23.43 times with an average of 15.19 times and a
median of 14.04 times (compared with First Financial's deal of
13.43 times annualized June 30, 1996 earnings and 14.58 times
projected 1996 earnings); and (iii) seller's average and median
equity to asset ratio of 9.37% and 8.46%, respectively, compared
with 11.99% for First Financial.
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash
flow analysis, Sheshunoff estimated the present value of the future
stream of after-tax cash flow that First Financial could produce
through the year 2000, under various circumstances, assuming that
First Financial performs in accordance with the earnings/return
projections of management. Sheshunoff estimated the terminal value
for First Financial at the end of the period by applying multiples
of earnings ranging from 8 times to 18 times and then discounting
the cash flow streams, dividends paid to the shareholders (assuming
up to 100 percent of earnings are paid out in dividends) and
terminal value using differing discount rates ranging from 14.0% to
18.0% chosen to reflect different assumptions regarding the
required rates of return of First Financial and the inherent risk
surrounding the underlying projections. This discounted cash flow
analysis indicated a range of $96.43 per share to $188.82 per
share.
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<PAGE> 39
Sheshunoff also performed a cash flow analysis using an
estimated terminal value for First Financial at the end of the
period by applying multiples of book value ranging from 1.00 times
to 2.00 times and then discounting the cash flow streams, dividends
paid to the shareholders (assuming up to 100 percent of earnings
are paid out in dividends) and terminal value using differing
discount rates ranging from 14.0% to 18.0% chosen to reflect
different assumptions regarding the required rates of return of
First Financial and the inherent risk surrounding the underlying
projections. This discounted cash flow analysis indicated a range
of $103.43 per share to $189.83 per share.
COMPARABLE COMPANY ANALYSIS. Sheshunoff compared
selected balance sheet data, asset quality, capitalization and
profitability ratios and market statistics using financial data at
or for the twelve months ended March 31, 1996 and market data as of
July 8, 1996 for MBI to a group of selected bank holding companies
which Sheshunoff deemed to be relevant, including AmSouth
Bancorporation, Compass Bancshares, Inc., Crestar Financial
Corporation, Central Fidelity Banks Inc., Fifth Third Bancorp,
Firstar Corporation, First Tennessee National Corp., Marshall &
Ilsley Corporation, Old Kent Financial Corporation, Regions
Financial Corp., Signet Banking Corporation and Union Planters
Corporation, all being bank holding companies with assets between
$10 billion and $15 billion (collectively, the "Comparable
Composite"). This comparison, among other things, showed that: (i)
MBI's equity to asset ratio was 8.98%, compared to an average of
8.07% and a median of 7.92% for the Comparable Composite; (ii) for
the twelve-month period ended March 31, 1996, MBI's return on
average assets was 1.02%, compared to an average of 1.26% and a
median of 1.26% for the Comparable Composite; (iii) for the twelve-
month period ended March 31, 1996, MBI's return on average equity
was 11.35%, compared to an average of 14.72% and a median of 14.45%
for the Comparable Composite; (iv) at March 31, 1996, MBI's
nonperforming assets to total assets ratio was 0.51%, compared to
an average of 0.43% and a median of 0.44% for the Comparable
Composite; (v) at July 8, 1996 MBI's price per share to book value
per share at March 31, 1996 was 1.75 times, compared to an average
of 1.90 times and median of 1.78 times for the Comparable
Composite; (vi) at July 8, 1996, MBI's price per share to earnings
per share at March 31, 1996 was 15.03 times, compared to an average
of 12.87 times and median of 12.58 times for the comparable
composite; and (vii) at March 31, 1996, MBI's dividend yield was
3.33%, compared to an average of 3.27% and a median of 3.42% for
the Comparable Composite.
Sheshunoff also compared selected stock market results of
MBI to the publicly available corresponding data of other
composites which Sheshunoff deemed to be relevant, including SNL's
index of all publicly traded banks and the S&P 500. Results from
indexing the S&P 500, SNL's index of all publicly traded banks, the
Comparable Composite and MBI's stock from June 1, 1994 to June 30,
1996 revealed similar relationships in pricing movements.
No company or transaction used in the comparable company
and comparable transaction analyses is identical to First Financial
or the Merger. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics
of First Financial and other factors that could affect the public
trading value of the companies to which they are being compared.
Mathematical analysis (such as determining the average or median)
is not in itself a meaningful method of using comparable
transaction data or comparable company data.
As part of its investment banking business, Sheshunoff is
regularly engaged in the valuation of securities in connection with
mergers and acquisitions, private placements, and valuations for
estate, corporate and other purposes. First Financial's Board of
Directors decided to retain Sheshunoff based on its experience as
a financial advisor in mergers and acquisitions of financial
institutions and its knowledge of financial institutions.
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<PAGE> 40
Pursuant to an engagement letter, dated June 27, 1996,
between First Financial and Sheshunoff, First Financial agreed to
pay Sheshunoff a $14,000 fairness opinion fee. First Financial has
also agreed to indemnify and hold harmless Sheshunoff and its
officers and employees against certain liabilities in connection
with its services under the engagement letter, except for
liabilities resulting from negligence.
CONDITIONS TO THE MERGER
The respective obligations of MBI and First Financial to
consummate the Merger are subject to the satisfaction of certain
mutual conditions, including the following:
(1) The Merger Agreement must have been approved by
the holders of at least two-thirds of the outstanding
shares of First Financial Common Stock at the Special
Meeting.
(2) The Merger Agreement and the transactions
contemplated thereby must have been approved by the
Regulatory Authorities, and all waiting periods after
such approvals required by law or regulation must have
been satisfied.
(3) The Registration Statement of which this Proxy
Statement/Prospectus is a part must have been declared
effective and must not be subject to a stop order or any
threatened stop order.
(4) Neither First Financial, MBI nor Ameribanc may
be subject to any order, decree or injunction of a court
or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger.
(5) Each of MBI, Ameribanc and First Financial must
have received from MBI Counsel an opinion (which opinion
must not have been withdrawn at or prior to the Effective
Time) reasonably satisfactory in form and substance to it
to the effect that, subject to certain exceptions and
assumptions: (a) the Merger will constitute a
reorganization within the meaning of Section 368 of the
Code and no gain or loss will be recognized by those
shareholders of First Financial who receive solely MBI
Common Stock in exchange for First Financial Common
Stock; (b) holders of First Financial Common Stock who
receive MBI Common Stock and other property will
recognize all gain realized, in accordance with the
provisions and limitations of Section 356 of the Code;
(c) the basis of the MBI Common Stock will equal the
basis of the First Financial Common Stock for which it is
exchanged; and (d) the holding period of such MBI Common
Stock will include the holding period of First Financial
Common Stock for which it is exchanged.
The obligation of MBI and Ameribanc to consummate the
Merger is subject to the satisfaction, unless waived by MBI and
Ameribanc, of certain other conditions, including the following:
(1) The representations and warranties of First
Financial made in the Merger Agreement must be true and
correct in all material respects as of July 9, 1996 and
as of the Effective Time, except for (a) representations
which are by their provisions made as of a specific date,
(b) inaccuracies therein that are not of a magnitude as
to have a material adverse effect on First Financial, and
(c) the effect of the transactions
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<PAGE> 41
contemplated by the Merger Agreement, and MBI must have
received an officers' certificate from First Financial to
that effect.
(2) All obligations required to be performed by
First Financial prior to the Effective Time must have
been performed in all material respects, and MBI must
have received an officers' certificate from First
Financial to that effect.
(3) First Financial must have obtained any and all
material permits, authorizations, consents, waivers and
approvals required of First Financial for the lawful
consummation of the Merger.
(4) Since July 9, 1996, there must have been no
material adverse effect on the condition (financial or
otherwise), business or results of operations of First
Financial, except as may have resulted from, among other
things, changes to laws and regulations, generally
accepted or regulatory accounting principles, or
interpretations thereof, or changes in other matters
affecting depository institutions generally, such as
changes in economic conditions or interest rates.
(5) Lewis, Rice & Fingersh L.C., counsel to First
Financial, must have delivered to MBI an opinion
regarding certain legal matters.
(6) First Financial must have divested itself of
its ownership of all securities issued by West Pointe
Bank & Trust Company ("West Pointe"). See "- Divestiture
of West Pointe Stock."
The obligation of First Financial to consummate the
Merger is subject to the satisfaction, unless waived by First
Financial, of certain other conditions, including the following:
(1) The representations and warranties of MBI and
Ameribanc made in the Merger Agreement must be true and
correct in all material respects as of July 9, 1996 and
as of the Effective Time, except for (a) representations
which are by their provisions made as of a specific date,
(b) inaccuracies therein that are not of a magnitude as
to have a material adverse effect on MBI, and (c) the
effect of the transactions contemplated by the Merger
Agreement, and First Financial must have received an
officer's certificate from MBI to that effect.
(2) All obligations required to be performed by MBI
prior to or as of the Effective Time must have been
performed in all material respects, and First Financial
must have received an officers' certificate from MBI to
that effect.
(3) MBI and Ameribanc must have obtained any and
all material permits, authorizations, consents, waivers
and approvals required of MBI or Ameribanc for the lawful
consummation of the Merger.
(4) Since July 9, 1996, there must have been no
material adverse effect on the condition (financial or
otherwise), business or results of operations of MBI,
except as may have resulted from, among other things,
changes to laws and regulations, generally accepted or
regulatory accounting principles, or interpretations
thereof, or changes in other matters affecting depository
institutions generally, such as changes in economic
conditions or interest rates.
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<PAGE> 42
(5) MBI Counsel must have delivered to First
Financial an opinion regarding certain legal matters.
(6) No "Shares Acquisition Date" or "Distribution
Date," as defined in the Rights Agreement, dated May 23,
1988, by and between MBI and Mercantile Bank, as Rights
Agent, must have occurred prior to the Effective Time.
(7) MBI must have received approval from the NYSE
of its subsequent Listing Application relating to the
shares of MBI Common Stock to be issued in the Merger.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval by the
shareholders of First Financial, by mutual consent of the Executive
Committee of the Board of Directors of MBI and the Board of
Directors of First Financial or unilaterally by the Executive
Committee of the Board of Directors of MBI or the Board of
Directors of First Financial: (i) at any time after July 1, 1997,
if the Merger has not been consummated by such date (provided that
the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained in
the Merger Agreement); (ii) if the Federal Reserve Board or any
other Regulatory Authority has denied the application to approve
the Merger and such denial has become final and nonappealable;
(iii) if the Merger Agreement is not approved by the holders of at
least two-thirds of the outstanding shares of First Financial
Common Stock at the Special Meeting; (iv) in the event of a breach
by a party of any representation, warranty or agreement contained
in the Merger Agreement, which breach is not cured within 30 days
after written notice thereof is given to the breaching party or
waived by the non-breaching party, or unilaterally by the Executive
Committee of the Board of Directors of MBI in the event of an
environmental report showing the cost of taking all remedial or
other corrective actions with respect to all real property of First
Financial will exceed $250,000 or that such cost can not be
reasonably estimated to be less than $250,000. No assurance can be
given that the Merger will be consummated on or before July 1, 1997
or that MBI or First Financial will not elect to terminate the
Merger Agreement if the Merger has not been consummated on or
before such date.
In the event of the termination of the Merger Agreement,
the Merger Agreement shall become void and there shall be no
liability on the part of any party except, that: (i)
confidentiality and indemnification obligations shall survive
termination; (ii) MBI and Ameribanc shall pay all printing, mailing
and filing expenses with respect to the Registration Statement,
this Proxy Statement/Prospectus and the regulatory applications;
and (iii) in the case of termination due to continued material
breach after notice and opportunity to cure, the breaching party
shall not be relieved of liability to the nonbreaching party
arising from the willful nonperformance of any covenant in the
Merger Agreement.
INDEMNIFICATION
First Financial, on the one hand, and MBI and Ameribanc,
on the other, have agreed to indemnify one other against any claims
or liabilities to which either such party may become subject under
federal or state securities laws or regulations, to the extent that
such claims or liabilities arise out of information furnished to
the party subject to such liability by the other party or out of an
omission by such other party to state a necessary or material fact
in the Registration Statement or any amendment thereof or in this
Proxy Statement/Prospectus.
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<PAGE> 43
EFFECTIVE TIME; CLOSING DATE
The Merger will be consummated and the Effective Time
will occur at the time of the issuance of a certificate of merger
by the Office of the Secretary of State of the State of Missouri.
Pursuant to the Merger Agreement, unless MBI, Ameribanc and First
Financial otherwise agree in writing, the Effective Time shall
occur no later than the first business day of the first full
calendar month commencing after: (i) the approval of the Merger
Agreement by the shareholders of First Financial; and (ii) the
approval of the Merger by the Regulatory Authorities and the
expiration of all waiting periods following such approvals. The
Closing Date shall occur upon the date that the Effective Time
occurs.
SURRENDER OF FIRST FINANCIAL STOCK CERTIFICATES AND RECEIPT OF MBI
COMMON STOCK AND/OR CASH
At the Effective Time of the Merger, each outstanding
share of First Financial Common Stock will be converted into the
right to receive the Stock Distribution, the Cash Distribution or
the Combined Distribution, as shall be attributable to such share
in accordance with the elections and adjustments described above.
See "- General Description of the Merger."
Within ten days after the Effective Time, the Exchange
Agent will mail to each First Financial shareholder a notice of
consummation of the Merger and a form of letter of transmittal,
together with instructions and a return envelope to facilitate the
exchange of such holder's certificate(s) formerly representing
First Financial Common Stock for such holder's portion of the
Merger Consideration. Each holder of First Financial Common Stock,
upon submission to the Exchange Agent of a properly executed letter
of transmittal and surrender to the Exchange Agent of the stock
certificate(s) formerly representing the shares of First Financial
Common Stock held by such shareholder, will be entitled to receive
the Stock Distribution, the Combined Distribution or the Cash
Distribution. Upon such submittal, each such shareholder will
receive, within ten business days of the date the Exchange Agent
receives such letter and stock certificate, the cash and/or a
certificate representing the MBI Common Stock to which such
shareholder is entitled as Merger Consideration. No interest will
be accrued or paid with respect to the cash component of the Merger
Consideration. No dividends or other distributions declared after
the Effective Time will be paid to a former First Financial
shareholder with respect to the MBI Common Stock issuable as Merger
Consideration until such shareholder's letter of transmittal and
stock certificates, or documentation reasonably acceptable to the
Exchange Agent in lieu of lost or destroyed certificates, formerly
representing First Financial Common Stock, are delivered to the
Exchange Agent. Upon such delivery, all such dividends or other
distributions declared after the Effective Time shall be remitted
to such shareholders (without interest and less any taxes that may
have been imposed thereon). No fractional shares of MBI Common
Stock will be issued in the Merger, but cash will be paid in lieu
of fractional shares, such cash being calculated by multiplying the
holder's fractional share interest by the Average MBI Stock Price.
The shares of MBI Common Stock issued as Merger Consideration will
be freely transferable except by certain shareholders of First
Financial who are deemed to be "affiliates" of First Financial.
The shares of MBI Common Stock issued as the Stock Distribution to
such affiliates will be restricted in their transferability in
accordance with the rules and regulations promulgated by the
Commission. The Merger Agreement provides that First Financial
will use its best efforts to obtain and deliver an agreement from
each affiliate of First Financial providing that such affiliate
will not transfer any shares of MBI Common Stock received in the
merger except in accordance with such rules and regulations. No
Merger Consideration will be delivered to an affiliate of First
Financial until such affiliate has delivered the aforementioned
agreement to MBI. See "INFORMATION REGARDING MBI STOCK -
Restriction on Resale of MBI Stock by Affiliates."
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<PAGE> 44
After the Effective Time, there will be no further
transfers of First Financial stock certificates on the records of
First Financial and, if any such certificates are presented to MBI
or the Exchange Agent for transfer, they will be cancelled against
delivery of the Merger Consideration.
FRACTIONAL SHARES
No fractional shares of MBI Common Stock will be issued
to the shareholders of First Financial in connection with the
Merger. Each holder of First Financial Common Stock who otherwise
would have been entitled to receive a fraction of a share of MBI
Common Stock shall receive in lieu thereof cash, without interest,
in an amount equal to the holder's fractional share interest
multiplied by $45.325, the Average MBI Stock Price. Cash received
by First Financial shareholders in lieu of fractional shares may
give rise to taxable income. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER."
REGULATORY APPROVALS
In addition to the approval of the Merger Agreement by
the shareholders of First Financial, the obligations of the parties
to effect the Merger are subject to prior approval of the Federal
Reserve Board. As a bank holding company, MBI is subject to
regulation under the BHCA. The Merger is subject to prior approval
by the Federal Reserve Board under Section 4 of the BHCA. The
Federal Reserve Board may withhold such approval if, among other
things, the Federal Reserve Board determines that the effect of the
Merger would be to substantially lessen competition in the relevant
markets. In addition, the Federal Reserve Board will consider
whether the combined organization meets the requirements of the
Community Reinvestment Act of 1977, as amended, by assessing the
involved entities' respective records of meeting the credit needs
of the local communities in which they are chartered, consistent
with the safe and sound operation of such institutions. The
Federal Reserve Board must also examine the financial and
managerial resources and future prospects of the combined
organization and analyze the capital structure and soundness of the
resulting entity. The Federal Reserve Board has the authority to
deny an application if it concludes that the combined organization
would have inadequate capital.
An application for such approval has been filed with the
Federal Reserve Board. MBI and First Financial are not aware of
any governmental approvals or actions that may be required for
consummation of the Merger other than as described above. Should
any other approval or action be required, it is presently
contemplated that such approval or action would be sought. There
can be no assurance that any necessary regulatory approvals or
actions will be timely received or taken, that no action will be
brought challenging any such approval or action or, if such a
challenge is brought, as to the result thereof, or that any such
approval or action will not be conditioned in a manner that would
cause the parties to abandon the Merger. See "SUPERVISION AND
REGULATION."
BUSINESS PENDING THE MERGER
The Merger Agreement provides that, during the period
from July 9, 1996 to the Effective Time, First Financial will, and
will cause each of its subsidiaries to, conduct its business
according to the ordinary and usual course consistent with past
practices and use its best efforts to maintain and preserve its
business organization, employees and advantageous business
relationships and retain the services of its officers and key
employees.
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<PAGE> 45
Furthermore, during the period from July 9, 1996 to the
Effective Time, except as provided in the Merger Agreement, First
Financial will not, and will not permit any of its subsidiaries to,
without the prior written consent of MBI and Ameribanc:
(1) declare, set aside or pay any dividends or
other distributions, directly or indirectly, in respect
of its capital stock (other than dividends from any of
First Financial subsidiaries to First Financial or to
another of First Financial subsidiaries), except that
First Financial may pay a special dividend of $6.00 per
share on the earlier of the day immediately preceding the
Closing Date or December 1, 1996 and may pay its regular
quarterly cash dividend of $1.25 per share, in accordance
with its past practice; provided, however, that no
dividend shall be paid to a First Financial shareholder
for any quarter in which such First Financial shareholder
will be entitled to receive a regular quarterly dividend
on the shares of MBI Common Stock to be issued in the
Merger; and provided further, however, that First
Financial may distribute cash and/or shares of the common
stock, $8.00 par value, of West Pointe (the "West Pointe
Common Stock") in connection with the divestiture of its
entire holding of the West Pointe Common Stock as
required by the Merger Agreement;
(2) enter into or amend any employment, severance
or similar agreement or arrangement with any director,
officer or employee, or materially modify any of the
First Financial employee plans or policies or grant any
salary or wage increase or materially increase any
employee benefit (including incentive or bonus payments),
except for normal individual increases in compensation to
employees consistent with past practice, as required by
law or contract, or such increases of which First
Financial notifies MBI in writing and which MBI does not
disapprove within ten days of the receipt of such notice;
provided, however, that the expenses attributable solely
to the transactions contemplated by the Merger Agreement
shall not be taken into account for purposes of payments
to be made under First Financial's bonus plan and 1996
contributions under First Financial's Section 401(k)
plan;
(3) authorize, recommend, propose or announce an
intention to authorize, so recommend or propose, or enter
into an agreement in principle with respect to, any
merger, consolidation or business combination (other than
the Merger), any acquisition of a material amount of
assets or securities, any disposition of a material
amount of assets or securities or any relinquishment of
any material contract rights;
(4) propose or adopt any amendments to the Articles
of Incorporation or Association, as the case may be, or
Charter or By-Laws of First Financial or any subsidiary
of First Financial, as the case may be;
(5) issue, sell, grant, confer or award any shares
of capital stock or other equity securities or rights or
options exercisable for, or securities convertible or
exchangeable into, capital stock or other equity
securities ("Equity Securities") or effect any stock
split or otherwise change its capitalization as it
existed on July 9, 1996;
(6) purchase, redeem, retire, repurchase or
exchange, or otherwise acquire or dispose of, directly or
indirectly, any shares of its capital stock or other
Equity Securities, whether pursuant to the terms of such
capital stock or Equity Securities or otherwise;
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<PAGE> 46
(7) (i) without first consulting with and
obtaining the written consent of MBI, cause or permit
First National to enter into, renew or increase any loan
or credit commitment (including stand-by letters of
credit) to, or invest or agree to invest in any person or
entity or modify any of the material provisions or renew
or otherwise extend the maturity date of any existing
loan or credit commitment (collectively, "Lend to") in an
amount in excess of $150,000; (ii) without first
consulting with and obtaining the written consent of MBI,
cause or permit First National to Lend to any person or
entity in an amount equal to or in excess of $200,000;
(iii) cause or permit First National to Lend to any
person other than in accordance with lending policies as
in effect on July 9, 1996; provided, however, that with
respect to clauses (i) through (iii), First Financial or
any of its subsidiaries may make any such loan in the
event that (A) First Financial or any of its subsidiaries
has delivered to MBI and Ameribanc or their designated
representative a notice of its intention to make such
loan and such information as MBI and Ameribanc or their
designated representative may reasonably require in
respect thereof and (B) MBI and Ameribanc or their
designated representative shall not have reasonably
objected to such loan by giving written or facsimile
notice of such objection within two business days
following the delivery to MBI and Ameribanc or their
designated representative of such notice of intention and
information; or (iv) cause or permit First National to
Lend to any person or entity any of the loans or other
extensions of credit to which or investments in which are
on a "watch list" or other similar internal report of
First Financial or any of its subsidiaries (except those
denoted "pass" thereon), in an amount equal to or in
excess of $50,000; provided further, however, that:
(A) First Financial or any of its subsidiaries may honor
any contractual obligation in existence on July 9, 1996;
(B) with respect to loans made in compliance with clauses
(i) through (iii) above, First Financial may make such
loans after consulting with MBI and Ameribanc; and
(C) notwithstanding clauses (i) and (ii), First Financial
may, without first consulting with MBI or obtaining MBI's
prior written consent, increase the aggregate amount of
any credit facilities theretofore established in favor of
any person or entity, provided that the aggregate amount
of any and all such increases shall not be in excess of
$25,000;
(8) directly or indirectly, including through its
officers, directors, employees or other representatives:
(i) initiate, solicit or encourage any
discussions, inquiries or proposals with any third
party (other than MBI or Ameribanc) relating to the
disposition of any significant portion of the
business or assets of First Financial or any of its
subsidiaries or the acquisition of the Equity
Securities of First Financial or any of its
subsidiaries or the merger of First Financial or
any of its subsidiaries with any person (other than
MBI or Ameribanc) or any similar transaction (each
such transaction being referred to herein as an
"Acquisition Transaction"); or
(ii) provide any third party with information
or assistance or negotiate with any third party
with respect to an Acquisition Transaction, and
First Financial shall promptly notify MBI and
Ameribanc orally of all the relevant details
relating to all inquiries, indications of interest
and proposals which they may receive with respect
to any Acquisition Transaction;
(9) take any action that would (i) materially
impede or delay the consummation of the transactions
contemplated by the Merger Agreement or the ability of
MBI and Ameribanc or First Financial to obtain any
approval of any Regulatory
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<PAGE> 47
Authority required for the transactions contemplated by
the Merger Agreement or to perform its covenants and
agreements under the Merger Agreement, or (ii) prevent or
impede the Merger from qualifying as a reorganization
within the meaning of Section 368 of the Code;
(10) other than in ordinary course of business
consistent with past practice, incur any indebtedness for
borrowed money or assume, guarantee, endorse or otherwise
as an accommodation become responsible or liable for the
obligations of any other individual, corporation or other
entity;
(11) materially restructure or change its investment
securities portfolio, through purchases, sales or
otherwise, or the manner in which the portfolio is
classified or reported, or execute individual investment
transactions of greater than $500,000 for U.S. Treasury
or Federal Agency Securities and $100,000 for all other
investment instruments;
(12) agree in writing or otherwise to take any of
the foregoing actions or engage in any activity, enter
into any transaction or intentionally take or omit to
take any other action which would make any of the
representations and warranties in the Merger Agreement
untrue or incorrect in any material respect if made anew
after engaging in such activity, entering into such
transaction, or taking or omitting such other action; or
(13) enter into, increase or renew any loan or
credit commitment (including standby letters of credit)
to any executive officer or director of First Financial
or any of its subsidiaries, any holder of 10% or more of
the outstanding shares of First Financial Common Stock,
or any entity controlled, directly or indirectly, by any
of the foregoing or engage in any transaction with any of
the foregoing which is of the type or nature sought to be
regulated in 12 U.S.C. Section 371c and 12 U.S.C. Section
371c-1, without first obtaining the prior written consent
of MBI and Ameribanc, which consent shall not be
unreasonably withheld.
The Merger Agreement also provides that, during the
period from July 9, 1996 to the Effective Time, MBI and Ameribanc
will not, and will not permit any of their respective subsidiaries
to, without the prior written consent of First Financial, agree in
writing or otherwise engage in any activity, enter into any
transaction or take or omit to take any other action:
(1) that would (i) materially impede or delay the
consummation of the transactions contemplated by the
Merger Agreement or the ability of MBI and Ameribanc or
First Financial to obtain any approval of any Regulatory
Authority required for the transactions contemplated by
the Merger Agreement or to perform their covenants and
agreements under the Merger Agreement, or (ii) prevent or
impede the transactions contemplated by the Merger
Agreement from qualifying as a reorganization within the
meaning of Section 368 of the Code; or
(2) that would make any of the representations and
warranties made by MBI and Ameribanc in the Merger
Agreement untrue or incorrect in any material respect if
made anew after engaging in such activity, entering into
such transaction or taking or omitting such other action.
- 41 -
<PAGE> 48
DIVESTITURE OF WEST POINTE STOCK
First Financial owns 17,150 shares (or approximately
4.9%) of the issued and outstanding shares of the Common Stock of
West Pointe Bank and Trust Company, an Illinois state bank located
in Belleville, Illinois. As a condition to MBI's obligation to
consummate the Merger, First Financial must divest itself of its
entire holding of West Pointe Common Stock prior to the Effective
Time, either by: (i) selling all of such shares for cash at a fair
market value price or prices per share approved by MBI and,
immediately prior to the Effective Time, distributing to the
shareholders of First Financial the after-tax sale proceeds (with
First Financial retaining a sufficient amount of the proceeds to
satisfy all taxes accruing to First Financial in connection with
such divestiture); or (ii) selling a portion of such shares for
cash at a fair market value price or prices per share approved by
MBI (in an amount at least sufficient to satisfy all taxes accruing
to First Financial in connection with such divestiture (assuming
that all shares had been sold for cash), which amount will be
retained by First Financial to satisfy all such taxes) and,
immediately prior to the Effective Time, distributing to the
shareholders of First Financial an in-kind distribution of any
remaining shares of West Pointe Common Stock not sold by First
Financial and any cash sale proceeds in excess of the amount to be
retained by First Financial to satisfy the tax obligations accruing
to First Financial from such sale and distribution. The
distribution of cash and/or West Pointe Common Stock referred to in
the preceding sentence will be made to each shareholder of First
Financial pro rata, based upon the number of shares of First
Financial Common Stock owned by such shareholder relative to the
total number of shares of First Financial Common Stock issued and
outstanding, and will be in addition to the Merger Consideration
that each shareholder of First Financial is otherwise entitled to
receive in the Merger. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER," below, for a discussion of the tax
consequences of the divestiture of West Pointe Common Stock to the
First Financial shareholders.
WAIVER AND AMENDMENT
Any provision of the Merger Agreement, including, without
limitation, the conditions to the consummation of the Merger and
the restrictions described under "- Business Pending the Merger,"
may be (i) waived in writing at any time by the party that is, or
whose shareholders are, entitled to the benefits thereof, or
(ii) amended at any time by written agreement of the parties
approved by or on behalf of their respective Boards of Directors or
Executive Committee, as the case may be, whether before or after
the approval of the Merger Agreement by the shareholders of First
Financial at the Special Meeting; provided, however, that after
such approval, no such modification may (i) alter or change the
amount or form of the Merger Consideration to be received by the
shareholders of First Financial or (ii) adversely affect the tax
treatment of the First Financial shareholders. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase
method of accounting. Accordingly, data regarding the financial
condition and results of operations of First Financial will be
included in MBI's consolidated financial statements on and after
the Closing Date.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
MBI has entered into employment agreements with each of
Gerald W. Craig, President of First National, W. Charles Whitmire,
Chairman of First National and Rhonda M. Land, Vice President and
Operations Officer of First National.
- 42 -
<PAGE> 49
Pursuant to Mr. Craig's employment agreement, MBI will cause
Mr. Craig to be elected to the Board of Directors of First National at
the Effective Time. In addition, Mr. Craig will continue to serve
as President of First National, or any successor thereto, for a
period commencing at the Effective Time and at an annual base salary
of $99,600, inclusive of Mr. Craig's automobile allowance and all
fees which would otherwise be payable by him as a director of First
National. Mr. Craig shall be entitled to receive such salary until
the six month anniversary of the Effective Time even if prior to
such date: (a) Mr. Craig's employment is involuntarily terminated
by First National or MBI other than for "cause" (as defined in the
employment agreement); or (b) Mr. Craig dies or becomes permanently
disabled.
Pursuant to Mr. Whitmire's employment agreement, Mr.
Whitmire will continue to serve as Chairman of First National, or
any successor thereto, for a period commencing at the Effective
Time and continuing thereafter until December 31, 1997 and at an
annual base salary of $36,000, inclusive of all fees which would
otherwise be payable to him as a director of First National. Mr.
Whitmire shall be entitled to receive such salary even if, before
December 31, 1997: (a) he is involuntarily terminated by First
National or MBI other than for "cause"; or (b) he shall die or
become permanently disabled. In addition, at the Effective Time,
MBI shall cause Mr. Whitmire to be elected to the Board of
Directors of First National.
Pursuant to Ms. Land's employment agreement, Ms. Land
will continue to serve as Vice President and Operations Officer of
First National, or any successor thereto, for a period commencing at
the Effective Time and at an annual base salary of $54,500. The
future annual salary of Ms. Land shall be subject to independent
annual review based upon her performance. In addition to her annual
base salary, MBI will pay to Ms. Land on December 31, 1997 a cash
transition bonus in the amount of $10,000 for services related to
transition activities, unless prior thereto her employment with First
National shall have been terminated, either voluntarily by her or
involuntarily by First National, for "cause" (as defined in the
employment agreement). If before the latter of the first anniversary
of the Effective Time or December 31, 1997: (a) Ms. Land is
involuntarily terminated by First National or MBI other than for
"cause"; (b) her employment is terminated voluntarily by her for "good
reason" (as defined in the employment agreement), provided she is not
subject to termination for "cause" at the time of such voluntary
termination; or (c) she shall die or become permanently disabled, she
shall nonetheless receive the transition bonus, if it has not already
been paid, and her base salary through the latter of the first
anniversary of the Effective Time or December 31, 1997.
During their respective periods of employment, Mr. Craig,
Mr. Whitmire and Ms. Land shall be entitled to receive
employee benefits and customary perquisites equivalent to those
provided by MBI to similarly situated senior officers.
EFFECT ON EMPLOYMENT CONTRACTS AND BENEFIT PLANS
The Merger Agreement provides that Ameribanc will honor
all employment, severance and other compensation contracts between
First Financial or any of its subsidiaries and any current or
former director, officer, employee or agent thereof, along with all
provisions for vested benefits or other vested amounts earned or
accrued through the Effective Time under First Financial's employee
plans. First Financial's employee plans will continue as plans of
Ameribanc until such time as the former employees of First
Financial and its subsidiaries are integrated into MBI's employee
benefit plans that are available to other employees of MBI and its
subsidiaries. MBI will take such steps as are necessary or
- 43 -
<PAGE> 50
required to integrate the former employees of First Financial and
its subsidiaries into MBI's employee benefit plans available to
other employees of MBI and its subsidiaries as soon as practicable
after the Effective Time, with (i) full credit for prior service
with First Financial or any of its subsidiaries for purposes of
vesting and eligibility for participation (but not benefit accruals
under any defined benefit plan), and co-payments and deductibles,
and (ii) waiver of all waiting periods and pre-existing condition
exclusions or penalties.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
-----------------------------------------------------
The following discussion is based upon the Tax Opinion
and except as otherwise indicated, reflects such opinion. The
discussion is a general summary of the material United States
federal income tax ("federal income tax") consequences of the
Merger to certain First Financial shareholders and does not purport
to be a complete analysis or listing of all potential tax
considerations or consequences relevant to a decision whether to
vote for the approval of the Merger. The discussion does not
address all aspects of federal income taxation that may be
applicable to First Financial shareholders in light of their status
or personal investment circumstances, nor does it address the
federal income tax consequences of the Merger that are applicable
to First Financial shareholders subject to special federal income
tax treatment, including (without limitation) foreign persons,
insurance companies, tax-exempt entities, retirement plans, dealers
in securities, persons who acquired their First Financial Common
Stock pursuant to the exercise of employee stock options or
otherwise as compensation or persons who hold their First Financial
Common Stock as part of a "straddle," "hedge" or "conversion
transaction." In addition, the discussion does not address the
effect of any applicable state, local or foreign tax laws or the
effect of any federal tax laws other than those pertaining to the
federal income tax. AS A RESULT, EACH FIRST FINANCIAL SHAREHOLDER
IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. The
discussion assumes that shares of First Financial Common Stock are
held as capital assets (within the meaning of Section 1221 of the
Code).
First Financial has received the Tax Opinion to the
effect that, assuming the Merger occurs in accordance with the
Merger Agreement, the Merger will constitute a "reorganization" for
federal income tax purposes under Section 368(a)(1) of the Code,
with the following federal income tax consequences:
(1) First Financial shareholders who receive solely
shares of MBI Common Stock in exchange for their First
Financial Common Stock pursuant to the Merger will
recognize no gain or loss, except with respect to cash
received in lieu of fractional shares, if any, as
discussed below.
(2) A First Financial shareholder who receives only
cash (i) in exchange for shares of First Financial Common
Stock pursuant to the Merger or (ii) as a result of the
exercise of appraisal rights, will realize gain or loss
for federal income tax purposes (determined separately as
to each block of First Financial Common Stock exchanged)
in an amount equal to the difference between (x) the
amount of cash received by such shareholder, and (y) such
shareholder's tax basis for the shares of First Financial
Common Stock surrendered in exchange therefor, provided
that the cash payment does not have the effect of the
distribution of a dividend. Any such gain or loss will
be recognized for federal income tax purposes and will be
treated as capital gain or loss. However, if the cash
payment does have the effect of the distribution of a
dividend, the amount of taxable income recognized
generally will equal the amount of cash received; such
income generally will be taxable as a dividend; and no
loss (or other recovery of such shareholder's tax basis
for the shares of First Financial Common Stock
surrendered in the exchange) generally will be recognized
by such shareholder. The determination of
- 44 -
<PAGE> 51
whether a cash payment has the effect of the distribution
of a dividend will be made pursuant to the provisions and
limitations of Section 302 of the Code, taking into
account the constructive stock ownership rules of Section
318 of the Code. See "- Impact of Section 302 of the
Code," below.
(3) A First Financial shareholder who receives
shares of MBI Common Stock and cash in exchange for
shares of First Financial Common Stock in the Merger will
realize gain (determined separately as to each block of
First Financial Common Stock exchanged) if (i) the sum of
the amount of cash and the fair market value of the
shares of MBI Common Stock received by such shareholder
exceeds (ii) such shareholder's tax basis for the shares
of First Financial Common Stock surrendered in exchange
therefor. The amount of such gain that is recognized for
federal income tax purposes will be limited to the amount
of cash received. If the amount of cash received exceeds
the amount of gain realized, only the amount of gain
realized will be recognized for federal income tax
purposes. Any such gain recognized will be taxable as
capital gain, provided that the cash payment does not
have the effect of the distribution of a dividend. Any
loss realized will not be recognized for federal income
tax purposes. Under section 356 of the Code, the
determination of whether a cash payment has the effect of
the distribution of a dividend generally will be made in
accordance with the provisions and limitations of Section
302 of the Code, taking into account the constructive
stock ownership rules of Section 318 of the Code. See "-
Impact of Section 302 of the Code," below.
(4) The aggregate adjusted tax basis of the shares
of MBI Common Stock received by each First Financial
shareholder in the Merger (including any fractional share
of MBI Common Stock deemed to be received, as described
in paragraph 6 below), will be equal to the aggregate
adjusted tax basis of the shares of First Financial
Common Stock surrendered, decreased by the amount of any
cash received and increased by the amount of any gain (or
dividend) recognized.
(5) The holding period of the shares of MBI Common
Stock (including any fractional share of MBI Common Stock
deemed to be received, as described in paragraph 6 below)
will include the holding period of the shares of First
Financial Common Stock exchanged therefor.
(6) A First Financial shareholder who receives cash
in the Merger in lieu of a fractional share of MBI Common
Stock will be treated as if the fractional share had been
received in the Merger and then redeemed by MBI in return
for the cash. The receipt of such cash will cause the
recipient to recognize capital gain or loss equal to the
difference between the amount of cash received and the
portion of such holder's adjusted tax basis in the shares
of MBI Common Stock allocable to the fractional share.
IMPACT OF SECTION 302 OF THE CODE. The determination of
whether a cash payment has the effect of the distribution of a
dividend generally will be made in accordance with the provisions
of Section 302 of the Code. A cash payment to a First Financial
shareholder will be considered not to have the effect of the
distribution of a dividend under Section 302 of the Code and such
shareholder will recognize capital gain or loss only if the cash
payment (i) results in a "complete redemption" of such
shareholder's actual and constructive stock interest, (ii) results
in a "substantially disproportionate" reduction in such
shareholder's actual and constructive stock interest or (iii) is
"not essentially equivalent to a dividend."
- 45 -
<PAGE> 52
A cash payment will result in a "complete redemption" of
a shareholder's stock interest and such shareholder will recognize
capital gain or loss if such shareholder does not actually or
constructively own any stock after the receipt of the cash payment.
A reduction in a shareholder's stock interest will be
"substantially disproportionate" and such shareholder will
recognize capital gain or loss if (i) the percentage of outstanding
shares actually and constructively owned by such shareholder after
the receipt of the cash payment is less than four-fifths (80%) of
the percentage of outstanding shares actually and constructively
owned by such shareholder immediately prior to the receipt of the
cash payment. A cash payment will qualify as "not essentially
equivalent to a dividend" and a shareholder will recognize capital
gain or loss if it results in a meaningful reduction in the
percentage of outstanding shares actually and constructively owned
by such shareholder. No specific tests apply to determine whether
a reduction in a shareholder's ownership interest is meaningful;
rather, such determination will be made based on all the facts and
circumstances applicable to such First Financial shareholder. No
general guidelines dictating the appropriate interpretation of
facts and circumstances have been announced by the courts or issued
by the Internal Revenue Service (the "Service"). However, the
Service has indicated in Revenue Ruling 76-385 that a minority
shareholder (i.e., a holder who exercises no control over corporate
affairs and whose proportionate stock interest is minimal in
relation to the number of shares outstanding) generally is treated
as having had a "meaningful reduction" in interest if a cash
payment reduces such holder's actual and constructive stock
ownership to any extent.
With regard to First Financial shareholders who receive
MBI Common Stock and cash in the Merger, the determination of
whether a cash payment has the effect of a distribution of a
dividend will be made as if the First Financial Common Stock
exchanged for cash in the Merger had instead been exchanged in the
Merger for shares of MBI Common Stock followed immediately by a
redemption of such shares by MBI for the cash payment (a "deemed
MBI redemption"). Under this analysis, the determination of
whether a cash payment qualifies as a substantially
disproportionate reduction of interest or is not essentially
equivalent to a dividend will be made by comparing (i) the
shareholder's actual and constructive stock interest in MBI before
the deemed MBI redemption (determined as if such shareholder had
received solely MBI Common Stock in the Merger) with (ii) such
shareholder's actual and constructive stock interest in MBI after
the deemed MBI redemption.
With regard to First Financial shareholders who receive
only cash (i) in exchange for shares of First Financial Common
Stock pursuant to the Merger or (ii) as a result of the exercise of
appraisal rights, MBI's Counsel has noted in its opinion that many
tax practitioners believe that the determination of whether a cash
payment has the effect of a distribution of a dividend should be
made in accordance with the deemed MBI redemption analysis
discussed above; i.e., as if the First Financial Common Stock
exchanged for cash in the Merger had instead been exchanged in the
Merger for shares of MBI Common Stock followed immediately by a
redemption of such shares by MBI for the cash payment. However,
under the traditional analysis, which apparently continues to be
used by the Service, Section 302 of the Code will apply as though
the cash payment were made by First Financial in a hypothetical
redemption of First Financial Common Stock immediately prior to,
and in a transaction separate from, the Merger (a "deemed First
Financial redemption"). Accordingly, under the traditional
analysis, the determination of whether a cash payment results in a
complete redemption of interest, qualifies as a substantially
disproportionate reduction of interest or is not essentially
equivalent to a dividend will be made by comparing (x) the
shareholder's actual and constructive stock interest in First
Financial before the deemed First Financial redemption, with (y)
such shareholder's actual and constructive stock interest in First
Financial after the deemed First Financial redemption (but before
the Merger). The law is unclear regarding whether the approach of
the Service is correct, and MBI's Counsel has rendered no opinion
on the correctness of the Service's approach. MBI's Counsel has
noted in its opinion that because the traditional analysis, as
applied by the Service, is more likely to result in dividend
treatment than the deemed MBI redemption analysis, each First
Financial shareholder who receives solely
- 46 -
<PAGE> 53
cash in exchange for all of the First Financial Common Stock he or
she actually owns should discuss with his or her tax advisor which
analysis is applicable.
The determination of ownership for purposes of the three
foregoing tests will be made by taking into account both shares
owned actually by such shareholder and shares owned constructively
by such shareholder pursuant to Section 318 of the Code. Under
Section 318 of the Code, a shareholder will be deemed to own stock
that is actually or constructively owned by certain members of his
or her family (spouse, children, grandchildren and parents) and
other related parties including, for example, certain entities in
which such shareholder has a direct or indirect interest (including
partnerships, estates, trusts and corporations), as well as shares
of stock that such shareholder (or a related person) has the right
to acquire upon exercise of an option or conversion right. Section
302(c)(2) of the Code provides certain exceptions to the family
attribution rules for the purpose of determining whether a complete
redemption of a shareholder's interest has occurred for purposes of
Section 302 of the Code. These exceptions apply only to First
Financial shareholders who receive, in the Merger, solely cash in
return for the First Financial Common Stock they actually own.
BECAUSE THE DETERMINATION OF WHETHER A PAYMENT WILL BE
TREATED AS HAVING THE EFFECT OF THE DISTRIBUTION OF A DIVIDEND WILL
GENERALLY DEPEND UPON THE FACTS AND CIRCUMSTANCES OF EACH FIRST
FINANCIAL SHAREHOLDER, FIRST FINANCIAL SHAREHOLDERS ARE STRONGLY
ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX
TREATMENT OF CASH RECEIVED IN THE MERGER.
Each First Financial shareholder's ability to elect the
type of consideration he or she receives pursuant to the Merger
affords each such shareholder the opportunity to select that type
of consideration which will best serve his or her personal tax and
financial planning needs. However, each First Financial
shareholder should be aware that his or her ability to satisfy (or,
alternatively, fail to satisfy) any of the foregoing tests and
thereby avoid (or, alternatively, obtain) dividend treatment may be
affected by (i) the type of consideration received by other persons
in respect of shares that such stockholder is deemed to own pursuant
to section 318 of the Code, and by (ii) any redesignation of the
shareholder's election by the Exchange Agent, without regard to
whether such shareholder made a Stock Election, Cash Election or a
Combined Election, or, instead, made No Election. See "TERMS OF THE
PROPOSED MERGER - General Description of the Merger."
The receipt by First Financial shareholders of cash and/or
shares of West Pointe Common Stock (the "West Pointe Distribution"),
as described under "TERMS OF THE PROPOSED MERGER - Divestiture of West
Pointe Stock," will have federal income tax consequences. Neither MBI
nor First Financial has requested an opinion from MBI Counsel as to
the federal tax consequences of the West Pointe Distribution, and MBI
Counsel has rendered no such opinion. However, MBI Counsel has advised
MBI that the West Pointe Distribution will be treated either (i) as a
dividend distribution or (ii) in the same manner as the cash payments
discussed in paragraphs (2) and (3) above. In either case, under current
law First Financial will be required to report the fair market value of
the West Pointe Distribution received by each holder of First Financial
Common Stock to the Service on Form 1099-DIV. MBI Counsel has advised MBI
that, while the West Pointe Distribution is likely to be treated as a
dividend, the law is not entirely clear. MBI Counsel has also informed
MBI that because treatment of the West Pointe Distribution in the same
manner as the cash payments discussed in paragraphs (2) and (3) above may
be more favorable to many First Financial shareholders than would be
treatment as a dividend, First Financial shareholders should discuss the
proper treatment of the West Pointe Distribution with their own tax
advisors.
The Tax Opinion is subject to the conditions and
customary assumptions that are stated therein and relies upon
various representations made by MBI, First Financial, and certain
shareholders of First Financial. If any of these representations
or assumptions is inaccurate, the tax consequences of the Merger
could differ from those described herein. The Tax Opinion is also
based upon the Code, regulations proposed or promulgated
thereunder, judicial precedent relating thereto, and current
administrative rulings and practice, all of which are subject to
change. Any such change, which may or may not be retroactive,
could alter the tax consequences discussed herein. The Tax
Opinion is available without charge upon written request to Jon W.
Bilstrom, General Counsel and Secretary, Mercantile Bancorporation
Inc., P.O. Box 524, St. Louis, Missouri 63166-0524. The receipt of
the Tax Opinion again as of the Closing Date is a condition to the
consummation of the Merger. An opinion of counsel, unlike a
private letter ruling from the Service, has no binding effect on
the Service. The Service could take a position contrary to the Tax
Opinion and, if the matter were litigated, a court may reach a
decision contrary to the Tax Opinion. Neither MBI nor First
Financial has requested an advance ruling as to the federal income
tax consequences of the Merger, and the Service is not expected to
issue such a ruling.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO CERTAIN FIRST
FINANCIAL SHAREHOLDERS AND DOES NOT TAKE INTO ACCOUNT THE PARTICULAR
FACTS AND CIRCUMSTANCES OF EACH FIRST FINANCIAL SHAREHOLDER'S TAX
STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX
CONSEQUENCES
- 47 -
<PAGE> 54
ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH FIRST
FINANCIAL SHAREHOLDER. ACCORDINGLY, EACH FIRST FINANCIAL SHAREHOLDER
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN FEDERAL AND OTHER TAX LAWS.
DISSENTERS' RIGHTS OF SHAREHOLDERS OF FIRST FINANCIAL
-----------------------------------------------------
Each holder of First Financial Common Stock has the right
to dissent from the Merger and receive the fair value of such
shares of First Financial in cash if the shareholder follows the
procedures set forth under Section 351.455 of the Missouri Act set
forth as Annex A hereto and the material provisions of which
-------
are summarized herein. Under Section 351.455 of the Missouri Act,
a holder of First Financial Common Stock may dissent and Ameribanc,
as the surviving corporation, will pay to such shareholder the fair
value of such shareholder's shares of First Financial Common Stock
as of the day prior to the Special Meeting if such shareholder: (1)
files with First Financial prior to or at the Special Meeting a
written objection to the Merger; (2) does not vote in favor of the
approval of the Merger Agreement; and (3) within 20 days after the
Closing Date of the Merger, makes written demand on Ameribanc for
payment of the fair value of the shares held by such shareholder as
of the day prior to the date of the Special Meeting. Within ten
days after such Closing Date, MBI will include notice of the
Closing Date in a letter to all shareholders of First Financial
which notifies such shareholders of the procedures to exchange
their shares for those of MBI. A demand by a dissenting
shareholder shall state the number and class of shares owned by
such dissenting shareholder. Any shareholder failing to make
demand within the 20-day period shall be conclusively presumed to
have consented to the Merger and shall be bound by the terms
thereof. A PROXY OR VOTE AGAINST THE APPROVAL OF THE MERGER
AGREEMENT WILL NOT, BY ITSELF, BE REGARDED AS A WRITTEN OBJECTION
FOR PURPOSES OF ASSERTING DISSENTERS' RIGHTS.
If, within 30 days after the Closing Date of the Merger,
the value of such shares is agreed upon between the dissenting
shareholder and Ameribanc, payment therefor shall be made within 90
days after the Closing Date of the Merger upon the surrender by
such shareholder of the certificate or certificates representing
said shares. Upon payment of the agreed value, the dissenting
shareholder shall cease to have any interest in such shares or in
Ameribanc.
If, within 30 days after the Closing Date of the Merger,
the dissenting shareholder and Ameribanc do not agree as to the
value of such shares, then the dissenting shareholder may, within
60 days after the expiration of such 30-day period, file a petition
in any court of competent jurisdiction within the county in which
the registered office of Ameribanc is situated, asking for a
finding and determination of the fair value of such shares, and
shall be entitled to judgment against Ameribanc for the amount of
such fair value as of the day prior to the date of the Special
Meeting, together with interest thereon to the date of such
judgment. The "fair value" determined by the court may be more or
less than the amount offered to each of the First Financial
shareholders under the Merger Agreement. The judgment shall be
payable only upon and simultaneously with the surrender to
Ameribanc of the certificate or certificates representing said
shares. Upon the payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares or in
Ameribanc. Unless a dissenting shareholder shall file such
petition within such 60-day period, such shareholder and all
persons claiming under such shareholder shall be conclusively
presumed to have approved and ratified the Merger, and shall be
bound by the terms thereof.
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<PAGE> 55
FAILURE TO COMPLY STRICTLY WITH THESE PROCEDURES WILL
CAUSE THE SHAREHOLDER TO LOSE HIS OR HER DISSENTERS' RIGHTS.
CONSEQUENTLY, ANY SHAREHOLDER WHO DESIRES TO EXERCISE HIS OR HER
DISSENTERS' RIGHTS IS URGED TO CONSULT A LEGAL ADVISOR BEFORE
ATTEMPTING TO EXERCISE SUCH RIGHTS.
THE PRECEDING DISCUSSION IS A SUMMARY OF THE PROVISIONS
REGARDING DISSENTERS' RIGHTS UNDER THE MISSOURI ACT AND IS
QUALIFIED IN ITS ENTIRETY BY THE TEXT OF SECTION 351.455 OF THE
MISSOURI ACT WHICH IS ATTACHED HERETO AS ANNEX A. FIRST
-------
FINANCIAL SHAREHOLDERS WHO ARE INTERESTED IN PERFECTING DISSENTERS'
RIGHTS PURSUANT TO THE MISSOURI ACT IN CONNECTION WITH THE MERGER
SHOULD CONSULT WITH THEIR COUNSEL FOR ADVICE AS TO THE PROCEDURES
REQUIRED TO BE FOLLOWED.
- 49 -
<PAGE> 56
PRO FORMA FINANCIAL INFORMATION
-------------------------------
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated
selected historical per share data of MBI and First Financial and
the corresponding pro forma and pro forma equivalent per share
amounts giving effect to the proposed Merger and the proposed
acquisitions of Peoples and TODAY'S. The data presented is based
upon the supplemental consolidated financial statements and
consolidated financial statements and related notes of MBI and the
consolidated financial statements and related notes of First
Financial included in this Proxy Statement/Prospectus or in
documents incorporated herein by reference, and the pro forma
combined consolidated balance sheet and income statements,
including the notes thereto, appearing elsewhere herein. This
information should be read in conjunction with such historical and
pro forma financial statements and related notes thereto. The
assumptions used in the preparation of this table appear in the
notes to the pro forma financial information appearing elsewhere in
this Proxy Statement/Prospectus. See "- Notes to Pro Forma
Combined Consolidated Financial Statements." These data are not
necessarily indicative of the results of the future operations of
the combined organization or the actual results that would have
occurred if the proposed Merger or the proposed acquisitions of
Peoples and TODAY'S had been consummated prior to the periods
indicated.
<TABLE>
<CAPTION>
MBI/First MBI/First MBI/All MBI/
First Financial Financial Entities All Entities
MBI Financial Pro Forma Pro Forma Pro Forma Pro Forma
Reported Reported Combined <F1> Equivalent <F2> Combined <F3> Equivalent <F2>
--------- -------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Book Value per Share:
June 30, 1996 $ 25.64 $135.76 $25.64 $110.16 $25.65 $110.20
December 31, 1995 26.04 136.48 26.04 111.88 26.05 119.92
Cash Dividends Declared per Share:
Six Months ended June 30, 1996 $ .82 $ 2.50 $ .82 $ 3.52 $ .82 $ 3.52
Year ended December 31, 1995 1.32 11.00 1.32 5.67 1.32 5.67
Earnings per Share:
Six Months ended June 30, 1996 $ 1.10 $ 6.84 $ 1.10 $ 4.73 $ .99 $ 4.25
Year ended December 31, 1995 3.74 12.97 3.75 16.11 3.63 15.60
Market Price per Share:
At July 9, 1996 <F4> $45.000 $ n/a n/a n/a n/a n/a
At --------, 1996 <F4> n/a n/a n/a n/a n/a
<FN>
- --------------------
<F1> Includes the effect of pro forma adjustments for First Financial, as appropriate. See "PRO FORMA FINANCIAL
INFORMATION - Notes to Pro Forma Combined Consolidated Financial Statements."
<F2> Based on the pro forma combined per share amounts multiplied by 4.2963, the Stock Distribution. Further
explanation of the assumptions used in the preparation of the pro forma combined consolidated financial statements is
included in the notes to pro forma financial statements. See "PRO FORMA FINANCIAL INFORMATION - Notes to Pro Forma
Combined Consolidated Financial Statements."
<F3> Includes the effect of pro forma adjustments for First Financial, Peoples and TODAY'S, as appropriate. See "PRO
FORMA FINANCIAL INFORMATION - Notes to Pro Forma Combined Consolidated Financial Statements."
<F4> The market price per share of MBI Common Stock was determined as of July 9, 1996, the last trading day preceding
the public announcement of the proposed Merger and as of the latest available date prior to the filing of the Proxy
Statement/Prospectus, based on the last sale price as reported on the NYSE Composite Tape. There are no publicly
available quotations of First Financial Common Stock.
</TABLE>
- 50 -
<PAGE> 57
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma combined consolidated
balance sheet gives effect to the proposed Merger and the proposed
acquisitions of Peoples and TODAY'S as if each of the acquisitions
were consummated on June 30, 1996.
The following pro forma combined consolidated income
statements for the six months ended June 30, 1996 and the year
ended December 31, 1995 set forth the results of operations of MBI
combined with the results of operations of First Financial, Peoples
and TODAY'S as if the proposed Merger and the proposed acquisitions
of Peoples and TODAY'S had occurred as of the first day of the
period presented.
The unaudited pro forma combined consolidated financial
statements should be read in conjunction with the accompanying
Notes to the Pro Forma Combined Consolidated Financial Statements
and with the historical financial statements of MBI and First
Financial. These pro forma combined consolidated financial
statements may not be indicative of the results of operations that
actually would have occurred if the proposed acquisitions had been
consummated on the dates assumed above or of the results of
operations that may be achieved in the future.
- 51 -
<PAGE> 58
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(THOUSANDS)
(UNAUDITED)
<CAPTION>
MBI, First
Financial All Entities
Pro Forma Peoples, Pro Forma
First First Financial Combined TODAY'S Combined
MBI <F1> Financial Adjustments<F2> Consolidated Peoples TODAY'S Adjustments<F2> Consolidated
----------- --------- ---------------- ------------ ------- ------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 840,848 $3,845 $ (11,516)<F3> $ 829,842 $ 3,179 $ 15,435 $ (14,507)<F3> $ 747,570
(3,335)<F4> (52,379)<F3>
(34,000)<F8>
Due from banks-interest
bearing 64,857 -- 64,857 29 338 65,224
Federal funds sold and
repurchase agreements 209,502 150 209,652 -- 9,980 219,632
Investments in debt and
equity securities
Trading 255 -- 255 -- -- 255
Available-for-sale 4,428,289 33,101 4,461,390 36,076 75,070 4,572,536
Held to maturity -- -- -- -- 27,640 27,640
------------ --------- ---------- ----------- --------- -------- ---------- -----------
Total 4,428,544 33,101 -- 4,461,645 36,076 102,710 -- 4,600,431
Loans and leases 11,947,615 47,521 11,995,136 51,900 360,390 12,407,426
Reserve for possible
loan losses (205,687) (660) (206,347) (717) (3,538) (210,602)
------------ --------- ---------- ----------- --------- -------- ---------- -----------
Net Loans and Leases 11,741,928 46,861 -- 11,788,789 51,183 356,852 -- 12,196,824
Other assets 752,150 3,551 10,443 <F4> 760,238 3,916 24,223 8,074 <F6> 834,164
(10,443)<F5> (8,074)<F7>
4,537 <F10> 6,392 <F10>
47,867 <F8>
(47,867)<F9>
39,395 <F10>
------------ --------- ---------- ----------- --------- -------- ---------- -----------
Total Assets $ 18,037,829 $ 87,508 $ (10,314) $18,115,023 $ 94,383 $509,538 $ (55,099) $18,663,845
============ ========= ========== =========== ========= ======== ========== ===========
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 52 -
<PAGE> 59
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(THOUSANDS)
(UNAUDITED)
<CAPTION>
MBI, First
Financial All Entities
Pro Forma Peoples, Pro Forma
First First Financial Combined TODAY'S Combined
MBI <F1> Financial Adjustments<F2> Consolidated Peoples TODAY'S Adjustments<F2> Consolidated
------------- --------- --------------- ------------ ------- ------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Deposits
Non-interest bearing $ 2,567,425 $ 7,494 $ 2,574,919 $ 9,342 $43,788 $ 2,628,049
Interest Bearing 11,668,483 68,211 11,736,694 64,897 393,871 12,195,462
Foreign 97,362 -- 97,362 -- 97,362
------------- --------- --------- ----------- --------- -------- --------- -----------
Total Deposits 14,333,270 75,705 -- 14,408,975 74,239 437,659 -- 14,920,873
Federal funds purchased
and repurchase
agreements 1,108,416 720 1,109,136 11,590 9,022 1,129,748
Other borrowings 750,326 -- 750,326 -- 11,397 761,723
Other liabilities 239,012 640 239,652 480 3,593 243,725
------------- --------- --------- ----------- --------- -------- --------- -----------
Total Liabilities 16,431,024 77,605 -- 16,508,089 86,309 461,671 -- 17,056,069
SHAREHOLDERS' EQUITY
Preferred stock -- -- -- -- -- --
Common stock 316,394 8 (8)<F5> 316,394 2,250 13,756 (2,250)<F7> 316,394
(13,756)<F9>
Capital surplus 233,725 771 129 <F4> 233,854 2,250 6,461 (41)<F6> 234,696
(771)<F5> (2,250)<F7>
883 <F8>
(6,461)<F9>
Retained earnings 1,083,683 9,664 (9,664)<F5> 1,083,683 3,574 27,650 (3,574)<F7> 1,083,683
(27,650)<F9>
Treasury stock (26,997) -- (11,516)<F3> (26,997) -- -- (14,507)<F3> (26,997)
11,516 <F4> 14,507 <F6>
(52,379)<F3>
52,379 <F8>
------------- --------- --------- ----------- --------- -------- --------- -----------
Total Shareholders'
Equity 1,606,805 10,443 (10,314) 1,606,934 8,074 47,867 (55,099) 1,607,776
------------- --------- --------- ----------- --------- -------- --------- -----------
Total Liabilities
and Shareholders'
Equity $ 18,037,829 $ 87,508 $ (10,314) $18,115,023 $ 94,383 $509,538 $ (55,099) $18,663,845
============= ========= ========= =========== ========= ======== ========= ===========
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 53 -
<PAGE> 60
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI, First
Financial All Entities
Pro Forma Peoples, Pro Forma
First First Financial Combined TODAY'S Combined
MBI <F1> Financial Adjustments<F2> Consolidated Peoples TODAY'S Adjustments<F2> Consolidated
------------- --------- --------------- ------------ -------- ------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 655,572 $ 3,228 $ (371) $ 658,429 $ 3,580 $ 19,395 $ (363) $ 678,882
(2,159)
Interest Expense 309,114 1,429 310,543 1,839 9,792 322,174
----------- --------- ------- ----------- ------- -------- --------- -----------
Net Interest Income 346,458 1,799 (371) 347,886 1,741 9,603 (2,522) 356,708
Provision for Possible
Loan Losses 43,806 12 43,818 -- 560 2,300 46,678
----------- --------- ------- ----------- ------- -------- --------- -----------
Net Interest Income
after Provision for
Possible Loan Losses 302,652 1,787 (371) 304,068 1,741 9,043 (4,822) 310,030
Other Income
Trust 40,103 -- 40,103 -- 915 41,018
Service charges 39,177 144 39,321 210 869 40,400
Credit card fees 9,579 -- 9,579 -- -- 9,579
Securities gains
(losses) (2,858) -- (2,858) -- 6 (2,852)
Other 51,440 71 51,511 167 609 52,287
----------- --------- ------- ----------- ------- -------- --------- -----------
Total Other Income 137,441 215 -- 137,656 377 2,399 -- 140,432
Other Expense
Salaries and employee
benefits 157,992 766 158,758 589 3,750 163,097
Net occupancy and
equipment 43,073 84 43,157 191 1,351 44,699
Other 125,029 348 151 125,528 500 2,384 213 137,638
1,313
7,700
----------- --------- ------- ----------- ------- -------- --------- -----------
Total Other Expense 326,094 1,198 151 327,443 1,280 7,485 9,226 345,434
----------- --------- ------- ----------- ------- -------- --------- -----------
Income Before Income
Taxes 113,999 804 (522) 114,281 838 3,957 (14,048) 105,028
Income Taxes 44,358 278 (134) 44,502 290 1,391 (131) 42,137
(3,915)
----------- --------- ------- ----------- ------- -------- --------- -----------
Net Income $ 69,641 $ 526 $ (388) $ 69,779 $ 548 $ 2,566 $ (10,002) $ 62,891
=========== ========= ======= =========== ======= ======== ========= ===========
Per Share Data
Average Common Shares
Outstanding 62,916,388 76,927 62,916,388 62,916,388
Net Income $ 1.10 $ 6.84 $ 1.10 $ 0.99
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 54 -
<PAGE> 61
<TABLE>
MERCANTILE BANCORPORATION INC.
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
MBI, First
Financial All Entities
Pro Forma Peoples, Pro Forma
First First Financial Combined TODAY'S Combined
MBI <F1> Financial Adjustments<F2> Consolidated Peoples TODAY'S Adjustments<F2> Consolidated
------------- --------- --------------- ------------ -------- ------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 1,293,944 $ 6,103 $ (743) $ 1,299,304 $ 7,086 $ 39,180 $ (725) $ 1,340,527
(4,318)
Interest Expense 620,534 2,693 623,227 3,517 19,775 646,519
----------- --------- ------- ----------- ------- -------- --------- -----------
Net Interest Income 673,410 3,410 (743) 676,077 3,569 19,405 (5,043) 694,008
Provision for Possible
Loan Losses 36,530 -- 36,530 45 960 2,300 39,835
----------- --------- ------- ----------- ------- -------- --------- -----------
Net Interest Income
after Provision for
Possible Loan Losses 636,880 3,410 (743) 639,547 3,524 18,445 (7,343) 654,173
Other Income
Trust 70,751 -- 70,751 -- 1,624 72,375
Service charges 75,408 264 75,672 452 1,655 77,779
Credit card fees 19,690 -- 19,690 -- -- 19,690
Securities gains
(losses) 4,042 (37) 4,005 (14) 62 4,053
Other 103,762 484 104,246 143 1,640 106,029
----------- --------- ------- ----------- ------- -------- --------- -----------
Total Other Income 273,653 711 -- 274,364 581 4,981 -- 279,926
Other Expense
Salaries and employee
benefits 298,625 1,569 300,194 1,148 7,318 308,660
Net occupancy and
equipment 82,674 191 82,865 576 3,863 87,304
Other 172,449 933 302 173,684 590 4,779 426 189,805
2,626
7,700
----------- --------- ------- ----------- ------- -------- --------- -----------
Total Other Expense 553,748 2,693 302 556,743 2,314 15,960 10,752 585,769
----------- --------- ------- ----------- ------- -------- --------- -----------
Income Before Income
Taxes 356,785 1,428 (1,045) 357,168 1,791 7,466 (18,095) 348,330
Income Taxes 124,109 430 (267) 124,272 628 2,587 (261) 122,534
(4,692)
----------- --------- ------- ----------- ------- -------- --------- -----------
Net Income $ 232,676 $ 998 $ (778) $ 232,896 $ 1,163 $ 4,879 $ (13,142) $ 225,796
=========== ========= ======= =========== ======= ======== ========= ===========
Per Share Data
Average Common Shares
Outstanding 61,883,723 76,927 61,883,723 61,883,723
Net Income $ 3.74 $ 12.97 $ 3.75 $ 3.63
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 55 -
<PAGE> 62
[FN]
MERCANTILE BANCORPORATION INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
<F1> Represents MBI restated historical consolidated financial
statements reflecting the acquisition of Hawkeye, effective
January 2, 1996. Such acquisition was accounted for as a
pooling-of-interests. The acquisition of Sterling was also
accounted for as a pooling-of-interests; however, due to the
immateriality of the financial condition and results of
operations of Sterling to that of MBI, MBI did not restate its
historical financial statements to reflect the acquisition of
Sterling. Sterling, along with Conway and Metro, is included
in these pro forma financial statements only from its
acquisition date forward. The full impact of these
acquisitions is immaterial to the pro forma combined financial
statements.
<F2> The acquisitions of First Financial, Peoples and TODAY'S will
be accounted for as purchase transactions. Purchase price
adjustments offset each other or are immaterial. Included
herein are the amortization of goodwill over a 15-year period
(see footnote 10 below) and the lost interest income on the
cash consideration (for First Financial and TODAY'S) and stock
buybacks. Also included for TODAY'S is $10,000,000 that MBI
expects to record upon closing to conform TODAY'S accounting
and credit policies to those of MBI, which consists of
$2,300,000 in provision for loan losses and $7,700,000 in
other expenses. Goodwill is considered non-deductible and a
lower tax rate is used on the conforming charges since some
portion of those will be non-deductible. The balance sheet
impact of goodwill amortization, lost interest income and the
conforming charges is ignored due to immateriality. First
Financial's divestiture of its ownership interest in West
Pointe is not expected to have a material impact on the pro
forma financial statements.
<F3> In connection with the proposed acquisitions, MBI may
repurchase up to 1,761,849 shares of MBI Common Stock in the
open market. Assumed average price is $44.50 per share.
<F4> Purchase entry of First Financial with assumed consideration
of 258,783 reissued treasury shares at $45.00 per share, plus
$3,335,000 in cash. The closing price for MBI Common Stock on
July 9, 1996 (the last trading day preceding the public
announcement of the Merger) was $45.00.
<F5> Elimination of MBI's investment in First Financial.
<F6> Purchase entry of Peoples with assumed consideration of
$14,466,000, consisting of 326,000 reissued treasury shares at
$44.375 per share, the closing price for MBI Common Stock on
December 19, 1995 (the date of the execution of the definitive
reorganization agreement between MBI and Peoples).
<F7> Elimination of MBI's investment in Peoples.
<F8> Purchase entry of TODAY'S with assumed consideration of
1,177,066 reissued treasury shares at $45.25 per share, plus
$34,000,000 in cash. The closing price for MBI Common Stock
on March 19, 1996 (the last trading day preceding the public
announcement of the merger between MBI and TODAY'S) was
$45.25.
<F9> Elimination of MBI's investment in TODAY'S.
<F10> The pro forma excess of cost over fair value of net assets
acquired was $4,537,000, $6,392,000 and $39,395,000 as of June
30, 1996 for First Financial, Peoples and TODAY'S,
respectively.
- 56 -
<PAGE> 63
INFORMATION REGARDING FIRST FINANCIAL
-------------------------------------
BUSINESS
GENERAL. First Financial was organized in May 1988 and
is registered with the Federal Reserve Board as a one-bank holding
company under the BHCA. First Financial currently owns all of the
issued and outstanding shares of capital stock of The First
National Bank of Salem, a national banking association, located in
Salem, Missouri. First National was founded in 1905 and operates
two facilities in Salem, Missouri. First National owns all of the
issued and outstanding shares of the common stock of Financial
Ideas, Inc., a Missouri corporation engaged in securities and
insurance sales, and First Financial Insurance Agency, Inc. (f/k/a
Central Ozark Insurance Agency), a Missouri corporation which has
no significant assets and presently engages in no business. First
Financial also owns 4.9% of the Common Stock of West Pointe Bank
and Trust Company, which stock will be divested prior to the
Effective Time as described above under " - Divestiture of West
Pointe Stock." As of June 30, 1996, First Financial, on a
consolidated basis, had assets of $87.5 million, deposits of $75.7
million, net loans of $46.9 million and shareholders' equity of
$10.4 million.
First National is a full-service community bank that
provides a range of banking services to customers who are
primarily individuals and small businesses in Dent County,
Missouri. First National accepts demand, savings and time deposits
and repurchase agreements, makes commercial, agricultural, real
estate and consumer loans, purchases loans from other lenders
outside First National's immediate trade area and provides other
customary commercial banking services. Such activities are highly
competitive and the communities in which First National provides
services are also served by other financial institutions.
Competition among the financial institutions is based upon interest
rates offered on deposit accounts, interest rates charged on loans,
other credit and service charges, the convenience of banking
facilities and the quality of services rendered. First National
has successfully competed in its marketplace by providing superior
service to its customers. Additional competition for depositors'
funds may come from a variety of sources, including United States
Government securities, private issues of debt obligations, mutual
funds and suppliers of other investment alternatives.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is an analysis of the consolidated
financial condition and results of operations of First Financial as
of and for the six months ended June 30, 1996 and 1995 and for the
years ended December 31, 1995, 1994 and 1993. The analysis should
be read in conjunction with the consolidated financial statements,
notes to consolidated financial statements, and financial data of
First Financial presented elsewhere is this Proxy
Statement/Prospectus.
June 30, 1996 and 1995
RESULTS OF OPERATIONS
NET INCOME. Net income for the six months ended June 30,
1996 was $526,184, or $6.84 per share, compared to $364,873, or
$4.74 per share, in 1995. This represents an increase of $161,311,
or 44.2%, and was due primarily to an improvement in net interest
income of $125,710 and a decrease in noninterest expense of
$160,835. These gains were offset by a reduction of other income
of $8,454 and an increase in the provision for income taxes of
$116,780.
NET INTEREST INCOME. Net interest income increased
$125,710, or 7.6%, in the first six months of 1996, compared to the
same period in 1995. This improvement is the result of an increase of
- 57 -
<PAGE> 64
$272,359 in interest revenue, offset by increases of $134,649 in
interest expense, and $12,000 in the provision for loan losses.
The improvement in interest revenue resulted from an increase of
$2.9 million in loan volume in 1996, compared to 1995, and, to a
lesser extent, from a small increase in the average rate earned on
loans. The increase in interest expense of $134,649 results from
an increase of $6.8 million in interest bearing deposit products in
1996, compared to 1995. The increase in deposits primarily results
from First National's success in attracting deposits by offering
free checking and attractive deposit rates. Also, First National
has attracted several large depositors.
PROVISION FOR LOAN LOSSES. The provision for loan losses
was $12,000 for the six months ended June 30, 1996, compared with
$0 in the same period in 1995. No provision was necessary in 1995
because the recorded reserve was adequate based on First National's
loan loss reserve calculation. During this same period, the level
of classified loans for which a reserve was needed stabilized. In
1996, a provision for loan losses of $2,000 per month will be
recognized as First National continues to grow its loan portfolio.
Management reviews the adequacy of the loan loss reserve quarterly
and provides a reserve sufficient to absorb known and unknown losses
inherent in existing loans and commitments to extend credit.
NONINTEREST INCOME. Noninterest income decreased $8,454
to $215,358 for the six months ended June 30, 1996, compared to
$223,812 for the same period in 1995. In 1995, noninterest income
included approximately $91,000 for insurance commissions earned by
an insurance subsidiary of First National and losses on the sale of
securities of $69,000. The insurance subsidiary was sold on
December 31, 1995. There were no comparable insurance commissions
or losses on the sale of securities in 1996. Other changes in
noninterest income between the two periods are not significant.
NONINTEREST EXPENSE. Noninterest expense decreased
$160,835, or 11.8%, to $1,198,362 for the six months ended June 30,
1996, from $1,359,197 in 1995. The primary causes of this decline
were decreases of $82,000 of premiums paid to the Bank Insurance
Fund (the "BIF"), $79,000 less in operating expenses for an
insurance subsidiary that was sold in 1995 and $26,000 less in
equipment depreciation.
INCOME TAXES. Income tax expense increased $117,000 for
the six months ended June 30, 1996, compared to 1995 due to
increased taxable income.
December 31, 1995, 1994 and 1993
RESULTS OF OPERATIONS
NET INCOME. Net income for the year ended December 31,
1995 was $998,102, or $12.97 per share, compared to $1,060,852, or
$13.79 per share in 1994. The decline of $62,750, or 5.9%, was due
to increases of $71,702 in net interest income and $18,713 in other
income, offset by increases of $129,282 in noninterest expense
and $23,883 in the provision for income taxes.
Net income for the year ended December 31, 1994 was
$1,060,852, or $13.79 per share, compared to $1,116,741, or $14.53
per share, for same period in 1993. This represents a decrease of
$55,889, or 5.0%. The primary reason for the decline was a
decrease in net interest income of $80,494 and increases in
noninterest expense of $100,077 and provision for income taxes of
$97,603. These declines were offset by an increase in noninterest
income of $162,285 and a reduction in the provision for loans
losses of $60,000.
The following are analyses and comments regarding net
interest income, noninterest income and expense and income taxes
for the years ended December 31, 1995, 1994 and 1993. These
comparisons and financial schedules provide additional details of
the changes in net income and include a discussion of the changes
between these periods.
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<PAGE> 65
NET INTEREST INCOME. The following schedule provides a
summary of net income, average balances and the related interest
rates/yields for the past three years. Impaired/nonaccrual loans
are included in interest-earning assets. Interest income on these
loans is recorded as received. Investment securities include U.S.
Treasury, agency and municipal securities, as well as the equity of
West Pointe Common Stock. The average balance of these shares was
approximately $415,000 in 1995 and $396,000 in 1994 and 1993.
Interest-earning assets includes tax exempt investments and
the related income is presented on a tax-equivalent basis assuming
a tax rate of 34%. The amount of the tax-equivalent adjustment was
$93,000, $123,000 and $123,000 for the years ended December 31,
1995, 1994, and 1993, respectively.
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------------------------
1995 1994 1993
--------------------------- ---------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
INTEREST YIELD/ INTEREST YIELD/ INTEREST YIELD/
AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE
BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID
------- -------- ------- ------- -------- ------- ------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $44,612 $4,154 9.31% $38,260 $3,238 8.46% $35,647 $3,192 8.95%
Investment securities 26,728 1,668 6.24 31,650 1,765 5.58 32,293 1,883 5.83
Nontaxable securities 3,390 273 8.07 4,168 361 8.67 3,821 362 9.48
Federal funds sold 1,540 102 6.62 1,334 61 4.57 1,091 64 5.87
------- ------ ----- ------- ------ ----- ------- ------ -----
Total interest-earning assets 76,270 6,197 8.13 75,412 5,425 7.19 72,852 5,501 7.55
Noninterest-earning assets:
Cash and due from banks 2,006 2,376 2,523
Premise and equipment 2,025 1,592 1,446
Other assets 1,288 1,276 1,549
Allowance for loan losses, etc. (665) (670) (684)
------- ------- -------
Total assets $80,924 $79,986 $77,686
======= ======= =======
Interest-bearing liabilities:
Demand deposits $13,706 $ 421 3.07% $12,845 $ 273 2.13% $12,304 $ 324 2.63%
Savings 6,960 172 2.47 7,475 185 2.47 7,479 178 2.38
Money market 4,875 144 2.95 6,734 171 2.54 6,703 185 2.76
Time 37,545 1,956 5.21 33,732 1,334 3.95 33,156 1,272 3.84
------- ------ ----- ------- ------ ----- ------- ------ -----
Total interest-bearing liabilities 63,086 2,693 4.27 60,786 1,963 3.23 59,642 1,959 3.28
Noninterest-bearing liabilities:
Demand deposits 7,380 8,904 7,341
Other liabilities 642 623 631
------- ------- -------
Total liabilities 71,108 70,313 67,614
Shareholders' equity 9,816 9,673 10,072
------- ------- -------
Total liabilities and
shareholders' equity $80,924 $79,986 $77,686
======= ======= =======
Net interest income $3,504 $3,462 $3,542
====== ====== ======
Net Interest spread 3.86% 3.96% 4.27%
===== ===== =====
Net interest margin 4.59% 4.61% 4.83%
===== ===== =====
</TABLE>
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<PAGE> 66
Net interest income improved $71,702 for the year ended
December 31, 1995, compared with the same period in 1994. This is
the net result of an improvement in interest income of $801,481,
offset by an increase of $729,779 in interest expense. Interest
income on loans increased $915,976, which was primarily due to an
increase of $6.4 million in average loans outstanding and an
increase in the average rate on loans from 8.46% in 1994 to 9.31%
in 1995.
Traditionally, First National's loan-to-deposit ratio has
been approximately 50%, compared to the peer group ratio of 70%.
In an attempt to increase the loan-to-deposit ratio and induce new
loan relationships, the bank offered loans at rates slightly below
market during 1994 and 1995. This strategy attracted additional
loans; however, it also caused a decline in net interest spread
from 1993 through 1995. First National also purchased $2.1 million
of new loans from West Pointe in an attempt to increase total loans
and the net interest margin as funds were shifted from lower
interest-earning assets, such as investment securities, to loans.
During the same period, interest earned on investment
securities decreased $155,609 in 1995, compared with the same
period in 1994. This was caused by a decrease of approximately
$5.7 million in the average investment principal outstanding, which
was used to fund loan growth.
Almost all gains in interest revenue were offset by an
increase in interest expense of $729,779, or 37.2%, to $2,692,993
in 1995, compared with $1,963,214 in 1994. The increase is
attributable to a 104-basis-point increase in the average rate paid
on deposits from 3.23% in 1994 to 4.27% in 1995 as First National
responded to an increasing interest rate environment. First
National generally offered market rates on its deposit products;
however, it sometimes paid above market rates to attract large
public funds and corporate deposits. At the same time, First
National attracted deposits from other local financial institutions
that were paying below market rates.
Net interest income decreased during the year ended
December 31, 1994 by $80,494, or 2.4%, compared to the same period
in 1993. The primary reason for this decline was a 35-basis-point
reduction in interest earned on interest-earning assets from 7.38%
in 1993 to 7.03% in 1994. This decline was partially offset as the
average loan volume increased approximately $2.6 million as First
National responded to increased customer loan demand.
Net interest income is affected by the volume and rate of
both interest-earning assets and interest-bearing liabilities. The
following table shows the effect that changes in average volume and
rates have on net interest income. Nonperforming loans are
included in the table:
- 60 -
<PAGE> 67
<TABLE>
<CAPTION>
1995 COMPARED TO 1994 COMPARED TO
1994 INCREASE 1993 INCREASE
(DECREASE) DUE TO (DECREASE) DUE TO
----------------------------- -------------------------------
VOLUME RATE COMBINED VOLUME RATE COMBINED
------ ---- -------- ------ ---- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 591 $ 325 $ 916 $ 221 $(176) $ 45
Taxable securities (309) 211 (98) (36) (83) (119)
Nontaxable securities (41) (17) (58) 20 (19) 1
Federal funds sold 14 27 41 11 (14) (3)
----- ----- ----- ----- ----- -----
Total interest-earning assets 255 546 801 216 (292) (76)
----- ----- ----- ----- ----- -----
Interest paid on:
Demand deposits 26 122 148 11 (62) (51)
Savings (13) -- (13) -- 7 7
Money market (55) 27 (28) 1 (15) (14)
Time 199 423 622 22 40 62
----- ----- ----- ----- ----- -----
Total interest-bearing liabilities 157 572 729 34 (30) 4
----- ----- ----- ----- ----- -----
Net interest income $ 98 $ (26) $ 72 $ 182 $(262) $ (80)
===== ===== ===== ===== ===== =====
</TABLE>
PROVISION FOR LOAN LOSSES. The provision for loan
losses results in an allowance against which loan losses are
charged as those losses become evident. Management evaluates the
appropriate level of the allowance on a quarterly basis. The
analysis takes into consideration the results of internal loan
reviews, current and past delinquency statistics, economic trends
and conditions, concentrations of credit and specific
identification of potentially impaired loans. A specific portion
of the allowance is allocated to those loans which appear to
represent a higher than normal exposure to credit risk. In
addition, estimates are made for potential unknown losses inherent
in the loan portfolio. No provision for loan losses was recorded in
1994 or 1995 as the recorded reserve was adequate based on First
National's loan loss reserve calculation. This is further evidenced
by the relatively low and historical level of loan charge-offs. The
loan loss reserve was allocated as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------------- ------------------- ------------------- ------------------- -------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
ALLOCATED TO TOTAL ALLOCATED TO TOTAL ALLOCATED TO TOTAL ALLOCATED TO TOTAL ALLOCATED TO TOTAL
RESERVE LOANS RESERVE LOANS RESERVE LOANS RESERVE LOANS RESERVE LOANS
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate $ 192 44.86% $ 185 40.04% $ 109 41.13% $ 114 44.19% $ 123 46.95%
Commercial 143 33.41% 151 32.68% 56 21.13% 41 15.89% 39 14.89%
Consumer 93 21.73% 126 27.28% 100 37.74% 103 39.92% 100 38.16%
Unallocated 219 -- 203 -- 394 -- 355 -- 301 --
----- ------- ----- ------- ----- ------- ----- ------- ----- -------
Total $ 647 100.00% $ 665 100.00% $ 659 100.00% $ 613 100.00% $ 563 100.00%
===== ======= ===== ======= ===== ======= ===== ======= ===== =======
</TABLE>
The adequacy of the allowance for loan losses, based on
management's determination, and the related loan charge-offs and
recoveries and provisions for loan losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year $664,954 $658,698 $613,448
Provision charged to operations -- -- 60,000
Loans charged-off (34,214) (15,010) (25,910)
Recoveries 15,836 21,266 11,160
-------- -------- --------
Balance, end of year $646,576 $664,954 $658,698
======== ======== ========
</TABLE>
- 61 -
<PAGE> 68
NONINTEREST INCOME. The following table shows First
Financial's noninterest income for the years ended December 31,
1995, 1994 and 1993, and the corresponding changes between the
years:
<TABLE>
<CAPTION>
DECEMBER 31 CHANGE
---------------------------------- ----------------------
1995 1994 1993 1995/1994 1994/1993
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Service fees $264,210 $293,949 $293,754 $(29,739) $195
Gain (loss) on sale of securities (36,893) 91,544 -- (128,447) 91,554
Income of unconsolidated subsidiary 48,842 57,193 -- (8,351) 57,193
Insurance commissions 176,357 190,730 172,577 (14,373) 18,153
Gain on disposition of insurance subsidiary 174,672 -- -- 174,672 --
Other 83,980 59,029 63,839 24,951 (4,810)
-------- -------- -------- -------- --------
Total noninterest income $711,168 $692,455 $530,170 $18,713 $162,285
======== ======== ======== ======== ========
</TABLE>
In 1995, 1994 and 1993, First National had a 100%
ownership in a subsidiary, Central Ozark Insurance Agency, Inc.
("Central Ozark"), through which various types of insurance
products were sold. The rights to sell insurance were sold on
December 31, 1995 and a pre-tax gain of $174,672 was recognized.
Income from continuing operations for Central Ozark totaled
$10,833, 16,346 and 12,902 for each of the years ended December 31,
1995, 1994 and 1993.
In 1995, First National recognized a loss of $36,893 on
the sale of investment securities, compared to a gain of $91,554
in 1994. Most of the gain in 1994 resulted from the sale of stock
held by First Financial in another local financial institution.
First Financial had written down the investment of such stock to
$100 in prior years due to the uncertainty of any future value.
First Financial sold the investment securities to reposition itself
to earn a higher yield on other interest-earning assets.
NONINTEREST EXPENSE. The following table shows First
Financial's noninterest expense for the years ended December 31,
1995, 1994 and 1993 and the corresponding changes between the
years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 CHANGE
------------------------------------ ---------------------
1995 1994 1993 1995/1994 1994/1993
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Compensation and employee benefits $1,568,971 $1,498,345 $1,488,314 $70,626 $10,031
Occupancy expenses 191,300 166,187 141,848 25,113 24,339
FDIC assessment 109,564 181,940 182,321 (72,376) (381)
Equipment expense 188,752 113,904 91,984 74,848 21,920
Other expenses 635,785 604,714 560,546 31,071 44,168
---------- ---------- ---------- -------- --------
Total noninterest expense $2,694,372 $2,565,090 $2,465,013 $129,282 $100,077
========== ========== ========== ======== ========
</TABLE>
Noninterest expense increased $129,282, or 5.0%, to
$2,694,372 for the year ended December 31, 1995, compared to
$2,565,090 in 1994. The increase was due largely to increases in
compensation and equipment expenses, offset by a reduction in the
FDIC assessment.
The increase in compensation expense of $70,626, or 4.7%,
between 1994 and 1995 results from normal annual compensation
increases for First National's employees. First National
traditionally experiences similar increases in this area. The
small increase of $10,031 between 1993 and
- 62 -
<PAGE> 69
1994 resulted from normal pay increases, offset by the reduction of
personnel. First National also pays bonuses and makes a profit-sharing
plan contribution to employees based on a formula where return on equity
is a key factor.
The increases in occupancy and equipment expenses during
1994 and 1995 were primarily due to increased depreciation and
computer expenses related to the purchase of a new in-house
computer system and a large remodeling project during the latter
part of 1994.
The reduction in the FDIC assessment from 1994 to 1995
relates to the reduction in assessment rates as determined by the
FDIC when the BIF became fully funded in 1995.
Noninterest expense increased $100,077, or 4.1%, to
$2,565,090 for the year ended December 31, 1994, compared to
$2,465,013 in 1993. This increase was generally in line with
inflation and not due to any one individual factor.
INCOME TAXES. First Financial files a consolidated
federal income tax return with First National. First National
makes federal income tax payments to First Financial based on
taxable income First National would pay on a stand-alone basis.
Deferred taxes are provided on certain transactions which are
reported in different periods for financial reporting purposes than
for income tax purposes. In 1993, First National adopted Statement
of Financial Accounting Standards No. 109, Accounting for Income
Taxes ("SFAS No. 109"), which required a change from the deferred
method to the asset and liability method of accounting for income
taxes. The cumulative effect of this change was to increase net
income in 1993 by $135,882.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
LENDING ACTIVITY. A major source of First Financial's
income is interest and fees on loans. The following table presents
the composition of First Financial's loan portfolio at the end of
each of the periods presented:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------------------
1995 1994
-------------------------- -----------------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Real Estate $23,217,660 49.01% $19,143,827 46.20%
Commercial 12,508,152 26.40 11,032,249 26.61
Installment 6,800,843 14.36 6,699,894 16.16
Agricultural 4,040,927 8.53 4,019,837 9.66
Construction 805,090 1.70 570,582 1.37
----------- ------ ----------- ------
47,372,672 100.00 41,466,389 100.00
Allowance for loan losses (646,576) -- (664,954) --
----------- ------ ----------- ------
Loans, net $46,726,096 100.00% $40,801,435 100.00%
=========== ====== =========== ======
</TABLE>
- 63 -
<PAGE> 70
The following table sets forth the remaining maturities,
based on contractual maturity dates, for each of the categories of
loans at December 31, 1995:
<TABLE>
<CAPTION>
ONE YEAR ONE TO FIVE OVER FIVE
OR LESS YEARS YEARS TOTAL
-------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Real estate $ 2,184,646 $ 4,608,682 $16,424,332 $23,217,660
Commercial 6,329,537 3,854,673 2,323,942 12,508,152
Installment 3,205,583 3,401,291 193,969 6,800,843
Agricultural 3,689,178 324,247 27,502 4,040,927
Construction 637,720 167,370 -- 805,090
----------- ----------- ----------- -----------
Total Loans $16,046,664 $12,356,263 $18,969,745 $47,372,672
=========== =========== =========== ===========
</TABLE>
The following table indicates loans with fixed and
adjustable rates which mature in greater than one year at December
31, 1995:
<TABLE>
<CAPTION>
FLOATING OR
ADJUSTABLE
FIXED RATES RATES
----------- -----------
<S> <C> <C>
Real Estate $ 892,330 $20,140,684
Commercial 1,275,424 4,903,191
Installment 3,595,260 --
Agricultural 351,749 --
Construction 167,370 --
---------- -----------
Total Loans $6,282,133 $25,043,875
========== ===========
</TABLE>
First Financial makes substantially all of its loans to
customers located within First National's primary service area.
First National periodically purchases loans from other financial
institutions located outside of its primary service area, including
loans purchased from West Pointe, located in Belleville, Illinois.
Loans purchased from West Pointe and other financial institutions
totaled $7.0 million, or 14.8%, of First National's loan portfolio,
at December 31, 1995 and $5.2 million, or 12.6%, of First
National's loan portfolio, at December 31, 1994. First National
has no foreign loans or highly leveraged transaction loans, as
defined by the Federal Reserve Board.
The loan portfolio experienced an increase of $5.9, or
14.2%, from December 31, 1994 to December 31, 1995, primarily in
real estate loans. Real estate loans increased $4.1 million, or
21.3%. The increase in real estate loans was attributable to an
attempt to increase total loans and to earn a higher rate of return
than was being earned on other interest-earning assets, such as
Federal funds sold and investments.
NONPERFORMING ASSETS. Nonperforming assets are defined
as nonaccrual loans, loans delinquent ninety or more days and
foreclosed assets. Impaired loans are loans which management has
identified as having a higher potential for loss of a portion or
all of contractual interest or principal due, or both. An impaired
loan does not necessarily have to be on nonaccrual status. These
assets do not necessarily represent future losses because
underlying collateral can be sold and the financial condition of
the borrowers may improve.
- 64 -
<PAGE> 71
The following table sets forth the amount of
nonperforming assets at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Nonaccrual loans $130,150 $149,069
Loans contractually past due 90 days or more -- --
--------- ---------
Total nonperforming loans 130,150 149,069
Foreclosed real estate held for sale 15,275 15,275
--------- ---------
Total nonperforming assets $145,425 $164,344
========= =========
Nonperforming loans to total loans 0.27% .036%
Nonperforming assets to total loans plus
foreclosed assets held for sale 0.31% 0.40%
Nonperforming assets to total assets 0.18% 0.21%
</TABLE>
Loans that are nonperforming or impaired are reviewed by
management weekly. When the collection of interest is doubtful,
loans are placed on nonaccrual status and the recognition of
interest is stopped. Whenever management believes that a loan or
portion thereof will not be collected, loan principal is charged
off at the time the determination of uncollectability is made.
Effective January 1, 1995, First Financial adopted
Statement of Financial Accounting Standards No. 114, Accounting by
Creditors for Impairment of a Loan ("SFAS 114") and, Statement of
Financial Accounting Standards No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures (an
amendment to SFAS 114, "SFAS 118").
SFAS 114 addresses the accounting by creditors for
impairment of a loan by specifying how allowances for credit losses
related to certain loans should be determined. The statement also
addresses the accounting by creditors for all loans that are
restructured in a troubled debt restructuring involving a
modification of terms of a receivable. The statement does not
specify how a creditor should identify loans that are to be
evaluated for collectibility.
Under SFAS 114, a creditor should evaluate the
collectibility of both contractual interest and contractual
principal when assessing the need for a loss accrual. To do this,
the creditor will compute the net present value of all estimated
future cash flows and provide a reserve to the extent that the
recorded cost of principal exceeds the net present value of the
future estimated cash flows. Alternatively, impairment can be
measured by reference to an observable market price, if one exists,
or to the fair value of the collateral for a collateral-dependent
loan. Regardless of the historical measurement used, SFAS 114
requires a creditor to measure impairment based on the fair values
of collateral when foreclosure is probable.
SFAS 118 addresses the accounting by creditors for an
impairment of a loan and amends SFAS 114 by allowing creditors to
use existing methods for recognizing interest income on impaired
loans. The statement eliminates the provisions in SFAS 114 which
describe how a creditor should report income on an impaired loan.
SFAS 118 also amends the disclosure requirements in SFAS 114 by
requiring information about the recorded investment in certain
impaired loans and how a creditor recognized interest income
related to those impaired loans.
- 65 -
<PAGE> 72
The following table summarizes information relating to
impaired loans at December 31, 1995:
<TABLE>
<CAPTION>
RECORDED
INVESTMENT
----------
<S> <C>
Impaired loans for which there is no need for a valuation
allowance in accordance with SFAS 114 and 118 $443,653
Impaired loans for which there is a valuation allowance in
accordance with SFAS 114 and 118 --
--------
Total impaired loans $443,653
========
Average impaired loans during 1995 $378,000
========
</TABLE>
First Financial's policy is to discontinue accruing
interest on loans when principal or interest is due and remains
unpaid for ninety days or more, unless the loan is well secured and
in the process of collection. First Financial would have recorded
additional interest income of approximately $14,000, $9,000 and
$7,000 for 1995, 1994 and 1993, respectively, if contractual
interest on these loans had been recognized.
At December 31, 1995, 1994 and 1993, there were no
significant commitments to lend additional funds to borrowers whose
loans were considered nonperforming.
The allowance for loan losses is based on factors that
include the overall composition of the loan portfolio, class of
loans, delinquency and charge-off experience, potential substandard
and doubtful credits and other factors that need to be evaluated in
estimating the potential loan losses inherent in the loan
portfolio.
The adequacy of the allowance for loan losses is reviewed
on a quarterly basis. The allowance is based on factors including
current and past delinquency statistics, economic trends and
conditions, concentrations of credit and specific identification of
potentially impaired loans through a systematic review of the loan
portfolio. The results of these reviews are reported to the Board
of Directors of First Financial quarterly.
While there can be no assurance that the allowance for
loan losses will be adequate to cover all losses, management
believes that the allowance is sufficient to cover loan losses
inherent in the loan portfolio. In addition, various regulatory
agencies periodically review the adequacy of the allowance for loan
losses as an integral part of their routine examinations.
- 66 -
<PAGE> 73
The following table summarizes, for the periods
indicated, activity in the allowance for loan losses, including
amounts of loans charged-off, amounts of recoveries and additions
to the allowance and the ratio of net charge-offs to average loans
outstanding:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Allowance at beginning of period $664,954 $658,698
Provision for loan losses charged to operations -- --
-------- --------
Commercial -- --
Real Estate -- --
Consumer 34,214 15,010
-------- --------
Total 34,214 15,010
-------- --------
Recoveries:
Commercial -- --
-------- --------
Real Estate 2,100 5,431
Consumer 13,736 15,835
-------- --------
Total 15,836 21,266
-------- --------
Net loan recoveries (charge-offs) (18,378) 6,256
-------- --------
Allowance for loan losses, end of period $646,576 $664,954
======== ========
Ratio of net charge-offs to average loan outstanding 0.04% 0.02%
</TABLE>
INVESTMENTS. The following tables sets forth First
Financial's investment security portfolio at carrying value at the
dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------
1995 1994
--------------------------- ----------------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. government and federal agencies $ 8,864,837 32.71% $10,879,960 36.05%
Corporate securities 347,181 1.28 353,275 1.17
State and local government 3,104,480 11.45 3,856,817 12.78
Mortgage-backed securities 14,473,969 53.40 14,778,116 48.96
Restricted equity securities 314,700 1.16 314,700 1.04
----------- ------ ----------- ------
Total investments $27,105,167 100.00% $30,182,868 100.00%
=========== ====== =========== ======
</TABLE>
The following table sets forth the maturities and
weighted average yields of the investment security portfolio at
December 31, 1995:
<TABLE>
<CAPTION>
WITHIN OVER 1-5 OVER 5-10 OVER 10
ONE YEAR YEARS YEARS YEARS
----------------- ---------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government and federal
agencies $ 317 6.64% $6,539 5.78% $2,009 7.32% $ -- --%
Corporate securities 326 8.89 -- -- -- -- 21 8.89
State and local government<F1> 774 9.46 1,115 9.10 267 9.11 948 7.63
Mortgage-backed securities<F2> -- -- 1,337 6.28 1,017 6.90 12,120 6.18
------ ---- ------ ---- ------ ---- ------ ----
$1,417 6.94% $8,991 5.88% $3,293 7.08% $13,089 6.10%
====== ==== ====== ==== ====== ==== ======= ====
<FN>
- --------------------------------
<F1>Yield presented on a tax-equivalent basis assuming a tax rate of 34%.
<F2>Restricted equity securities of $315,000 are stock in the
Federal Reserve Bank and Federal Home Loan Bank of Des Moines.
These securities are not included in this table because an equity
security has no stated maturity.
</TABLE>
- 67 -
<PAGE> 74
First Financial's holdings of investment and mortgage-
backed securities serve as a source of liquidity and earnings due
to First National's low loan-to-deposit ratio. Total investments
represent approximately 40% of total interest-earning assets.
Investments that are used for liquidity purposes are primarily
fixed-rate U.S. treasury and agency instruments. Investments used
for earnings enhancement may be instruments that have a higher rate
of interest rate risk. First National maintains its entire
investment portfolio as available-for-sale in order to allow First
National flexibility to manage interest rate risk and its gap
position and to have funds available to enable growth in the loan
portfolio.
DEPOSITS. The deposit base provides a major funding
source for First Financial. First National's core deposits
generally consist of demand, savings and certificates of deposit
less than $100,000. Certificates of deposit greater than $100,000
are generally more sensitive to market changes in interest rates
and thus are not considered part of First National's core deposit
base.
First National's deposits have steadily increased during
the period from December 31, 1993 to December 31, 1995. First
National's interest-bearing deposits increased $1.3 million, or
2.2%, to $59.5 million at December 31, 1994 from $58.2 million in
1993. At December 31, 1995, interest-bearing deposits had grown to
$63.1 million, compared to 59.5 million in 1994, which represents
an increase of $3.6 million, or 6.1%. The primary reasons for this
increase were a strong local economy, First National's aggressive
approach to attract public fund deposits and attractive rates
offered by First National.
The following table sets forth the distribution of First
Financial's deposit portfolio and the weighted-average interest
rates on each category of deposit at the dates indicated:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------------------
1995 1994
----------------------------------- --------------------------------------
(in thousands)
Percent Percent
of Average of Average
Amount Deposits Rate Amount Deposits Rate
------ -------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Demand and other $ 7,295 10.37% n/a $ 8,753 12.82% n/a
Interest-bearing NOW accounts 14,505 20.62 3.07% 11,418 16.73 2.13%
Money market accounts 4,190 5.96 2.95 5,548 8.13 2.54
Savings 6,906 9.82 2.47 7,104 10.41 2.47
Time 37,456 53.23 5.21 35,437 51.91 3.95
------- ------ ---- ------- ------ ----
Total $70,352 100.00% 3.82% $68,260 100.00% 3.29%
======= ====== ==== ======= ====== ====
</TABLE>
The following table sets forth the amounts and maturities
of time deposits of $100,000 or more at December 31, 1995:
Percent
Amount of Total
------ --------
(in thousands)
Three months or less $ 533 14.23%
Over three through six months 842 22.47
Over six through twelve months 648 17.30
Over twelve months 1,723 46.00
------ ------
Total nonperforming assets $3,746 100.00%
====== ======
- 68 -
<PAGE> 75
LIQUIDITY AND INTEREST RATE SENSITIVITY. Liquidity is a
measure of a financial institution's ability to meet its customers'
present and future deposit withdrawal requests or to fund increased
loan demand without unduly penalizing earnings. Interest rate
sensitivity involves the relationship between rate sensitive assets
and liabilities and is an indication of the probable effects that
interest rate fluctuations will have on net interest income. First
Financial manages liquidity and interest rate sensitivity through
various GAP and simulation analysis reports prepared quarterly.
Liquidity is provided for First National by projecting
credit demand and other financial needs and then maintaining
sufficient cash and assets readily convertible into cash, including
core deposits, maturing loans, investment securities and Federal
funds sold, to meet such projected requirements. Other sources of
liquidity available to First National include Federal funds
purchased, repurchase agreements and the ability to borrow from the
Federal Home Loan Bank of Des Moines. At December 31, 1995, cash
and cash equivalents totaled $4,488,431, or 5.5%, of total assets.
This was an increase of $651,343 from December 31, 1994, when total
cash and cash equivalents totaled $3,837,088, or 4.9%, of total
assets. Management considers this level of cash and cash
equivalents to be adequate based on projected liquidity needs.
Liquidity for First Financial is provided primarily by
dividends received from First National, tax benefits that accrue to
First Financial and small amounts of rental income. First
Financial traditionally pays out dividends equal to the dividends
paid out by First National. Dividends paid by First Financial for
each of the years ending December 31, 1995, 1994 and 1993 totaled
$846,195, $845,947 and $845,097, respectively.
At December 31, 1995, interest earning assets totaled
$17.4 million, or 23.4%, of total interest-earning assets which
were scheduled to mature within one year or less. This did not
include expected prepayments on loans and mortgage-backed
securities.
CAPITAL RESOURCES. Financial institutions are required
to maintain capital ratios in accordance with guidelines adopted by
the Federal Reserve Board. These guidelines are commonly known as
"Risk Based Guidelines" as they define the capital level
requirements of a financial institution based upon the level of
risk associated with holding various categories of assets. One
measure is the leverage capital ratio, which equals the ratio of
ending total capital less intangible assets to average total assets
on a quarterly basis less intangible assets. The guidelines also
include a definition of capital and provide a framework for
calculating risk-weighted assets by assigning assets and off-
balance-sheet instruments to broad risk categories. The risk-based
capital standards establish a minimum ratio of total capital to
risk-weighted assets with a minimum of 4% when using Tier 1 capital
and a minimum of 8% when including total capital. Tier 1 capital
is the sum of the core capital elements (common shareholders'
equity less intangible assets, excluding any unrealized gains or
losses on available-for-sale securities). Total capital includes
the allowance for loan losses limited to a maximum of 1.25% of
risk-weighted assets.
- 69 -
<PAGE> 76
The following tables shows First National Bank exceeded
the minimum risk-based and leverage ratios at the date indicated.
DECEMBER 31, MINIMUM
1995 LEVELS
------------ -------
(in thousands)
Capital components:
Tier 1 capital $10,585 $1,999
Total risk-based capital 11,210 3,998
Assets:
Risk-weighed assets and off-balance-sheet
instruments 49,998 --
Capital ratios:
Leverage 12.92% 3.00%
Tier 1 risk-based capital 21.18 4.00
Total risk-based capital 22.43 8.00
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date the
number of shares of First Financial Common Stock beneficially owned
and the percentage of ownership of outstanding shares of First
Financial Common Stock by (a) each director and executive officer
of First Financial, (b) each person who is known by First Financial
to own beneficially 5% or more of such stock and (c) all directors
and executive officers of First Financial as a group:
<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS BENEFICIALLY PERCENT OF
OF BENEFICIAL OWNER OWNED CLASS
- ------------------- ------------ ----------
<S> <C> <C>
W. Charles Whitmire<F1><F2> 10,626 13.81%
P.O. Box 778
Salem, MO 65560
Elachie, Inc. 8,080 10.50%
#2 Amber Trail
Salem, MO 65560
William Charles Whitmire, Jr.<F1><F3> 5,477 7.12%
P.O. Box 778
Salem, MO 65560
Dorothy D. Malone 5,440 7.07%
1125 W. Long
Stephenville, TX 76401
Stewart J. Carmier<F1><F4> 4,117 5.35%
P.O. Box 778
Salem, MO 65560
Zella A. Jones 3,900 5.07%
Rt. 1, Box 158
Salem, MO 65560
Farris L. Craig<F1><F5> 2,590 3.37%
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<PAGE> 77
Gerald W. Craig<F1><F6> 980 1.27%
Charles T. Hayes<F1><F7> 200 .26%
Herbert A. Jones<F1><F8> 100 .13%
J. Brent Mitchell<F1><F9> 100 .13%
Steven M. Watson<F1><F10> 210 .27%
Jay C. White<F1><F11> 200 .26%
Jerry L. Wilkerson<F(1)(12)> 100 .13%
All Directors and Executive Officers
as a Group (10 persons) 24,700 32.10%
<FN>
- --------------------------------
<F1> Director of First Financial.
<F2> Includes 3,076 shares owned by W.C.W. Trust of which he is
trustee and 7,550 shares owned jointly with his wife.
<F3> Includes 2,387 shares owned jointly with his wife and 2,890
shares owned by his minor children.
<F4> Includes 2,717 shares owned jointly with his wife and 1,400
shares owned by his minor children.
<F5> Owned by his revocable living trust. Does not include 2,640
shares owned by his wife and her revocable living trust as to
which he disclaims beneficial ownership.
<F6> Owned by his revocable living trust. Does not include 1,950
shares owned by his wife's revocable living trust as to which
he disclaims beneficial ownership.
<F7> Owned jointly with his wife.
<F8> Owned jointly with his wife.
<F9> Owned jointly with his wife.
<F10> Includes 200 shares owned jointly with his wife and 10 shares
owned by his minor children.
<F11> Owned by the Jay C. White Trust of which he is the trustee.
<F12> Owned jointly with his wife.
</TABLE>
For purposes of the above table, a person is deemed to be a
beneficial owner of shares of First Financial Common Stock if the
person has or shares the power to vote or to dispose of such
shares. Unless otherwise indicated in the footnotes, each person
has sole voting and investment power with respect to shares shown
in the table as beneficially owned by such person and disclaims
beneficial ownership in shares described in the footnotes as being
"held by" other persons.
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<PAGE> 78
INFORMATION REGARDING MBI STOCK
-------------------------------
DESCRIPTION OF MBI COMMON STOCK AND ATTACHED PREFERRED SHARE
PURCHASE RIGHTS
GENERAL. MBI has authorized 5,000,000 shares of MBI
Preferred Stock, no par value, and 100,000,000 shares of MBI Common
Stock, $5.00 par value. At June 30, 1996, MBI had no shares of MBI
Preferred Stock issued and outstanding and 62,673,041 shares of MBI
Common Stock outstanding. Under Missouri law, MBI's Board of
Directors may generally approve the issuance of authorized shares
of Preferred Stock and Common Stock without shareholder approval.
MBI's Board of Directors is also authorized to fix the
number of shares and determine the designation of any series of
Preferred Stock and to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any series
of MBI Preferred Stock. Except for the designation and reservation
of Series A Junior Participating Preferred Stock pursuant to MBI's
Preferred Share Purchase Rights Plan described below, MBI's Board
of Directors has not acted to designate or issue any shares of MBI
Preferred Stock. The existence of a substantial number of unissued
and unreserved shares of MBI Common Stock and undesignated shares
of MBI Preferred Stock may enable the Board of Directors to issue
shares to such persons and in such manner as may be deemed to have
an anti-takeover effect.
The following summary of the terms of MBI's capital stock
does not purport to be complete and is qualified in its entirety by
reference to the applicable provisions of MBI's Restated Articles
of Incorporation and By-Laws and Missouri law.
DIVIDENDS. The holders of MBI Common Stock are entitled
to share ratably in dividends when, as and if declared by the Board
of Directors from funds legally available therefor, after full
cumulative dividends have been paid or declared, and funds
sufficient for the payment thereof set apart, on all series of MBI
Preferred Stock ranking superior as to dividends to MBI Common
Stock.
The Board of Directors of MBI intends to maintain its
present policy of paying quarterly cash dividends on MBI Common
Stock, when justified by the financial condition of MBI and its
subsidiaries. The declaration and amount of future dividends will
depend on circumstances existing at the time, including MBI's
earnings, financial condition and capital requirements as well as
regulatory limitations, note and indenture provisions and such
other factors as the Board of Directors may deem relevant. The
payment of dividends to MBI by subsidiary banks is subject to
extensive regulation by various state and federal regulatory
agencies. See "SUPERVISION AND REGULATION."
VOTING RIGHTS. Each holder of MBI Common Stock has one
vote for each share held on matters presented for consideration by
the shareholders, except that, in the election of directors, each
shareholder has cumulative voting rights which entitle each such
shareholder to the number of votes which equals the number of
shares held by the shareholder multiplied by the number of
directors to be elected. All such votes may be cast for one
candidate for election as a director or may be distributed among
two or more candidates.
PREEMPTIVE RIGHTS. The holders of MBI Common Stock have
no preemptive right to acquire any additional unissued shares or
treasury shares of MBI.
LIQUIDATION RIGHTS. In the event of liquidation,
dissolution or winding up of MBI, whether voluntary or involuntary,
the holders of MBI Common Stock will be entitled to share ratably
in any of its assets or funds that are available for distribution
to its shareholders after the satisfaction of its
- 72 -
<PAGE> 79
liabilities (or after adequate provision is made therefor) and after
preferences on any outstanding MBI Preferred Stock.
ASSESSMENT AND REDEMPTION. Shares of MBI Common Stock
are and will be, when issued, fully paid and nonassessable. Such
shares do not have any redemption provisions.
PREFERRED SHARE PURCHASE RIGHTS PLAN. One preferred
share purchase right is attached to each share of MBI Common Stock.
The MBI Rights trade automatically with shares of MBI Common Stock,
and become exercisable and will trade separately from the MBI
Common Stock on the tenth day after public announcement that a
person or group has acquired, or has the right to acquire,
beneficial ownership of 20% or more of the outstanding shares of
MBI Common Stock, or upon commencement or announcement of intent to
make a tender offer for 20% or more of the outstanding shares of
MBI Common Stock, in either case without prior written consent of
the Board. When exercisable, each MBI Right will entitle the
holder to buy 1/100 of a share of MBI Series A Junior Participating
Preferred Stock at an exercise price of $100 per MBI Right. In the
event a person or group acquires beneficial ownership of 20% or
more of MBI Common Stock, holders of MBI Rights (other than the
acquiring person or group) may purchase MBI Common Stock having a
market value of twice the then current exercise price of each MBI
Right. If MBI is acquired by any person or group after the Rights
become exercisable, each MBI Right will entitle its holder to
purchase stock of the acquiring company having a market value of
twice the current exercise price of each MBI Right. The MBI Rights
are designed to protect the interests of MBI and its shareholders
against coercive takeover tactics. The purpose of the MBI Rights
is to encourage potential acquirors to negotiate with MBI's Board
of Directors prior to attempting a takeover and to give the Board
leverage in negotiating on behalf of all shareholders the terms of
any proposed takeover. The MBI Rights may deter certain takeover
proposals. The MBI Rights, which can be redeemed by MBI's Board of
Directors in certain circumstances, expire by their terms on
June 3, 1998.
CLASSIFICATION OF BOARD OF DIRECTORS. The Board of
Directors of MBI is divided into three classes, and the directors
are elected by classes to three-year terms, so that one of the
three classes of the directors of MBI will be elected at each
annual meeting of the shareholders. While this provision promotes
stability and continuity of the Board of Directors, classification
of the Board of Directors may also have the effect of decreasing
the number of directors that could otherwise be elected at each
annual meeting of shareholders by a person who obtains a
controlling interest in the MBI Common Stock and thereby could
impede a change in control of MBI. Because fewer directors will be
elected at each annual meeting, such classification also will
reduce the effectiveness of cumulative voting as a means of
establishing or increasing minority representation on the Board of
Directors.
OTHER MATTERS. MBI's Restated Articles of Incorporation
and By-Laws also contain provisions which: (i) require the
affirmative vote of holders of at least 75% of the voting power of
all of the shares of outstanding capital stock of MBI entitled to
vote in the election of directors to remove a director or directors
without cause; (ii) require the affirmative vote of the holders of
at least 75% of the voting power of all shares of the outstanding
capital stock of MBI to approve certain "business combinations"
with "interested parties" unless at least two-thirds of the Board
of Directors first approves such business combinations; and
(iii) require an affirmative vote of at least 75% of the voting
power of all shares of the outstanding capital stock of MBI for the
amendment, alteration, change or repeal of any of the above
provisions unless at least two-thirds of the Board of Directors
first approves such an amendment, alteration, change or repeal.
Such provisions may be deemed to have an anti-takeover effect.
- 73 -
<PAGE> 80
RESTRICTIONS ON RESALE OF MBI STOCK BY AFFILIATES
Under Rule 145 of the Securities Act, certain persons who
receive MBI Common Stock pursuant to the Merger and who are deemed
to be "affiliates" of First Financial will be limited in their
right to resell the stock so received. The term "affiliate" is
defined to include any person who, directly or indirectly,
controls, or is controlled by, or is under common control with
First Financial at the time the Merger is submitted to a vote of
the shareholders of First Financial. Each affiliate of First
Financial (generally each director and executive officer of First
Financial and each shareholder who beneficially owns a substantial
number of outstanding shares of First Financial Common Stock) who
desires to resell the MBI Common Stock received in the Merger must
sell such stock either pursuant to an effective Registration
Statement or in accordance with an applicable exemption, such as
the applicable provisions of Rule 145(d) under the Securities Act.
Rule 145(d) provides that persons deemed to be affiliates
may resell their stock received in the Merger pursuant to certain
of the requirements of Rule 144 under the Securities Act if such
stock is sold within the first two years after the receipt thereof.
After two years, if such person is not an affiliate of MBI and if
MBI is current with respect to its required public filings, a
former affiliate of First Financial may freely resell the stock
received in the Merger without limitation. After three years from
the issuance of the stock, if such person is not an affiliate of
MBI at the time of sale and for at least three months prior to such
sale, such person may freely resell such stock, without limitation,
regardless of the status of MBI's required public filings. The
shares of MBI Common Stock to be received by affiliates of First
Financial in the Merger will be legended as to the restrictions
imposed upon resale of such stock.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF MBI AND FIRST FINANCIAL
Each of MBI and First Financial is incorporated under the
laws of the State of Missouri. The rights of MBI's shareholders
are governed by MBI's Restated Articles of Incorporation and By-
Laws and the Missouri Act. The rights of First Financial
shareholders are governed by First Financial's Articles of
Incorporation and By-Laws and the Missouri Act. The rights of
First Financial shareholders who receive shares of MBI Common Stock
in the Merger will thereafter be governed by MBI's Restated
Articles of Incorporation and By-Laws and by the Missouri Act. The
material rights of such shareholders, and, where applicable, the
differences between the rights of MBI shareholders and First
Financial shareholders, are summarized below. The summary is
qualified in its entirety by reference to the Missouri Act, the
Restated Articles of Incorporation and By-Laws of MBI and the
Articles of Incorporation and By-Laws of First Financial.
PREFERRED SHARE PURCHASE RIGHTS PLAN. As described above
under "- Preferred Share Purchase Rights Plan," MBI Common Stock
has attached Rights, which may deter certain takeover proposals.
First Financial does not have a rights plan.
SUPERMAJORITY PROVISIONS. MBI's Restated Articles of
Incorporation and By-Laws contain provisions requiring a
supermajority vote of the shareholders of MBI to approve certain
proposals. Under both MBI's Restated Articles and By-Laws, removal
by the shareholders of the entire Board of Directors or any
individual director from office without cause requires the
affirmative vote of not less than 75% of the total votes entitled
to be voted at a meeting of shareholders called for the election of
directors. Amendment by the shareholders of MBI's Restated
Articles or By-Laws relating to (i) the number or qualification of
directors; (ii) the classification of the Board of Directors; (iii)
the filling of vacancies on the Board of Directors; or (iv) the
removal of directors, requires the affirmative vote of not less
than 75% of the total votes of MBI's then outstanding shares of
capital stock entitled to vote, voting together as a single class,
unless such amendment has previously been expressly approved by at
least two-thirds of the
- 74 -
<PAGE> 81
Board of Directors. The Restated Articles of MBI additionally provide
that, in addition to any shareholder vote required under the Missouri Act,
the affirmative vote of the holders of not less than 75% of the total
votes to which all of the then outstanding shares of capital stock of MBI
are entitled, voting together as a single class (the "Voting Stock"),
shall be required for the approval of any Business Combination. A
"Business Combination" is defined generally to include sales, exchanges,
leases, transfers or other dispositions of assets, mergers or
consolidations, issuances of securities, liquidations or dissolutions of
MBI, reclassifications of securities or recapitalizations of MBI,
involving MBI on the one hand, and an Interested Shareholder or an
affiliate of an Interested Shareholder (as defined in MBI's Restated
Articles) on the other hand. If, however, at least two-thirds of the
Board of Directors of MBI approve the Business Combination, such Business
Combination shall require only the vote of shareholders as provided by
Missouri law or otherwise. The amendment of the provisions of MBI's
Restated Articles relating to the approval of Business Combinations
requires the affirmative vote of the holders of at least 75% of the Voting
Stock unless such amendment has previously been approved by at
least two-thirds of the Board of Directors. To the extent that a
potential acquiror's strategy depends on the passage of proposals
which require a supermajority vote of MBI's shareholders, such
provisions requiring a supermajority vote may have the effect of
discouraging takeover attempts that do not have Board approval by
making passage of such proposals more difficult.
First Financial's Articles of Incorporation and By-Laws
also contain provisions requiring a supermajority vote of
shareholders to approve certain proposals. Under First Financial's
Articles of Incorporation, amendments to the Articles of
Incorporation with respect to indemnification require the
affirmative vote of at least 80% of the total shares entitled to
vote in the election of directors.
VOTING FOR DIRECTORS. MBI's By-Laws provide for
cumulative voting in the election of directors. Cumulative voting
entitles each shareholder to cast an aggregate number of votes
equal to the number of voting shares held, multiplied by the number
of directors to be elected. Each shareholder may cast all such
votes for one nominee or distribute them among two or more
nominees, thus permitting holders of less than a majority of the
outstanding shares of voting stock to achieve board representation.
First Financial's Articles of Incorporation and By-Laws do not
provide for cumulative voting. In contrast to cumulative voting,
under non-cumulative voting, the holders of a majority of
outstanding shares of voting stock may elect the entire Board of
Directors, thereby precluding the election of any directors by the
holders of less than a majority of the outstanding shares of voting
stock.
CLASSIFIED BOARD. As described under "- Classification
of Board of Directors," the Board of Directors of MBI is divided
into three classes of directors, with each class being elected to
a staggered three-year term. By reducing the number of directors
to be elected in any given year, the existence of a classified
Board diminishes the benefits of the cumulative voting rights to
minority shareholders. First Financial does not have a classified
Board of Directors.
ACTION BY SHAREHOLDERS OR SHAREHOLDERS WITHOUT A MEETING.
Under the Missouri Act, the written action of shareholders is
permitted unless the Articles of Incorporation or By-Laws of the
corporation provide otherwise. MBI's By-Laws provide that any
action required to be taken at a meeting of the shareholders, or
any action which may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all
of the shareholders. First Financial's By-Laws provide that any
action of the shareholders or Board of Directors may be taken upon
the written consent of all the shareholders entitled to vote
thereupon or all of the members of the Board of Directors, as the
case may be.
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<PAGE> 82
ANTI-TAKEOVER STATUTES. The Missouri Act contains
certain provisions applicable to Missouri corporations such as MBI
which may be deemed to have an anti-takeover effect. Such
provisions include Missouri's business combination statute and the
control share acquisition statute.
The Missouri business combination statute protects
domestic corporations after hostile takeovers by prohibiting
certain transactions once an acquiror has gained control. The
statute restricts certain "Business Combinations" between a
corporation and an "Interested Shareholder" or affiliates of the
Interested Shareholder for a period of five years unless certain
conditions are met. A "Business Combination" includes a merger or
consolidation, certain sales, leases, exchanges, pledges and
similar dispositions of corporate assets or stock and certain
reclassifications and recapitalizations. An "Interested
Shareholder" includes any person or entity which beneficially owns
or controls 20% or more of the outstanding voting shares of the
corporation.
During the initial five-year restricted period, no
Business Combination may occur unless such Business Combination or
the transaction in which an Interested Shareholder becomes
"interested" is approved by the board of directors of the
corporation. Business Combinations may occur during such five-year
period if: (i) prior to the stock acquisition by the Interested
Shareholder, the board of directors approves the transaction in
which the Interested Shareholder became an Interested Shareholder
or approves the Business Combination in question; (ii) the holders
of a majority of the outstanding voting stock, other than stock
owned by the Interested Shareholder, approve the Business
Combination; or (iii) the Business Combination satisfies certain
detailed fairness and procedural requirements.
The Missouri Act exempts from its provisions:
(i) corporations not having a class of voting stock registered
under Section 12 of the Exchange Act; (ii) corporations which adopt
provisions in their articles of incorporation or bylaws expressly
electing not to be covered by the statute; and (iii) certain
circumstances in which a shareholder inadvertently becomes an
Interested Shareholder. MBI's Restated Articles of Incorporation
and By-Laws do not "opt out" of the Missouri business combination
statute. First Financial is not subject to the statute because it
does not have a class of stock registered under Section 12 of the
Exchange Act.
The Missouri Act also contains a "Control Share
Acquisition Statute" which provides that an "Acquiring Person" who
after any acquisition of shares of a publicly traded corporation
has the voting power, when added to all shares of the same
corporation previously owned or controlled by the Acquiring Person,
to exercise or direct the exercise of: (i) 20% but less than 33%,
(ii) 33% or more but less than a majority or (iii) a majority, of
the voting power of outstanding stock of such corporation, must
obtain shareholder approval for the purchase of the "Control
Shares." If approval is not given, the Acquiring Person's shares
lose the right to vote. The statute prohibits an Acquiring Person
from voting its shares unless certain disclosure requirements are
met and the retention or restoration of voting rights is approved
by both: (i) a majority of the outstanding voting stock, and (ii) a
majority of the outstanding voting stock after exclusion of
"Interested Shares." Interested Shares are defined as shares owned
by the Acquiring Person, by directors who are also employees, and
by officers of the corporation. Shareholders are given dissenters'
rights with respect to the vote on Control Share Acquisitions and
may demand payment of the fair value of their shares.
A number of acquisitions of shares are deemed not to
constitute Control Share Acquisitions, including good faith gifts,
transfers pursuant to wills, purchases pursuant to an issuance by
the corporation, mergers involving the corporation which satisfy
the other requirements of the Missouri Act, transactions with a
person who owned a majority of the voting power of the corporation
within the prior year, or purchases from a person who has
previously satisfied the provisions of the Control Share
Acquisition Statute so long as the transaction does not result in
the purchasing party having voting power
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<PAGE> 83
after the purchase in a percentage range (such ranges are as set forth in
the immediately preceding paragraph) beyond the range for which the
selling party previously satisfied the provisions of the statute.
Additionally, a corporation may exempt itself from application of the
statute by inserting a provision in its articles of incorporation or
bylaws expressly electing not to be covered by the statute. Neither MBI's
Restated Articles of Incorporation and By-Laws nor First Financial's
Articles of Incorporation and By-Laws "opt out" of the Control Share
Acquisition Statute.
DISSENTERS' RIGHTS. Under Section 351.455 of the
Missouri Act, a shareholder of any corporation which is a party to
a merger or consolidation, or which sells all or substantially all
of its assets, has the right to dissent from such corporate action
and to demand payment of the value of such shares.
SHAREHOLDERS' RIGHT TO INSPECT. Under Section 351.215 of
the Missouri Act, each shareholder may at all proper times have
access to and examine the books of the company.
SIZE OF BOARD OF DIRECTORS. As permitted under the
Missouri Act, the number of directors on the Board of Directors of
MBI is set forth in MBI's By-Laws, which provide that the number of
directors may be fixed from time to time at not less than 12 nor
more than 24 by an amendment of the By-Laws or by a resolution of
the Board of Directors, in either case, adopted by the vote or
consent of at least two-thirds of the number of directors then
authorized under the By-Laws. The number of directors on the Board
of Directors of First Financial is set forth in First Financial's
By-Laws, which provide that the number of directors shall be ten
unless and until such number is changed by a resolution of the
Board of Directors.
SUPERVISION AND REGULATION
--------------------------
GENERAL
As a bank holding company, MBI is subject to regulation
under the BHCA and its examination and reporting requirements.
Under the BHCA, a bank holding company may not directly or
indirectly acquire the ownership or control of more than 5% of the
voting shares or substantially all of the assets of any company,
including a bank or savings and loan association, without the prior
approval of the Federal Reserve Board. In addition, bank holding
companies are generally prohibited under the BHCA from engaging in
nonbanking activities, subject to certain exceptions.
As a savings and loan holding company, MBI is also
subject to regulatory oversight by the Office of Thrift Supervision
(the "OTS"). As such, MBI is required to register and file reports
with the OTS and is subject to regulation by the OTS. In addition,
the OTS has enforcement authority over MBI which permits the OTS to
restrict or prohibit activities that are determined to be a serious
risk to its subsidiary savings association.
MBI and its subsidiaries are subject to supervision and
examination by applicable federal and state banking agencies. The
earnings of MBI's subsidiaries, and therefore the earnings of MBI,
are affected by general economic conditions, management policies
and the legislative and governmental actions of various regulatory
authorities, including the Federal Reserve Board, the OTS, the
FDIC, the Office of the Comptroller of the Currency (the
"Comptroller") and various state financial institution regulatory
agencies. In addition, there are numerous governmental
requirements and regulations that affect the activities of MBI and
its subsidiaries.
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<PAGE> 84
CERTAIN TRANSACTIONS WITH AFFILIATES
There are various legal restrictions on the extent to
which a bank holding company and certain of its nonbank
subsidiaries can borrow or otherwise obtain credit from its bank
subsidiaries. In general, these restrictions require that any such
extensions of credit must be on non-preferential terms and secured
by designated amounts of specified collateral and be limited, as to
any one of the holding company or such nonbank subsidiaries, to 10%
of the lending bank's capital stock and surplus, and as to the
holding company and all such nonbank subsidiaries in the aggregate,
to 20% of such capital stock and surplus.
PAYMENT OF DIVIDENDS
MBI is a legal entity separate and distinct from its
wholly owned financial institutions and other subsidiaries. The
principal source of MBI's revenues is dividends from its financial
institution subsidiaries. Various federal and state statutory
provisions limit the amount of dividends the affiliate financial
institutions can pay to MBI without regulatory approval. The
approval of the appropriate federal or state bank regulatory
agencies is required for any dividend if the total of all dividends
declared by the bank in any calendar year would exceed the total of
the institutions net profits, as defined by regulatory agencies,
for such year combined with its retained net profits for the
preceding two years. In addition, a national bank or a state
member bank may not pay a dividend in an amount greater than its
net profits then on hand. The payment of dividends by any
financial institution subsidiary may also be affected by other
factors, such as the maintenance of adequate capital.
CAPITAL ADEQUACY
The Federal Reserve Board has issued standards for
measuring capital adequacy for bank holding companies. These
standards are designed to provide risk-responsive capital
guidelines and to incorporate a consistent framework for use by
financial institutions operating in major international financial
markets. The banking regulators have issued standards for banks
that are similar to, but not identical with, the standards for bank
holding companies.
In general, the risk-related standards require financial
institutions and financial institution holding companies to
maintain capital levels based on "risk adjusted" assets, so that
categories of assets with potentially higher credit risk will
require more capital backing than categories with lower credit
risk. In addition, financial institutions and financial
institution holding companies are required to maintain capital to
support off-balance sheet activities such as loan commitments.
FDIC INSURANCE ASSESSMENTS
The subsidiary depository institutions of MBI are subject
to FDIC deposit insurance assessments. The FDIC has adopted a
risk-based premium schedule. Each financial institution is assigned
to one of three capital groups--well capitalized, adequately
capitalized or undercapitalized--and further assigned to one of
three subgroups within a capital group, on the basis of supervisory
evaluations by the institution's primary federal and, if
applicable, state supervisors, and on the basis of other
information relevant to the institution's financial condition and
the risk posed to the applicable insurance fund. The actual
assessment rate applicable to a particular institution will,
therefore, depend in part upon the risk assessment classification
so assigned to the institution by the FDIC. See "- FIRREA and
FDICIA."
The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), adopted in August 1989 to
provide for the resolution of insolvent savings associations,
required the FDIC
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<PAGE> 85
to establish separate deposit insurance funds -- the Bank Insurance Fund
("BIF") for banks and the Savings Association Insurance Fund ("SAIF") for
savings associations. FIRREA also required the FDIC to set deposit
insurance assessments at such levels as would cause BIF and SAIF to reach
their "designated reserve ratios" of 1.25 percent of the deposits insured
by them within a reasonable period of time. Due to low costs of
resolving bank insolvencies in the last few years, BIF reached its
designated reserve ratio in May 1995. As a result, effective
January 1, 1996, the FDIC eliminated deposit insurance assessments
(except for the minimum $2,000 payment required by law) for banks
that are well capitalized and well managed and reduced the deposit
insurance assessments for all other banks.
The balance in SAIF is not expected to reach the
designated reserve ratio until about the year 2002, as FIRREA
provides that a significant portion of the costs of resolving past
insolvencies of savings associations must be paid from this source.
Currently, SAIF-member institutions pay deposit insurance premiums
based on a schedule of from $.23 to $.31 per $100.00 of deposits.
Accordingly, it is likely that the SAIF rates will be substantially
higher than the BIF rates in the future. MBI, which has acquired
substantial amounts of SAIF-insured deposits during the years from
1989 to the present, is required to pay SAIF deposit insurance
premiums on these SAIF-insured deposits. Bills have been proposed
by the U. S. Congress to recapitalize the SAIF through a one-time
special assessment of approximately 85 basis points on the amount
of deposits held by the institution. If such special assessment
occurs, it is expected that the deposit premiums paid by SAIF-
member institutions would be reduced to approximately $.04 for
every $100.00 of deposits and would have the effect of immediately
reducing the capital of SAIF-member institutions by the amount of
the fee. MBI cannot predict whether the special assessment
proposal will be enacted, or, if enacted, the amount of any one-
time fee, or whether ongoing SAIF premiums will be reduced to a
level equal to that of BIF premiums. If the one-time assessment is
not enacted, it is presently expected that the SAIF deposit
premiums will continue at their present rate.
PROPOSALS TO OVERHAUL THE SAVINGS ASSOCIATION INDUSTRY
Proposals recently have been introduced in the U.S.
Congress that, if adopted, would overhaul the savings association
industry. The most significant of these proposals would
recapitalize the SAIF through a one-time special assessment (see "-
FDIC Insurance Assessments"), spread the Financing Corp., or FICO,
Bond obligation across the BIF and SAIF, merge the Comptroller and
the OTS, abolish the federal savings association charter, require
federal thrifts to convert to commercial banks and merge the SAIF
and the BIF. MBI cannot predict whether these or any other
legislative proposals will be enacted, or, if enacted, the final
form of the law.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, MBI is expected to
act as a source of financial strength to each subsidiary bank and
to commit resources to support each of the subsidiaries in
circumstances where it might not choose to do so absent such a
policy. This support may be required at times when MBI may not
find itself able to provide it. In addition, any capital loans by
MBI to any of its subsidiaries would also be subordinate in right
of payment to deposits and certain other indebtedness of such
subsidiary.
Consistent with this policy regarding bank holding
companies serving as a source of financial strength for their
subsidiary banks, the Federal Reserve Board has stated that, as a
matter of prudent banking, a bank holding company generally should
not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fully fund
the dividends and the prospective rate of earnings retention
appears consistent with the bank holding company's capital needs,
asset quality and overall financial condition.
- 79 -
<PAGE> 86
FIRREA AND FDICIA
FIRREA contains a cross-guarantee provision which could
result in insured depository institutions owned by MBI being
assessed for losses incurred by the FDIC in connection with
assistance provided to, or the failure of, any other insured
depository institution owned by MBI. Under FIRREA, failure to meet
the capital guidelines could subject a banking institution to a
variety of enforcement remedies available to federal regulatory
authorities, including the termination of deposit insurance by the
FDIC.
The Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") made extensive changes to the federal banking
laws. FDICIA instituted certain changes to the supervisory
process, including provisions that mandate certain regulatory
agency actions against undercapitalized institutions within
specified time limits. FDICIA contains various other provisions
that may affect the operations of banks and savings institutions.
The prompt corrective action provision of FDICIA requires
the federal banking regulators to assign each insured institution
to one of five capital categories ("well capitalized," "adequately
capitalized" or one of three "undercapitalized" categories) and to
take progressively more restrictive actions based on the capital
categorization, as specified below. Under FDICIA, capital
requirements would include a leverage limit, a risk-based capital
requirement and any other measure of capital deemed appropriate by
the federal banking regulators for measuring the capital adequacy
of an insured depository institution. All institutions, regardless
of their capital levels, are restricted from making any capital
distribution or paying any management fees that would cause the
institution to fail to satisfy the minimum levels for any relevant
capital measure.
The FDIC and the Federal Reserve Board adopted capital-
related regulations under FDICIA. Under those regulations, a bank
will be well capitalized if it: (i) had a risk-based capital ratio
of 10% or greater; (ii) had a ratio of Tier 1 capital to risk-
adjusted assets of 6% or greater; (iii) had a ratio of Tier 1
capital to adjusted total assets of 5% or greater; and (iv) was not
subject to an order, written agreement, capital directive, or
prompt corrective action directive to meet and maintain a specific
capital level for any capital measure. An association will be
adequately capitalized if it was not "well capitalized" and:
(i) had a risk-based capital ratio of 8% or greater; (ii) had a
ratio of Tier 1 capital to risk-adjusted assets of 4% or greater;
and (iii) had a ratio of Tier 1 capital to adjusted total assets of
4% or greater (except that certain associations rated "Composite 1"
under the federal banking agencies' CAMEL rating system may be
adequately capitalized if their ratios of core capital to adjusted
total assets were 3% or greater).
FDICIA also makes extensive changes in existing rules
regarding audits, examinations and accounting. It generally
requires annual on-site, full scope examinations by each bank's
primary federal regulator. It also imposes new responsibilities on
management, the independent audit committee and outside accountants
to develop or approve reports regarding the effectiveness of
internal controls, legal compliance and off-balance sheet
liabilities and assets.
DEPOSITOR PREFERENCE STATUTE
Legislation enacted in August 1993 provides a preference
for deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution, in
the liquidation or other resolution of such an institution by any
receiver. Such obligations would be afforded priority over other
general unsecured claims against such an institution, including
federal funds and letters of credit, as well as any obligation to
shareholders of such an institution in their capacity as such.
- 80 -
<PAGE> 87
THE INTERSTATE BANKING AND COMMUNITY DEVELOPMENT LEGISLATION
In September 1994, legislation was enacted that is
expected to have a significant effect in restructuring the banking
industry in the United States. The Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (Riegle-Neal) facilitates
the interstate expansion and consolidation of banking organizations
by permitting (i) bank holding companies that are adequately
capitalized and managed, one year after enactment of the
legislation, to acquire banks located in states outside their home
states regardless of whether such acquisitions are authorized under
the law of the host state, (ii) the interstate merger of banks
after June 1, 1997, subject to the right of individual states to
"opt in" or to "opt out" of this authority before that date, (iii)
banks to establish new branches on an interstate basis provided
that such action is specifically authorized by the law of the host
state, (iv) foreign banks to establish, with approval of the
regulators in the United States, branches outside their home states
to the same extent that national or state banks located in the home
state would be authorized to do so, and (v) banks to receive
deposits, renew time deposits, close loans, service loans and
receive payments on loans and other obligations as agent for any
bank or thrift affiliate, whether the affiliate is located in the
same state or a different state. One effect of Riegle-Neal is to
permit MBI to acquire banks located in any state and to permit bank
holding companies located in any state to acquire banks and bank
holding companies in Missouri. Overall, Riegle-Neal is likely to
have the effects of increasing competition and promoting geographic
diversification in the banking industry.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
-----------------------------------------
KPMG Peat Marwick LLP served as MBI's independent
accountants for the year ended December 31, 1995 and continues to
serve in such capacity. Services provided in connection with the
audit function included examination of the annual consolidated
financial statements, review and consultation regarding filings
with the Commission and other regulatory authorities and
consultation on financial accounting and reporting matters.
Williams-Keepers, LLP served as First Financial's
independent accountants for the year ended December 31, 1995 and
continues to serve in such capacity. Services provided in
connection with the audit function included examination of the
annual consolidated financial statements, review and consultation
regarding filings with regulatory authorities and consultation on
financial accounting and reporting matters. Williams-Keepers, LLP
intends to have a representative present at the Special Meeting to
answer relevant questions regarding the Merger.
LEGAL MATTERS
-------------
Certain legal matters will be passed upon for MBI by
Thompson Coburn, St. Louis, Missouri and for First Financial by
Lewis, Rice & Fingersh L.C., St. Louis, Missouri.
EXPERTS
-------
The consolidated financial statements of Mercantile
Bancorporation Inc. as of December 31, 1995, 1994 and 1993, and for
each of the years in the three-year period ended December 31, 1995,
incorporated by reference in MBI's Annual Report on Form 10-K, and
the supplemental consolidated financial statements of Mercantile
Bancorporation Inc. as of December 31, 1995, 1994 and 1993, and for
each of the years in the three-year period ended December 31, 1995,
contained in MBI's Current Report on Form 8-K dated March 11, 1996,
have been incorporated by reference herein in reliance upon the
reports of KPMG Peat Marwick LLP, independent
- 81 -
<PAGE> 88
certified public accountants, incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of First Financial
Corporation of America as of December 31, 1995, 1994 and 1993 and
for each of the years in the three-year period ended December 31,
1995 have been included herein in reliance upon the report of
Williams-Keepers, LLP, independent certified public accountants,
whose report is included herein, and upon the authority of such
firm as experts in accounting and auditing.
OTHER MATTERS
-------------
The Board of Directors of First Financial, at the date
hereof, is not aware of any business to be presented at the Special
Meeting other than that referred to in the Notice of Special
Meeting and discussed herein. If any other matter should properly
come before the Special Meeting, the persons named as proxies will
have discretionary authority to vote the shares represented by
proxies in accordance with their discretion and judgment as to the
best interests of First Financial.
SHAREHOLDER PROPOSALS
---------------------
If the Merger is approved, the other conditions to the
Merger are satisfied and the Merger is consummated, shareholders of
First Financial will become shareholders of MBI at the Effective
Time. MBI shareholders may submit to MBI proposals for formal
consideration at the 1997 annual meeting of MBI's shareholders and
inclusion in MBI's proxy statement for such meeting. All such
proposals to be considered for inclusion in MBI's Proxy Statement
and proxy for the 1997 annual meeting must be received in writing
by the Corporate Secretary at Mercantile Bancorporation Inc., P.O.
Box 524, St. Louis, Missouri 63166-0524 by November 22, 1996.
- 82 -
<PAGE> 89
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
INDEX
-----
Page
----
INDEPENDENT ACCOUNTANTS' REPORT . . . . . . . . . . . . . . . F-1
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995
AND 1994 AND JUNE 30, 1996 (UNAUDITED) AND
1995 (UNAUDITED) . . . . . . . . . . . . . . . . . . F-2
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS
ENDED DECEMBER 31, 1995, 1994, AND 1993
AND FOR THE SIX MONTHS ENDED JUNE 30,
1996 (UNAUDITED) AND 1995 (UNAUDITED) . . . . . . . F-3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCK-
HOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994, AND 1993 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED) AND 1995 (UNAUDITED) . . . . . . . . . . F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE SIX MONTHS ENDED JUNE 30,
1996 (UNAUDITED) AND 1995 (UNAUDITED) . . . . . . . F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . F-6 to F-14
- 83 -
<PAGE> 90
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of
First Financial Corporation of America and Subsidiary
Salem, Missouri
We have audited the accompanying consolidated balance sheets of First
Financial Corporation of America and Subsidiary as of December 31, 1995 and
1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Financial Corporation of America and Subsidiary as of December 31, 1995 and
1994, and the results of their operations and cash flows for each of the
years in the three year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in the Notes to the Financial Statements, the Company changed
its method of accounting for income taxes in 1993, investments in 1994, and
impaired loans in 1995.
/s/ Williams-Keepers, LLP
Columbia, Missouri
March 15, 1996
F-1
<PAGE> 91
<TABLE>
FIRST FINANCIAL CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
AND JUNE 30, 1996 AND 1995 (UNAUDITED)
<CAPTION>
December 31, June 30,
-------------------------- --------------------------
1995 1994 1996 1995
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 2,113,431 $ 2,537,088 $ 3,845,321 $ 2,594,334
Federal funds sold 2,375,000 1,300,000 150,000 700,000
Securities available-for-sale 27,105,167 30,182,868 33,100,849 29,868,358
Loans, net 46,726,096 40,801,435 46,860,757 43,892,654
Property and equipment, net 1,911,556 2,143,700 1,808,916 2,059,097
Other investments 434,727 395,489 449,525 410,517
Accrued interest receivable 783,567 746,659 870,247 782,431
Deferred income taxes 142,788 825,000 363,871 264,120
Other assets 79,269 64,470 58,388 206,616
----------- ----------- ----------- -----------
Total assets $81,671,601 $78,996,709 $87,507,874 $80,778,127
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand, non-interest bearing $ 7,295,330 $ 8,752,973 $ 7,494,303 $ 7,804,184
Demand and savings, interest bearing 25,601,342 24,069,529 27,280,361 24,716,408
Time deposits, $100,000 and over 3,747,518 3,288,829 6,628,738 3,475,556
Other time deposits 33,708,204 32,148,216 34,301,907 33,477,478
----------- ----------- ----------- -----------
Total deposits 70,352,394 68,259,547 75,705,309 69,473,626
Repurchase agreements 276,057 976,057 720,399 482,309
Accrued interest payable 353,118 281,702 349,143 335,518
Accrued income taxes (receivable) payable (57,096) 60,711 68,822 (62,002)
Other liabilities 248,295 280,376 220,849 149,038
----------- ----------- ----------- -----------
Total liabilities 71,172,768 69,858,393 77,064,522 70,378,489
----------- ----------- ----------- -----------
Stockholders' equity
Common stock, $.10 par value; authorized 80,000
shares: issued and outstanding 76,927 shares 7,693 7,693 7,693 7,693
Additional paid-in capital 771,077 771,077 771,077 771,077
Retained earnings 9,806,446 9,654,539 10,140,312 9,827,094
Unrealized (loss) on securities available-for-sale,
net of applicable deferred income taxes (86,383) (1,294,993) (475,730) (206,226)
----------- ----------- ----------- -----------
Total stockholders' equity 10,498,833 9,138,316 10,443,352 10,399,638
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $81,671,601 $78,996,709 $87,507,874 $80,778,127
=========== =========== =========== ===========
The notes to consolidated financial statements are an integral part of these statements.
</TABLE>
F-2
<PAGE> 92
<TABLE>
FIRST FINANCIAL CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1994, and 1993
and Six Months Ended June 30, 1996 and 1995 (unaudited)
<CAPTION>
December 31, June 30,
---------------------------------- -----------------------
1995 1994 1993 1996 1995
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $4,153,658 $3,237,682 $3,192,220 $2,263,638 $1,969,370
Interest on investment securities
U.S. Treasury securities 373,071 511,725 670,243 211,005 211,183
U.S. government agencies 1,248,386 1,212,714 1,090,215 599,326 600,405
Obligations of state and political
subdivisions 180,463 238,460 239,089 74,019 99,957
Other securities 46,019 40,649 122,410 14,725 20,024
Interest on federal funds sold and repurchase
agreements 102,263 61,149 64,039 65,503 54,918
---------- ---------- ---------- ---------- ----------
Total interest income 6,103,860 5,302,379 5,378,216 3,228,216 2,955,857
INTEREST EXPENSE
Interest on deposits 2,692,993 1,963,214 1,958,557 1,429,111 1,294,462
---------- ---------- ---------- ---------- ----------
Net interest income 3,410,867 3,339,165 3,419,659 1,799,105 1,661,395
Provision for loan losses - - 60,000 12,000 -
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 3,410,867 3,339,165 3,359,659 1,787,105 1,661,395
---------- ---------- ---------- ---------- ----------
OTHER INCOME
Service fees 264,210 293,949 293,754 144,424 137,983
Gain (loss) on security sales (36,893) 91,554 - - (68,939)
Rent 14,163 12,755 14,155 3,150 7,000
Income of unconsolidated subsidiary 48,842 57,193 - 19,600 17,429
Insurance commissions 176,357 190,730 172,577 - 91,897
Other 244,489 46,274 49,684 48,184 38,442
---------- ---------- ---------- ---------- ----------
Total other income 711,168 692,455 530,170 215,358 223,812
---------- ---------- ---------- ---------- ----------
OTHER EXPENSE
Salaries 1,301,318 1,200,376 1,210,174 623,606 610,987
Employee benefits and payroll costs 267,653 297,969 278,140 142,435 132,771
Occupancy expenses 191,300 166,187 141,848 84,178 96,362
Other operating expenses 934,101 900,558 834,851 348,143 519,077
---------- ---------- ---------- ---------- ----------
Total other expense 2,694,372 2,565,090 2,465,013 1,198,362 1,359,197
---------- ---------- ---------- ---------- ----------
Income before income taxes and
cumulative effect of accounting change 1,427,663 1,466,530 1,424,816 804,101 526,010
Provision for income taxes 429,561 405,678 443,957 277,917 161,137
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
accounting change. 998,102 1,060,852 980,859 526,184 364,873
Cumulative effect of accounting change - - 135,882 - -
---------- ---------- ---------- ---------- ----------
Net income $ 998,102 $1,060,852 $1,116,741 $ 526,184 $ 364,873
========== ========== ========== ========== ==========
The notes to consolidated financial statements are an integral part of these statements.
</TABLE>
F-3
<PAGE> 93
<TABLE>
FIRST FINANCIAL CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994, and 1993
and Six Months Ended June 30, 1996 and 1995 (unaudited)
<CAPTION>
Unrealized
(Loss) on
Securities
Common Additional Retained Available for
Shares Par Value Paid-in Capital Earnings Sale Total
-------- ----------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 76,827 $ 7,683 $ 760,587 $ 9,167,990 $ - $ 9,936,260
Dividends paid - - - (845,097) - (845,097)
Net income - - - 1,116,741 - 1,116,741
------ ------- --------- ----------- ----------- -----------
Balance, December 31, 1993 76,827 7,683 760,587 9,439,634 - 10,207,904
Dividends paid - - - (845,947) - (845,947)
Net income - - - 1,060,852 - 1,060,852
Treasury stock sold 100 10 10,490 - - 10,500
Change in unrealized (losses) on
securities available-for-sale, net of
applicable deferred income taxes - - - - (1,294,993) (1,294,993)
------ ------- --------- ----------- ----------- -----------
Balance, December 31, 1994 76,927 7,693 771,077 9,654,539 (1,294,993) 9,138,316
Dividends paid - - - (846,195) - (846,195)
Net income - - - 998,102 - 998,102
Change in unrealized (losses) on
securities available-for-sale, net of
applicable deferred income taxes - - - - 1,208,610 1,208,610
------ ------- --------- ----------- ----------- -----------
Balance, December 31, 1995 76,927 $ 7,693 $ 771,077 $ 9,806,446 $ (86,383) $10,498,833
====== ======= ========= =========== =========== ===========
Balance, December 31, 1994 76,927 $ 7,693 $ 771,077 $ 9,654,539 $(1,294,993) $ 9,138,316
Dividends paid - - - (192,318) - (192,318)
Net income - - - 364,873 - 364,873
Change in unrealized (losses) on
securities available-for-sale, net of
applicable deferred income taxes - - - - 1,088,767 1,088,767
------ ------- --------- ----------- ----------- -----------
Balance, June 30, 1995 (unaudited) 76,927 $ 7,693 $ 771,077 $ 9,827,094 $ (206,226) $10,399,638
====== ======= ========= =========== =========== ===========
Balance, December 31, 1995 76,927 $ 7,693 $ 771,077 $ 9,806,446 $ (86,383) $10,498,833
Dividends paid - - - (192,318) - (192,318)
Net income - - - 526,184 - 526,184
Change in unrealized (losses) on
securities available-for-sale, net of
applicable deferred income taxes - - - - (389,347) (389,347)
------ ------- --------- ----------- ----------- -----------
Balance, June 30, 1996 (unaudited) 76,927 $ 7,693 $ 771,077 $10,140,312 $ (475,730) $10,443,352
====== ======= ========= =========== =========== ===========
The notes to consolidated financial statements are an integral part of these statements.
</TABLE>
F-4
<PAGE> 94
<TABLE>
FIRST FINANCIAL CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994, and 1993
and Six Months Ended June 30, 1996 and 1995 (unaudited)
<CAPTION>
December 31, June 30,
---------------------------------------- --------------------------
1995 1994 1993 1996 1995
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 998,102 $ 1,060,852 $ 1,116,741 $ 526,184 $ 364,873
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 285,938 174,407 178,694 111,020 141,115
Investment security amortization 58,238 136,755 147,487 6,801 29,119
Loss (gain) on sale of securities 36,893 (91,554) - - 68,939
Provision for loan losses - - 60,000 12,000 -
Adjustments for (increases) decreases in
operating assets and increases (decreases) in
operating liabilities:
Accrued interest receivable (36,908) (4,403) 3,883 (86,680) (35,772)
Deferred income taxes receivable (excluding
deferred taxes on investment securities
available for sale) 59,595 (24,109) (133,773) (55,187) -
Other investments and assets (54,037) (47,575) 7,569 477 (69,456)
Accrued interest payable 71,416 66,351 (47,462) (3,975) 53,816
Accrued income taxes (117,807) 21,520 (123,085) 160,594 (122,712)
Other liabilities (32,081) (34,720) 8,724 (27,446) (131,338)
------------ ------------ ------------ ------------ ------------
Net cash provided by operating activities 1,269,349 1,257,524 1,218,778 643,788 298,584
------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of investment securities:
Available-for-sale (held-for-sale in 1993) (8,536,364) (8,619,238) (19,436,608) (10,240,144) (3,482,460)
Maturity of investment securities:
Available-for-sale (held-for-sale in 1993) 6,829,568 9,892,082 16,519,439 3,647,742 2,812,072
Sales of investment securities:
Available-for-sale 6,520,590 4,402,970 - - 2,536,486
Loans (originated), net (5,924,658) (5,412,128) (2,066,972) (146,661) (3,091,219)
Other real estate sold (acquired) - - 4,375 5,606 (87,718)
Net (purchase) of property and equipment (53,794) (811,844) (163,334) (8,380) (56,512)
------------ ------------ ------------ ------------ ------------
Net cash (used) by investing activities (1,164,658) (548,158) (5,143,100) (6,741,837) (1,369,351)
------------ ------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Net increase in deposits and repurchase
agreements 1,392,847 1,283,109 1,939,235 5,797,257 720,331
Treasury stock sold - 10,500 - -
Dividends paid (846,195) (845,947) (845,097) (192,318) (192,318)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities 546,652 447,662 1,094,138 5,604,939 528,013
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 651,343 1,157,028 (2,830,184) (493,110) (542,754)
Cash and cash equivalents, beginning of period 3,837,088 2,680,060 5,510,244 4,488,431 3,837,088
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 4,488,431 $ 3,837,088 $ 2,680,060 $ 3,995,321 $ 3,294,334
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES
Interest paid $ 2,621,577 $ 1,840,588 $ 1,935,418 $ 1,433,086 $ 1,240,646
============ ============ ============ ============ ============
Taxes paid $ 487,773 $ 409,629 $ 564,933 $ 172,510 $ 283,849
============ ============ ============ ============ ============
The notes to consolidated financial statements are an integral part of these statements.
</TABLE>
F-5
<PAGE> 95
FIRST FINANCIAL CORPORATION OF AMERICA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations: First Financial Corporation of America is the parent
holding company of First National Bank, located in Salem, Missouri. First
National Bank offers a variety of financial related products including
commercial, consumer, and real estate lending. The Bank's primary funding is
through demand, interest bearing demand and savings, and time deposit
products.
Principles of consolidation: The consolidated financial statements include
the accounts of First Financial Corporation of America and its wholly owned
subsidiary, First National Bank, and the Bank's wholly owned subsidiaries,
Central Ozark Insurance Agency, Inc., and Financial Ideas, Inc., after
elimination of all significant inter-company accounts and transactions.
Cash and cash equivalents: Cash and cash equivalents, for the statement of
cash flows, are composed of cash, due from banks and federal funds sold.
Investment securities: On January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Investments in debt and equity
securities are accounted for as follows:
- - Investment securities that management has the ability and intent to hold
to maturity are classified as held-to-maturity and carried at cost,
adjusted for amortization of premium and accretion of discounts using
the interest method. Other investment securities are classified as
available-for-sale and are carried at fair value. Unrealized gains and
losses on securities available-for-sale are recognized as direct
increases or decreases in stockholders' equity, net of deferred income
taxes. The cost of securities sold is recognized using the specific
identification method. At December 31, 1995 and 1994, all securities
are classified as available-for-sale.
- - Fair value represents the estimated market value of the underlying
securities and is generally obtained from the Bank's bond accounting
service. The Bank uses the market values reported by the bond
accounting service to adjust the carrying value of securities
available-for-sale and to disclose the fair value of securities
held-to-maturity.
Prior to the adoption of SFAS No. 115, the Company's accounting policy
regarding investment securities was as follows:
- - Investment securities are stated at cost adjusted for amortization of
premiums and accretion of discounts, which are recognized as
adjustments to interest income. Gains or losses on disposition are
based on the net proceeds and the adjusted carrying amount of the
securities sold, using the specific identification method.
Loans and allowance for loan losses: Loans are stated at the amount of
unpaid principal, adjusted by unearned discounts and an allowance for loan
losses. Interest on loans is calculated by using the simple interest method
on daily balances of the principal amount outstanding. The allowance for
loan losses is established through a provision for loan losses charged to
expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to
absorb possible losses on existing loans that may become uncollectible, based
on evaluation of the collectibility of loans and prior loan loss experience.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to the
extent cash payments are received, and the Bank is adequately collateralized.
On January 1, 1995, the Bank adopted SFAS 114, Accounting by Creditors for
Impairment of a Loan, and SFAS 118, Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures (an
F-6
<PAGE> 96
amendment of SFAS 114). These pronouncements require that the net present value
of future estimated cash flows relating to the impaired loans be computed. If
the net present value is less than the recorded value of the loans (computed on
loan by loan basis) on the Bank's records, a valuation allowance needs to be
provided for the difference. The adoption of these statements did not have a
material effect on the Company's financial condition or operating results for
1995.
Depreciation: Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided using both accelerated and straight
line methods for both book and tax purposes over the estimated useful lives
of the depreciable assets.
Income taxes: The Company files a consolidated income tax return with its
subsidiary Bank, and the Bank's subsidiaries. Deferred income taxes are
reported for temporary differences between items of income or expense
reported in the financial statements and those reported for income tax
purposes, in accordance with Statement of Financial Accounting Standards
(SFAS) No. 109.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
Significant estimates that are particularly susceptible to changes relate to
the determination of the allowance for losses on loans. While management
uses available and appropriate information to recognize the allowance for
losses on loans, future changes to the allowance may be necessary based on
changes in local or national economic conditions, regulatory agency
examination process, and other factors.
2. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities at
December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION> Gross Gross
1995 Amortized Unrealized Unrealized Fair
Cost Gain Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available-for-Sale
U.S. government and federal agencies $ 8,870,598 $ 15,012 $ 20,773 $ 8,864,837
Corporate securities 347,987 167 973 347,181
State and local governments 3,042,857 62,817 1,194 3,104,480
----------- --------- -------- -----------
12,261,442 77,996 22,940 12,316,498
Mortgage-backed securities 14,659,909 36,565 222,505 14,473,969
Stock in Federal Reserve Bank 48,000 - - 48,000
Stock in Federal Home Loan Bank (FHLB) 266,700 - - 266,700
----------- --------- -------- -----------
$27,236,051 $ 114,561 $245,445 $27,105,167
=========== ========= ======== ===========
<CAPTION>
<S> <C>
Unrealized Gains (Losses) on Securities Available-for-Sale
Gross unrealized gains $ 114,561
Gross unrealized (losses) (245,445)
---------
Net unrealized (losses) (130,884)
Deferred tax asset 44,501
---------
Net unrealized (losses) after taxes $ (86,383)
=========
</TABLE>
F-7
<PAGE> 97
<TABLE>
<CAPTION> Gross Gross
1994 Amortized Unrealized Unrealized Fair
Cost Gain Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available-for-sale
U.S. government and federal agencies $11,349,132 $ 3,012 $ 472,184 $10,879,960
Corporate securities 365,111 139 11,975 353,275
State and local governments 3,940,733 26,930 110,846 3,856,817
----------- ------- ---------- -----------
15,654,976 30,081 595,005 15,090,052
Mortgage-backed securities 16,175,303 12,114 1,409,301 14,778,116
Stock in Federal Reserve Bank 48,000 - - 48,000
Stock in Federal Home Loan Bank 266,700 - - 266,700
----------- ------- ---------- -----------
$32,144,979 $42,195 $2,004,306 $30,182,868
=========== ======= ========== ===========
<CAPTION>
<S> <C>
Unrealized Gains (Losses) on Securities Available-for-Sale
Gross unrealized gains $ 42,195
Gross unrealized (losses) (2,004,306)
-----------
Net unrealized (losses) (1,962,111)
Deferred tax asset 667,118
-----------
Net unrealized (losses) after taxes $(1,294,993)
===========
</TABLE>
The amortized cost and estimated fair value of investment securities
available-for-sale at December 31, 1995, by contractual maturity are shown
below. Expected maturities will differ from contractual maturities because
securities may have the right to call or prepay with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Amounts maturing in: Cost Value
----------- -----------
<S> <C> <C>
One year or less $ 1,412,385 $ 1,416,186
After one through five years 7,637,256 7,654,843
After five through ten years 2,248,117 2,275,875
After ten years 963,684 969,594
----------- -----------
12,261,442 12,316,498
Mortgage-backed securities 14,659,909 14,473,969
Stock in Federal Reserve Bank 48,000 48,000
Stock in Federal Home Loan Bank 266,700 266,700
----------- -----------
$27,236,051 $27,105,167
=========== ===========
</TABLE>
Gross gains and (losses) on sales of investment securities were as follows for
the year ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
Gains (Losses) Gains (Losses) Gains (Losses)
------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. government and federal
agencies $44,771 $(83,664) $ 4,053 $(9,699) $ - $ -
Corporate securities - - 93,500 - - -
State and local governments 2,000 - 3,700 - - -
------- -------- -------- ------- ------- --------
$46,771 $(83,664) $101,253 $(9,699) $ - $ -
======= ======== ======== ======= ======= ========
Net gain (loss) $(36,893) $91,554 $ -
======== ======= ========
</TABLE>
Investment securities with a carrying value of $5,475,130, $7,771,240, and
$7,915,369 were pledged at December 31, 1995, 1994, and 1993, respectively to
secure public deposits and for other purposes required or permitted by law.
F-8
<PAGE> 98
The investments in stock of the Federal Reserve Bank and the Federal Home
Loan Bank are recorded at cost, and are considered restricted assets.
3. LOANS
Major classifications of loans at December 31, 1995 and 1994, were as
follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Business and real estate $40,571,829 $34,759,928
Personal 6,830,421 6,788,260
Overdrafts 8,828 9,724
----------- -----------
47,411,078 41,557,912
Unearned discount (38,406) (91,523)
Allowance for loan losses (646,576) (664,954)
----------- -----------
Loans, net $46,726,096 $40,801,435
=========== ===========
</TABLE>
Loans are put on non-accrual status when principal or interest become
delinquent more than 90 days. The non-accrual status reverses when the past
due status becomes less than 90 days. Loans on which the accrual of interest
has been discontinued or reduced amounted to $130,150 and $149,069 at
December 31, 1995 and 1994, respectively.
At December 31, 1995 and 1994, certain directors, officers, and businesses in
which they have an interest were indebted to the Bank in the aggregate amount
of $181,219 and 43,082, respectively.
At December 31, 1995 and 1994, the Bank had purchased loans totalling
$7,057,319 and $5,163,646 from other financial institutions. These included
$6,060,656 and $3,427,186, respectively, of loans purchased from West Pointe
Bank and Trust Company of Belleville, Illinois.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year $664,954 $658,698 $613,448
Provision charged to operations - - 60,000
Loans charged-off (34,214) (15,010) (25,910)
Recoveries 15,836 21,266 11,160
-------- -------- --------
Balance, end of year $646,576 $664,954 $658,698
======== ======== ========
</TABLE>
The following information relates to impaired loans as of and for the year
ending December 31, 1995:
<TABLE>
<CAPTION>
Recorded
Investment
----------
<S> <C>
Impaired loans for which there is no need for a valuation
allowance in accordance with SFAS 114 and 118. $443,653
Impaired loans for which there is a valuation allowance in
accordance with SFAS 114 and 118. -
--------
Total impaired loans 443,653
========
Average impaired loans during 1995 $378,000
========
</TABLE>
F-9
<PAGE> 99
4. PROPERTY AND EQUIPMENT
Major classifications of property and equipment at December 31, are as
follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land $ 288,616 $ 288,616
Buildings 1,954,279 1,951,061
Furniture, fixtures and equipment 1,343,373 1,324,186
----------- -----------
Total property and equipment 3,586,268 3,563,863
Accumulated depreciation (1,674,712) (1,420,163)
----------- -----------
Net property and equipment $ 1,911,556 $ 2,143,700
=========== ===========
</TABLE>
Depreciation expense amounted to $285,938, $174,407, and $178,694 in 1995,
1994, and 1993, respectively.
5. OTHER INVESTMENTS
The Company owns 17,150 shares (approximately 4.9% of the shares authorized)
at December 31, 1995 and 1994, of the West Pointe Bank and Trust Company of
Belleville, Illinois. The Company accounts for this investment on the equity
method, with a carrying value of $434,727, $395,489, and $347,900 at December
31, 1995, 1994, and 1993, respectively. The income recognized during the
years ended December 31, 1995, 1994, and 1993, respectively, to adjust to the
equity basis was $48,842, $57,193 and $0.
6. INCOME TAXES
The deferred income tax asset of $142,788 and $825,000 is net of deferred
income tax payable of $69,595 and $0 at December 31, 1995 and 1994,
respectively, and results from temporary differences between book and tax
reporting, relating primarily to loan loss reserves, fixed asset accounting,
non-accrual interest receivable, valuation allowance for securities
available-for-sale, investment in unconsolidated subsidiary, and sale of the
insurance agency. The valuation allowance required by SFAS 109 for deferred
taxes was $0 at December 31, 1995, 1994, and 1993.
The provision for income taxes shown in the consolidated statements of income
for the years ended December 31, consists of:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current provision $359,966 $429,787 $441,848
Deferred expense (benefit) 69,595 (24,109) 2,109
-------- -------- --------
Provision for income taxes $429,561 $405,678 $443,957
======== ======== ========
</TABLE>
The current portion of the provision includes the following:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Federal income tax $322,086 $402,748 $420,433
State income and bank tax 37,880 27,039 21,415
-------- -------- --------
Current provision for income taxes $359,966 $429,787 $441,848
======== ======== ========
</TABLE>
F-10
<PAGE> 100
The Company has entered into an income tax allocation agreement with its
subsidiary Bank that provides for the Bank to pay over to the parent holding
company a sum equal to the full income tax liability which would have been
payable by the Bank if separate income tax returns had been filed.
Effective January 1, 1993, the Bank adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, which requires, among other
things, a change from the deferred method to the asset and liability method
of accounting for deferred income taxes. The cumulative effect of this
change on years prior to January 1, 1993 was to increase net income for the
year ended December 31, 1993 by $135,882. The effect of this change on net
income for the year ended December 31, 1993, excluding the cumulative effect
of adoption, was to increase net income by $2,109.
7. TREASURY STOCK
Due to limited market conditions, the Company periodically acquires treasury
stock for resale. The Company does not intend to act as marketing agent for
its stock.
The treasury stock purchases are accounted for under the par value method
wherein the common stock is reduced by par value, additional paid in capital
is reduced by stated value, and retained earnings is reduced for the excess.
The Company held 3,073 shares of treasury stock at December 31, 1995 and
1994, and 3,173 shares at December 31, 1993.
During 1994, the Company sold 100 shares of its treasury stock to a new
director.
8. EMPLOYEE BENEFITS
The subsidiary Bank maintains a profit sharing plan for its employees and the
employees of the Bank's subsidiaries. Annual contributions to the plan are
determined by a formula method as a share of earnings. The profit sharing
expense was $97,758, $100,000, and $114,000 for the years ended December 31,
1995, 1994, and 1993, respectively. The subsidiary Bank also sponsors a
401(k) salary reduction plan, with no employer match.
9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank makes various commitments and
incurs certain contingent liabilities that are not presented in the
accompanying financial statements. The commitments and contingent
liabilities include various guarantees, commitments to extend credit, standby
letters of credit, and potential litigation against the Bank. Commitments at
December 31, consisted of:
<TABLE>
<CAPTION>
1995 1994
-------- ----------
<S> <C> <C>
Commitments to extend credit $944,791 $1,560,760
Standby letters of credit 22,650 34,750
-------- ----------
Total $967,441 $1,595,510
======== ==========
</TABLE>
The Bank has signed a Blanket Pledge agreement with the FHLB under which it
can draw down advances of unspecified amounts from the FHLB. The Bank must
hold an unencumbered portfolio of eligible one-to-four family residential
mortgages with a book value of not less than 150% of the indebtedness. At
December 31, 1995 and 1994, no advances had been drawn.
The Bank does not anticipate any material losses as a result of the
commitments and contingent liabilities.
F-11
<PAGE> 101
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The subsidiary Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to extend
credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet.
The contract amounts of those instruments reflect the extent of involvement
the Bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses
the same credit policies in making commitments as it does for
on-balance-sheet instruments.
The Bank's exposure to market loss in the event of future changes in market
prices rendering these financial instruments less valuable is represented by
the contractual amount of the instruments.
The Bank's exposure to accounting loss on these financial instruments is a
combination of the credit and market risk described above.
The contract principal amount of these financial instruments is as follows as
of December 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Standby letters of credit $22,650 $34,750
======= =======
</TABLE>
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of SFAS 107 - Disclosures About
Fair Value of Financial Instruments. The estimated fair value amounts have
been determined by the management using available market information and
appropriate valuation techniques. Fair value estimates, methods and
assumptions are set forth below for the Bank's financial instruments.
Cash and due from banks: The carrying amount is a reasonable estimate of
fair value.
Federal funds sold: The carrying amount is a reasonable estimate of fair
value.
Investments, net: See accounting for investment securities in Footnote 1.
Loans - net: Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as business,
real estate and personal. Each loan category is further segmented by
performing and nonperforming categories to determine fair values.
The fair value for business, real estate and personal has been estimated by
discounting the projected cash flows at December 31, using the average rates
at which similar loans would be made to borrowers with similar credit ratings
and for the same maturities. For loans which reprice immediately, the
carrying amount is a reasonable estimate of fair value.
Accrued interest receivable: The carrying amount is a reasonable estimate of
fair value.
Deposits: The carrying amount of deposits with no stated maturity, such as
demand, savings, NOW, and money market deposits is a reasonable estimate of
fair value. The fair value of time deposits is based on the discounted value
of contractual cash flows using the rates offered for deposits of similar
remaining maturities as of December 31.
F-12
<PAGE> 102
Repurchase agreements: The carrying amount is a reasonable estimate of fair
value due to their immediate ability to reprice.
Accrued interest payable: The carrying amount is a reasonable estimate of
fair value.
<TABLE>
<CAPTION>
(in thousands)
Carrying Fair
Value Value
-------- -------
<S> <C> <C>
Financial Assets
Cash and due from banks $ 2,113 $ 2,113
Federal funds sold 2,375 2,375
Investment securities 27,105 27,105
Loans 47,411 47,703
Unearned discounts (38) (38)
Loan loss reserve (647) (647)
------- -------
Net loans 46,726 47,018
Accrued interest receivable 784 784
Financial Liabilities
Deposits
Demand, non-interest bearing $ 7,295 $ 7,295
Demand and savings, interest bearing 25,601 25,601
Time deposits 37,456 37,593
Repurchase agreements 276 276
Accrued interest payable 353 353
</TABLE>
12. OTHER INCOME
In December, 1995, the Central Ozark Insurance Agency, Inc., (COIA) sold all
its assets, rights, interest and insurance policy renewals to an outside
party. COIA entered into a covenant not to compete under which it cannot
attempt to obtain or accept any insurance business for a period of two years
from the date of the agreement. In conjunction with the sale, COIA
recognized a gain on the sale of approximately $174,000, which has been
included with Other Income for the year ended December 31, 1995.
13. EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
AUDITOR
On July 9, 1996, First Financial Corporation of America, Inc. (Company)
entered into an Agreement and Plan of Merger with Mercantile Bancorporation,
Inc., (Mercantile) and Ameribanc, Inc., (Ameribanc). Subject to terms of the
agreement, the Company will be merged with and into Ameribanc, and the
corporate existence of the Company will cease. The merger is contingent upon
the satisfaction of various conditions and obligations between each of the
parties to the agreement, and upon approval of various regulatory agencies
and stockholders of the Company. If approved the merger is expected to be
closed in the last quarter of 1996.
F-13
<PAGE> 103
14. UNAUDITED FINANCIAL STATEMENTS
The consolidated balance sheets for June 30, 1996 and 1995, and the
consolidated statements of income, changes in stockholders' equity and cash
flows for the six months then ended are unaudited. In the opinion of
management, all adjustments necessary for the fair presentation of the
financial position and results of operations for the unaudited period have
been made.
F-14
<PAGE> 104
ANNEX A
-------
Following is the text of the statutory dissenters' right as
set forth at Section 351.455 of The General and Business
Corporation Law of Missouri:
351.455 SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE
OF SHARES, WHEN.--1. If a shareholder of a corporation which is a
party to a merger or consolidation shall file with such
corporation, prior to or at the meeting of shareholders at which
the plan of merger or consolidation is submitted to a vote, a
written objection to such plan of merger or consolidation, and
shall not vote in favor thereof, and such shareholder, within
twenty days after the merger or consolidation is effected, shall
make written demand on the surviving or new corporation for payment
of the fair value of his shares as of the day prior to the date on
which the vote was taken approving the merger or consolidation, the
surviving or new corporation shall pay to such shareholder, upon
surrender of his certificate or certificates representing said
shares, the fair value thereof. Such demand shall state the number
and class of the shares owned by such dissenting shareholder. Any
shareholder failing to make demand within the twenty day period
shall be conclusively presumed to have consented to the merger or
consolidation and shall be bound by the terms thereof.
2. If within thirty days after the date on which such merger
or consolidation was effected the value of such shares is agreed
upon between the dissenting shareholder and the surviving or new
corporation, payment therefor shall be made within ninety days
after the date on which such merger or consolidation was effected,
upon the surrender of his certificate or certificates representing
said shares. Upon payment of the agreed value the dissenting
shareholder shall cease to have any interest in such shares or in
the corporation.
3. If within such period of thirty days the shareholder and
the surviving or new corporation do not so agree, then the
dissenting shareholder may, within sixty days after the expiration
of the thirty day period, file a petition in any court of competent
jurisdiction within the county in which the registered office of
the surviving or new corporation is situated, asking for a finding
and determination of the fair value of such shares, and shall be
entitled to judgment against the surviving or new corporation for
the amount of such fair value as of the day prior to the date on
which such vote was taken approving such merger or consolidation,
together with interest thereon to the date of such judgment. The
judgment shall be payable only upon and simultaneously with the
surrender to the surviving or new corporation of the certificate or
certificates representing said shares. Upon the payment of the
judgment, the dissenting shareholder shall cease to have any
interest in such shares, or in the surviving or new corporation.
Such shares may be held and disposed of by the surviving or new
corporation as it may see fit. Unless the dissenting shareholder
shall file such petition within the time herein limited, such
shareholder and all persons claiming under him shall be
conclusively presumed to have approved and ratified the merger or
consolidation, and shall be bound by the terms thereof.
4. The right of a dissenting shareholder to be paid the fair
value of his shares as herein provided shall cease if and when the
corporation shall abandon the merger or consolidation.
A-1
<PAGE> 105
ANNEX B
-------
July 9, 1996
Board of Directors
First Financial Corporation of America
403 N. Jackson
Salem, Missouri 65560-0778
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the outstanding shares of common
stock of First Financial Corporation of America ("First
Financial"), of the consideration (the "Merger Consideration") to
be received by such holders pursuant to the Agreement and Plan of
the Merger, dated as of July 9, 1996 (the "Merger Agreement"),
which provides for the merger (the "Merger") of First Financial
with and into Ameribanc, Inc. ("MBI"), a wholly owned subsidiary of
Mercantile Bancorporation, Inc. Pursuant to the Merger Agreement,
each shareholder of the outstanding common stock of First Financial
(the "First Financial Common Stock"), according to section 1.07 and
subject to limitations and other specifications in sections
1.08(f), 1.11, and 1.13 of the Merger Agreement, has a right to
elect one of three forms of Merger Consideration. Specifically,
First Financial shareholders can elect the right to receive for
each share of First Financial Common Stock: (i) cash equal to
$194.73; (ii) 4.2963 shares of MBI common stock; or (iii) a
combination of cash equal to $42.26 and 3.364 shares of MBI common
stock. The Merger Agreement specifies that the total Merger
Consideration to be received by First Financial's shareholders must
equal 21.7% cash (the "Cash Distribution") and 78.3% MBI common
stock (the "Stock Distribution"). The terms of the cash, stock and
combined election shares and their guidelines are more fully set
forth in the Merger Agreement. Additionally, the shareholders of
First Financial will receive the proceeds from the sale of the
common stock of West Pointe Bank & Trust Company held by First
Financial, or cash and a distribution in kind of such stock, as
provided in the Merger Agreement.
In connection with our opinion, we have: (i) analyzed certain
publicly available financial statements, both audited and
unaudited, and other information of First Financial and MBI,
including those included in their respective Annual Reports for the
three years ended December 31, 1995, and their Quarterly Reports
for the periods ended June 30, 1995, September 30, 1995,
and March 31, 1996; (ii) analyzed certain internal financial statements
and other financial and operating data concerning First Financial
prepared by the management of First Financial; (iii) analyzed certain
financial projections of First Financial prepared by the management of
First Financial; (iv) discussed certain aspects of the past and current
business operations, financial condition and future prospects of First
Financial with certain members of its management; (v) reviewed reported
market prices and historical trading activity of MBI's common stock; (vi)
compared the financial performance of MBI and the prices and trading
activity of MBI's common stock with that of certain other comparable
publicly traded companies and their securities; (vii) reviewed and
compared certain security analysis reports of MBI's common stock prepared
by various investment banking firms; (viii) reviewed the financial terms,
to the extent publicly available, of certain comparable precedent
transactions; (ix) reviewed the Merger Agreement; and (x) performed such
other analyses as we have deemed appropriate.
B-1
<PAGE> 106
We have assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by us for
the purposes of this opinion. We have not made an independent
evaluation of the assets or liabilities of First Financial, nor
have we been furnished with any such appraisals. With respect to
financial forecasts, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and
judgments of management of First Financial as to the future
financial performance of First Financial. We have assumed such
forecasts and projections will be realized in the amounts and at
the times contemplated thereby. With respect to MBI, we relied
solely upon publicly available data and we did not conduct
discussions with the management of MBI regarding MBI's financial
condition, performance, and prospects. We did not conduct any
independent evaluation or appraisal of the assets, liabilities or
business prospects of MBI, we were not furnished with any
evaluations or appraisals, and we did not review any individual
credit files of MBI. We are not experts in the evaluation of loan
portfolios for the purposes of assessing the adequacy of the
allowance for losses with respect thereto and have assumed that
such allowances for each of the companies are in the aggregate,
adequate to cover such losses.
Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to
us as of, the date hereof. Events occurring after the date hereof
could materially affect the assumptions used in preparing this
opinion.
Our opinion is limited to the fairness, from a financial point of
view, to the holders of First Financial Common Stock of the Merger
Consideration received as stated in the Merger Agreement and does
not address First Financial's underlying business decision to
undertake the Merger. Moreover, this letter, and the opinion
expressed herein, does not constitute a recommendation to any
shareholder as to any approval of the Merger or the Merger
Agreement. It is understood that this letter is for the
information of the Board of Directors of First Financial and may
not be used for any other purpose without our prior written
consent, except that this opinion may be included in its entirety
in any filing made by MBI or First Financial with the Securities
and Exchange Commission with respect to the Merger.
Based on the foregoing and such other matters we have deemed
relevant, we are of the opinion as of the date hereof that the
Merger Consideration is fair, from a financial point of view, to
the holders of First Financial Common Stock.
Very truly yours,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
B-2
<PAGE> 107
FIRST FINANCIAL CORPORATION OF AMERICA
403 NORTH JACKSON STREET
SALEM, MISSOURI 65560
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD -----------, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder(s) of FIRST FINANCIAL CORPORATION
OF AMERICA ("First Financial"), does hereby nominate, constitute
and appoint -------------------- and -------------------, or each
of them (with full power to act alone), true and lawful
attorney(s), with full power of substitution, for the undersigned
and in the name, place and stead of the undersigned to vote all of
the shares of Common Stock, $0.10 par value, of First Financial
standing in the name of the undersigned on its books at the close
of business on ----------------, 1996 at the Special Meeting of
Shareholders to be held at First Financial, 403 North Jackson
Street, Salem, Missouri, on -----------------, --------------,
1996, at -:-0 -.m. Central Time, and at any adjournments or
postponements thereof, with all the powers the undersigned would
possess if personally present, as follows:
1. A proposal to approve the Agreement and Plan of Merger
dated as of July 9, 1996 (the "Merger Agreement"), and each of the
transactions contemplated thereby, pursuant to which First
Financial will be merged with and into a wholly owned subsidiary of
Mercantile Bancorporation Inc. ("MBI") and whereby, upon
consummation of the merger, each share (other than shares as to
which a First Financial shareholder has perfected dissenters'
rights) of First Financial common stock will be converted into and
each shareholder will have the opportunity to elect as
consideration in the merger: (i) an amount in cash equal to
$194.73; (ii) 4.2963 shares of MBI common stock; or (iii) both an
amount in cash equal to $42.26 and 3.364 shares of MBI common
stock, all as determined by the election procedures and exchange
ratio set forth in detail in the accompanying Proxy
Statement/Prospectus, and subject to certain adjustments as
provided in the Merger Agreement.
/ / FOR / / AGAINST / / ABSTAIN
2. To transact such other business as may properly come
before the Special Meeting or any adjournments or postponements
thereof.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO
DIRECTION IS GIVEN HEREIN, THIS PROXY WILL BE VOTED "FOR" EACH OF
THE PROPOSALS LISTED ABOVE.
Dated: ---------------
--------------------------
Signature of Shareholder
--------------------------
Signature of Shareholder
When signing as an attorney, executor, administrator,
trustee or guardian, please give full title. If more
than one person holds the power to vote the same shares,
all must sign. All joint owners must sign.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE.
<PAGE> 108
ELECTION FORM FOR USE BY SHAREHOLDERS OF
FIRST FINANCIAL CORPORATION OF AMERICA
KeyCorp Shareholder Services, Inc.
Reorganization Department
P.O. Box 6777
Cleveland, Ohio 44101-9388
Gentlemen:
Pursuant to the terms of the Agreement and Plan of Merger
(the "Merger Agreement") by and among First Financial Corporation
of America ("First Financial"), Mercantile Bancorporation Inc.
("MBI") and a wholly owned subsidiary of MBI, the undersigned
shareholder(s) of First Financial elects the following alternative
as to the category of consideration that the undersigned elects to
receive in conversion of his or her shares of First Financial
common stock upon consummation of the merger:
[CHECK ONLY ONE OF THE BOXES TO INDICATE YOUR ELECTION]
/ / (i) CASH ELECTION - a cash payment in an amount equal
to $194.73 per share of First Financial common
stock.
/ / (ii) STOCK ELECTION - 4.2963 shares of MBI common stock
per share of First Financial common stock.
/ / (iii) COMBINED ELECTION - both a cash payment in an
amount equal to $42.26 and 3.364 shares of MBI
common stock per share of First Financial common
stock.
The undersigned acknowledges that the deadline for filing
this Election Form with KeyCorp Shareholder Services, Inc. is by
3:00 p.m., Central Time, on -------------, 1996, the day of the
Special Meeting of Shareholders of First Financial called to
consider and vote upon the Merger Agreement. Any shareholder who
fails to deliver the Election Form to KeyCorp Shareholder Services,
Inc. by the deadline will be deemed to have elected the Cash
Election but will be treated differently than other shareholders
who have made a Cash Election by filing this Election Form. In
addition, any holder of 1% or more of First Financial common stock
that shall not have delivered to KeyCorp Shareholder Services,
Inc., on or before 3:00 p.m., Central Time, on -------------, 1996,
in properly executed form, the accompanying certification regarding
certain tax matters, shall be deemed to have made a timely Cash
Election. After such date, any less-than-1% holder who
subsequently acquires additional shares of First Financial common
stock and thereby becomes a holder of 1% or more of First Financial
common stock will also be deemed to have made a timely Cash
Election and will be precluded from making a Stock Election unless
such holder, in anticipation of such acquisition of additional
shares, has delivered to KeyCorp Shareholder Services, Inc. at or
before --------------------, 1996 a properly executed
certification regarding certain tax matters. The undersigned
further acknowledges that the election to receive the indicated
category of consideration is subject to the limitations on the
issuance of not more than 258,783 shares of MBI Common Stock and
not less than the number of shares of MBI Common Stock necessary
for the merger to quality as a tax-deferred reorganization for
those shareholders who receive shares of MBI Common Stock in
exchange for their shares of First Financial common stock. See the
section of the accompanying Proxy Statement/Prospectus entitled
"TERMS OF THE PROPOSED MERGER -- General Description of the Merger"
for a description of the situations in which the Exchange Agent may
be required to pay to the First Financial shareholders
consideration other than from the elected category of consideration
and the priorities governing such adjustments.
Prior to 3:00 p.m., Central Time, on -------------,
1996, the undersigned may, at any time or from time to time, change
his or her election by giving written notice to KeyCorp Shareholder
Services, Inc.
Shareholders who have questions regarding the election
process, and/or the tax consequences associated with such election
process, should consult, at their own expense, their own tax, legal
and investment advisors.
Dated: , 1996
--------------- ---------------------------------
Signature of Shareholder
---------------------------------
Signature of Shareholder
(To be signed by the holder(s) of
record exactly as the name(s) of
such holder(s) appears on the stock
certificate. When signing as an
attorney, executor, administrator,
trustee or guardian, please give
full title. All joint owners must
sign.)
PLEASE RETURN TO KEYCORP SHAREHOLDER SERVICES, INC. USING THE
ENCLOSED, PRE-PAID, PRE-ADDRESSED ENVELOPE.
<PAGE> 109
[First Financial Letterhead]
, 1996
---------------
Dear Fellow Shareholder:
In connection with the acquisition (the "Merger") of
First Financial Corporation of America, a Missouri corporation
("First Financial"), by Mercantile Bancorporation Inc., a Missouri
corporation ("MBI"), Thompson Coburn, special counsel for MBI, has
been requested to deliver a legal opinion, based upon certain
representations that it receives from First Financial, MBI and
holders of 1% or more of First Financial common stock who make a
valid election to receive shares of MBI common stock as
consideration in the Merger, to the effect that the acquisition
will constitute a tax-free reorganization for federal income tax
purposes with respect to shares of MBI common stock received in the
Merger. It is intended that First Financial shareholders who
exchange their shares of First Financial common stock solely for
shares of MBI common stock will not recognize any gain or loss for
federal income tax purposes. However, any cash received by a First
Financial shareholder in lieu of any fractional share interest or
as cash consideration may give rise to taxable income.
Attached is a copy of a certificate which addresses your
present plans and intentions concerning any MBI common stock you
may acquire as a result of the proposed transaction. WHETHER
SHARES OF FIRST FINANCIAL COMMON STOCK ARE ACQUIRED PRIOR TO OR
AFTER -------------, 1996, EACH HOLDER OF 1% OR MORE OF FIRST
FINANCIAL COMMON STOCK (DETERMINED AS OF THE CLOSING DATE OF THE
MERGER) WHO ELECTS TO RECEIVE SHARES OF MBI COMMON STOCK IN
EXCHANGE FOR HIS OR HER SHARES OF FIRST FINANCIAL COMMON STOCK IN
THE MERGER MUST EXECUTE AND RETURN A PROPERLY EXECUTED
----
CERTIFICATE TO KEYCORP SHAREHOLDER SERVICES, INC., SUITE 2120, ONE
MERCANTILE CENTER, ST. LOUIS, MISSOURI 63101, BY 3:00 P.M., CENTRAL
TIME, ON -------------, 1996. ANY SUCH HOLDER OF FIRST FINANCIAL
COMMON STOCK WHO FAILS TO EXECUTE AND RETURN A CERTIFICATE TO
KEYCORP SHAREHOLDER SERVICES, INC. BY 3:00 P.M., CENTRAL TIME, ON
- -------------, 1996, WILL BE DEEMED TO HAVE MADE AN ELECTION TO
RECEIVE THE CASH CONSIDERATION IN THE MERGER. This certificate,
which will be delivered to Thompson Coburn by Keycorp Shareholder
Services, Inc., will be relied on by Thompson Coburn when it gives
the legal opinion described above. Please note that the third
paragraph of the certificate contains an agreement to notify
Thompson Coburn if your plans or intentions change after the
certificate is executed.
Please read the certificate carefully. If you are able
truthfully to make the statements contained in the certificate,
please sign and date the certificate and return it to KeyCorp
Shareholder Services, Inc. by 3:00 p.m., Central Time, on
- -------------, 1996.
If you have any questions regarding the enclosed
certificate, please do not hesitate to call me. However, due to
the individual nature of federal income tax consequences,
shareholders are urged to consult their own tax advisor to
determine the specific tax consequences of the proposed transaction
to them. More detailed information is provided in the accompanying
Proxy Statement/Prospectus.
Sincerely,
W. CHARLES WHITMIRE
President and Chief Executive Officer
<PAGE> 110
SHAREHOLDER CERTIFICATE
OF 1% OR MORE HOLDER OF
FIRST FINANCIAL COMMON STOCK
----------------------------
The undersigned shareholder of First Financial
Corporation of America, a Missouri corporation ("First Financial"),
, a holder of
- -----------------------------------------
shares of First Financial common stock, par value $0.10 per
- ------
share ("First Financial Common Stock"), HEREBY CERTIFIES that (a)
I am familiar with the terms and conditions of the Agreement and
Plan of Merger by and among Mercantile Bancorporation Inc., a
Missouri corporation ("MBI"), First Financial and Ameribanc, Inc.,
a Missouri corporation and wholly owned subsidiary of MBI
("Ameribanc"), dated July 9, 1996, and (b) I am aware that (i) this
Certificate will be relied on by Thompson Coburn, counsel for MBI,
in rendering its opinion to First Financial that the merger of
First Financial with and into Ameribanc (the "Merger") will
constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended, and
(ii) the representations and undertaking recited herein will
survive the Merger.
The undersigned HEREBY FURTHER CERTIFIES that the
undersigned has no plan, intention or arrangement (including any
option or pledge) to sell, exchange or otherwise dispose of, or
enter into any transaction that reduces the risk of loss with
respect to (whether by short sale, hedging or otherwise), any of
the MBI common stock, par value $5.00 per share ("MBI Common
Stock"), to be received in the Merger, with the exception of any
fractional share of MBI Common Stock to be exchanged for cash
pursuant to the Merger.
The undersigned HEREBY AGREES to immediately communicate
in writing to Thompson Coburn at One Mercantile Center, Suite 3300,
St. Louis, Missouri 63101, to the attention of Charles H. Binger,
any information that could indicate (i) any of the foregoing
representations was inaccurate when made, or (ii) any of the
foregoing representations would be inaccurate if it were made
immediately before the Merger.
IN WITNESS WHEREOF, the undersigned has executed this
certificate, or caused this certificate to be executed by its duly
authorized representative, this ----- day of ---------------, 1996.
------------------------------
Signature of Shareholder
------------------------------
Signature of Shareholder
(This certificate must be
signed by the holder(s) of
record in the same manner as
the Election Form for Use by
Shareholders of First Financial
Corporation of America.)
<PAGE> 111
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
------------------------------------------
Item 20. Indemnification of Officers and Directors
- ---------------------------------------------------
Sections 351.355(1) and (2) of The General and Business
Corporation Law of the State of Missouri provide that a corporation
may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses,
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful, except
that, in the case of an action or suit by or in the right of the
corporation, the corporation may not indemnify such persons against
judgments and fines and no person shall be indemnified as to any
claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation, unless and only to the
extent that the court in which the action or suit was brought
determines upon application that such person is fairly and
reasonably entitled to indemnity for proper expenses. Section
351.355(3) provides that, to the extent that a director, officer,
employee or agent of the corporation has been successful in the
defense of any such action, suit or proceeding or any claim, issue
or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred in
connection with such action, suit or proceeding. Section
351.355(7) provides that a corporation may provide additional
indemnification to any person indemnifiable under subsection (1) or
(2), provided such additional indemnification is authorized by the
corporation's articles of incorporation or an amendment thereto or
by a shareholder-approved bylaw or agreement, and provided further
that no person shall thereby be indemnified against conduct which
was finally adjudged to have been knowingly fraudulent,
deliberately dishonest or willful misconduct or which involved an
accounting for profits pursuant to Section 16(b) of the Securities
Exchange Act of 1934.
Article 12 of the Restated Articles of Incorporation of
the Registrant provides that the Registrant shall extend to its
directors and executive officers the indemnification specified in
subsections (1) and (2) and the additional indemnification
authorized in subsection (7) and that it may extend to other
officers, employees and agents such indemnification and additional
indemnification.
Pursuant to directors' and officers' liability insurance
policies, with total annual limits of $30,000,000, the Registrant's
directors and officers are insured, subject to the limits,
retention, exceptions and other terms and conditions of such
policy, against liability for any actual or alleged error,
misstatement, misleading statement, act or omission, or neglect or
breach of duty by the directors or officers of the Registrant,
individually or collectively, or any matter claimed against them
solely by reason of their being directors or officers of the
Registrant.
Item 21. Exhibits and Financial Statement Schedules
- ----------------------------------------------------
A. Exhibits. See Exhibit Index.
---------
B. Financial Statement Schedules. Not Applicable.
-----------------------------
C. Opinion of Financial Advisor. See Annex B
---------------------------- -------
to the Proxy Statement/Prospectus.
II-1
<PAGE> 112
Item 22. Undertakings
- ----------------------
(1) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication
of such issue.
(2) The undersigned Registrant hereby undertakes that,
for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) The undersigned Registrant hereby undertakes as
follows: that prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of
this Registration Statement, by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other Items of the
applicable form.
(4) The Registrant undertakes that every prospectus
(i) that is filed pursuant to paragraph (3) immediately preceding,
or (ii) that purports to meet the requirements of section 10(a)(3)
of the Act and is used in connection with an offering of securities
subject to Rule 415 (Section 230.415 of this chapter), will be
filed as a part of an amendment to the Registration Statement and
will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offering
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) The undersigned Registrant hereby undertakes to
respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13
of this Form, within one business day of receipt of such request
and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in the
documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the
request.
(6) The undersigned Registrant hereby undertakes to
supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-2
<PAGE> 113
(7) The undersigned Registrant hereby undertakes:
(a) To file during any period in which offers and
sales are being made, a post-effective amendment to
this Registration Statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the prospectus any facts
or events arising after the effective date of
the Registration Statement (or the most recent
post-effective amendment thereof), which
individually or in the aggregate, represent a
fundamental change in the information set
forth in the Registration Statement;
(iii) To include any material information
with respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement.
(b) That for the purpose of determining any
liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be
a new registration statement relating to the
securities offered therein, and the offering of
such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) To remove from registration by means of a
post-effective amendment any of the securities
being registered which remain unsold at the
termination of the offering.
II-3
<PAGE> 114
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of
1933, the Registrant has duly caused this Registration Statement
relating to the acquisition of First Financial Corporation of
America to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of St. Louis, State of Missouri, on
August 15, 1996.
MERCANTILE BANCORPORATION INC.
By /s/ Thomas H. Jacobsen
------------------------------------------
Thomas H. Jacobsen
Chairman of the Board, President and
Chief Executive Officer
POWER OF ATTORNEY
-----------------
We, the undersigned officers and directors of Mercantile
Bancorporation Inc., hereby severally and individually constitute
and appoint Thomas H. Jacobsen and John Q. Arnold, and each of
them, the true and lawful attorneys and agents of each of us to
execute in the name, place and stead of each of us (individually
and in any capacity stated below) any and all amendments to this
Registration Statement on Form S-4, registering the issuance by
Mercantile Bancorporation Inc. of shares of its common stock, and
the preferred share purchase rights which trade therewith, in
connection with the acquisition of First Financial Corporation of
America, and all instruments necessary or advisable in connection
therewith and to file the same with the Securities and Exchange
Commission, each of said attorneys and agents to have the power to
act with or without the others and to have full power and authority
to do and perform in the name and on behalf of each of the
undersigned every act whatsoever necessary or advisable to be done
in the premises as fully and to all intents and purposes as any of
the undersigned might or could do in person, and we hereby ratify
and confirm our signatures as they may be signed by our said
attorneys and agents or each of them to any and all such amendments
and instruments.
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas S. Jacobsen Chairman of the Board, August 15, 1996
- ---------------------------- President, Chief Executive
Thomas H. Jacobsen Officer and Director
Principal Executive Officer
/s/ John Q. Arnold Senior Executive Vice August 15, 1996
- ---------------------------- President and
John Q. Arnold Chief Financial Officer
Principal Financial Officer
II-4
<PAGE> 115
Signature Title Date
--------- ----- ----
/s/ Michael T. Normile Senior Vice President - August 15, 1996
- ---------------------------- Finance and Control
Michael T. Normile
Principal Accounting Officer
/s/ Harry M. Cornell, Jr. Director August 15, 1996
- ----------------------------
Harry M. Cornell, Jr.
- ---------------------------- Director
William A. Hall
/s/ Thomas A. Hays Director July 17, 1996
- ----------------------------
Thomas A. Hays
/s/ Frank Lyon, Jr. Director July 29, 1996
- ----------------------------
Frank Lyon, Jr.
- ---------------------------- Director
Edward A. Mueller
/s/ Robert W. Murray Director August 15, 1996
- ----------------------------
Robert W. Murray
/s/ Harvey Saligman Director August 15, 1996
- ----------------------------
Harvey Saligman
/s/ Craig D. Schnuck Director August 15, 1996
- ----------------------------
Craig D. Schnuck
/s/ Robert L. Stark Director July 30, 1996
- ----------------------------
Robert L. Stark
/s/ Patrick T. Stokes Director July 29, 1996
- ----------------------------
Patrick T. Stokes
/s/ John A. Wright Director July 18, 1996
- ----------------------------
John A. Wright
II-5
<PAGE> 116
EXHIBIT INDEX
-------------
Exhibit
Number Description Page
- ------- ----------- ----
2.1 Agreement and Plan of Merger, dated as of July 9, 1996, by and
among MBI and Ameribanc, as Buyers, and First Financial, as
Seller.
2.2 Form of Voting Agreement, dated as of July 9, 1996, by and
between MBI and each of the directors and certain affiliates of
First Financial.
3.1 MBI's Restated Articles of Incorporation, as amended and
currently in effect, filed as Exhibit 3(i) to MBI's Quarterly
Report on Form 10-K for the quarter ended June 30, 1994, are
incorporated herein by reference.
3.2 MBI's By-Laws, as amended and currently in effect, filed as
Exhibit 3-2 to MBI's Annual Report on Form 10-K for the year
ended December 31, 1995, are incorporated herein by reference.
4.1 Form of Indenture Regarding Subordinated Securities between MBI
and The First National Bank of Chicago, Trustee, filed as
Exhibit 4.1 to MBI's Report on Form 8-K dated September 24,
1992, is incorporated herein by reference.
4.2 Rights Agreement dated as of May 23, 1988 between MBI and
Mercantile Bank, as Rights Agent (including as exhibits thereto
the form of Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock and the form of
Right Certificate), filed as Exhibits 1 and 2 to MBI's
Registration Statement No. 0-6045 on Form 8-A, dated May 24,
1988, is incorporated herein by reference.
5.1 Opinion of Thompson Coburn as to the legality of the securities
being registered.
8.1 Opinion of Thompson Coburn regarding certain tax matters in the
Merger.
10.1 The Mercantile Bancorporation Inc. 1987 Stock Option Plan, as
amended, filed as Exhibit 10-3 to MBI's Report on Form 10-K for
the year ended December 31, 1989 (File No. 1-11792), is
incorporated herein by reference.
10.2 The Mercantile Bancorporation Inc. Executive Incentive
Compensation Plan, filed as Appendix C to MBI's definitive Proxy
Statement for the 1994 Annual Meeting of Shareholders is
incorporated herein by reference.
10.3 The Mercantile Bancorporation Inc. Employee Stock Purchase Plan,
files as Exhibit 10-7 to MBI's Report on Form 10-K for the year
ended December 31, 1989 (File No. 1-11792), is incorporated
herein by reference.
10.4 The Mercantile Bancorporation Inc. 1991 Employee Incentive Plan,
filed as Exhibit 10-7 to MBI's Report on Form 10-K for the year
ended December 31, 1990 (File No. 1-11792), is incorporated
herein by reference.
10.5 Amendment Number One to the Mercantile Bancorporation Inc. 1991
Employee Incentive Plan, filed as Exhibit 10-6 to MBI's Report
on Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference.
II-6
<PAGE> 117
Exhibit
Number Description Page
- ------- ----------- ----
10.6 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan,
filed as Appendix B to MBI's definitive Proxy Statement for the
1994 Annual Meeting of Shareholders, is incorporated herein by
reference.
10.7 The Mercantile Bancorporation Inc. 1994 Stock Incentive Plan for
Non-Employee Directors, filed as Appendix E to MBI's definitive
Proxy Statement for the 1994 Annual Meeting of Shareholders, is
incorporated herein by reference.
10.8 The Mercantile Bancorporation Inc. Voluntary Deferred
Compensation Plan, filed as Appendix D to MBI's definitive Proxy
Statement for the 1994 Annual Meeting of Shareholders, is
incorporated herein by reference.
10.9 Form of Employment Agreement for Thomas H. Jacobsen, as amended,
filed as Exhibit 10-8 to MBI's Report on Form 10-K for the year
ended December 31, 1989 (File No. 1-11792), is incorporated
herein by reference.
10.10 Form of Change of Control Employment Agreement for John W.
McClure, W. Randolph Adams, John Q. Arnold and Certain Other
Executive Officers, filed as Exhibit 10-10 to MBI's Report on
Form 10-K for the year ended December 31, 1989 (File No. 1-
11792), is incorporated herein by reference.
10.11 Amended and Restated Agreement and Plan of Reorganization dated
as of December 2, 1994 by and among MBI and TCBankshares, Inc.,
filed as Exhibit 2.1 to MBI's Report on Form 8-K dated
December 21, 1994, is incorporated herein by reference.
10.12 Agreement and Plan of Reorganization dated August 4, 1995, by
and between MBI and Hawkeye Bancorporation, filed as Exhibit 2.1
to MBI's Registration Statement No. 33-63609, is incorporated
herein by reference.
10.13 The Mercantile Bancorporation Inc. Supplemental Retirement Plan,
filed as Exhibit 10-12 to MBI's Report on Form 10-K for the year
ended December 31, 1992 (File No. 1-11792), is incorporated
herein by reference.
23.1 Consent of Thompson Coburn (included in Exhibit 5.1).
23.2 Consent of Alex Sheshunoff & Co. Investment Banking.
23.3 Consent of KPMG Peat Marwick LLP with regard to the use of its
reports or MBI's financial statements.
23.4 Consent of Williams-Keepers, LLP with regard to the use of its
reports on First Financial and First Financial's financial
statements.
24.1 Power of Attorney (included on signature page).
II-7
<PAGE> 1
Exhibit 2.1
- -----------------------------------------------------------------
- -----------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
between
MERCANTILE BANCORPORATION INC.,
a Missouri corporation
and
AMERIBANC, INC.
a Missouri corporation, as Buyers,
and
FIRST FINANCIAL CORPORATION OF AMERICA,
a Missouri corporation, as Seller
Dated July 9, 1996
- -----------------------------------------------------------------
- -----------------------------------------------------------------
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<TABLE>
TABLE OF CONTENTS
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ARTICLE I
THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01. The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03. Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.04. Additional Actions. . . . . . . . . . . . . . . . . . . . . . . . 2
1.05. Articles of Incorporation and Bylaws. . . . . . . . . . . . . . . 2
1.06. Boards of Directors and Officers. . . . . . . . . . . . . . . . . 2
1.07. Conversion of Securities. . . . . . . . . . . . . . . . . . . . . 2
1.08. Conversion Election Procedures. . . . . . . . . . . . . . . . . . 3
1.09. Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . 8
1.10. Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . 9
1.11. No Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . 9
1.12. Closing of Stock Transfer Books . . . . . . . . . . . . . . . . .10
1.13. Anti-Dilution and Business Combination Adjustments. . . . . . . .11
1.14. Reservation of Right to Revise Transaction. . . . . . . . . . . .12
1.15. Material Adverse Effect . . . . . . . . . . . . . . . . . . . . .12
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER . . . . . . .12
2.01. Organization and Authority. . . . . . . . . . . . . . . . . . . .12
2.02. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . .13
2.03. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . .13
2.04. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . .13
2.05. Seller Financial Statements.. . . . . . . . . . . . . . . . . . .15
2.06. Seller Reports. . . . . . . . . . . . . . . . . . . . . . . . . .15
2.07. Title to and Condition of Assets. . . . . . . . . . . . . . . . .16
2.08. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . .16
2.09. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
2.10. Material Adverse Effect . . . . . . . . . . . . . . . . . . . . .17
2.11. Loans, Commitments and Contracts. . . . . . . . . . . . . . . . .18
2.12. Absence of Defaults . . . . . . . . . . . . . . . . . . . . . . .20
2.13. Litigation and Other Proceedings. . . . . . . . . . . . . . . . .20
2.14. Directors' and Officers' Insurance. . . . . . . . . . . . . . . .21
2.15. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . .21
2.16. Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
2.17. Material Interests of Certain Persons . . . . . . . . . . . . . .22
2.18. Allowance for Loan and Lease Losses; Non-Performing Assets. . . .23
2.19. Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . .23
2.20. Conduct of Seller to Date . . . . . . . . . . . . . . . . . . . .25
2.21. Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . .25
2.22. Proxy Statement, Etc. . . . . . . . . . . . . . . . . . . . . . .26
2.23. Registration Obligations. . . . . . . . . . . . . . . . . . . . .26
2.24. Tax and Regulatory Matters. . . . . . . . . . . . . . . . . . . .26
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2.25. Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . .26
2.26. Interest Rate Risk Management Instruments . . . . . . . . . . . .27
2.27. Accuracy of Information . . . . . . . . . . . . . . . . . . . . .27
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS . . . . . . .27
3.01. Organization and Authority. . . . . . . . . . . . . . . . . . . .27
3.02. Capitalization of Mercantile. . . . . . . . . . . . . . . . . . .28
3.03. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . .28
3.04. Mercantile Financial Statements . . . . . . . . . . . . . . . . .29
3.05. Mercantile Reports. . . . . . . . . . . . . . . . . . . . . . . .29
3.06. Material Adverse Effect . . . . . . . . . . . . . . . . . . . . .30
3.07. Legal Proceedings or Other Adverse Facts. . . . . . . . . . . . .30
3.08. Registration Statement, Etc.. . . . . . . . . . . . . . . . . . .30
3.09. Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . .30
3.10. Accuracy of Information . . . . . . . . . . . . . . . . . . . . .30
ARTICLE IV
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME . . . . . . . .31
4.01. Conduct of Businesses Prior to the Effective Time . . . . . . . .31
4.02. Forbearances of Seller. . . . . . . . . . . . . . . . . . . . . .31
4.03. Forbearances of Buyers. . . . . . . . . . . . . . . . . . . . . .34
ARTICLE V
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . .34
5.01. Access and Information. . . . . . . . . . . . . . . . . . . . . .34
5.02. Registration Statement; Regulatory Matters. . . . . . . . . . . .34
5.03. Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . .35
5.04. Current Information . . . . . . . . . . . . . . . . . . . . . . .35
5.05 Conforming Entries. . . . . . . . . . . . . . . . . . . . . . . .36
5.06 Environmental Reports . . . . . . . . . . . . . . . . . . . . . .37
5.07. Agreements of Affiliates. . . . . . . . . . . . . . . . . . . . .37
5.08. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
5.09. Miscellaneous Agreements. . . . . . . . . . . . . . . . . . . . .38
5.10. Employee Agreements and Benefits. . . . . . . . . . . . . . . . .38
5.11. Press Releases. . . . . . . . . . . . . . . . . . . . . . . . . .39
5.12. State Takeover Statutes . . . . . . . . . . . . . . . . . . . . .39
5.13. Directors' and Officers' Indemnification. . . . . . . . . . . . .39
5.14. Tax Opinion Certificates. . . . . . . . . . . . . . . . . . . . .40
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ARTICLE VI
CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .40
6.01. Conditions to Each Party's Obligation to Effect the Merger. . . .40
6.02. Conditions to Obligations of Seller to Effect the Merger. . . . .41
6.03. Conditions to Obligations of Buyers to Effect the Merger. . . . .42
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . .43
7.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . .43
7.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . . .43
7.03. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
7.04. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
ARTICLE VIII
GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . .44
8.01. Non-Survival of Representations, Warranties and Agreements. . . .44
8.02. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . .44
8.03. No Assignment; Successors and Assigns . . . . . . . . . . . . . .44
8.04. No Implied Waiver . . . . . . . . . . . . . . . . . . . . . . . .45
8.05. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
8.06. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . .45
8.07. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . .45
8.08. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
8.09. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . .46
LIST OF EXHIBITS
Exhibit A Shareholder Tax Certificate
Exhibit B Form of Affiliate Agreement
Exhibit C Officer/Director Tax Certificate
Exhibit D Form of Opinion of Counsel of Mercantile
Exhibit E Form of Opinion of Counsel of Seller
LIST OF SCHEDULES
Schedule 2.01 Articles/Bylaws/Lists of Shareholders
Schedule 2.02 Subsidiaries/Equity Securities
Schedule 2.05(a) Financial Statements
Schedule 2.06 Seller Reports
Schedule 2.08(a) Owned Real Property/Leased Real Property
Schedule 2.09 Taxes
Schedule 2.11(a) Deposits/Commitments
Schedule 2.11(b) Contracts
Schedule 2.11(c) Insurance
Schedule 2.11(f) Loans
Schedule 2.13 Litigation
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Schedule 2.15(c) Compliance With Laws
Schedule 2.18(c) Real Estate Acquired through Foreclosure and Repossession
Schedule 2.19(a) Employee Benefit Plans
Schedule 2.19(d) Employee Benefit Plans
Schedule 2.21(a) Absence of Undisclosed Liabilities
Schedule 2.26(a) Interest Rate Risk Management Instruments
Schedule 5.07 Affiliates
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AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is
made and entered into on July 9, 1996, by and among MERCANTILE
BANCORPORATION INC., a Missouri corporation ("Mercantile"),
AMERIBANC, INC., a Missouri corporation ("Merger Sub" and,
collectively with Mercantile, the "Buyers"), and FIRST FINANCIAL
CORPORATION OF AMERICA, a Missouri corporation ("Seller").
W I T N E S S E T H
-------------------
WHEREAS, Mercantile is a registered bank holding company
under the Bank Holding Company Act of 1956, as amended (the
"BHCA"); and
WHEREAS, Merger Sub is a wholly owned subsidiary of
Mercantile and is a registered bank holding company under the BHCA;
and
WHEREAS, Seller is a registered bank holding company
under the BHCA; and
WHEREAS, the respective Boards of Directors of Seller and
Merger Sub and the Executive Committee of the Board of Directors of
Mercantile have approved the merger (the "Merger") of Seller with
and into Merger Sub pursuant to the terms and subject to the
conditions of this Agreement; and
WHEREAS, the parties desire to provide for certain
undertakings, conditions, representations, warranties and covenants
in connection with the transactions contemplated by this Agreement.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the
parties agree as follows:
ARTICLE I
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THE MERGER
1.01. The Merger. Subject to the terms and
----------
conditions of this Agreement, Seller shall be merged with and into
Merger Sub in accordance with Chapter 351 of the Missouri Revised
Statutes (the "Missouri Statute"), and the separate corporate
existence of Seller shall cease. Merger Sub shall be the surviving
corporation of the Merger (sometimes referred to herein as the
"Surviving Corporation") and shall continue to be governed by the
laws of the State of Missouri.
1.02. Closing. The closing (the "Closing") of
-------
the Merger shall take place at 10:00 a.m., local time, on the date
that the Effective Time (as defined in Section 1.03) occurs (the
"Closing Date"), or at such other time, and at such place, as
Buyers and Seller shall agree.
1.03. Effective Time. The Merger shall become
--------------
effective (the "Effective Time") upon the issuance of the certifi-
cate of merger by the Office of the Secretary of State of the State
of Missouri. Unless otherwise mutually agreed in writing by Buyers
and Seller, subject to the terms and conditions of this Agreement,
the Effective Time shall occur on such date as Buyers shall notify
Seller in writing
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(such notice to be at least five business days in advance of the
Effective Time) but (i) not earlier than the satisfaction of all
conditions set forth in Section 6.01(a) and 6.01(b) (the "Approval
Date") and (ii) not later than the first business day of the first
full calendar month commencing after the Approval Date.
1.04. Additional Actions. If, at any time after
------------------
the Effective Time, Buyers or the Surviving Corporation shall
consider or be advised that any further deeds, assignments or
assurances or any other acts are necessary or desirable to (a)
vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, all 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 the directors and
officers, respectively, of the Surviving Corporation following the
Merger, and such directors and officers shall hold office in
accordance with the Surviving Corporation's Bylaws and applicable
law.
1.07. Conversion of Securities. At the Effective
------------------------
Time, by virtue of the Merger and without any action on the part of
Buyers, Seller or the holder of any of the following securities:
(a) Each share of the common stock, $1.00 par
value, of Merger Sub that is issued and outstanding
immediately prior to the Effective Time shall remain
outstanding and shall be unchanged after the Merger and
shall thereafter constitute all of the issued and
outstanding capital stock of the Surviving Corporation;
and
(b) Subject to Sections 1.08(f), 1.11, and 1.13
hereof, each share of common stock, $0.10 par value of
Seller ("Seller Common Stock") issued and outstanding at
the Effective Time shall cease to be outstanding and
shall be converted into and become one of the following:
(i) the right to receive an amount in cash
(the "Cash Distribution") equal to $194.73;
(ii) the right to receive 4.2963 shares of
Mercantile common stock, $5.00 par value, and the
associated "Rights" under the "Rights Agreement," as
those terms are defined in Section 3.02 hereof
(collectively, "Mercantile Common Stock") (the
"Stock Distribution"); or
(iii) the right to receive an amount in
cash equal to $42.26 and 3.364 shares of Mercantile
Common Stock (the "Combined Distribution");
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as the holder thereof shall elect or be deemed to have elected
pursuant to Section 1.08 of this Agreement (the aggregate of the
Cash Distributions, the Stock Distributions and the Combined
Distributions payable and/or issuable pursuant to this Agreement at
the Effective Time is sometimes hereinafter referred to as the
"Merger Consideration"). 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 by Buyers or any of their
wholly owned Subsidiaries, in each case other than in a fiduciary
capacity or as a result of debts previously contracted, shall be
cancelled and shall not be exchanged after the Effective Time for
the Merger Consideration. In addition, no Dissenting Shares (as
defined in Section 1.10 of this Agreement) shall be converted
pursuant to this Section 1.07. Dissenting Shares instead shall be
treated in accordance with the procedures set forth in Section 1.10
of this Agreement.
1.08. Conversion Election Procedures.
------------------------------
(a) Concurrently with the mailing to the
shareholders of Seller of the "Proxy Statement" (as
defined in Section 2.22 of this Agreement), including the
prospectus contained in the "Registration Statement"
(also as defined in Section 2.22 of this Agreement),
Buyers shall cause the "Exchange Agent" (as defined in
this Section 1.08(a) below) to mail to each holder of
record of Seller Common Stock a form of election (an
"Election Form") on which such holder shall make the
election as provided for in Section 1.08(b) of this
Agreement. Each Election Form provided to a holder of 1%
or more of the Seller Common Stock shall incorporate a
certification substantially in the form of Exhibit A
---------
hereto (the "Certification"). From the time of mailing
of the Proxy Statement until the Election Deadline (as
defined in Section 1.08(c) below), Buyers shall cause an
Election Form and other appropriate materials for the
purpose of making the election provided for in Section
1.08(b) of this Agreement to be sent to each holder of
Seller Common Stock who Seller advises Buyers has become
a holder of Seller Common Stock after the record date of
the special meeting of shareholders of the Seller called
to vote upon this Agreement and the Merger. "Exchange
Agent" shall mean KeyCorp Shareholder Services, Inc., or
such other bank or trust company or affiliate thereof
selected by Buyers and reasonably acceptable to Seller to
effect the exchange of certificates formerly representing
shares of Seller Common Stock (the "Certificates") for
the Merger Consideration.
(b) Each Election Form shall specify the type(s)
and amounts of each such type of Merger Consideration
receivable by the holders of Seller Common Stock in the
Cash Distribution, the Stock Distribution and the
Combined Distribution and shall permit each such holder
to elect to receive, as provided in Section 1.07(b) of
this Agreement, (i) the Cash Distribution (in which case,
such holder's shares of Seller Common Stock shall be
deemed to be and shall be referred to herein as "Cash
Election Shares"), (ii) the Stock Distribution (in which
case, such holder's shares of Seller Common Stock shall
be deemed to be and shall be referred to herein as "Stock
Election Shares"), or (iii) the Combined Distribution (in
which case, such holder's shares of Seller Common Stock
shall be deemed to be and shall be referred to herein as
"Combined Election Shares").
(c) Any shares of Seller Common Stock with respect
to which the holder thereof shall not, as of the
"Election Deadline" (as defined in this Section 1.08(c)
below), have made an election to receive either the Cash
Distribution, the Stock Distribution or the Combined
Distribution (such holder's shares being deemed to be and
shall be referred to herein as "No Election Shares") by
submitting to the Exchange Agent an effective,
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<PAGE> 9
properly completed Election Form shall be deemed to be Cash
Election Shares, except as set forth in Section 1.08(f)
of this Agreement. Any holder of 1% or more of the
Seller Common Stock (determined as of the Closing Date)
that shall not, on or before the Election Deadline, have
delivered to the Exchange Agent a properly executed
Certification (or such other representations as Thompson
Coburn, in its sole discretion, shall deem acceptable)
shall be deemed to have made a timely election to receive
the Cash Distribution, and all shares of Seller Common
Stock held by such holder shall be deemed to be Cash
Election Shares for all purposes of this Agreement,
including Section 1.08(f) hereof. For purposes of the
previous sentence, the parties to this Agreement
acknowledge that a holder of Seller Common Stock who
acquires shares of Seller Common Stock sufficient to
become a holder of 1% or more of such shares after the
Election Deadline may be precluded from receiving the
Stock Distribution or the Combined Distribution if such
holder has not delivered a properly executed
Certification to the Exchange Agent prior to the Election
Deadline. "Election Deadline" shall mean 3:00 P.M.,
local time, on the date of the special meeting of
shareholders of the Seller called to vote upon this
Agreement and the Merger.
(d) For purposes of Section 1.08(f) of this
Agreement, any Dissenting Shares shall be deemed to be
Cash Election Shares; provided, however, that such
Dissenting Shares shall in all cases be payable in cash
and shall not be subject to pro rata reduction, if
required, of the Cash Distribution payable in conversion
of the other Cash Election Shares as set forth in Section
1.08(f) of this Agreement.
(e) Any election for purposes of Section 1.08(b) of
this Agreement shall be effective only if the Exchange
Agent shall have received the properly completed Election
Form by the Election Deadline. Any Election Form may be
revoked or changed by the person submitting such Election
Form or any other person to whom the shares that are the
subject of the Election Form are subsequently
transferred. Such revocation or change shall be effected
by written notice by such person to the Exchange Agent;
provided such notice is received by the Exchange Agent at
or prior to the Election Deadline. All Election Forms
shall be deemed to be revoked if the Exchange Agent is
notified in writing by either Buyers or Seller that this
Agreement has been terminated in accordance with its
terms. The Exchange Agent shall have reasonable
discretion to determine when any election, modification
or revocation is received or whether any such election,
modification or revocation is effective, consistent with
the duty of the Exchange Agent to give effect to such
elections, modifications or revocations to the maximum
extent possible.
(f) As soon as practicable after the Election
Deadline, Buyers shall cause the Exchange Agent to
allocate among the holders of Seller Common Stock the
rights to receive the Cash Distribution, the Stock
Distribution or the Combined Distribution pursuant to the
Merger after the Effective Time as follows:
(i) If the number of shares of Mercantile
Common Stock issuable in respect of the Stock
Election Shares and the Combined Election Shares is
less than the "Stock Conversion Number" (as
hereinafter defined), then
(A) all of the Stock Election
Shares shall be converted into the right to
receive the Stock Distribution, and
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<PAGE> 10
(B) all of the Cash Election Shares
and the Combined Election Shares shall be
converted into the right to receive the Cash
Distribution or the Combined Distribution,
respectively; provided, however, that if the
number of shares of Mercantile Common Stock
issuable to all holders of Stock Election
Shares and Combined Election Shares is
insufficient in the reasonable judgment of
Thompson Coburn to allow it to render the
opinion required by Section 6.01(e) of this
Agreement, then, Thompson Coburn shall notify
the Exchange Agent as soon as practicable on
or after the Closing Date as to the number of
additional shares of Mercantile Common Stock
that will be required to be issued in the
Merger in order to allow Thompson Coburn to
render such opinion in its reasonable
judgment. Upon receipt of such notice from
Thompson Coburn, the Exchange Agent shall:
(1) first, reallocate the
Merger Consideration payable to each
holder of No Election Shares pro rata
(based upon the number of No Election
Shares owned by such holder as compared
with the total number of No Election
Shares owned by all holders) such that
the holders of No Election Shares will
receive the number of shares of
Mercantile Common Stock which in the
aggregate will equal the number of shares
of Mercantile Common Stock set forth in
Thompson Coburn's notice to the Exchange
Agent and such holders will receive the
balance of the Merger Consideration, if
any, to which each such holder is
entitled to receive pursuant to the
Merger (determined by (x) computing the
value of the Merger Consideration to
which each such holder is entitled to
receive pursuant to the Merger by
multiplying the number of shares of
Seller Common Stock owned at the
Effective Time by $194.73 per share and
(y) subtracting from the amount
determined in (x) above the value of the
shares of Mercantile Common Stock issued
pursuant to this Section 1.08(f)(i)(B)(1)
(utilizing a deemed value for such shares
of $45.325 per share)) in cash;
(2) if the reallocation set
forth in (1) immediately above is not
sufficient to allow the issuance of the
number of shares of Mercantile Common
Stock set forth in Thompson Coburn's
notice to the Exchange Agent, then,
reallocate the portion of the Merger
Consideration payable in shares of
Mercantile Common Stock to each holder of
Combined Election Shares (based upon the
number of Combined Election Shares owned
by such holder as compared with the total
number of Combined Election Shares owned
by all such holders), such that the
holders of Combined Election Shares will
receive the number of shares of
Mercantile Common Stock which in the
aggregate will equal the number of shares
of Mercantile Common Stock set forth in
Thompson Coburn's notice to the Exchange
Agent less the shares of Mercantile
Common Stock issuable pursuant to (1)
immediately above and such holders shall
receive the balance of the Merger
Consideration, if any, to which each such
holder is entitled to receive pursuant to the
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<PAGE> 11
Merger (determined by (x) computing
the value of the Merger Consideration to
which each such holder is entitled to
receive pursuant to the Merger by
multiplying the number of shares of
Seller Common Stock owned by such holder
at the Effective Time by $194.73 per
share and (y) subtracting from the value
determined in (x) above the value of the
shares of Mercantile Common Stock issued
pursuant to Section 1.07(b)(iii) and this
Section 1.08(f)(i)(B)(2) (utilizing a
deemed value for such shares of $45.325
per share)) in cash;
(3) if the reallocations set
forth in (1) and (2) immediately above
are not sufficient in the aggregate to
allow the issuance of the number of
shares of Mercantile Common Stock set
forth in Thompson Coburn's notice to the
Exchange Agent, finally, reallocate the
Merger Consideration payable to each
holder of Cash Election Shares, other
than No Election Shares and Dissenting
Shares, pro rata (based upon the number
of Cash Election Shares, other than No
Election Shares and Dissenting Shares,
owned by such holder as compared with the
total number of Cash Election Shares,
other than No Election Shares and
Dissenting Shares, owned by all holders),
such that the holders of the Cash
Election Shares, other than No Election
Shares and Dissenting Shares, will
receive the number of shares of
Mercantile Common Stock which in the
aggregate will equal the number of shares
of Mercantile Common Stock set forth in
Thompson Coburn's notice to the Exchange
Agent less the number of shares of
Mercantile Common Stock issuable pursuant
to (1) and (2) immediately above and such
holders shall receive the balance of the
Merger Consideration, if any, to which
each such holder is entitled to receive
pursuant to the Merger (determined by (x)
computing the value of the Merger
Consideration to which each such holder
is entitled to receive pursuant to the
Merger by multiplying the number of
shares of Seller Common Stock owned by
such holder at the Effective Time by
$194.73 per share and (y) subtracting
from the value determined in (x) above
the value of the shares of Mercantile
Common Stock issued pursuant to this
Section 1.08(f)(i)(B)(3) (utilizing a
deemed value for such shares of $45.325
per share)) in cash.
(ii) If the number of shares of Mercantile
Common Stock issuable in respect of the Stock
Election Shares and the Combined Election Shares is
greater than the Stock Conversion Number, then:
(A) all of the Cash Election Shares
shall be converted into the right to receive
the Cash Distribution;
(B) the Exchange Agent shall determine
the aggregate number of shares of Mercantile
Common Stock issuable pursuant to the Stock
Distributions and the Combined Distributions
and shall subtract from such number the Stock
Conversion Number (the excess is
- 6 -
<PAGE> 12
hereinafter referred to as the "Excess Shares").
The Exchange Agent shall thereafter reallocate
the Merger Consideration of the holders of the
Combined Election Shares and, in the event
that such reallocation is insufficient to
eliminate the Excess Shares, the Exchange
Agent shall also reallocate the Merger
Consideration of the holders of the Stock
Election Shares as follows:
(1) the Exchange Agent shall first
reduce the number of Excess Shares, to
zero or otherwise to the extent possible,
by reallocating the Merger Consideration
to be received by the holders of the
Combined Election Shares pursuant to the
Merger. The number of shares of
Mercantile Common Stock to be received by
each such holder pursuant to the Combined
Distribution shall be reduced by a number
determined by (x) multiplying the number
of Excess Shares by (y) the holder's pro
rata percentage of the aggregate Combined
Election Shares (based upon the number of
Combined Election Shares owned by such
holder as compared with the total number
of Combined Election Shares owned by all
holders). In lieu of the issuance of
such shares of Mercantile Common Stock,
the holders of Combined Election Shares
shall receive a cash payment equal to
$194.73 for each such share of Seller
Common Stock not converted into the right
to receive Mercantile Common Stock;
(2) if the reallocation set forth
in (1) immediately above does not result
in the reduction in the number of Excess
Shares to zero, the Exchange Agent shall
reduce such number of Excess Shares to
zero by reallocating the Merger
Consideration to be received by the
holders of the Stock Election Shares
pursuant to the Merger. The number of
shares of Mercantile Common Stock to be
received by each such holder pursuant to
the Stock Distribution shall be reduced
by a number determined by (x) multiplying
the number of Excess Shares reduced by
the number of shares reallocated pursuant
to (1) immediately above by (y) the
holder's pro rata percentage of the Stock
Election Shares (based upon the number of
Stock Election Shares owned by such
holder as compared with the total number
of Stock Election Shares owned by all
holders). In lieu of the issuance of
such shares of Mercantile Common Stock,
the holders of Stock Election Shares,
shall receive a cash payment equal to
$194.73 for each such share of Seller
Common Stock not converted into the right
to receive Mercantile Common Stock.
The term "Stock Conversion Number" shall mean 258,783 shares
of Mercantile Common Stock.
(g) The computation of Excess Shares, the pro rata
computations utilized in the reallocations and the
reallocated payments of the Merger Consideration
contemplated by Section 1.08(f) of this Agreement shall
be made by the Exchange Agent in the reasonable exercise
of its discretion.
- 7 -
<PAGE> 13
(h) Each separate entry on the Seller Shareholder
List (as defined in Section 1.12 hereof) shall be
presumed to represent a separate and distinct holder of
record of Seller Common Stock. Shares held of record by
a bank, trust company, broker, dealer or other recognized
nominee shall be deemed to be held by a single holder
unless the nominee advises the Exchange Agent otherwise
in writing. In such case, each of the beneficial owners
will be treated as a separate holder and either directly
or through such nominee may submit a separate Election
Form for shares of Seller Common Stock that are
beneficially owned.
(i) Any provisions of the preceding paragraphs of
this Section 1.08 to the contrary notwithstanding, if a
holder of Seller Common Stock in two or more different
names so certifies in writing on or before the Election
Deadline, such shareholder may submit a single Election
Form for all such shares subject to the certification and
shall be treated for purposes of this Section 1.08 as a
single holder.
1.09. Exchange Procedures.
-------------------
(a) At the Effective Time, Mercantile shall have
granted the Exchange Agent the requisite power and
authority to effect for Buyers the issuance of the number
of shares of Mercantile Common Stock to be issued in the
Merger and the payment of the amount of cash to be paid
in the Merger.
(b) Within 10 days after the Effective Time, the
Exchange Agent shall mail or cause to be mailed to
holders of record of Certificates , as identified on the
Seller Shareholder List, as provided pursuant to Section
1.12 hereof, letters advising them of the effectiveness
of the Merger and instructing them to tender such
Certificates to the Exchange Agent, or in lieu thereof,
such evidence of lost, stolen or mutilated Certificates
and such surety bond or other security as the Exchange
Agent may reasonably require (the "Required
Documentation").
(c) Subject to Section 1.12, after the Effective
Time, each previous holder of a Certificate that
surrenders such Certificate or in lieu thereof, the
Required Documentation, to the Exchange Agent, with a
properly completed and executed letter of transmittal
with respect to such Certificate, shall receive from the
Exchange Agent, within 10 business days of the date the
Exchange Agent received such holder's Certificate or the
Required Documentation, as the case may be, a certificate
or certificates representing the stock component of the
Merger Consideration and/or a payment representing the
cash component of the Merger Consideration.
(d) Each outstanding Certificate, until duly
surrendered to the Exchange Agent, shall be deemed to
evidence ownership of the Merger Consideration into which
the stock previously represented by such Certificate
shall have been converted pursuant to this Agreement.
(e) After the Effective Time, holders of
Certificates shall cease to have rights with respect to
the stock previously represented by such Certificates,
and their sole rights shall be to exchange such
Certificates for the Merger Consideration issuable or
payable in the Merger. After the closing of the transfer
books as described in Section 1.12 hereof, 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 Merger Consideration. Neither Buyers nor
the Exchange Agent shall be
- 8 -
<PAGE> 14
obligated to deliver the Merger Consideration to which any
former holder of Seller Common Stock is entitled as a result
of the Merger until such holder surrenders the Certificates
or furnishes the Required Documentation as provided herein.
No interest will be accrued or paid on the cash component of
the Merger Consideration. No dividends or distributions
declared after the Effective Time (including any
redemption by Mercantile of the Rights associated
therewith) on the Mercantile Common Stock representing
the stock component of the Merger Consideration will be
remitted to any person entitled to receive such stock
component of the Merger Consideration under this
Agreement until such person surrenders the Certificate
representing the right to receive such Mercantile Common
Stock or furnishes the Required Documentation, at which
time such dividends or declarations shall be remitted to
such person, without interest and less any taxes that may
have been imposed thereon. Certificates surrendered for
exchange by an affiliate shall not be exchanged until
Buyers have received a written agreement from such
affiliate as required pursuant to Section 5.07 hereof.
Neither the Exchange Agent nor any party to this
Agreement nor any affiliate thereof shall be liable to
any holder of stock represented by any Certificate for
any Merger Consideration issuable or payable in the
Merger that is paid to a public official pursuant to
applicable abandoned property, escheat or similar laws.
1.10. Dissenting Shares.
-----------------
(a) "Dissenting Shares" means any shares held by
any holder who becomes entitled to payment of the fair
value of such shares under Section 351.455 of the
Missouri Statute. Any holders of Dissenting Shares shall
be entitled to payment for such shares only to the extent
permitted by and in accordance with the provisions of
such law, and Mercantile shall cause the Surviving
Corporation to pay such consideration with funds provided
by Mercantile.
(b) Each party hereto shall give the other prompt
notice of any written demands for the payment of the fair
value of any shares, withdrawals of such demands and any
other instruments served pursuant to Section 351.455 of
the Missouri Statute received by such party, and Seller
shall give Mercantile the opportunity to participate in
all negotiations and proceedings with respect to such
demands. Seller shall not voluntarily make payment with
respect to any demands for payment of fair value and
shall not, except with the prior written consent of
Mercantile, which consent shall not be unreasonably
withheld, settle or offer to settle any such demands.
1.11. No Fractional Shares. Notwithstanding any
--------------------
other provision of this Agreement, neither certificates nor scrip
for fractional shares of Mercantile Common Stock shall be issued in the
Merger. Each holder who otherwise would have been entitled to
a fraction of a share of Mercantile Common Stock shall receive in
lieu thereof cash (without interest) in an amount determined by
multiplying the fractional share interest to which such holder
would otherwise be entitled by the average of the closing stock
price of Mercantile Common Stock on the New York Stock Exchange
("NYSE") Composite Tape as reported in The Wall Street Journal
-----------------------
for the five trading days prior to the date on which this Agreement
is executed. No such holder shall be entitled to dividends, voting
rights or any other rights in respect of any fractional share.
- 9 -
<PAGE> 15
1.12. Closing of Stock Transfer Books.
-------------------------------
(a) The stock transfer books of Seller shall be
closed at the end of business on the third business day
immediately preceding the Closing Date. In the event of
a transfer of ownership of Seller Common Stock which is
not registered in the transfer records prior to the
closing of such record books, the Merger Consideration
issuable or payable with respect to such stock may be
delivered to the transferee, if the Certificate or
Certificates representing such stock is presented to the
Exchange Agent accompanied by all documents required to
evidence and effect such transfer and all applicable
stock transfer taxes are paid. Any election which is
made as of the Election Deadline with respect to any
shares of Seller Common Stock shall be binding upon any
subsequent transferee of such shares.
(b) On the day immediately preceding the Closing
Date, Seller shall provide Buyers with a complete and
verified list of registered holders of Seller Common
Stock based upon its stock transfer books as of the
closing of said transfer books, including the names,
addresses, Certificate numbers and taxpayer
identification numbers of such holders (the "Seller
Shareholder List"). Buyers shall be entitled to rely
upon the Seller Shareholder List to establish the
identity of those persons entitled to receive the Merger
Consideration specified in this Agreement, which list
shall be conclusive with respect thereto. In the event
of a dispute with respect to ownership of stock
represented by any Certificate, Buyers shall be entitled
to deposit any Merger Consideration represented thereby
in escrow with an independent third party and thereafter
be relieved with respect to any claims thereto.
1.13. Anti-Dilution and Business Combination
--------------------------------------
Adjustments. If, between the date of this Agreement and the
- -----------
Effective Time, a share of Mercantile Common Stock shall be changed
into a different number of shares of Mercantile Common Stock or a
different class of shares by reason of reclassification,
recapitalization, split-up, combination, exchange of shares or
readjustment, or if a stock dividend thereon shall be declared with
a record date within such period, then appropriate and proportion-
ate adjustment or adjustments will be made to the exchange ratio
applicable to the Stock Distribution and the Combined Distribution
such that each shareholder of Seller shall be entitled to receive
such number of shares of Mercantile Common Stock or other securi-
ties as such shareholder would have received pursuant to such
reclassification, recapitalization, split-up, combination, exchange
of shares or readjustment or as a result of such stock dividend had
the record date therefor been immediately following the Effective
Time. If, between the date hereof and the Effective Time,
Mercantile shall consolidate with or be merged with or into any
other corporation (a "Business Combination") and the terms thereof
shall provide that Mercantile Common Stock shall be converted into
or exchanged for the shares of any other corporation not controlled
by Mercantile, then provision shall be made as part of the terms of
such Business Combination so that (i) shareholders of Seller who
would be entitled to receive shares of Mercantile Common Stock
pursuant to this Agreement shall be entitled to receive, in lieu of
each share of Mercantile Common Stock issuable to such shareholders
as provided herein, the same kind and amount of securities or
assets as shall be distributable upon such Business Combination
with respect to one share of Mercantile Common Stock (assuming that
such shares of Seller Common Stock had been converted into the
Stock Distribution pursuant to this Agreement), and (ii)
shareholders of Seller who would be entitled to receive cash
pursuant to this Agreement shall be entitled to receive an amount
of cash per share of Seller Common Stock equal to the greater of: (a)
the Cash Distribution amount per share, or (b) the fair market value
of the Stock Distribution amount per share as of the close of business
on the trading day immediately preceding the effective time of the
Business Combination (which shall be determined by multiplying 4.2963
by the closing stock price of Mercantile Common Stock on the NYSE
Composite Tape as reported
- 10 -
<PAGE> 16
in The Wall Street Journal as of the close of business of the trading
-----------------------
day immediately preceding the effective time of the Business
Combination).
1.14. Reservation of Right to Revise Transaction.
------------------------------------------
Buyers may at any time change the method of effecting the
acquisition of Seller by Buyers (including, without limitation, the
provisions of this Article I) if and to the extent Buyers deem such
change to be desirable, including, without limitation, to provide
for (i) a merger of Merger Sub with and into Seller, in which
Seller is the Surviving Corporation, or (ii) a merger of Seller
directly into Mercantile, in which Mercantile is the Surviving
Corporation; provided, however, that no such change shall (A) alter
or change the amount or kind of the Merger Consideration to be
received by the shareholders of Seller in the Merger, (B) adversely
affect the tax treatment to shareholders of Seller, as generally
described in Section 6.01(e) hereof, as a result of receiving the
stock component of the Merger Consideration, or (C) materially
impede or delay receipt of any approvals referred to in Section
6.01(b) or the consummation of the transactions contemplated by
this Agreement.
1.15. Material Adverse Effect. As used in this
-----------------------
Agreement, the term "Material Adverse Effect" with respect to an
entity means any condition, event, change or occurrence that has or
may reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), properties, business or results
of operations, of such entity and its Subsidiaries, taken as a
whole as reflected in the Seller Financial Statements (as defined
in Section 2.05(b)) or the Mercantile Financial Statements (as
defined in Section 3.04), as the case may be; it being understood
that a Material Adverse Effect shall not include: (i) a change with
respect to, or effect on, such entity and its Subsidiaries
resulting from a change in law, rule, regulation, generally
accepted accounting principles or regulatory accounting principles,
including, but not limited to, changes resulting from amendments to
or modifications of any law, rule, regulation or policy relating to
the bad debt reserve of or deduction taken by thrift institutions,
as such would apply to the financial statements of such entity on
a consolidated basis; (ii) a change with respect to, or effect on,
such entity and its Subsidiaries resulting from any other matter
affecting depository institutions generally including, without
limitation, changes in general economic conditions and changes in
prevailing interest and deposit rates; (iii) any one-time special
insurance premium assessed by the Federal Deposit Insurance
Corporation ("FDIC") on deposits insured by the Savings Association
Insurance Fund ("SAIF"); (iv) in the case of Seller, any financial
change resulting from adjustments taken pursuant to Section 5.05
hereof or from reasonable expenses attributable solely to the
transactions contemplated hereby; or (v) a change disclosed in the
Seller Financial Statements or the Mercantile Financial
Statements, as the case may be.
ARTICLE II
----------
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
As an inducement to Buyers to enter into and perform
their respective obligations under this Agreement, and notwith-
standing any examination, inspection, audit or any other investiga-
tion made by Buyers, Seller represents and warrants to and
covenants with Buyers as follows:
2.01. Organization and Authority. Seller is a
--------------------------
corporation duly organized, validly existing and in good standing
under the laws of the State of Missouri, is duly qualified to do
business and is in good standing in all jurisdictions where its
ownership or leasing of property or the conduct of its business
requires it to be so qualified and has corporate power and
authority to own its properties and assets and to carry on its
business as it is now being conducted, except where the failure to
be so
- 11 -
<PAGE> 17
qualified would not have a Material Adverse Effect on Seller.
Seller is registered as a bank holding company with the Board of
Governors of the Federal Reserve System (the "Federal Reserve
Board") under the BHCA. True and complete copies of the Articles
of Incorporation and Bylaws of Seller and the Articles of
Association and Bylaws of The First National Bank of Salem
("FNBS"), a bank chartered under the laws of the United States
which is a wholly owned subsidiary of Seller, each as in effect on
the date of this Agreement, are attached hereto as Schedule
--------
2.01. Also attached hereto as Schedule 2.01 are true and
- ---- -------------
complete lists of the shareholders of each of the Seller and FNBS
(including directors' qualifying shares), as of a date not earlier
than the fifth business day prior to the date of this Agreement.
2.02. Subsidiaries.
------------
(a) Schedule 2.02 sets forth, a complete and
-------------
correct list of all of Seller Subsidiaries and all
outstanding Equity Securities (as defined in Section
2.03) of each, all of which are owned directly or
indirectly by Seller. All of the outstanding shares of
capital stock of the Seller Subsidiaries owned directly
or indirectly by Seller are validly issued, fully paid
and nonassessable and are owned free and clear of any
lien, claim, charge, option, encumbrance, agreement,
mortgage, pledge, security interest or restriction (a
"Lien") with respect thereto. Each of the Seller
Subsidiaries is a corporation or bank duly incorporated
or organized and validly existing under the laws of its
jurisdiction of incorporation or organization, and has
corporate power and authority to own or lease its
properties and assets and to carry on its business as it
is now being conducted. Each of the Seller Subsidiaries
is duly qualified to do business in each jurisdiction
where its ownership or leasing of property or the conduct
of its business requires it so to be qualified, except
where the failure to so qualify would not have a Material
Adverse Effect on Seller. Neither Seller nor any Seller
Subsidiary owns beneficially, directly or indirectly, any
shares of any class of Equity Securities or similar
interests of any corporation, bank, business trust,
association or organization, or any interest in a
partnership or joint venture of any kind, other than
those identified as Seller Subsidiaries in Schedule
--------
2.02 hereof.
----
(b) FNBS is a commercial bank duly organized,
validly existing and in good standing under the laws of
the United States. The deposits of FNBS are insured by
the Federal Deposit Insurance Corporation (the "FDIC")
under the Federal Deposit Insurance Act of 1950, as
amended (the "FDI Act").
2.03. Capitalization. The authorized capital
--------------
stock of Seller consists of 200,000 shares of Seller Common Stock,
of which, as of July 9, 1996, 76,927 shares were issued and
outstanding. All of the issued and outstanding shares of Seller
Common Stock are validly issued, fully paid and nonassessable, and
have not been issued in violation of any preemptive right of any
shareholder of Seller. Except as set forth above, there are no
other Equity Securities of Seller outstanding. "Equity Securities"
of an issuer means capital stock or other equity securities of such
issuer, options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities
or rights convertible into, shares of any capital stock or other
equity securities of such issuer, or contracts, commitments,
understandings or arrangements by which such issuer is or may
become bound to issue additional shares of its capital stock or other
equity securities of such issuer, or options, warrants, scrip or
rights to purchase, acquire, subscribe to, calls on or commitments for
any shares of its capital stock or other equity securities.
2.04. Authorization.
-------------
- 12 -
<PAGE> 18
(a) Seller has the corporate power and authority to
enter into this Agreement and, subject to the approval of
this Agreement by the shareholders of Seller and
Regulatory Authorities (as defined in Section 2.06), to
carry out its obligations hereunder. The only
shareholder vote required for Seller to approve this
Agreement is the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Seller
Common Stock entitled to vote at a meeting called for
such purpose. The execution, delivery and performance of
this Agreement by Seller and the consummation by Seller
of the transactions contemplated hereby in accordance
with and subject to the terms of this Agreement have been
duly authorized by the Board of Directors of Seller.
Subject to the approval of Seller's shareholders and
subject to the receipt of such approvals of the
Regulatory Authorities as may be required by statute or
regulation, this Agreement is a valid and binding
obligation of Seller enforceable against Seller in
accordance with its terms.
(b) Neither the execution nor delivery nor
performance by Seller of this Agreement, nor the
consummation by Seller of the transactions contemplated
hereby, nor compliance by Seller with any of the
provisions hereof, will (i) violate, conflict with, or
result in a breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time
or both, would constitute a default) under, or result in
the termination of, or accelerate the performance
required by, or result in a right of termination or
acceleration of, or result in the creation of, any Lien
upon any of the properties or assets of Seller or any of
the Seller Subsidiaries under any of the terms,
conditions or provisions of (x) its Articles of
Incorporation or Association, as the case may be, charter
or Bylaws or (y) any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other
instrument or obligation to which Seller or any of the
Seller Subsidiaries is a party or by which it may be
bound, or to which Seller or any of the Seller
Subsidiaries or any of the properties or assets of Seller
or any of the Seller Subsidiaries may be subject, or (ii)
subject to compliance with the statutes and regulations
referred to in Section 2.04(c), violate any judgment,
ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to Seller or any of the Seller
Subsidiaries or any of their respective properties or
assets; other than violations, conflicts, breaches,
defaults, terminations, accelerations or Liens which
would not have a Material Adverse Effect on Seller.
(c) Other than in connection or in compliance with
the provisions of the Missouri Statute, the Securities
Act of 1933, as amended, and the rules and regulations
thereunder (the "Securities Act"), the Securities
Exchange Act of 1934, as amended, and the rules and
regulations thereunder (the "Exchange Act"), the
securities or blue sky laws of the various states or
filings, consents, reviews, authorizations, approvals or
exemptions required under the BHCA, or any required
approvals of the Federal Reserve Board or other
governmental agencies or governing boards having
regulatory authority over Seller or any Seller
Subsidiary, no notice to, filing with, exemption or
review by, or authorization, consent or approval of, any
public body or authority is necessary for the consummation
by Seller of the transactions contemplated by this
Agreement.
- 13 -
<PAGE> 19
2.05. Seller Financial Statements.
---------------------------
(a) Attached hereto as Schedule 2.05(a) are
----------------
copies of the following documents:
(i) Audited consolidated balance sheets of Seller
as of December 31, 1995, 1994 and 1993; audited
consolidated statements of income, changes in
shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995;
and all notes and auditor's reports relating
thereto;
(ii) Unaudited consolidated balance sheets of
Seller as of June 30, 1996 and 1995 and consolidated
statements of income, changes in shareholders'
equity and cash flows for the six month periods
ended June 30, 1996 and 1995;
(iii) Form FR Y-6 reports of Seller as of
December 31, 1995, 1994 and 1993 and all Forms FR Y-
6A, FR Y-9LP and FR Y-9C filed with the Federal
Reserve Board during the period beginning January 1,
1993 and ending on the date hereof; and
(iv) Consolidated Reports of Condition and Income
for FNBS for the fiscal years ended December 31,
1995, 1994 and 1993 and for the three month period
ended March 31, 1996.
(b) The financial statements referenced in
Schedule 2.05(a), including those contained in the
----------------
documents described in Section 2.05(a) (iii) and (iv),
are referred to collectively as the "Seller Financial
Statements." Except as may be otherwise therein
disclosed, the Seller Financial Statements have been
prepared in accordance with generally accepted accounting
principles ("GAAP") or regulatory accounting principles,
as the case may be, consistently applied during the
periods involved, and present fairly the consolidated
financial position of Seller and the Seller Subsidiaries
at the dates thereof and the consolidated results of
operations, changes in shareholders' equity and cash
flows of Seller and the Seller Subsidiaries for the
periods stated therein(subject, in the case of interim
financial statements, to normal recurring year-end
adjustments, none of which will be material).
(c) Seller and the Seller Subsidiaries have each
prepared, kept and maintained through the date hereof
true, correct and complete financial and other books and
records of their affairs which fairly reflect their
respective financial conditions, results of operations,
changes in shareholders' equity and cash flows.
2.06. Seller Reports. Since January 1, 1993,
--------------
each of Seller and the Seller Subsidiaries has timely filed all
material reports, registrations and statements, together with any
required amendments thereto, that it was required to file with (i)
the SEC (ii) the Federal Reserve Board, (iii) the FDIC, (iv) the
Office of the Comptroller of the Currency and (v) any federal,
state, municipal or local government, securities, banking,
insurance and other governmental or regulatory authority, and the
agencies and staffs thereof (the entities in the foregoing clauses
(i) through (v) being referred to herein collectively as the
"Regulatory Authorities" and individually as a "Regulatory
Authority"), having jurisdiction over the affairs of it. All such
material reports and statements filed with any such Regulatory
Authority are collectively referred to herein as the "Seller
Reports." As of each of their respective dates, the Seller Reports
complied in all material respects with all the rules and
regulations promulgated by the applicable
- 14 -
<PAGE> 20
Regulatory Authority. Except as disclosed in Schedule 2.06, with
respect to Seller Reports filed with the Regulatory Authorities, there
is no asserted and unresolved violation, criticism or exception by any
Regulatory Authority with respect to any report or statement filed by,
or any examinations of, Seller or any of the Seller Subsidiaries.
2.07. Title to and Condition of Assets.
--------------------------------
(a) Except as may be reflected in the Seller
Financial Statements and with the exception of all "Real
Property" (which is the subject of Section 2.08 hereof)
Seller and the Seller Subsidiaries have, and at the
Closing Date will have, good and marketable title to
their owned properties and assets, including, without
limitation, those reflected in the Seller Financial
Statements (except those disposed of in the ordinary
course of business since the date thereof), free and
clear of any Lien, except for Liens for (i) taxes,
assessments or other governmental charges not yet
delinquent and (ii) as set forth or described in the
Seller Financial Statements or any subsequent Seller
Financial Statements delivered to Buyers prior to the
Effective Time.
(b) No material properties or assets that are
reflected as owned by Seller or any of the Seller
Subsidiaries in the Seller Financial Statements as of
March 31, 1996 have been sold, leased, transferred,
assigned or otherwise disposed of since such date, except
in the ordinary course of business.
(c) All furniture, fixtures, vehicles, machinery
and equipment and computer software owned or used by
Seller or the Seller Subsidiaries, including any such
items leased as a lessee (taken as a whole as to each of
the foregoing with no single item deemed to be of
material importance) are in good working order and free
of known defects, subject only to normal wear and tear.
The operation by Seller or the Seller Subsidiaries of
such properties and assets is in compliance in all
material respects with all applicable laws, ordinances
and rules and regulations of any governmental authority
having jurisdiction over such use.
2.08. Real Property.
-------------
(a) The legal description of each parcel of real
property owned by Seller or any of the Seller
Subsidiaries (other than real property acquired in
foreclosure or in lieu of foreclosure in the course of
the collection of loans and being held by Seller or a
Seller Subsidiary for disposition as required by law) is
set forth in Schedule 2.08(a) under the heading
----------------
"Owned Real Property" (such real property being herein
referred to as the "Owned Real Property"). The legal
description of each parcel of real property leased by
Seller or any of the Seller Subsidiaries is also set
forth in Schedule 2.08(a) under the heading "Leased
----------------
Real Property" (such real property being herein referred
to as the "Leased Real Property"). Collectively, the
Owned Real Property and the Leased Real Property is
herein referred to as the "Real Property."
(b) There is no pending action involving Seller or
any of the Seller Subsidiaries as to the title of or the
right to use any of the Real Property.
(c) Neither Seller nor any of the Seller Subsidiaries
has any interest in any other real property except interests
as a mortgagee, and except for any real property
- 15 -
<PAGE> 21
acquired in foreclosure or in lieu of foreclosure and being
held for disposition as required by law.
(d) To the best knowledge of Seller, none of the
buildings, structures or other improvements located on
the Real Property encroaches upon or over any adjoining
parcel of real estate or any easement or right-of-way or
"setback" line in any material respect and all such
buildings, structures and improvements are in all
material respects located and constructed in conformity
with all applicable zoning ordinances and building codes.
(e) None of the buildings, structures or
improvements located on the Owned Real Property are the
subject of any official complaint or notice by any
governmental authority of violation of any applicable
zoning ordinance or building code, and there is no zoning
ordinance, building code, use or occupancy restriction or
condemnation action or proceeding pending, or, to the
best knowledge of Seller, threatened, with respect to any
such building, structure or improvement. The Owned Real
Property is in generally good condition for its intended
purpose, ordinary wear and tear excepted, and has been
maintained in accordance with reasonable and prudent
business practices applicable to like facilities.
(f) Except as may be reflected in the Seller
Financial Statements or with respect to such easements,
Liens, defects or encumbrances as do not individually or
in the aggregate materially adversely affect the use or
value of the parcel of Owned Real Property, Seller and
the Seller Subsidiaries have, and at the Closing Date
will have, good and marketable title to their respective
Owned Real Properties.
2.09. Taxes. Seller and each Seller Subsidiary
-----
have timely filed or will timely file (including extensions) all
material tax returns required to be filed at or prior to the
Closing Date ("Seller Returns"). Except as set forth in Schedule
2.09, each of Seller and the Seller Subsidiaries has paid, or set
up adequate reserves on the Seller Financial Statements for the
payment of, all taxes required to be paid in respect of the periods
covered by such Seller Returns and has set up adequate reserves on
the most recent Seller Financial Statements for the payment of all
taxes anticipated to be payable in respect of all periods up to and
including the latest period covered by such Seller Financial
Statements. Neither Seller nor any Seller Subsidiary has any
liability which could result in a Material Adverse Effect on Seller
for any such taxes in excess of the amounts so paid or reserves so
established, and no material deficiencies for any tax, assessment
or governmental charge have been proposed, asserted or assessed
(tentatively or definitely) against Seller or any of the Seller
Subsidiaries which would not be covered by existing reserves.
Neither Seller nor any of the Seller Subsidiaries is delinquent in
the payment of any tax, assessment or governmental charge, nor has
it requested any extension of time within which to file any tax
returns in respect of any fiscal year which have not since been
filed and no requests for waivers of the time to assess any tax are
pending. No federal or state income tax return of Seller or any
Seller Subsidiaries has been audited by the Internal Revenue
Service (the "IRS") or any state tax authority for the seven (7)
most recent full calendar years. There is no deficiency or refund
litigation or matter in controversy with respect to Seller Returns.
Neither Seller nor any of the Seller Subsidiaries has extended or
waived any statute of limitations on the assessment of any tax due
that is currently in effect.
2.10. Material Adverse Effect. Since March 31,
-----------------------
1996, there has been no Material Adverse Effect on Seller.
- 16 -
<PAGE> 22
2.11. Loans, Commitments and Contracts.
--------------------------------
(a) Schedule 2.11(a) contains a complete and
----------------
accurate listing as of June 30, 1996, of all contracts
entered into with respect to deposits of $250,000 or
more, by account, and all loan agreements and
commitments, notes, security agreements, repurchase
agreements, bankers' acceptances, outstanding letters of
credit and commitments to issue letters of credit,
participation agreements, and other documents relating to
or involving extensions of credit and other commitments
to extend credit by Seller or any of the Seller
Subsidiaries with respect to any one entity or related
group of entities in excess of $200,000 to which Seller
or any of the Seller Subsidiaries is a party or by which
it is bound, by account, and, where applicable, such
other information as shall be necessary to identify any
related group of entities. For purposes of this Section
2.11(a), a "related group of entities" shall have the
meaning ascribed to "affiliate" in Rule 144 as
promulgated under the Securities Act.
(b) Except for the contracts and agreements
required to be listed on Schedule 2.11(a) and the
----------------
loans required to be listed on Schedule 2.11(f), and
----------------
except as otherwise listed on Schedule 2.11(b), as of
----------------
the date hereof neither Seller nor any of the Seller
Subsidiaries is a party to or is bound by any:
(i) agreement, contract, arrangement,
understanding or commitment with any labor union;
(ii) franchise or license agreement;
(iii) written employment, severance,
termination pay, agency, consulting or similar
agreement or commitment in respect of personal
services;
(iv) material agreement, arrangement or
commitment (A) not made in the ordinary course of
business, and (B) pursuant to which Seller or any of
the Seller Subsidiaries is or may become obligated
to invest in or contribute to any Seller Subsidiary
other than pursuant to Seller Employee Plans (as
that term is defined in Section 2.19 hereof) and
agreements relating to joint ventures or
partnerships set forth in Schedule 2.02, true
-------------
and complete copies of which have been furnished to
Buyers;
(v) agreement, indenture or other instrument
not disclosed in the Seller Financial Statements
relating to the borrowing of money by Seller or any
of the Seller Subsidiaries or the guarantee by
Seller or any of the Seller Subsidiaries of any such
obligation (other than trade payables or instruments
related to transactions entered into in the ordinary
course of business by Seller or any of the Seller
Subsidiaries, such as deposits, Federal Funds
borrowings and repurchase and reverse repurchase
agreements), other than such agreements, indentures
or instruments providing for annual payments of less
than $50,000;
(vi) contract containing covenants which limit
the ability of Seller or any of the Seller Subsidiaries
to compete in any line of business or with any person or
which involves any restrictions on the geographical area
in which, or method by which, Seller or any of the
Seller Subsidiaries may carry on their
- 17 -
<PAGE> 23
respective businesses (other than as may be required by
law or any applicable Regulatory Authority);
(vii) contract or agreement which is a
"material contract" within the meaning of Item
601(b)(10) of Regulation S-K as promulgated by the
SEC to be performed after the date of this Agreement
that has not been filed or incorporated by reference
in the Seller Reports or otherwise described in this
Section 2.11 and the Schedules hereto;
(viii) lease with annual rental payments
aggregating $25,000 or more;
(ix) loans or other obligations payable or
owing to any officer, director or employee except
(A) salaries, wages and directors' fees or other
compensation incurred and accrued in the ordinary
course of business and (B) obligations due in
respect of any depository accounts maintained by any
of the foregoing at Seller or any of the Seller
Subsidiaries in the ordinary course of business; or
(x) other agreement, contract, arrangement,
understanding or commitment involving an obligation
by Seller or any of the Seller Subsidiaries of more
than $100,000 and extending beyond six months from
the date hereof that cannot be cancelled without
cost or penalty upon notice of 30 days or less,
other than contracts entered into in respect of
deposits, loan agreements and commitments, notes,
security agreements, repurchase and reverse
repurchase agreements, bankers' acceptances,
outstanding letters of credit and commitments to
issue letters of credit, participation agreements
and other documents relating to transactions entered
into by Seller or any of the Seller Subsidiaries in
the ordinary course of business.
(c) Seller and/or the Seller Subsidiaries carry
property, liability, director and officer, errors and
omissions, products liability and other insurance
coverage as set forth in Schedule 2.11(c) under the
----------------
heading "Insurance."
(d) True, correct and complete copies of the
agreements, contracts, leases, insurance policies and
other documents referred to in Section 2.11(b) have
---------------
been included with Schedule 2.11(b) hereto. True,
----------------
correct and complete copies of the agreements, contracts,
leases, insurance policies and other documents referred
to in Sections 2.11(a) and (c) have been or shall be
------------------------
furnished or made available to Buyers.
(e) To the best knowledge of Seller, each of the
agreements, contracts, leases, insurance policies and
other documents referred to in Schedules 2.11 (a), (b)
-----------------------
and (c) is a valid, binding and enforceable obligation
-------
of the parties sought to be bound thereby, except as the
enforceability thereof against the parties thereto (other
than Seller or any of the Seller Subsidiaries) may be
limited by bankruptcy, insolvency, reorganization,
moratorium and other laws now or hereafter in effect
relating to the enforcement of creditors' rights generally,
and except that equitable principles may limit the right to
obtain specific performance or other equitable remedies.
(f) Schedule 2.11(f) under the heading "Loans"
----------------
contains a true, correct and complete listing, as of the
date of this Agreement, by account, of (i) all loans in
excess of $100,000 of Seller or any of the Seller
Subsidiaries which have been accelerated during the past
twelve months; (ii) all loan commitments or lines of credit
of Seller or any of the Seller Subsidiaries in excess
- 18 -
<PAGE> 24
of $100,000 which have been terminated by Seller
or any of the Seller Subsidiaries during the past twelve
months by reason of default or adverse developments in
the condition of the borrower or other events or
circumstances affecting the credit of the borrower; (iii)
all loans, lines of credit and loan commitments in excess
of $100,000, as to which Seller or any of the Seller
Subsidiaries has given written notice of its intent to
terminate during the past twelve months; (iv) with
respect to all loans in excess of $100,000, all
notification letters and other written communications
from Seller or any of the Seller Subsidiaries to any of
their respective borrowers, customers or other parties
during the past twelve months wherein Seller or any of
the Seller Subsidiaries has requested or demanded that
actions be taken to correct existing defaults or facts or
circumstances which may become defaults; (v) each
borrower, customer or other party which has notified
Seller or any of the Seller Subsidiaries during the past
twelve months of, or has asserted against Seller or any
of the Seller Subsidiaries, in each case in writing, any
"lender liability" or similar claim and, to the best
knowledge of Seller, each borrower, customer or other
party which has given Seller or any of the Seller
Subsidiaries any oral notification of, or orally asserted
to or against Seller or any of the Seller Subsidiaries,
any such claim; (vi) all loans in excess of $50,000 (A)
that are contractually past due 90 days or more in the
payment of principal and/or interest, (B) that are on
non-accrual status, (C) that have been classified
"doubtful," "loss" or the equivalent thereof by any
Regulatory Authority, (D) where a reasonable doubt exists
as to the timely future collectibility of principal
and/or interest, whether or not interest is still
accruing or the loan is less than 90 days past due, (E)
the interest rate terms have been reduced and/or the
maturity dates have been extended subsequent to the
agreement under which the loan was originally created due
to concerns regarding the borrower's ability to pay in
accordance with such initial terms, or (F) where a
specific reserve allocation exists in connection
therewith; and (vii) all loans or debts payable or owing
by any executive officer or director of Seller or any of
the Seller Subsidiaries or any other person or entity
deemed an "executive officer" or a "related interest" of
any of the foregoing, as such terms are defined in
Regulation O of the Federal Reserve Board.
2.12. Absence of Defaults. Neither Seller nor
-------------------
any of the Seller Subsidiaries is in violation of its charter
documents or Bylaws or in default under any material agreement,
commitment, arrangement, lease, insurance policy or other
instrument, whether entered into in the ordinary course of business
or otherwise and whether written or oral, and, to the best
knowledge of Seller, 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 violation or
default would not have a Material Adverse Effect on Seller.
2.13. Litigation and Other Proceedings. Except
--------------------------------
as set forth on Schedule 2.13 or otherwise disclosed in the
-------------
Seller Financial Statements, neither Seller nor any of the Seller
Subsidiaries is a party to any pending or, to the best knowledge of
Seller, threatened claim, action, suit, investigation or proceeding,
or is subject to any order, judgment or decree, except for matters
which, in the aggregate, will not have, or reasonably could not be
expected to have, a Material Adverse Effect on Seller. Without
limiting the generality of the foregoing, there are no actions, suits
or proceedings pending or, to the best knowledge of Seller, threatened
against Seller or any of the Seller Subsidiaries or any of their
respective officers or directors by any shareholder of Seller or any
of the Seller Subsidiaries (or any former shareholder of Seller or any
of the Seller Subsidiaries) or involving claims under the Community
- 19 -
<PAGE> 25
Reinvestment Act of 1977, as amended, the Bank Secrecy Act, the fair
lending laws or any other applicable laws.
2.14. Directors' and Officers' Insurance. Each
----------------------------------
of Seller and the Seller Subsidiaries has taken or will take all
requisite action (including, without limitation, the making of
claims and the giving of notices) pursuant to its directors' and
officers' liability insurance policy or policies in order to
preserve all rights thereunder with respect to all matters (other
than matters arising in connection with this Agreement and the
transactions contemplated hereby) occurring prior to the Effective
Time that are known to Seller, except for such matters which,
individually or in the aggregate, will not have and reasonably
could not be expected to have a Material Adverse Effect on Seller.
2.15. Compliance with Laws.
--------------------
(a) Seller and each of the Seller Subsidiaries have
all permits, licenses, authorizations, orders and
approvals of, and have made all filings, applications and
registrations with, all Regulatory Authorities that are
required in order to permit them to own or lease their
respective properties and assets and to carry on their
respective businesses as presently conducted; all such
permits, licenses, certificates of authority, orders and
approvals are in full force and effect and no suspension
or cancellation of any of them is pending, or, to the
best knowledge of Seller, threatened; and all such
filings, applications and registrations are current; in
each case except for permits, licenses, authorizations,
orders, approvals, filings, applications and
registrations the failure to have (or have made) would
not have a Material Adverse Effect on Seller.
(b) (i) Each of Seller and the Seller Subsidiaries
has complied with all laws, regulations and orders
(including, without limitation, zoning ordinances,
building codes, the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and securities, tax,
environmental, civil rights, and occupational health and
safety laws and regulations including, without
limitation, in the case of Seller or any Seller
Subsidiary that is a bank, banking organization, banking
corporation or trust company, all statutes, rules,
regulations and policy statements pertaining to the
conduct of a banking, deposit-taking, lending or related
business, or to the exercise of trust powers) and
governing instruments applicable to it and to the conduct
of its business, except where such failure to comply
would not have a Material Adverse Effect on Seller and
(ii) neither Seller nor any of the Seller Subsidiaries is
in default under, and no event has occurred which, with
the lapse of time or notice or both, could result in the
default under, the terms of any judgment, order, writ,
decree, permit, or license of any Regulatory Authority or
court, whether federal, state, municipal or local, and
whether at law or in equity, except where such default
would not have a Material Adverse Effect on Seller.
(c) Except as set forth in Schedule 2.15(c), to
the best knowledge of Seller, neither Seller nor any of the
Seller Subsidiaries is subject to or reasonably likely to
incur a liability as a result of its ownership, operation,
or use of any Property (as defined below) of Seller (whether
directly or, as a consequence of such Property being part of
the investment portfolio of Seller or any of the Seller
Subsidiaries) (A) that is contaminated by or contains any
hazardous waste, toxic substance or related materials,
including, without limitation, asbestos, PCBs, pesticides,
herbicides, petroleum and petroleum-based substances or
materials, radioactive substances and any other substance or
waste that is hazardous to human health or the environment
(collectively, a "Toxic Substance"), or (B) on which any
Toxic Substance has been stored, disposed of, placed
- 20 -
<PAGE> 26
or used in the construction thereof; and which, in each
case, reasonably could be expected to have a Material
Adverse Effect on Seller. "Property" shall include all
property (real or personal, tangible or intangible) owned or
controlled by Seller or any of the Seller Subsidiaries,
including, without limitation, property under foreclosure,
property in which any venture capital or similar unit of
Seller or any of the Seller Subsidiaries has an interest
and, property held by Seller or any of the Seller
Subsidiaries in its capacity as a trustee. No claim,
action, suit or proceeding is pending and no material claim
has been asserted against Seller or any of the Seller
Subsidiaries relating to Property of Seller or any of the
Seller Subsidiaries before any court or other Regulatory
Authority or arbitration tribunal relating to Toxic
Substances, pollution or the environment, and there is no
outstanding judgment, order, writ, injunction, decree or
award against or affecting Seller or any of the Seller
Subsidiaries with respect to the same. Except for statutory
or regulatory restrictions of general application, no
Regulatory Authority has placed any restriction on the
business of Seller or any of the Seller Subsidiaries which
reasonably could be expected to have a Material Adverse
Effect on Seller.
(d) Since December 31, 1993, neither Seller nor any
of the Seller Subsidiaries has received any notification
or communication which has not been resolved from any
Regulatory Authority (i) asserting that any Seller or any
of the Seller Subsidiaries is not in substantial
compliance with any of the statutes, regulations or
ordinances that such Regulatory Authority enforces,
except with respect to matters which reasonably could not
be expected to have a Material Adverse Effect on Seller
(ii) threatening to revoke any license, franchise, permit
or governmental authorization that could reasonably be
expected to have a Material Adverse Effect on Seller
including, without limitation, such company's status as
an insured depository institution under the FDI Act,
(iii) requiring or threatening to require Seller or any
of the Seller Subsidiaries, or indicating that Seller or
any of the Seller Subsidiaries may be required, to enter
into a cease and desist order, agreement or memorandum of
understanding or any other agreement restricting or
limiting or purporting to direct, restrict or limit in
any manner the operations of Seller or any of the Seller
Subsidiaries, including, without limitation, any
restriction on the payment of dividends. No such cease
and desist order, agreement or memorandum of
understanding or other agreement is currently in effect.
(e) Neither Seller nor any of the Seller
Subsidiaries is required by Section 32 of the FDI Act to
give prior notice to any federal banking agency of the
proposed addition of an individual to its board of
directors or the employment of an individual as a senior
executive officer.
2.16. Labor. No work stoppage involving Seller
-----
or any of the Seller Subsidiaries is pending or, to the best
knowledge of Seller, threatened. Neither Seller nor any of the
Seller Subsidiaries is involved in, or, to the best knowledge of
Seller, threatened with or affected by, any labor dispute,
arbitration, lawsuit or administrative proceeding which reasonably
could be expected to have a Material Adverse Effect on Seller.
None of the employees of Seller or the Seller Subsidiaries are
represented by any labor union or any collective bargaining
organization.
2.17. Material Interests of Certain Persons. No
-------------------------------------
officer or director of Seller or any of the Seller Subsidiaries, or
any "associate" (as such term is defined in Rule 14a-1 under the
Exchange Act) of any such officer or director, has any interest in
any contract or property (real or personal, tangible or intangible),
used in, or pertaining to the business of, Seller or any of the
Seller Subsidiaries, which in
- 21 -
<PAGE> 27
the case of Seller and each of the Seller Subsidiaries would be
required to be disclosed by Item 404 of Regulation S-K promulgated
by the SEC, if such entity had a class of securities registered
under Section 12 of the Exchange Act.
2.18. Allowance for Loan and Lease Losses; Non-
-----------------------------------------
Performing Assets.
- -----------------
(a) All of the accounts, notes, and other
receivables which are reflected in the Seller Financial
Statements as of March 31, 1996 were acquired in the
ordinary course of business and , to the best knowledge
of Seller, were collectible in full in the ordinary
course of business, except for possible loan and lease
losses which are adequately provided for in the allowance
for loan and lease losses reflected in such Seller
Financial Statements, and the collection experience of
Seller and the Seller Subsidiaries since March 31, 1996
to the date hereof, has not deviated in any material and
adverse manner from the credit and collection experience
of Seller and the Seller Subsidiaries, taken as a whole,
for the period ended March 31, 1996.
(b) The allowances for loan losses contained in the
Seller Financial Statements were established in
accordance with the past practices and experiences of
Seller and the Seller Subsidiaries, and the allowance for
loan and lease losses shown on the consolidated balance
sheet of Seller and the Seller Subsidiaries as of March
31, 1996 were adequate in all material respects under the
requirements of GAAP, or regulatory accounting
principles, as the case may be, to provide for possible
losses on loans and leases (including, without
limitation, accrued interest receivable) and credit
commitments (including, without limitation, stand-by
letters of credit) as of the date of such balance sheet.
(c) Schedule 2.18(c) sets forth as of the date
----------------
of this Agreement all assets classified by Seller as real
estate acquired through foreclosure or repossession,
including in-substance foreclosure.
(d) The aggregate amount of all Non-Performing
Assets (as defined below) on the books of Seller and the
Seller Subsidiaries does not exceed $500,000. "Non-
Performing 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) that have been classified "doubtful," "loss"
or the equivalent thereof by any Regulatory Agency or (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, and (ii) all assets
classified by Seller as real estate acquired through
foreclosure or in lieu of foreclosure, including in-
substance foreclosures, and all other assets acquired
through foreclosure or in lieu of foreclosure.
2.19. Employee Benefit Plans.
----------------------
(a) Schedule 2.19(a) lists all pension,
----------------
retirement, supplemental retirement, stock option, stock
purchase, stock ownership, savings, stock appreciation
right, profit sharing, deferred compensation, consulting,
bonus, medical, disability, workers' compensation,
vacation, group insurance, severance and other employee
benefit, incentive and welfare policies, contracts, plans
and arrangements, and all trust agreements related
thereto, maintained by or contributed to by Seller or any
of the Seller Subsidiaries
- 22 -
<PAGE> 28
in respect of any of the present or former directors,
officers, or other employees of and/or consultants to Seller
or any of the Seller Subsidiaries (collectively, "Seller
Employee Plans"). Seller has furnished Buyers with the
following documents with respect to each Seller Employee
Plan: (i) a true and complete copy of all written documents
comprising such Seller Employee Plan (including amendments
and individual agreements relating thereto) or, if there is
no such written document, an accurate and complete
description of the Seller Employee Plan; (ii) the most
recently filed Form 5500 or Form 5500-C/R (including all
schedules thereto), if applicable; (iii) the most recent
financial statements and actuarial reports, if any; (iv) the
summary plan description currently in effect and all
material modifications thereof, if any; and (v) the most
recent IRS determination letter, if any.
(b) All Seller Employee Plans have been maintained
and operated in all material respects in accordance with
their terms and the requirements of all applicable
statutes, orders, rules and final regulations, including,
without limitation, to the extent applicable, ERISA and
the Internal Revenue Code of 1986, as amended (the
"Code"). All contributions required to be made to Seller
Employee Plans have been made or reserved.
(c) With respect to each of the Seller Employee
Plans which is a pension plan (as defined in Section 3(2)
of ERISA) (the "Pension Plans"): (i) each Pension Plan
which is intended to be "qualified" within the meaning of
Section 401(a) of the Code has been determined to be so
qualified by the IRS and such determination letter may
still be relied upon, and each related trust is exempt
from taxation under Section 501(a) of the Code; (ii) the
present value of all benefits vested and all benefits
accrued under each Pension Plan which is subject to Title
IV of ERISA did not, in each case, as of the last
applicable annual valuation date (as indicated on
Schedule 2.19(a)), exceed the value of the assets of
----------------
the Pension Plan allocable to such vested or accrued
benefits; (iii) there has been no "prohibited
transaction," as such term is defined in Section 4975 of
the Code or Section 406 of ERISA, which could subject any
Pension Plan or associated trust, or Seller or any of the
Seller Subsidiaries, to any tax or penalty; (iv) no
Pension Plan or any trust created thereunder has been
terminated, nor has there been any "reportable events"
with respect to any Pension Plan, as that term is defined
in Section 4043 of ERISA since January 1, 1989; and (v)
no Pension Plan or any trust created thereunder has
incurred any "accumulated funding deficiency", as such
term is defined in Section 302 of ERISA (whether or not
waived). No Pension Plan is a "multiemployer plan" as
that term is defined in Section 3(37) of ERISA.
(d) Except as set forth on Schedule 2.19(d),
neither Seller nor any of the Seller Subsidiaries has any
liability for any post-retirement health, medical or
similar benefit of any kind whatsoever, except as
required by statute or regulation.
(e) Neither Seller nor any of the Seller
Subsidiaries has any material liability under ERISA or
the Code as a result of its being a member of a group
described in Sections 414(b), (c), (m) or (o) of the
Code.
(f) Neither the execution nor delivery of this
Agreement, nor the consummation of any of the
transactions contemplated hereby, will (i) result in any
payment (including, without limitation, severance,
unemployment compensation or golden parachute payment)
becoming due to any director or employee of Seller or any
of the
- 23 -
<PAGE> 29
Seller Subsidiaries from any of such entities, (ii)
increase any benefit otherwise payable under any of
the Seller Employee Plans or (iii) result in the
acceleration of the time of payment of any such benefit.
Seller shall use its best efforts to insure that no
amounts paid or payable by Seller, the Seller
Subsidiaries or Buyers to or with respect to any employee
or former employee of Seller or any of the Seller
Subsidiaries will fail to be deductible for federal
income tax purposes by reason of Section 280G of the
Code.
2.20. Conduct of Seller to Date. From and after
-------------------------
March 31, 1996 through the date of this Agreement, except as set
forth in the Seller Financial Statements: (i) Seller and the Seller
Subsidiaries have conducted their respective businesses in the
ordinary and usual course consistent with past practices; (ii)
neither Seller nor any of the Seller Subsidiaries has issued, sold,
granted, conferred or awarded any of its Equity Securities, or any
corporate debt securities which would be classified under GAAP as
long-term debt on the balance sheets of Seller or the Seller
Subsidiaries; (iii) Seller has not effected any stock split or
adjusted, combined, reclassified or otherwise changed its
capitalization; (iv) Seller has not declared, set aside or paid any
dividend (other than its regular quarterly dividends) or other
distribution in respect of its capital stock, or purchased,
redeemed, retired, repurchased or exchanged, or otherwise acquired
or disposed of, directly or indirectly, any of its Equity
Securities, whether pursuant to the terms of such Equity Securities
or otherwise; (v) neither Seller nor any of the Seller Subsidiaries
has incurred any obligation or liability (absolute or contingent),
except liabilities incurred in the ordinary course of business, or
subjected to Lien any of its assets or properties other than in the
ordinary course of business consistent with past practice; (vi)
neither Seller nor any of the Seller Subsidiaries has discharged or
satisfied any Lien or paid any obligation or liability (absolute or
contingent), other than in the ordinary course of business; (vii)
neither Seller nor any of the Seller Subsidiaries has sold,
assigned, transferred, leased, exchanged, or otherwise disposed of
any of its properties or assets other than for a fair consideration
in the ordinary course of business; (viii) except as required by
contract or law, neither Seller nor any of the Seller Subsidiaries
has (A) increased the rate of compensation of, or paid any bonus
to, any of its directors, officers, or other employees, except in
accordance with existing policy, (B) entered into any new, or
amended or supplemented any existing, employment, management,
consulting, deferred compensation, severance, or other similar
contract, (C) entered into, terminated, or substantially modified
any of the Seller Employee Plans or (D) agreed to do any of the
foregoing; (ix) neither Seller nor any Seller Subsidiary has
suffered any material damage, destruction, or loss, whether as the
result of fire, explosion, earthquake, accident, casualty, labor
trouble, requisition, or taking of property by any Regulatory
Authority, flood, windstorm, embargo, riot, act of God or the
enemy, or other casualty or event, and whether or not covered by
insurance; (x) neither Seller nor any of the Seller Subsidiaries
has cancelled or compromised any debt, except for debts charged off
or compromised in accordance with the past practice of Seller and
the Seller Subsidiaries; and (xi) neither Seller nor any of the
Seller Subsidiaries has entered into any material transaction,
contract or commitment outside the ordinary course of its business.
2.21. Absence of Undisclosed Liabilities.
----------------------------------
(a) Except as set forth on Schedule 2.21(a), as of
the date of this Agreement, neither Seller nor any of the
Seller Subsidiaries has any debts, liabilities or
obligations equal to or exceeding $25,000, individually
or $50,000 in the aggregate, whether accrued, absolute,
contingent or otherwise and whether due or to become due,
which are required to be reflected in the Seller Financial
Statements or the notes thereto in accordance with GAAP
except:
(i) liabilities and obligations reflected on
the Seller Financial Statements or listed on the
Schedules to Section 2.11 hereof;
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<PAGE> 30
(ii) operating leases, contracts and agreements
reflected on the Schedules to Section 2.11 hereof; and
------------------------------------
(iii) debts, liabilities or obligations
incurred since March 31, 1996 in the ordinary and
usual course of their respective businesses, none of
which are for breach of contract, breach of
warranty, torts, infringements or lawsuits and none
of which have a Material Adverse Effect on Seller.
(b) Neither Seller nor any of the Seller
Subsidiaries was as of March 31, 1996, and since such
date to the date hereof, has become a party to, any
contract or agreement, excluding deposits, loan
agreements, and commitments, notes, security agreements,
repurchase and reverse repurchase agreements, bankers'
acceptances, outstanding letters of credit and
commitments to issue letters of credit, participation
agreements and other documents relating to transactions
entered into by Seller or any of the Seller Subsidiaries
in the ordinary course of business, which had, has or may
be reasonably expected to have a Material Adverse Effect
on Seller.
2.22. Proxy Statement, Etc. None of the
---------------------
information regarding Seller or any of the Seller Subsidiaries to
be supplied by Seller for inclusion or included in (i) the
Registration Statement on Form S-4 to be filed with the SEC by
Mercantile for the purpose of registering the shares of Mercantile
Common Stock to be exchanged for shares of Seller Common Stock
pursuant to the provisions of this Agreement (the "Registration
Statement"), (ii) the Proxy Statement to be mailed to Seller's
shareholders in connection with the meeting to be called to
consider this Agreement and the Merger (the "Proxy Statement") or
(iii) any other documents to be filed with any Regulatory Authority
in connection with the transactions contemplated hereby will, at
the respective times such documents are filed with any Regulatory
Authority and, in the case of the Registration Statement, when it
becomes effective and, with respect to the Proxy Statement, when
mailed, be false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the
statements therein not misleading or, in the case of the Proxy
Statement or any amendment thereof or supplement thereto, at the
time of the meeting of Seller's shareholders referred to in Section
5.03, be false or misleading with respect to any material fact, or
omit to state any material fact necessary to correct any statement
in any earlier communication with respect to the solicitation of
any proxy for such meeting. All documents which Seller or any of
the Seller Subsidiaries is responsible for filing with any
Regulatory Authority in connection with the Merger will comply as
to form in all material respects with the provisions of applicable
law.
2.23. Registration Obligations. Neither Seller
------------------------
nor any of the Seller Subsidiaries is under any obligation,
contingent or otherwise, which will survive the Effective Time by
reason of any agreement to register any transaction involving any
of its securities under the Securities Act.
2.24. Tax and Regulatory Matters. Neither Seller
--------------------------
nor any of the Seller Subsidiaries has taken or agreed to take any
action or has any knowledge of any fact or circumstance that would
(i) prevent the transactions contemplated hereby from qualifying as
a reorganization within the meaning of Section 368 of the Code
provided such transactions are consummated in accordance with the
terms hereof or (ii) materially impede or delay receipt of any
approval referred to in Section 6.01(b) or the consummation of the
transactions contemplated by this Agreement.
2.25. Brokers and Finders. Except for (i) Alex
-------------------
Sheshunoff & Co. Investment Banking, to be paid a fee of $14,000
plus reasonable out-of-pocket expenses incurred in connection with
the rendering of a fairness opinion to the Board of Directors of
Seller as of the date hereof, and for (ii)
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<PAGE> 31
Williams Keepers L.L.P., auditors of Seller and advisors to Seller
in this transaction, to be paid for their services at their normal
and reasonable hourly rates plus a fee of $25,000 due only upon
successful completion of this transaction and occurrence of the
Effective Time; neither Seller nor any of the Seller Subsidiaries
nor any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's
fees, and no broker or finder has acted directly or indirectly for
Seller or any of the Seller Subsidiaries in connection with this
Agreement or the transactions contemplated hereby.
2.26. Interest Rate Risk Management Instruments.
-----------------------------------------
(a) Set forth on Schedule 2.26(a) is a list as
----------------
of the date hereof of all interest rate swaps, caps, floors
and option agreements and other interest rate risk
management arrangements to which Seller or any of the Seller
Subsidiaries is a party or by which any of their properties
or assets may be bound.
(b) All such interest rate swaps, caps, floors and
option agreements and other interest rate risk management
arrangements to which Seller or any of the Seller 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, in accordance with prudent banking practice
and applicable rules, regulations and policies of Regulatory
Authorities and with counterparties believed to be
financially responsible at the time and are legal, valid and
binding obligations of Seller or a Seller Subsidiary and are
in full force and effect. Seller and each of the Seller
Subsidiaries has duly performed in all material respects all
of its obligations thereunder to the extent that such
obligations to perform have accrued, and there are no material
breaches, violations or defaults or allegations or assertions
of such by any party thereunder.
2.27. Accuracy of Information. The statements
-----------------------
contained in this Agreement, the Schedules and any other written
document executed and delivered by or on behalf of Seller pursuant
to the terms of this Agreement are true and correct as of the date
hereof or as of the date delivered in all material respects, and
such statements and documents do not omit any material fact
necessary to make the statements contained therein not misleading.
ARTICLE III
-----------
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS
As an inducement to Seller to enter into and perform its
obligations under this Agreement, and notwithstanding any examina-
tion, inspection, audit or other investigation made by Seller,
Buyers jointly and severally represent and warrant to and covenant
with Seller as follows:
3.01. Organization and Authority. Mercantile and
--------------------------
Merger Sub are each corporations duly organized, validly existing
and in good standing under the laws of the State of Missouri, are
each qualified to do business and are each in good standing in all
jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and has
corporate power and authority to own its properties and assets and
to carry on its business as it is now being conducted, except where
the failure to be so qualified would not have a Material Adverse
Effect on Mercantile and its Subsidiaries, taken as a whole. Each
of Mercantile and Merger Sub is registered as a bank holding
company with the Federal Reserve Board under the BHCA. True and
complete copies of the Articles of Incorporation and Bylaws of
Mercantile will be delivered to Seller by Mercantile prior to or at
the time hereof.
- 26 -
<PAGE> 32
3.02. Capitalization of Mercantile. The
----------------------------
authorized capital stock of Mercantile consists of (i) 100,000,000
shares of Mercantile Common Stock, of which, as of June 30, 1996,
63,278,793 shares were issued and 62,673,041 were outstanding and
(ii) 5,000,000 shares of preferred stock, no par value ("Mercantile
Preferred Stock"), issuable in series, of which as of the date
hereof, no shares were issued and outstanding. Mercantile has
designated 1,000,000 shares of Mercantile Preferred Stock as
"Series A Junior Participating Preferred Stock" and has reserved
such shares for issuance upon exercise of Preferred Stock Purchase
Rights (the "Rights") under a Rights Agreement dated May 23, 1988
(the "Rights Agreement") between Mercantile and Mercantile Bank of
St. Louis National Association, as Rights Agent. As of June 30,
1996, Mercantile had reserved: (i) 4,112,103 shares of Mercantile
Common Stock for issuance under various Mercantile employee and/or
director stock option, incentive and/or benefit plans ("Mercantile
Employee/Director Stock Grants"); (ii) 325,843 shares of Mercantile
Common Stock for issuance upon the acquisition of Peoples State
Bank ("Peoples Bank") pursuant to the Agreement and Plan of
Reorganization dated as of December 19, 1995 by and among Peoples
Bank, Mercantile, Merger Sub, and Peoples State Bankshares, Inc.;
and (iii) 1,177,066 shares of Mercantile Common Stock for issuance
upon the acquisition of TODAY'S BANCORP, INC. ("Today's") pursuant
to the Agreement and Plan of Merger dated as of March 19, 1996 by
and among Today's, Mercantile and Merger Sub. From June 30, 1996
through the date of this Agreement, no shares of Mercantile Common
Stock have been issued, excluding any such shares which may have
been issued in connection with Mercantile Employee/Director Stock
Grants.
Mercantile continually evaluates possible
acquisitions and may prior to the Effective Time enter into one or
more agreements providing for, and may consummate, the acquisition
by it of another bank, association, bank holding company, savings
and loan holding company or other company (or the assets thereof)
for consideration that may include Equity Securities. In addition,
prior to the Effective Time, Mercantile may, depending on market
conditions and other factors, otherwise determine to issue equity,
equity-linked or other securities for financing purposes or
repurchase its outstanding Equity Securities. Notwithstanding the
foregoing, neither Mercantile nor any of its Subsidiaries has taken
or agreed to take any action or has any knowledge of any fact or
circumstance and neither Mercantile nor Merger Sub will take any
action that would (i) prevent the transactions contemplated hereby
from qualifying as a reorganization within the meaning of Section
368 of the Code or (ii) materially impede or delay receipt of any
approval referred to in Section 6.01(b) or the consummation of the
transactions contemplated by this Agreement. Except as set forth
above, there are no other Equity Securities of Mercantile
outstanding. All of the issued and outstanding shares of
Mercantile Common Stock are validly issued, fully paid, and
nonassessable, and have not been issued in violation of any
preemptive right of any shareholder of Mercantile. At the
Effective Time, the Mercantile Common Stock to be issued in the
Merger will be duly authorized, validly issued, fully paid and
nonassessable, will not be issued in violation of any preemptive
right of any shareholder of Mercantile.
3.03. Authorization.
-------------
(a) Mercantile and Merger Sub each have the
corporate power and authority to enter into this
Agreement and to carry out their respective obligations
hereunder. The execution, delivery and performance of
this Agreement by Mercantile and Merger Sub and the
consummation by Mercantile and Merger Sub of the
transactions contemplated hereby have been duly
authorized by all requisite corporate action of
Mercantile and Merger Sub. Subject to the receipt of
such approvals of the Regulatory Authorities as may be
required by statute or regulation, this Agreement is a
valid and binding obligation of Mercantile and Merger Sub
enforceable against each in accordance with its terms.
- 27 -
<PAGE> 33
(b) Neither the execution, delivery and performance
by Mercantile and Merger Sub of this Agreement, nor the
consummation by Mercantile and Merger Sub of the
transactions contemplated hereby, nor compliance by
Mercantile and Merger Sub with any of the provisions
hereof, will (i) violate, conflict with or result in a
breach of any provisions of, or constitute a default (or
an event which, with notice or lapse of time or both,
would constitute a default) or result in the termination
of, or accelerate the performance required by, or result
in a right of termination or acceleration of, or result
in the creation of, any Lien upon any of the properties
or assets of Mercantile or Merger Sub under any of the
terms, conditions or provisions of (x) their respective
Articles of Incorporation or Bylaws, or (y) any note,
bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which
Mercantile or Merger Sub is a party or by which they may
be bound, or to which Mercantile or Merger Sub or any of
their respective properties or assets may be subject, or
(ii) subject to compliance with the statutes and
regulations referred to in Section 3.03(c), violate any
judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to Mercantile or
Merger Sub or any of their respective properties or
assets; other than violations, conflicts, breaches,
defaults, terminations, accelerations or Liens which
would not have a Material Adverse Effect on Mercantile.
(c) Other than in connection with or in compliance
with the provisions of the Missouri Statute, the
Securities Act, the Exchange Act, the securities or blue
sky laws of the various states or filings, consents,
reviews, authorizations, approvals or exemptions required
under the BHCA, the FDI Act or any required approvals of
any other Regulatory Authority, no notice to, filing
with, exemption or review by, or authorization, consent
or approval of, any public body or authority is necessary
for the consummation by Mercantile and Merger Sub of the
transactions contemplated by this Agreement.
3.04. Mercantile Financial Statements. The
-------------------------------
supplemental consolidated balance sheets of Mercantile and its
Subsidiaries as of December 31, 1995, 1994 and 1993 and related
supplemental consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1995, together with the notes
thereto, audited by KPMG Peat Marwick LLP, as filed with the SEC on
Form 8-K dated March 11, 1996 and the consolidated balance sheets
of Mercantile and its Subsidiaries as of March 31, 1996 and related
consolidated statements of income, changes in shareholders' equity
and cash flows for the three months ended March 31, 1996 and 1995,
as filed with the SEC on Form 10-Q for the quarter ended March 31,
1996 (collectively, the "Mercantile Financial Statements"), have
been prepared in accordance with GAAP, except as may be otherwise
therein disclosed present fairly the consolidated financial
position of Mercantile and its Subsidiaries at the dates thereof
and the consolidated results of operations, changes in
shareholders' equity and cash flows of Mercantile and its
Subsidiaries for the periods stated therein and are derived from the
books and records of Mercantile and its Subsidiaries, which are
complete and accurate in all material respects and have been
maintained in accordance with good business practices and applicable
laws and regulations. Neither Mercantile nor any of its
Subsidiaries has any material contingent liabilities that are not
described in the Mercantile Financial Statements.
3.05. Mercantile Reports. Since January 1, 1993,
------------------
each of Mercantile and its Subsidiaries has filed all reports,
registrations and statements, together with any required amendments
thereto, that it was required to file with any Regulatory
Authority. All such reports and statements filed with any such
Regulatory Authority are collectively referred to herein as the
"Mercantile Reports." As of its respective date, each Mercantile
Report complied in all material respects with all the rules and
regulations promulgated by the applicable Regulatory Authority and
did not contain any untrue statement
- 28 -
<PAGE> 34
of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading.
3.06. Material Adverse Effect. Since March 31,
-----------------------
1996, there has been no Material Adverse Effect on Mercantile.
3.07. Legal Proceedings or Other Adverse Facts.
----------------------------------------
Except as otherwise disclosed in the Mercantile Financial
Statements, neither Mercantile nor any of its Subsidiaries is a
party to any pending or, to the best knowledge of Mercantile,
threatened claim, action, suit, investigation or proceeding, or is
subject to any order, judgment or decree, except for matters which,
in the aggregate, will not have, or reasonably could not be
expected to have, a Material Adverse Effect on Mercantile. Without
limiting the generality of the foregoing, there are no actions,
suits or proceedings pending or, to the best knowledge of
Mercantile, threatened against Mercantile or any of its
Subsidiaries or any of their respective officers or directors by
any shareholder of Mercantile or any of its Subsidiaries (or any
former shareholder of Mercantile or any of its Subsidiaries) or
involving claims under the Community Reinvestment Act of 1977, as
amended, the Bank Secrecy Act, the fair lending laws or any other
similar laws.
3.08. Registration Statement, Etc. None of the
----------------------------
information regarding Mercantile or any of its Subsidiaries to be
supplied by Buyers for inclusion or included in (i) the Registra-
tion Statement, (ii) the Proxy Statement, or (iii) any other
documents to be filed with any Regulatory Authority in connection
with the transactions contemplated hereby will, at the respective
times such documents are filed with any Regulatory Authority and,
in the case of the Registration Statement, when it becomes
effective and, with respect to the Proxy Statement, when mailed, be
false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements
therein not misleading or, in the case of the Proxy Statement or
any amendment thereof or supplement thereto, at the time of the
meeting of shareholders of Seller referred to in Section 5.03, be
false or misleading with respect to any material fact, or omit to
state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy
for such meeting. All documents which Mercantile or Merger Sub are
responsible for filing with any Regulatory Authority in connection
with the Merger will comply as to form in all material respects
with the provisions of applicable law.
3.09. Brokers and Finders. Neither Mercantile,
-------------------
Merger Sub nor any of their respective officers, directors or
employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees,
commissions or finder's fees, and no broker or finder has acted
directly or indirectly for Mercantile or Merger Sub in connection
with this Agreement or the transactions contemplated hereby.
3.10. Accuracy of Information. The statements
-----------------------
contained in this Agreement, the Schedules and in any other written
document executed and delivered by or on behalf of Buyers pursuant
to the terms of this Agreement are true and correct in all material
respects, and such statements and documents do not omit any
material fact necessary to make the statements contained herein or
therein not misleading.
3.11 Compliance with Laws. To the best
--------------------
knowledge of Mercantile, Mercantile and each of its Subsidiaries
has (i) 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 including, without
limitation, in the case of Mercantile or any Mercantile Subsidiary
that is a bank or savings association, banking organization,
banking corporation or trust company, all statutes, rules,
regulations and policy statements pertaining to the conduct of a
- 29 -
<PAGE> 35
banking, deposit-taking, lending or related business, or to the
exercise of trust powers) and governing instruments applicable to
it and to the conduct of its business, except where the failure to
comply would not have a Material Adverse Effect on Mercantile, and
(ii) all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with,
all Regulatory Authorities that are required in order to permit
them to own or lease their respective properties and assets and to
carry on their respective businesses as presently conducted; all
such permits, licenses, certificates of authority, orders and
approvals are in full force and effect, and no suspensions or
cancellation of any of them is pending, or, to the best knowledge
of Mercantile, threatened; and all such filings, applications and
registrations are current; in each case except for permits,
licenses, authorizations, orders, approvals, filings, applications
and registrations the failure to have (or have made) would have a
Material Adverse Effect on Mercantile.
3.12 Tax and Regulatory Matters. Neither
--------------------------
Mercantile nor any of its Subsidiaries has taken or agreed to take
any action or has any knowledge of any fact or circumstance that
would (i) prevent the transactions contemplated hereby from
qualifying as a reorganization within the meaning of Section 368 of
the Code, provided such transactions are consummated in accordance
with the terms hereof, 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.
ARTICLE IV
----------
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.01. Conduct of Businesses Prior to the Effective
--------------------------------------------
Time. During the period from the date of this Agreement to the
- ----
Effective Time, Seller shall, and shall cause each of the Seller
Subsidiaries to, conduct their respective businesses according to
the ordinary and usual course consistent with past practices and
shall, and shall cause each such Seller Subsidiary to, use its best
efforts to maintain and preserve its business organization,
employees and advantageous business relationships and retain the
services of its officers and key employees.
4.02. Forbearances of Seller. Except to the
----------------------
extent required by law, regulation or Regulatory Authority, or with
the prior written consent of Buyers (unless otherwise specifically
noted in this Section 4.02), during the period from the date of
this Agreement to the Effective Time, Seller shall not and shall
not permit any of the Seller Subsidiaries to:
(a) declare, set aside or pay any dividends or
other distributions, directly or indirectly, in respect
of its capital stock (other than dividends from any of
the Seller Subsidiaries to Seller or to another of the
Seller Subsidiaries), except that Seller may pay a
special dividend of $6.00 per share on the earlier of the
day immediately preceding the Effective Time, or December
1, 1996; and Seller in addition may pay its regular
quarterly dividend of $1.25 per share, in accordance with
its past practice; provided however Seller shall not
----------------
declare or pay any such regular quarterly dividend for
any quarter in which Seller shareholders who will receive
the Stock Distribution in the Merger will be entitled to
receive a regular quarterly dividend on the shares of
Mercantile Common Stock to be issued in the Merger; and
provided, further that Sellers may distribute cash
-----------------
and/or shares of West Pointe stock, as the case may be,
related to the divestiture of the West Pointe stock as
per Section 5.15 hereof;
- 30 -
<PAGE> 36
(b) enter into or amend any employment, severance
or similar agreement or arrangement with any director,
officer or employee, or materially modify any of the
Seller Employee Plans or grant any salary or wage
increase or materially increase any employee benefit
(including incentive or bonus payments), except (i)
normal individual increases in compensation to employees
consistent with past practice, (ii) as required by law or
contract and (iii) such increases of which Seller
notifies Buyers in writing and which Buyers do not
disapprove within 10 days of the receipt of such notice
(provided that the expenses attributable solely to the
transactions contemplated hereby shall not be taken into
account for purposes of payments to be made under the
Seller's bonus plan and the contributions to be made
under Seller's 401(K) plan for 1996);
(c) authorize, recommend, propose or announce an
intention to authorize, recommend or propose, or enter
into an agreement in principle with respect to, any
merger, consolidation or business combination (other than
the Merger), any acquisition of a material amount of
assets or securities, any disposition of a material
amount of assets or securities or any release or
relinquishment of any material contract rights;
(d) propose or adopt any amendments to its Articles
of Incorporation or Association or other charter document
or Bylaws;
(e) issue, sell, grant, confer or award any of its
Equity Securities or effect any stock split or adjust,
combine, reclassify or otherwise change its
capitalization as it existed on the date of this
Agreement;
(f) purchase, redeem, retire, repurchase or
exchange, or otherwise acquire or dispose of, directly or
indirectly, any of its Equity Securities, whether
pursuant to the terms of such Equity Securities or
otherwise;
(g) (i) without first consulting with Mercantile,
cause or permit FNBS to enter into, renew or increase any
loan or credit commitment (including stand-by letters of
credit) to, or invest or agree to invest in any person or
entity or modify any of the material provisions or renew
or otherwise extend the maturity date of any existing
loan or credit commitment (collectively, "Lend to") in an
amount equal to or in excess of $150,000; (ii) without
first consulting with and obtaining the written consent
of Mercantile, cause or permit FNBS to Lend to any person
or entity in an amount equal to or in excess of $200,000;
(iii) cause or permit FNBS to Lend to any person other
than in accordance with lending policies as in effect on
the date hereof, provided that in the case of clauses (i)
through (iii), Seller or any of the Seller Subsidiaries
may make any such loan in the event (A) Seller or any
Seller Subsidiary has delivered to Buyers or their
designated representative a notice of its intention to
make such loan and such information as Buyers or their
designated representative may reasonably require in
respect thereof and (B) Buyers or their designated
representative shall not have reasonably objected to such
loan by giving written or facsimile notice of such
objection within two business days following the delivery
to Buyers or their designated representative of the
notice of intention and information as aforesaid; or (iv)
cause or permit FNBS to Lend to any person or entity any
of the loans or other extensions of credit to which or
investments in which are on a "watch list" or similar
internal report of Seller or any of the Seller
Subsidiaries (except those denoted "pass" thereon), in an
amount equal to or in excess of $50,000; provided,
however,
- 31 -
<PAGE> 37
that nothing in this Section 4.02(g) 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 made in compliance with clauses (i)
through (iii) above, making such loans after consulting
with Buyers. Notwithstanding clauses (i) and (ii) of this
Section 4.02(g), Seller shall be authorized without first
consulting with Buyers or obtaining Buyers' prior written
consent, to increase the aggregate amount of any credit
facilities theretofore established in favor of any person
or entity (each a "Pre-Existing Facility"), provided that
the aggregate amount of any and all such increases shall
not be in excess of $25,000.
(h) directly or indirectly (including through its
officers, directors, employees or other representatives)
(i) initiate, solicit or encourage any discussions,
inquiries or proposals with any third party (other than
Buyers) relating to the disposition of any significant
portion of the business or assets of Seller or any of the
Seller Subsidiaries or the acquisition of Equity
Securities of Seller or any of the Seller Subsidiaries or
the merger of Seller or any of the Seller Subsidiaries
with any person (other than Buyers) or any similar
transaction (each such transaction being referred to
herein as an "Acquisition Transaction"), or (ii) provide
any such person with information or assistance or
negotiate with any such person with respect to an
Acquisition Transaction, and Seller shall promptly notify
Buyers orally of all the relevant details relating to all
inquiries, indications of interest and proposals which it
may receive with respect to any Acquisition Transaction;
(i) take any action that would (A) materially
impede or delay the consummation of the transactions
contemplated by this Agreement or the ability of Buyers
or Seller to obtain any approval of any Regulatory
Authority required for the transactions contemplated by
this Agreement or to perform its covenants and agreements
under this Agreement or (B) prevent or impede the
transactions contemplated hereby from qualifying as a
reorganization within the meaning of Section 368 of the
Code;
(j) other than in the ordinary course of business
consistent with past practice, incur any indebtedness for
borrowed money or assume, guarantee, endorse or otherwise
as an accommodation become responsible or liable for the
obligations of any other individual, corporation or other
entity;
(k) materially restructure or change its investment
securities portfolio, through purchases, sales or
otherwise, or the manner in which the portfolio is
classified or reported, or execute individual investment
transactions of greater than $500,000 for U.S. Treasury
or Federal Agency Securities and $100,000 for all other
investment instruments;
(l) agree in writing or otherwise to take any of
the foregoing actions or engage in any activity, enter
into any transaction or intentionally take or omit to
take any other action which would make any of the
representations and warranties in Article II of this
Agreement untrue or incorrect in any material respect if
made anew after engaging in such activity, entering into
such transaction, or taking or omitting such other
action; or
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<PAGE> 38
(m) enter into, increase or renew any loan or
credit commitment (including standby letters of credit)
to any executive officer or director of Seller or any of
the Seller Subsidiaries, any holder of 10% or more of the
outstanding shares of Seller Common Stock, or any entity
controlled, directly or indirectly, by any of the
foregoing or engage in any transaction with any of the
foregoing which is of the type or nature sought to be
regulated in 12 U.S.C. Section 371c and 12 U.S.C. Section
371c-1, without first obtaining the prior written consent
of Buyers, which consent shall not be unreasonably
withheld. For purposes of this Section 4.02(m),
"control" shall have the meaning associated with that
term under 12 U.S.C. Section 371c.
4.03. Forbearances of Buyers. During the period
----------------------
from the date of this Agreement to the Effective Time, Buyers shall
not, and shall not permit any of their respective Subsidiaries to,
without the prior written consent of Seller, agree in writing or
otherwise engage in any activity, enter into any transaction or
take or omit to take any other action:
(a) that would (i) materially impede or delay the
consummation of the transactions contemplated by this
Agreement or the ability of Buyers or Seller to obtain
any approval of any Regulatory Authority required for the
transactions contemplated by this Agreement or to perform
its covenants and agreements under this Agreement or (ii)
prevent or impede the transactions contemplated hereby
from qualifying as a reorganization within the meaning of
Section 368 of the Code; or
(b) that would make any of the representations and
warranties of Article III of this Agreement untrue or
incorrect in any material respect if made anew after
engaging in such activity, entering into such
transaction, or taking or omitting such other action.
ARTICLE V
---------
ADDITIONAL AGREEMENTS
5.01. Access and Information. Buyers and Seller
----------------------
shall each afford to the other, and to the other's accountants,
counsel and other representatives, full access during normal
business hours, during the period prior to the Effective Time, to
all their respective properties, books, contracts, commitments and
records and, during such period, each shall furnish promptly to the
other (i) a copy of each report, schedule and other document filed
or received by it during such period pursuant to the requirements
of federal and state securities laws and (ii) all other information
concerning its business, properties and personnel as the other may
reasonably request. Each party shall, and shall cause its
advisors and representatives to, (A) hold confidential all information
obtained in connection with any transaction contemplated hereby
with respect to the other party and its Subsidiaries which is not
otherwise public knowledge, (B) in the event of a termination of
this Agreement, return all documents (including copies thereof)
obtained hereunder from the other party or any of its Subsidiaries
to it and (C) use their respective best efforts to cause all of
such party's confidential information obtained pursuant to this
Agreement or in connection with the negotiation of this Agreement
to be treated as confidential and not use, or knowingly permit
others to use, any such information unless such information becomes
generally available to the public through sources other than the
party to this Agreement holding such confidential information.
5.02. Registration Statement; Regulatory Matters.
------------------------------------------
(a) Mercantile shall prepare and, subject to the
review and consent of Seller with respect to matters
relating to Seller, file with the SEC as soon as is
reasonably practicable the Registration Statement (or the
equivalent in the form of preliminary proxy materials)
with respect to the shares of Mercantile Common Stock to
be issued in the
- 33 -
<PAGE> 39
Merger and shall use its best efforts to cause the
Registration Statement to become effective. Mercantile
shall prepare and, subject to the review and consent of
Seller with respect to matters relating to Seller, use its
best efforts to file as soon as is reasonably practicable
an application for approval of the Merger with the Federal
Reserve Board, and such additional Regulatory Authorities
as may require an application. Mercantile shall also take
any action required to be taken under any applicable state
blue sky or securities laws in connection with the
issuance of such shares of Mercantile Common Stock, and
Seller and the Seller Subsidiaries shall furnish
Mercantile all information concerning Seller and the
Seller Subsidiaries and the shareholders thereof as
Mercantile may reasonably request in connection with any
such action. Mercantile shall provide Seller copies of
all material filed with any Regulatory Authority in
connection with the Merger.
(b) Seller and Buyers shall cooperate and use their
respective best efforts to prepare all documentation, to
effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties and
Regulatory Authorities necessary to consummate the
transactions contemplated by this Agreement and, as and
if directed by Mercantile, to consummate such other
transactions by and among Subsidiaries of Mercantile and
the Seller Subsidiaries concurrently with or following
the Effective Time, provided that such actions do not:
(i) materially impede or delay the receipt of any
approval referred to in Section 6.01(b); (ii) prevent or
impede the transactions contemplated hereby from
qualifying as a reorganization within the meaning of
Section 368 of the Code; or (iii) materially impede or
delay the consummation of the transactions contemplated
by this Agreement.
5.03. Shareholder Approval. Seller shall call a
--------------------
meeting of its shareholders to be held as soon as practicable after
the date the Registration Statement is declared effective by the
SEC for the purpose of voting upon this Agreement. In connection
with such meeting, Mercantile shall prepare, subject to the review
and consent of Seller, the Proxy Statement (which shall be part of
the Registration Statement to be filed with the SEC by Mercantile)
and mail the same to the shareholders of Seller. The Board of
Directors of Seller shall submit for approval of Seller's share-
holders the matters to be voted upon at such meeting. The Board of
Directors of Seller hereby does and, subject to the fiduciary
duties of Seller's Board of Directors, as advised by counsel, will
recommend this Agreement and the transactions contemplated hereby to
shareholders of Seller and use its reasonable best efforts to obtain
any vote of Seller's shareholders necessary for the approval and
adoption of this Agreement.
5.04. Current Information. During the period
-------------------
from the date of this Agreement to the Effective Time, each party
shall promptly furnish the other with copies of all interim
financial statements as the same become available and shall cause
one or more of its designated representatives to confer on a
regular and frequent basis with representatives of the other party.
Each party shall promptly notify the other party of the following
events immediately upon learning of the occurrence thereof,
describing the same and, if applicable, the steps being taken by
the affected party with respect thereto: (a) an event
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<PAGE> 40
which would cause any representation or warranty of such party or
any Schedule, statement, report, notice, certificate or other
writing furnished by such party to be untrue or misleading in any
material respect; (b) any Material Adverse Effect to it; (c) the
issuance or commencement of any governmental complaint,
investigation or hearing (or any communication indicating that the
same may be contemplated); or (d) the institution or threat of
material litigation involving such party, and shall keep the other
party fully informed of such events.
5.05 Conforming Entries.
------------------
(a) Notwithstanding that Seller believes that
Seller and Seller Subsidiaries have established all
reserves and taken all provisions for possible loan
losses required by GAAP and applicable laws, rules and
regulations, Seller recognizes that Buyers may have
adopted different loan, accrual and reserve policies
(including loan classifications and levels of reserves
for possible loan losses). From and after the date of
this Agreement to the Effective Time, Seller and Buyers
shall consult and cooperate with each other with respect
to conforming the loan, accrual and reserve policies of
Seller and the Seller Subsidiaries to those policies of
Buyers, as specified in each case in writing to Seller,
based upon such consultation and as hereinafter provided.
(b) In addition, from and after the date of this
Agreement to the Effective Time, Seller and Buyers shall
consult and cooperate with each other with respect to
determining appropriate Seller accruals, reserves and
charges to establish and take in respect of excess
equipment write-off or write-down of various assets and
other appropriate charges and accounting adjustments
taking into account the parties' business plans following
the Merger, as specified in each case in writing to
Seller, based upon such consultation and as hereinafter
provided.
(c) Seller and Buyers shall consult and cooperate
with each other with respect to determining the amount
and the timing for recognizing for financial accounting
purposes Seller's expenses of the Merger and the
restructuring charges related to or to be incurred in
connection with the Merger.
(d) Subject to the language contained in Section
5.05(e) hereof, at the request of Mercantile, Seller
shall (i) establish and take such reserves and accruals
to conform Seller's loan, accrual and reserve policies to
Mercantile's policies, (ii) establish and take such
accruals, reserves and charges in order to implement such
policies in respect of excess facilities and equipment
capacity, severance costs, litigation matters, write-off
or write-down of various assets and other appropriate
accounting adjustments, and to recognize for various
accounting purposes such expenses of the Merger and
restructuring charges related to or to be incurred in
connection with the Merger, and (iii) effect such
divestitures or otherwise implement such restructuring in
respect of its investment securities portfolio to conform
Seller's investment securities portfolio policies to
Mercantile's policies, in the case of each of the
foregoing at such times as are requested by Mercantile in
a written notice to Seller.
(e) With respect to clauses (a) through (d) of this
Section 5.05, it is the objective of Mercantile and
Seller that such reserves, accruals, charges and
divestitures, if any, to be taken shall be consistent
with GAAP and taken only after the approval conditions
set forth in Section 6.01(a) and 6.01(b) hereof have been
satisfied or waived
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<PAGE> 41
(except to the extent that any waiting period associated
therewith may then have commenced but not expired) and
Mercantile has informed Seller that it is not aware of any
facts which would indicate that the other Closing
conditions in Article VI hereof cannot be met at Closing.
(f) No reserves, accruals or charges taken in
accordance with Section 5.05(d) above may be a basis to
assert a violation of a breach of a representation,
warranty or covenant of Seller herein. Further, no such
reserves, accruals or charges shall be taken into account
for purposes of payments to be made under the Seller's
bonus plan and contributions to be made under Seller's
401(K) plan for 1996.
5.06 Environmental Reports. Seller shall
---------------------
provide to Buyers, as soon as reasonably practical, but not later
than sixty (60) days after the date hereof, a report of a phase one
environmental investigation by Environmental Operations, Inc. on
all real property owned, leased or operated by Seller or any of
Seller Subsidiaries as of the date hereof (but excluding space in
retail and similar establishments leased by Seller for automatic
teller machines or bank branch facilities where the space leased
comprises less than 20% of the total space leased to all tenants of
such property) and within ten (10) days after the acquisition or
lease of any real property acquired or leased by Seller or any of
Seller Subsidiaries after the date hereof (but excluding space in
retail and similar establishments leased by Seller for automatic
teller machines or bank branch facilities where the space leased
comprises less that 20% of the total space leased to all tenants of
such property). If required by the phase one investigation, in
Buyers' reasonable opinion, Seller shall provide to Buyers a report
of a phase two investigation by Environmental Operations, Inc. on
properties requiring such additional study. Buyers shall have
fifteen (15) business days from the receipt of any such phase two
investigation report to notify Seller of any dissatisfaction with
the contents of such report. Should the cost of taking all
remedial or other corrective actions and measures (i) required by
applicable law, or (ii) recommended or suggested by such report or
reports or prudent in light of serious life, health or safety
concerns, in the aggregate, exceed the sum of $250,000, as
reasonably estimated by Environmental Operations, Inc., or if the
cost of such actions and measures cannot be so reasonably estimated
by Environmental Operations, Inc. to be such amount or less with
any reasonable degree of certainty, Buyers shall have the right
pursuant to Section 7.01(e) hereof, for a period of fifteen (15)
business days following receipt of such estimate or indication that
the cost of such actions and measures can not be so reasonably
estimated, to terminate this Agreement, which shall be Buyers' sole
remedy in such event. Notwithstanding the foregoing, if the Merger
is not consummated for any reason other than on account of (i) a
termination of this Agreement by Mercantile pursuant to Section
7.01(d) or 7.01(e) hereof or (ii) the termination of this Agreement
by any party hereto pursuant to Section 7.01(c)(ii) hereof, then
Mercantile shall promptly reimburse Seller for all of its out-of-
pocket expenses incurred in obtaining the environmental
investigations pursuant to this Section 5.06.
5.07. Agreements of Affiliates. Set forth as
------------------------
Schedule 5.07 is a list (which includes individual and
- -------------
beneficial ownership) of all persons whom Seller believes to be
"affiliates" of Seller for purposes of Rule 145 under the Securities
Act. Seller shall use its best efforts to cause each person who is
identified as an "affiliate" in Schedule 5.07, as amended and
supplemented, to deliver to Mercantile, on or prior to the last
business day before the day on which the Effective Time occurs, a
written agreement in substantially the form set forth as Exhibit B
---------
to this Agreement providing that each such person will agree not to
sell, pledge, transfer or otherwise dispose of any shares of
Mercantile Common Stock to be received by such person in the Merger
except in compliance with the applicable provisions of the
Securities Act. Prior to the Effective Time, and via letter, Seller
shall amend and supplement Schedule 5.07. For purposes of this
-------------
Section 5.07, "affiliate" shall have the meaning ascribed to such
term pursuant to Rule 144 under the Securities Act, which includes,
but is not limited to, the following:
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<PAGE> 42
(i) any relative or spouse of an affiliate, or any relative of such
spouse, any one of whom has the same home as the affiliate; (ii) any
trust or estate in which such affiliate or any of the persons
specified in clause (i) hereof collectively own 10 percent or more
of the total beneficial interest or of which any of such persons
serve as trustee, executor or in any similar capacity; or (iii) any
corporation or organization (other than the Seller) in which an
affiliate or any of the persons specified in clause (i) hereof are
the beneficial owners collectively of 10 percent or more of any
class of equity securities or 10 percent or more of the equity
interest.
5.08. Expenses. Each party hereto shall bear its
--------
own expenses incident to preparing, entering into and carrying out
this Agreement and to consummating the Merger; provided, however,
that any and all fees and expenses paid to Lewis, Rice & Fingersh
and/or other legal counsel representing Seller in the transactions
contemplated by this Agreement shall not exceed in the aggregate
the amount of $50,000; and, provided, further that Buyers shall pay
all printing and mailing expenses and filing fees associated with
the Registration Statement, the Proxy Statement and regulatory
applications.
5.09. Miscellaneous Agreements.
------------------------
(a) Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its
respective best efforts to take, or cause to be taken,
all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the
transactions contemplated by this Agreement as
expeditiously as possible, including, without limitation,
using its respective best efforts to lift or rescind any
injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the
transactions contemplated hereby. Each party shall, and
shall cause each of its respective Subsidiaries to, use
its best efforts to obtain consents of all third parties
and Regulatory Authorities necessary or, in the opinion
of Buyers, desirable for the consummation of the
transactions contemplated by this Agreement.
(b) Seller, prior to the Effective Time, shall (i)
consult and cooperate with Buyers regarding the
implementation of those policies and procedures
established by Buyers for its governance and that of its
Subsidiaries and not otherwise referenced in Section 5.05
hereof, including, without limitation, policies and
procedures pertaining to the accounting, asset/liability
management, audit, credit, human resources, treasury and
legal functions, and (ii) at the reasonable request of
Buyers, effective at or after the Effective Time, as
directed by Buyers, conform Seller's existing policies
and procedures in respect of such matters to Buyers'
policies and procedures or, in the absence of any
existing Seller policy or procedure regarding any such
function, introduce Buyers' policies or procedures in
respect thereof, unless to do so would cause Seller or
any of the Seller Subsidiaries to be in violation of any
law, rule or regulation of any Regulatory Authority having
jurisdiction over Seller and/or the Seller Subsidiary
affected thereby.
5.10. Employee Agreements and Benefits.
--------------------------------
(a) Following the Effective Time, Buyers shall
cause the Surviving Corporation to honor in accordance
with their terms all employment, severance and other
compensation contracts set forth on Schedule 2.11(b)
----------------
between Seller, any of the Seller Subsidiaries, and any
current or former director, officer, employee or agent
thereof, and all provisions for vested benefits or other
vested amounts earned or accrued through the Effective
Time under the Seller Employee Plans.
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<PAGE> 43
(b) The provisions of the Seller Stock Plans and
any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the
Equity Securities of Seller or any of the Seller
Subsidiaries shall be deleted and terminated as of the
Effective Time, and Seller shall ensure that following
the Effective Time no participant in any Seller Stock
Plan shall have any right thereunder to acquire any
Equity Securities of Seller or any of the Seller
Subsidiaries.
(c) Except as set forth in Section 5.10(b) hereof,
the Seller Employee Plans shall not be terminated by
reason of the Merger but shall continue thereafter as
plans of the Surviving Corporation until such time as the
employees of Seller and the Seller Subsidiaries are
integrated into Mercantile's employee benefit plans that
are available to other employees of Mercantile and its
Subsidiaries, subject to the terms and conditions
specified in such plans and to such changes therein as
may be necessary to reflect the consummation of the
Merger. Mercantile shall take such steps as are
necessary or required to integrate the employees of
Seller and the Seller Subsidiaries into Mercantile's
employee benefit plans available to other employees of
Mercantile and its Subsidiaries as soon as practicable
after the Effective Time, with (i) full credit for prior
service with Seller or any of the Seller Subsidiaries for
purposes of vesting and eligibility for participation
(but not benefit accruals under any defined benefit
plan), and co-payments and deductibles, and (ii) waiver
of all waiting periods and pre-existing condition
exclusions or penalties.
5.11. Press Releases. Except as may otherwise be
--------------
required by law, Seller and Buyer shall consult with each other as
to the form and substance of any proposed press release to be
issued by Seller or Buyer relating to this Agreement or any of the
transactions contemplated hereby.
5.12. 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.
5.13. Directors' and Officers' Indemnification.
----------------------------------------
Mercantile agrees that the Merger shall not affect or diminish any
of the duties and obligations of indemnification of Seller or any
of the Seller Subsidiaries existing as of the Effective Time in
favor of employees, agents, directors or officers of Seller or any
of the Seller Subsidiaries arising by virtue of its or Articles of
Incorporation or Association, as the case may be, charter or Bylaws
in the form in effect at the date of this Agreement or arising by
operation of law or arising by virtue of any contract, resolution
or other agreement or document existing at the date of this
Agreement, and such duties and obligations shall continue in full
force and effect for so long as they would (but for the Merger)
otherwise survive and continue in full force and effect. The
indemnification obligations with respect to Seller referred to in
the preceding sentence shall, by operation of law as a result of the
Merger, be assumed by Merger Sub, as the Surviving Corporation in
the Merger. If, after the Effective Time, the Surviving
Corporation, FNBS or any
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<PAGE> 44
other Subsidiary of Seller, or any of their respective successors or
assigns: (i) shall consolidate with or merge into any other
corporation or entity and shall not be the continuing or surviving
corporation or entity of such consolidation or merger; or (ii) shall
transfer all or substantially all of its respective properties and
assets to any individual, corporation or other entity, then and in
each such case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation, FNBS or any
other Subsidiary of Seller (as the case may be) shall assume all of
the obligations set forth in this Section 5.13. If the Surviving
Corporation, FNBS or any other Subsidiary of Seller (as the case may
be) shall liquidate, dissolve or otherwise wind up its business,
then Mercantile shall indemnify, defend and hold harmless each
indemnified party to the same extent and on the same terms that the
Surviving Corporation, FNBS or any other Subsidiary of Seller (as
the case may be) was so obligated pursuant to this Section 5.13. To
the extent that Seller's existing directors' and officers' liability
insurance policy would provide coverage for any action or omission
occurring prior to the Effective Time, Seller agrees to give proper
notice to the insurance carrier and to Mercantile of a potential
claim thereunder so as to preserve Seller's rights to such insurance
coverage. Following the Effective Time, Mercantile shall provide
those directors and officers of Seller and the Seller Subsidiaries
who continue as directors and officers of Mercantile or any
Mercantile subsidiaries with the same directors' and officers'
liability insurance coverage, for the period following the Effective
Time during which they remain so employed, that Mercantile provides
to directors and officers of its other banking subsidiaries
generally. Mercantile represents that the directors' and officers'
liability insurance policy maintained by it provides for coverage of
"prior acts" for directors and officers of entities acquired by
Mercantile including Seller and the Seller Subsidiaries on and after
the Effective Time.
5.14. Tax Opinion Certificates. Seller shall use
------------------------
its best efforts to cause such of its executive officers, directors
and/or holders of one percent (1%) or more of the Seller Common
Stock (including shares beneficially held) as may be requested by
Thompson Coburn to timely execute and deliver to Thompson Coburn
certificates substantially in the form of Exhibit A or
---------
Exhibit C hereto, as the case may be.
- ---------
5.15 Divestiture of West Pointe Stock. Prior to
--------------------------------
the Effective Time, Seller shall divest itself of its entire
holding of the common stock, $8.00 par value, of West Pointe Bank
and Trust Co. (Belleville, Illinois), and of any other securities
of such issuer, either by (i) consummation of a cash sale or sales
of all such securities at a fair market value price or prices per
share approved by Mercantile (which approval shall not be
unreasonably withheld) and, immediately prior to the Effective
Time, a distribution of the after-tax proceeds of such sale to the
shareholders of Seller, with Seller retaining an amount of such
proceeds sufficient to fund all taxes accruing to Seller in
connection with such sale, or (ii) consummation of a cash sale or
sales of a portion of such securities at a fair market value price
or prices approved by Mercantile (which approval shall not be
unreasonably withheld), with all or a portion of such proceeds to
be retained by Seller in the amount set forth below; and,
immediately prior to the Effective Time, an in-kind distribution of
the remaining portion of such securities to the shareholders of
Seller (together with any sale proceeds in excess of the amount to
be retained by Seller as set forth below), but such sale and
distribution may be made only if such sale or sales would produce
proceeds equal to or greater than the amount of all taxes that
would have accrued to Seller if all such securities had been sold
for cash at the fair market value per share approved by Mercantile.
For purposes of determining the amount of sales proceeds to be
retained by Seller under clauses (i) and (ii), as the case
may be, each tax accruing to Seller in connection with a sale (or
deemed sale) of such securities shall be deemed to accrue at its
highest respective marginal rate applicable to Seller..
ARTICLE VI
----------
CONDITIONS
6.01. Conditions to Each Party's Obligation to
----------------------------------------
Effect the Merger. The respective obligations of each party to
- -----------------
effect the Merger shall be subject to the fulfillment or waiver at
or prior to the Effective Time of the following conditions:
(a) This Agreement shall have received the
requisite approval of shareholders of Seller at the
meeting of shareholders called pursuant to Section 5.03
of this Agreement.
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<PAGE> 45
(b) All requisite approvals of this Agreement and
the transactions contemplated hereby shall have been
received from the Regulatory Authorities, and all waiting
periods after such approvals required by law or
regulation have been satisfied.
(c) The Registration Statement shall have been
declared effective and shall not be subject to a stop
order or any threatened stop order.
(d) Neither Seller nor Buyers shall be subject to
any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits the
consummation of the Merger.
(e) Each of Buyers and Seller shall have received
from Thompson Coburn an opinion (which opinion shall not
have been withdrawn at or prior to the Effective Time)
reasonably satisfactory in form and substance to it to
the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the
Code and to the effect that, as a result of the Merger,
except with respect to fractional share interests and
assuming that such Seller Common Stock is a capital asset
in the hands of the holder thereof at the Effective Time,
(i) holders of Seller Common Stock who receive solely
Mercantile Common Stock in the Merger will not recognize
gain or loss for federal income tax purposes on the
receipt of such stock, (ii) holders of Seller Common
Stock who receive Mercantile Common Stock and other
property will recognize all gain realized, but only in
accordance with the provisions and limitations of Section
356 of the Code, (iii) the basis of such Mercantile
Common Stock will equal the basis of the Seller Common
Stock for which it is exchanged (increased by any gain
recognized and decreased by any cash received), and (iv)
the holding period of such Mercantile Common Stock will
include the holding period of the Seller Common Stock for
which it is exchanged.
6.02. Conditions to Obligations of Seller to Effect
---------------------------------------------
the Merger. The obligations of Seller to effect the Merger shall
- ----------
be subject to the fulfillment or waiver at or prior to the
Effective Time of the following additional conditions:
(a) Representations and Warranties. The
------------------------------
representations and warranties of Buyers set forth in
Article III of this Agreement shall be true and correct
in all material respects as of the date of this Agreement
and as of the Effective Time (as though made on and as of
the Effective Time, except (i) to the extent such
representations and warranties are by their express
provisions made as of a specified date, (ii) where the
facts which caused the failure of any representation or
warranty to be so true and correct have not resulted, and
are not likely to result, in a Material Adverse Effect on
Mercantile, and (iii) for the effect of transactions
contemplated by this Agreement), and Seller shall have
received a certificate of any Executive Vice President of
Mercantile, signing solely in his capacity as an officer
of Mercantile, to such effect.
(b) Performance of Obligations. Buyers shall
--------------------------
have performed in all material respects all obligations
required to be performed by it under this Agreement prior
to the Effective Time, and Seller shall have received a
certificate of any Executive Vice President of
Mercantile, signing solely in his capacity as an officer
of Mercantile, to that effect.
- 40 -
<PAGE> 46
(c) Permits, Authorizations, etc. Buyers shall
-----------------------------
have obtained any and all material permits,
authorizations, consents, waivers and approvals required
for the lawful consummation of the Merger.
(d) No Material Adverse Effect. Since the date
--------------------------
of this Agreement, there shall have been no Material
Adverse Effect on Mercantile.
(e) Opinion of Counsel. Mercantile shall have
------------------
delivered to Seller an opinion of Mercantile's counsel
dated as of the Closing Date or a mutually agreeable
earlier date in substantially the form set forth as
Exhibit D to this Agreement.
---------
(f) No "Shares Acquisition Date" or "Distribution
Date" (as such terms are defined in the Rights Agreement)
shall have occurred under the Rights Agreement prior to
the Effective Time.
(g) Mercantile shall have received approval from
the NYSE of its Subsequent Listing Application relating
to the shares of Mercantile Common Stock to be issued in
the Merger.
6.03. Conditions to Obligations of Buyers to Effect
---------------------------------------------
the Merger. The obligations of Buyers to effect the Merger shall
- ----------
be subject to the fulfillment or waiver at or prior to the
Effective Time of the following additional conditions:
(a) Representations and Warranties. The
------------------------------
representations and warranties of Seller set forth in
Article II of this Agreement shall be true and correct in
all material respects as of the date of this Agreement
and as of the Effective Time (as though made on and as of
the Effective Time, except (i) to the extent such
representations and warranties are by their express
provisions made as of a specific date, (ii) where the
facts which caused the failure of any representation or
warranty to be so true and correct have not resulted, and
are not likely to result, in a Material Adverse Effect on
Seller, and (iii) for the effect of transactions
contemplated by this Agreement) and Buyers shall have
received a certificate of the President and the Chief
Financial Officer of Seller, signing solely in their
capacities as officers of Seller, to such effect.
(b) Performance of Obligations. Seller shall
--------------------------
have performed in all material respects all obligations
required to be performed by it under this Agreement prior
to the Effective Time, and Buyers shall have received a
certificate of the President and the Chief Financial
Officer of Seller signing solely in their capacities as
officers of Seller, to that effect.
(c) Permits, Authorizations, etc. Seller shall
-----------------------------
have obtained any and all material permits,
authorizations, consents, waivers and approvals required
for the lawful consummation by it of the Merger.
(d) No Material Adverse Effect. Since the date
--------------------------
of this Agreement, there shall have been no Material
Adverse Effect on Seller.
(e) Opinion of Counsel. Seller shall have
------------------
delivered to Buyers an opinion of Seller's counsel dated
as of the Closing Date or a mutually agreeable earlier
date in substantially the form set forth as Exhibit E
---------
to this Agreement.
- 41 -
<PAGE> 47
(f) Divestiture of West Pointe Stock. Seller
--------------------------------
shall have divested itself of its ownership of all
securities issued by West Pointe Bank & Trust Company,
pursuant to Section 5.15 hereof.
ARTICLE VII
-----------
TERMINATION, AMENDMENT AND WAIVER
7.01. Termination. This Agreement may be
-----------
terminated at any time prior to the Effective Time, whether before
or after approval by Seller's shareholders:
(a) by mutual consent by the Executive Committee of
the Board of Directors of Mercantile and by the Board of
Directors of Seller;
(b) by the Executive Committee of the Board of
Directors of Mercantile or the Board of Directors of
Seller at any time after July 1, 1997 if the Merger shall
not theretofore have been consummated (provided that the
terminating party is not then in material breach of any
representation, warranty, covenant or other agreement
contained herein);
(c) by the Executive Committee of the Board of
Directors of Mercantile or the Board of Directors of
Seller if (i) the Federal Reserve Board or any other
federal and/or state Regulatory Authority whose approval
is required for the consummation of the transactions
contemplated hereby has denied approval of the Merger and
such denial has become final and nonappealable or (ii)
the shareholders of Seller shall not have approved this
Agreement at the meeting referred to in Section 5.03;
(d) by the Executive Committee of the Board of
Directors of Mercantile, on the one hand, or by the Board
of Directors of Seller, on the other hand, in the event
of a breach by the other party to this Agreement of any
representation, warranty or agreement contained herein,
which breach is not cured within 30 days after written
notice thereof is given to the breaching party by the
non-breaching party or is not waived by the non-breaching
party during such period; or
(e) by the Executive Committee of the Board of
Directors of Mercantile pursuant to and in accordance
with the provisions of Section 5.06 hereof.
7.02. Effect of Termination. In the event of
---------------------
termination of this Agreement as provided in Section 7.01 hereof,
this Agreement shall forthwith become void and there shall be no
liability on the part of Buyers or Seller or their respective
officers or directors except as set forth in the second sentence of
Section 5.01 and in Sections 5.08 and 8.02, and except that no
termination of this Agreement pursuant to Section 7.01(d) shall
relieve the breaching party of any liability to the non-breaching
party hereto arising from the intentional, deliberate and willful
non-performance of any covenant contained herein, after giving
notice to such breaching party and an opportunity to cure as set
forth in Section 7.01(d).
7.03. Amendment. This Agreement, the Exhibits
---------
and the Schedules hereto may be amended by the parties hereto, by
action taken by or on behalf of the Executive Committee of the
Board of Directors of Mercantile and the respective Boards of
Directors of Merger Sub or Seller, at any time before or after
approval of this Agreement by the shareholders of Seller; provided,
however, that
- 42 -
<PAGE> 48
after any such approval by the shareholders of Seller no
such modification shall (A) alter or change the amount or kind
of Merger Consideration to be received by shareholders of Seller as
provided in this Agreement or (B) adversely affect the tax
treatment to shareholders of Seller as a result of the receipt of
the Merger Consideration. This Agreement, the Exhibits and the
Schedules hereto may not be amended except by an instrument in
writing signed on behalf of each of Buyers and Seller.
7.04. Waiver. Any term, condition or provision
------
of this Agreement may be waived in writing at any time by the party
which is, or whose shareholders are, entitled to the benefits
thereof.
ARTICLE VIII
------------
GENERAL PROVISIONS
8.01. Non-Survival of Representations, Warranties
-------------------------------------------
and Agreements. No investigation by the parties hereto made
- --------------
heretofore or hereafter shall affect the representations and
warranties of the parties which are contained herein and each such
representation and warranty shall survive such investigation.
Except as set forth below in this Section 8.01, all
representations, warranties and agreements in this Agreement of
Buyers and Seller or in any instrument delivered by Buyers or
Seller pursuant to or in connection with this Agreement shall
expire at the Effective Time or upon termination of this Agreement
in accordance with its terms. In the event of consummation of the
Merger, the agreements contained in or referred to in Sections 1.07
through 1.14, 5.02(b), 5.07, 5.08, 5.10, 5.13, 5.14 and 8.02 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 and Sections
5.08, 7.02 and 8.02 shall survive such termination.
8.02. Indemnification. Buyers and Seller
---------------
(hereinafter, in such capacity being referred to as the
"Indemnifying Party") agree to indemnify and hold harmless each
other and their officers, directors and controlling persons (each
such other party being hereinafter referred to, individually and/or
collectively, as the "Indemnified Party") against any and all
losses, claims, damages or liabilities, joint or several, to which
the Indemnified Party may become subject under the Securities Act,
the Exchange Act or other federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof): (a) arise primarily
out of any information furnished to the Indemnified Party by the
Indemnifying Party, or are based primarily upon any untrue
statement or alleged untrue statement of a material fact contained
in the Registration Statement as originally filed or in any
amendment thereof, or in the Proxy Statement, or in any amendment
thereof or supplement thereto, and provided for inclusion thereof
by the Indemnifying Party or (b) arise primarily out of or are
based primarily upon the omission or alleged omission by the
Indemnifying Party to state a material fact required to be stated
therein or necessary to make the statements made therein not
misleading, and agrees to reimburse each such Indemnified Party, as
incurred, for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss,
claim, damage, liability or action.
8.03. No Assignment; Successors and Assigns.
-------------------------------------
This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, but
neither this Agreement nor any right or obligation set forth in any
provision hereof may be transferred or assigned by any party hereto
without the prior written consent of the other party, and any
purported transfer or assignment in violation of this Section 8.03
shall be void and of no effect. There shall not be any third party
beneficiaries of any provisions hereof except for Sections 1.07,
1.08, 1.09, 5.08, 5.10, 5.13 and 8.02, which may be enforced
against Buyers or Seller by the parties therein identified.
- 43 -
<PAGE> 49
8.04. No Implied Waiver. No failure or delay on
-----------------
the part of either party hereto to exercise any right, power or
privilege hereunder or under any instrument executed pursuant
hereto shall operate as a waiver nor shall any single or partial
exercise of any right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power
or privilege.
8.05. Headings. Article, section, subsection and
--------
paragraph titles, captions and headings herein are inserted only as
a matter of convenience and for reference, and in no way define,
limit, extend or describe the scope of this Agreement or the intent
or meaning of any provision hereof.
8.06. Entire Agreement. This Agreement, the
----------------
Exhibits and the Schedules hereto constitute the entire agreement
between the parties with respect to the subject matter hereof and
supersede all prior negotiations, representations, warranties,
commitments, offers, letters of interest or intent, proposal
letters, contracts, writings or other agreements or understandings,
whether written or oral, with respect thereto.
8.07. Counterparts. This Agreement may be
------------
executed in one or more counterparts, and any party to this
Agreement may execute and deliver this Agreement by executing and
delivering any of such counterparts, each of which when executed
and delivered shall be deemed to be an original and all of which
taken together shall constitute one and the same instrument.
8.08. Notices. All notices and other
-------
communications hereunder shall be in writing and shall be deemed to
be duly received (i) on the date given if delivered personally or
(ii) upon confirmation of receipt, if by facsimile transmission or
(iii) on the date received if mailed by registered or certified
mail (return receipt requested), to the parties at the following
addresses (or at such other address for a party as shall be
specified by like notice):
(i) if to Buyers:
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
Attention: John W. Rowe
Executive Vice President
Mercantile Bank of St. Louis
National Association
Telecopy: (314) 425-2752
Copies to:
Mercantile Bancorporation Inc.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
Attention: Jon W. Bilstrom, Esq.
General Counsel and Secretary
Telecopy: (314) 425-1386
and
Thompson Coburn
One Mercantile Center
St. Louis, Missouri 63101
- 44 -
<PAGE> 50
Attention: Robert M. LaRose, Esq.
Telecopy: (314) 552-7000
(ii) if to Seller:
First Financial Corporation of America
403 North Jackson Street
Salem, Missouri 65560
Attention: Gerald W. Craig
Telecopy: (573) 729-7393
Copies to:
Lewis, Rice & Fingersh
500 N. Broadway, Suite 2000
St. Louis, MO 63102
Attention: Thomas C. Erb
Telecopy: (314) 444-7788
8.09. Severability. Any term, provision,
------------
covenant or restriction contained in this Agreement held by a court
or a Regulatory Authority of competent jurisdiction to be invalid,
void or unenforceable, shall be ineffective to the extent of such
invalidity, voidness or unenforceability, but neither the remaining
terms, provisions, covenants or restrictions contained in this
Agreement nor the validity or enforceability thereof in any other
jurisdiction shall be affected or impaired thereby. Any
term, provision, covenant or restriction contained in this Agreement
that is so found to be so broad as to be unenforceable shall be
interpreted to be as broad as is enforceable.
8.10. Governing Law. This Agreement shall be
-------------
governed by and controlled as to validity, enforcement,
interpretation, effect and in all other respects by the internal
laws of the State of Missouri.
- 45 -
<PAGE> 51
IN WITNESS WHEREOF, Buyers and Seller have caused this
Agreement to be signed and, by such signature, acknowledged by
their respective officers thereunto duly authorized, and such
signatures to be attested to by their respective officers thereunto
duly authorized, all as of the date first above written.
"BUYERS"
MERCANTILE BANCORPORATION INC.
ATTEST:
/s/ David W. Grant By: /s/ John W. Rowe
- -------------------------------- -----------------------------------
John W. Rowe
Executive Vice President
Mercantile Bank of St.
Louis National Association,
Authorized Officer
AMERIBANC, INC.
ATTEST:
/s/ David W. Grant By: /s/ John W. Rowe
- -------------------------------- -----------------------------------
John W. Rowe
Vice President
"SELLER"
FIRST FINANCIAL CORPORATION OF AMERICA
ATTEST:
/s/ Gerald W. Craig By: /s/ Farris L. Craig
- -------------------------------- -----------------------------------
Farris L. Craig
Chairman
By: /s/ W. Charles Whitmire
-----------------------------------
W. Charles Whitmire
President
- 46 -
<PAGE> 1
Exhibit 2.2
-----------
VOTING AGREEMENT
This Voting Agreement dated as of July 9, 1996, is
entered into between MERCANTILE BANCORPORATION INC. ("Mercantile"),
and the undersigned shareholders ("Shareholder") of FIRST FINANCIAL
CORPORATION OF AMERICA ("Seller").
WHEREAS, Seller, Mercantile and Ameribanc, Inc., a wholly
owned subsidiary of Mercantile ("Merger Sub"), have proposed to
enter into an Agreement and Plan of Merger (the "Agreement"), dated
as of today, which contemplates the acquisition by Mercantile of
Seller by means of a merger between Seller and Merger Sub (the
"Merger"); and
WHEREAS, Mercantile is willing to expend the substantial
time, effort and expense necessary to implement the Merger only if
Shareholder enters into this Voting Agreement; and
WHEREAS, the Shareholder believes that the Merger is in
his best interest and the best interest of Seller.
NOW, THEREFORE, in consideration of the premises,
Shareholder hereby agrees as follows:
1. Voting Agreement. Shareholder shall vote,
----------------
or cause to be voted, all of the shares of common stock, $0.10 par
value, of Seller (the "Seller Common Stock") he now or hereafter
owns and over which he now has, or prior to the record date for
voting at the Meeting (as hereinafter defined) acquires, voting
control, whether such shares are held in his individual name,
jointly held, or held in his capacity as Trustee, custodian,
guardian or otherwise, in favor of the approval of the Agreement
and the Merger at the meeting of shareholders of Seller to be
called for the purpose of approving the Agreement and the Merger
(the "Meeting").
<PAGE> 2
2. No Competing Transaction. Shareholder
------------------------
shall not vote any of his shares of Seller Common Stock in favor of
the approval of any other agreement relating to the merger or sale of
all or substantially all the assets of Seller to any person other
than Mercantile or its affiliates until closing of the Merger,
termination of the Agreement or abandonment of the Merger by the
mutual agreement of
Seller and Mercantile, whichever comes first.
3. Transfers Subject to Agreement.
------------------------------
Shareholder shall not transfer his shares of Seller Common Stock unless
the transferee, prior to such transfer, executes a voting agreement
with respect to the transferred shares substantially to the effect
of this Voting Agreement and reasonably satisfactory to Mercantile.
4. No Ownership Interest. Nothing contained
---------------------
in this Voting Agreement shall be deemed to vest in Mercantile any
direct or indirect ownership or incidence of ownership of or with
respect to any shares of Seller Common Stock covered by this Voting
Agreement. All rights, ownership and economic benefits of and
relating to the shares of Seller Common Stock covered by this Voting
Agreement shall remain and belong to Shareholder, and Mercantile
shall have no authority to manage, direct, superintend, restrict,
regulate, govern or administer any of the policies or operations of
Seller or exercise any power or authority to direct Shareholder in
the voting of any of his shares of Seller Common Stock, except as
otherwise expressly provided herein, or the performance of his
duties or responsibilities as a director of Seller.
5. Evaluation of Investment. Shareholder, by
------------------------
reason of his knowledge and experience in financial and business
matters and in his capacity as a director of a financial
institution, believes himself capable of evaluating the merits and
risks of the potential investment in common stock of Mercantile,
$5.00 par value ("Mercantile Common Stock"), contemplated by the
Agreement.
2
<PAGE> 3
6. Transfers to Family Members. Subject to
---------------------------
the provisions of Section 3 hereof, Shareholder may transfer shares
of Seller Stock subject to this Voting Agreement to family members
of Shareholder.
7. Elections. Notwithstanding anything herein
---------
to the contrary, Shareholder's execution of this Voting Agreement
shall in no way impair Shareholder's ability to elect, pursuant to
the terms of the Agreement, either a Stock Election, a Cash
Election or a Combined Election with respect to all shares of
Seller Common Stock subject to this Voting Agreement.
8. Documents Delivered. Shareholder
-------------------
acknowledges that he has reviewed the Agreement and its attachments
and that reports, proxy statements and other information with respect
to Mercantile filed with the Securities and Exchange Commission
(the "SEC") were, prior to his execution of this Voting
Agreement, available for inspection and copying at the Offices of
the SEC and that Mercantile delivered the following such
documents to Seller:
(a) Mercantile's Annual Report on
Form 10-K for the year ended
December 31, 1995;
(b) Mercantile's Annual Report to
Shareholders for the year ended
December 31, 1995; and
(c) Mercantile's Current Reports on Form 8-K
dated January 16, 1996 and March 11,
1996; and
(d) Mercantile's Quarterly
9. Amendment and Modification. This Voting
--------------------------
Agreement may be amended, modified or supplemented at any time by
the written approval of such amendment, modification or supplement
by Shareholder and Mercantile.
3
<PAGE> 4
10. Entire Agreement. This Voting Agreement
----------------
evidences the entire agreement among the parties hereto with
respect to the matters provided for herein and there are no
agreements, representations or warranties with respect to the
matters provided for herein other than those set forth herein and
in the Agreement. This Voting Agreement supersedes any agreements
among Seller and Shareholder concerning the voting of the shares of
Seller Common Stock covered by this Voting Agreement for the approval of
the Agreement and the Merger or the disposition or control of such
shares of Seller Common Stock.
11. Severability. The parties agree that if
------------
any provision of this Voting Agreement shall under any
circumstances be deemed invalid or inoperative, this Voting
Agreement shall be construed with the invalid or inoperative
provisions deleted and the rights and obligations of the parties
shall be construed and enforced accordingly.
12. Counterparts. This Voting Agreement may be
------------
executed in more than one counterparts, each of which shall be
deemed an original, but all of which together shall constitute one
and the same instrument.
13. Governing Law. The validity, construction,
-------------
enforcement and effect of this Voting Agreement shall be governed
by the internal laws of the State of Missouri.
14. Headings. The headings for the paragraphs
--------
of this Voting Agreement are inserted for convenience only and
shall not constitute a part hereof or affect the meaning or
interpretation of this Voting Agreement.
15. Termination. This Voting Agreement
-----------
shall terminate upon the consummation of the Merger, abandonment of
the Merger by the mutual agreement of Seller and Mercantile or
termination of the Agreement, whichever comes first.
16. Successors. This Voting Agreement shall be
----------
binding upon and inure to the benefit of Mercantile and its
successors, and Shareholder, such Shareholder's respective
executors, personal representatives, administrators, heirs,
legatees, guardians and other legal representatives. This Voting
Agreement shall survive the death or incapacity of Shareholder.
This Voting Agreement may be assigned by Mercantile only to an
affiliate of Mercantile.
MERCANTILE BANCORPORATION INC.
By: /s/ John W. Rowe
----------------------------------------
John W. Rowe
Executive Vice President
Mercantile Bank of St. Louis National
Association, Authorized Officer
Shareholder--Director
-------------------------------------------
Shareholder--Director Spouse
-------------------------------------------
4
<PAGE> 1
Exhibit 5.1
[letterhead of Thompson Coburn]
August 15, 1996
Mercantile Bancorporation Inc.
P.O. Box 524
St. Louis, Missouri 63166-0524
Re: Registration Statement on Form S-4
----------------------------------
Gentlemen:
We refer you to the Registration Statement on Form S-4
filed by Mercantile Bancorporation Inc. (the "Company") on August
15, 1996 (the "Registration Statement") with the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended, pertaining to the proposed issuance by the Company of
up to 258,753 shares of the Company's common stock, $5.00 par value
(the "Shares"), in connection with the acquisition of First
Financial Corporation of America ("First Financial") pursuant to
the Agreement and Plan of Merger dated July 9, 1996 (the "Merger
Agreement"), by and among the Company, Ameribanc, Inc. and First
Financial, all as provided in the Registration Statement. In
rendering the opinions set forth herein, we have examined such
corporate records of the Company, such laws and such other
information as we have deemed relevant, including the Company's
Restated Articles of Incorporation and Bylaws, as amended and
currently in effect, the resolutions adopted by the Executive
Committee of the Company's Board of Directors relating to the
transaction, certificates received from state officials and
statements we have received from officers and representatives of
the Company. In delivering this opinion, the undersigned assumed
the genuineness of all signatures; the authenticity of all
documents submitted to us as originals; the conformity to the
originals of all documents submitted to us as certified,
photostatic or conformed copies; the authenticity of the originals
of all such latter documents; and the correctness of statements
submitted to us by officers and representatives of the Company.
Based only on the foregoing, the undersigned is of the
opinion that:
1. The Company has been duly incorporated and is
validly existing under the laws of the State of Missouri; and
2. The Shares to be sold by the Company, when issued as
provided in the Merger Agreement, will be duly authorized, duly and
validly issued and fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to this firm in the
section of the Proxy Statement/Prospectus entitled "Legal Matters."
Very truly yours,
/s/ Thompson Coburn
<PAGE> 1
Exhibit 8.1
[letterhead of Thompson Coburn]
August , 1996
Board of Directors
First Financial Corporation of America
403 North Jackson Street
Salem, Missouri 65560
Ladies and Gentlemen:
You have requested our opinion with regard to certain
federal income tax consequences of the proposed merger (the
"Merger") of First Financial Corporation of America ("First
Financial") with and into Ameribanc, Inc. ("Ameribanc"), a wholly
owned subsidiary of Mercantile Bancorporation Inc. ("MBI").
In connection with the preparation of our opinion, we
have examined and have relied upon the following:
(i) The Agreement and Plan of Merger by and among MBI,
Ameribanc and First Financial, dated July 9, 1996,
including the schedules and exhibits thereto (the "Merger
Agreement");
(ii) MBI's Registration Statement on Form S-4, including
the Proxy Statement/Prospectus contained therein, filed
with the Securities and Exchange Commission on August ,
1996, as supplemented and amended to the date hereof (the
"Registration Statement");
(iii) The representations and undertaking of MBI
substantially in the form of Exhibit A hereto;
(iv) The representations and undertakings of First
Financial and certain holders of First Financial common
stock, par value $0.10 per share ("First Financial Common
Stock"), substantially in the forms of Exhibit B and
Exhibit C hereto; and
(v) The Rights Plan between MBI and Mercantile Bank of
St. Louis National Association, as rights agent, dated
May 23, 1988.
Our opinion is based solely upon applicable law and the
factual information and undertakings contained in the above-
mentioned documents. In rendering our opinion, we have assumed the
accuracy of all information and the performance of all undertakings
contained in each of such documents. We also have assumed the
authenticity of all original documents, the conformity of all
copies to the original documents, and the genuineness of all
signatures. We have not attempted to verify independently the
accuracy of any information in any such document, and we have
assumed that such documents accurately and completely set forth all
material facts relevant to this opinion. All of our assumptions
were made with your consent. If any fact or assumption described
herein or below is incorrect, any or all of the federal income tax
consequences described herein may be inapplicable.
- 1 -
<PAGE> 2
First Financial Corporation of America
August , 1996
Page 2
OPINIONS
Subject to the foregoing, to the conditions and
limitations expressed elsewhere herein, and assuming that the
Merger is consummated in accordance with the Merger Agreement, we
are of the opinion that for federal income tax purposes:
1. The Merger will constitute a reorganization within
the meaning of sections 368(a)(1)(A) and 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended to the date hereof (the
"Code").
2. Each shareholder of First Financial who exchanges,
in the Merger, shares of First Financial Common Stock solely for
shares of MBI common stock, par value $5.00 per share ("MBI Common
Stock"):
a) will recognize no gain or loss as a result of
the exchange, except with regard to cash received in lieu
of a fractional share, as discussed below (Code section
354(a)(1));
b) will have an aggregate basis for the shares of
MBI Common Stock received (including any fractional share
of MBI Common Stock deemed to be received, as described
in paragraph 5, below) equal to the aggregate adjusted
tax basis of the shares of First Financial Common Stock
surrendered (Code section 358(a)(1)); and
c) will have a holding period for the shares of
MBI Common Stock received (including any fractional share
of MBI Common Stock deemed to be received, as described
in paragraph 5, below) which includes the holding period
of the First Financial Common Stock surrendered, provided
that the shares of First Financial Common Stock
surrendered are held as capital assets at the time of the
Merger (Code section 1223(1)).
3. Each shareholder of First Financial who receives
solely cash (i) in exchange for First Financial Common Stock
pursuant to the Merger or (ii) as a result of the exercise of
dissenters' rights will recognize gain or loss (determined
separately as to each block of First Financial Common Stock
exchanged) in an amount equal to the difference between (i) the
amount of cash received by such shareholder and (ii) such
shareholder's aggregate adjusted tax basis for the shares of First
Financial Common Stock surrendered, provided that the cash payment
does not have the effect of the distribution of a dividend (Code
sections 1001 and 302(a)). Such gain or loss will be capital gain
or loss if the shares of First Financial Common Stock surrendered
are held as capital assets at the time of the Merger, and long-term
or short-term depending on the holder's holding period for each
block of First Financial Common Stock surrendered (Code section
1222). However, if the cash payment does have the effect of the
distribution of a dividend, such shareholder will recognize income
in the amount of the cash received (without regard to such
shareholder's basis in the First Financial Common Stock
surrendered), which generally will be taxable as a dividend (Code
sections 302(d) and 301).
The determination of whether a cash payment has the
effect of the distribution of a dividend will be made pursuant to
the provisions and limitations of section 302 of the Code, taking
into account the stock ownership attribution rules of section 318
of the Code. Because such
- 2 -
<PAGE> 3
First Financial Corporation of America
August , 1996
Page 3
determination generally will depend on the facts and circumstances of each
First Financial shareholder, we express no opinion as to whether the cash
payments discussed in this paragraph 3 will be treated as having the effect
of the distribution of a dividend.
A cash payment will be considered not to have the effect
of the distribution of a dividend under section 302 of the Code
only if the cash payment (i) results in a "complete redemption" of
such shareholder's actual and constructive stock interest, (ii)
qualifies as a "substantially disproportionate" reduction in such
shareholder's actual and constructive stock interest, or (iii) is
not "essentially equivalent to a dividend" (Code section 302(b)(1),
(2), (3)).
A cash payment will result in a "complete redemption" of
a shareholder's stock interest if such shareholder does not
actually or constructively own any stock after the Merger. A
reduction in a shareholder's stock interest will be "substantially
disproportionate" if (i) the percentage of outstanding shares
actually and constructively owned by such shareholder after the
receipt of the cash payment is less than four-fifths (80%) of the
percentage of outstanding shares actually and constructively owned
by such shareholder immediately prior to the receipt of the cash
payment, and (ii) such shareholder actually and constructively owns
less than 50 percent of the number of shares outstanding after the
receipt of the cash payment (Code section 302(b)(2)). The cash
payment will not be "essentially equivalent to a dividend" if there
has been a "meaningful reduction" (as the quoted term has been
interpreted by judicial authorities and by rulings of the Internal
Revenue Service (the "Service")) of the shareholder's actual and
constructive ownership interest (Code section 302(b)(1); United
------
States v. Davis, 397 U.S. 301 (1970); see, e.g., Rev.
- --------------- --- ----
Rul. 76-385, 1976-2 C.B. 92; Rev. Rul. 76-364, 1976-2 C.B. 91).
Under the traditional analysis (which apparently
continues to be used by the Service), section 302 of the Code will
apply as though the distribution of cash were made by First
Financial in a hypothetical redemption of First Financial Common
Stock immediately prior to, and in a transaction separate from, the
Merger (a "deemed pre-Merger redemption"). Thus, under the
traditional analysis, the determination of whether a cash payment
results in a complete redemption of interest, qualifies as a
substantially disproportionate reduction of interest, or is not
essentially equivalent to a dividend will be made by comparing (i)
the shareholder's actual and constructive stock interest in First
Financial before the deemed pre-Merger redemption, with (ii) such
shareholder's actual and constructive stock interest in First
Financial after the deemed pre-Merger redemption (but before the
Merger). Nevertheless, in view of Commissioner v. Clark, 489
---------------------
U.S. 726 (1989), many tax practitioners believe that the continuing
validity of the traditional analysis is open to question and that,
in a transaction such as the Merger, the receipt of solely cash in
exchange for stock actually owned should be treated in accordance
with the principles of Commissioner v. Clark, supra, as if
--------------------- -----
the First Financial Common Stock exchanged for cash in the Merger
had instead been exchanged in the Merger for shares of MBI Common
Stock followed immediately by a redemption of such shares by MBI
for the cash payment (a "deemed post-Merger redemption"). Under
this analysis, the determination of whether a cash payment
satisfies any of the foregoing tests would be made by comparing (i)
the shareholder's actual and constructive stock interest in MBI
before the deemed post-Merger redemption (determined as if such
shareholder had received solely MBI Common Stock in the Merger),
with (ii) such shareholder's actual and constructive stock interest
in MBI after the deemed post-Merger redemption. Because this
analysis may be more likely to result in capital gain treatment
than the traditional analysis, each First Financial shareholder who
receives solely cash in exchange for all of
- 3 -
<PAGE> 4
First Financial Corporation of America
August , 1996
Page 4
the First Financial Common Stock he or she actually owns should consult his
or her own tax advisor with regard to the proper treatment of such cash.
The determination of ownership for purposes of the
foregoing tests will be made by taking into account both shares
actually owned by such shareholder and shares constructively owned
by such shareholder pursuant to section 318 of the Code (Code
section 302(c)). Under section 318 of the Code, a shareholder will
be deemed to own stock that is owned or deemed to be owned by
certain members of his or her family (spouse, children,
grandchildren, and parents) and other related parties including,
for example, certain entities in which such shareholder has a
direct or indirect interest (including partnerships, estates,
trusts and corporations), as well as shares of stock that such
shareholder (or a related person) has the right to acquire upon
exercise of an option or conversion right. Section 302(c)(2) of
the Code provides certain exceptions to the family attribution
rules for the purpose of determining whether a complete redemption
of a shareholder's interest has occurred for purposes of Code
section 302.
4. Each shareholder of First Financial who exchanges,
in the Merger, shares of First Financial Common Stock solely for
shares of MBI Common Stock and cash:
a) will not recognize any loss realized
(determined separately as to each block of First
Financial Common Stock exchanged) as a result of
the exchange, except with regard to cash received
in lieu of a fractional share, as discussed below
(Code section 356(c));
b) will realize gain (determined separately as to
each block of First Financial Common Stock
exchanged) as a result of the exchange if (i) the
sum of the amount of cash and the fair market value
of the shares of MBI Common Stock received
(including any fractional share of MBI Common Stock
deemed to be received, as described in paragraph 5,
below) exceeds (ii) the aggregate adjusted tax
basis of the First Financial Common Stock
surrendered in exchange therefor, and will
recognize such gain, if any, up to but not in
excess of the amount of cash received (excluding
cash received in lieu of a fractional share) (Code
sections 1001 and 356(a));
c) will have an aggregate basis for the shares of
MBI Common Stock received (including any fractional
share of MBI Common Stock deemed to be received, as
described in paragraph 5, below) equal to the
aggregate adjusted tax basis of the shares of First
Financial Common Stock surrendered, increased by
the amount of gain, if any, recognized by such
holder and decreased by the amount of any cash
received (excluding cash received in lieu of a
fractional share)(Code section 358(a)); and
d) will have a holding period for the shares of
MBI Common Stock received (including any fractional
share of MBI Common Stock deemed to be received, as
described in paragraph 5, below) which includes the
holding period of the First Financial Common Stock
surrendered, provided that the shares of First
Financial Common Stock surrendered are held as
capital assets at the time of the Merger (Code
section 1223(1)).
- 4 -
<PAGE> 5
First Financial Corporation of America
August , 1996
Page 5
No opinion is expressed as to whether the recognized gain
described in subparagraph b of this paragraph 4 will be capital
gain or will be treated as the receipt of a taxable dividend.
Provided that the receipt of the cash by a First Financial
shareholder does not have the effect of the distribution of a
dividend, such gain will be capital gain if the shares of First
Financial Common Stock exchanged are held as capital assets at the
time of the Merger, and long-term or short-term depending on the
holder's holding period for each block of First Financial Common
Stock surrendered (Code section 1222). However, if the cash
payment does have the effect of the distribution of a dividend,
such gain generally will be taxable as a dividend (Code section
356(a)).
Under section 356 of the Code, the determination of
whether a cash payment has the effect of the distribution of a
dividend will be made generally in accordance with the principles
of section 302 of the Code, taking into account the stock ownership
attribution rules of section 318 of the Code. Because this
determination generally will depend on the facts and circumstances
of each First Financial shareholder, we express no opinion as to
whether the cash payments discussed in this paragraph 4 will be
treated as having the effect of the distribution of a dividend.
A cash payment will be considered not to have the effect
of the distribution of a dividend under section 302 of the Code
only if the cash payment (i) results in a "substantially
disproportionate" reduction in such shareholder's actual and
constructive stock interest, or (ii) is not "essentially equivalent
to a dividend" (Code section 302(b)(1), (2)). These two tests will
be applied as if all First Financial Common Stock exchanged for
cash in the Merger had instead been exchanged in the Merger solely
for shares of MBI Common Stock, and such shares of MBI Common Stock
were then redeemed by MBI in return for the cash payment in a
deemed Post-Merger redemption. Accordingly, the determination of
whether a cash payment to a First Financial shareholder satisfies
either of the foregoing tests will be made by comparing (i) such
shareholder's actual and constructive stock interest in MBI before
the deemed post-Merger redemption (determined as if such
shareholder had received solely MBI Common Stock in the Merger),
with (ii) such shareholder's actual and constructive stock interest
in MBI after the deemed post-Merger redemption. (Commissioner v.
---------------
Clark, 489 U.S. 726 (1989)).
- -----
A cash payment will result in a "substantially
disproportionate" reduction in a shareholder's stock interest if
(i) the percentage of outstanding MBI Common Stock actually and
constructively owned by such shareholder after the deemed post-
Merger redemption is less than four-fifths (i.e., 80%) of the
----
percentage of outstanding MBI Common Stock actually and
constructively owned by such shareholder immediately prior to the
deemed post-Merger redemption (determined as if such shareholder
had received solely MBI Common Stock in the Merger), and (ii) such
shareholder actually and constructively owns less than 50 percent
of the number of shares outstanding after the deemed post-Merger
redemption (Code section 302(b)(2)). The cash payment will not be
"essentially equivalent to a dividend" if the deemed post-Merger
redemption results in a "meaningful reduction" (as the quoted term
has been interpreted by judicial authorities and by rulings of the
Service) of the shareholder's actual and constructive ownership
interest (Code section 302(b)(1); United States v. Davis, 397
----------------------
U.S. 301 (1970); see, e.g., Rev. Rul. 76-385, 1976-2 C.B.
--- ----
92; Rev. Rul. 76-364, 1976-2 C.B. 91).
The determination of ownership for purposes of each of
the foregoing tests will be made by taking into account both shares
of MBI Common Stock actually owned by such shareholder and shares
of MBI Common Stock constructively owned by such shareholder
pursuant to section 318
- 5 -
<PAGE> 6
First Financial Corporation of America
August , 1996
Page 6
of the Code (Code section 356(a)). Under section 318 of the Code, a
shareholder will be deemed to own stock that is owned or deemed to be owned
by certain members of his or her family (spouse, children, grandchildren,
and parents) and other related parties including, for example, certain
entities in which such shareholder has a direct or indirect interest
(including partnerships, estates, trusts and corporations), as well as
shares of stock that such shareholder (or a related person) has the right
to acquire upon exercise of an option or conversion right.
5. Each shareholder of First Financial who receives, in
the Merger, cash in lieu of a fractional share of MBI Common Stock
will be treated as if the fractional share had been received in the
Merger and then redeemed by MBI. Provided that the shares of First
Financial Common Stock surrendered are held as capital assets at
the time of the Merger, the receipt of such cash will cause the
recipient to recognize capital gain or loss, equal to the
difference between the amount of cash received and the portion of
such holder's basis in the shares of MBI Common Stock allocable to
the fractional share (Code sections 1001 and 1222; Rev. Rul. 66-
365, 1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2 C.B. 574).
* * * * * * * * * * * *
We express no opinion with regard to: (1) the federal
income tax consequences of the Merger not addressed expressly by
this opinion, including without limitation, (i) the tax
consequences, if any, to those shareholders of First Financial who
acquired shares of First Financial Common Stock pursuant to the
exercise of employee stock options or otherwise as compensation,
and (ii) the tax consequences to special classes of shareholders,
if any, including without limitation, foreign persons, insurance
companies, tax-exempt entities, retirement plans, and dealers in
securities; and (2) federal, state, local, or foreign taxes (or any
other federal, state, local, or foreign laws) not specifically
referred to and discussed herein. Further, our opinion is based
upon the Code, Treasury Regulations proposed or promulgated
thereunder, and administrative interpretations and judicial
precedents relating thereto, all of which are subject to change at
any time, possibly with retroactive effect, and we assume no
obligation to advise you of any subsequent change thereto. If
there is any change in the applicable law or regulations, or if
there is any new administrative or judicial interpretation of the
applicable law or regulations, any or all of the federal income tax
consequences described herein may become inapplicable.
The foregoing opinion reflects our legal judgment solely
on the issues presented and discussed herein. This opinion has no
official status or binding effect of any kind. Accordingly, we
cannot assure you that the Service or any court of competent
jurisdiction will agree with this opinion.
We hereby consent to the filing of this letter as an
exhibit to the Registration Statement and to all references made to
this letter and to this firm in the Registration Statement.
Very truly yours,
/s/ Thompson Coburn
- 6 -
<PAGE> 7
Exhibit A
CERTIFICATE
-----------
The undersigned, * , [Undersigned's Title]
-----------
of Mercantile Bancorporation Inc., a Missouri corporation ("MBI"),
HEREBY CERTIFIES that (a) I am familiar with the terms and
conditions of the Agreement and Plan of Merger by and among MBI,
Ameribanc, Inc., a Missouri corporation ("Ameribanc"), and First
Financial Corporation of America, a Missouri corporation ("First
Financial"), dated July 9, 1996, including the schedules and
exhibits thereto (the "Merger Agreement"), and (b) I am aware that
(i) this Certificate will be relied on by Thompson Coburn, counsel
for MBI, in rendering its opinion to First Financial that the
merger (the "Merger") of First Financial with and into Ameribanc
will constitute a reorganization within the meaning of section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) the representations and undertaking recited
herein will survive the Merger.
The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF
MBI, that:
1. The fair market value of the MBI common stock, par
value $5.00 per share ("MBI Common Stock"), and cash to be received
by each First Financial shareholder in the Merger (including cash
to be received in lieu of fractional shares of MBI Common Stock, if
any) will be approximately equal to the fair market value of the
First Financial common stock, par value $5.00 per share ("First
Financial Common Stock"), surrendered in the Merger by each such
shareholder.
2. Except as otherwise set forth by the undersigned on
an attachment hereto, MBI is aware of no plan, intention or
arrangement (including any option or pledge) on the part of any
holder of First Financial Common Stock to sell, exchange or
otherwise dispose of any of the MBI Common Stock to be received in
the Merger, with the exception of fractional shares of MBI Common
Stock to be exchanged for cash pursuant to the Merger.
3. Before the Merger, MBI will be in control of
Ameribanc within the meaning of section 368(c) of the Code.
4. After the Merger, (a) Ameribanc will not issue
additional shares of its stock that would result in MBI losing
control of Ameribanc within the meaning of section 368(c) of the
Code, and (b) neither Ameribanc nor any other member of MBI's
"affiliated group" (as the quoted
<PAGE> 8
term is defined in Code section 1504, the "MBI Affiliated Group") will have
outstanding any warrants, options, convertible securities, or any other
type of right (including any preemptive right) pursuant to which any person
could acquire stock in Ameribanc that, if exercised or converted, would
affect MBI's retention of control of Ameribanc (as defined above). No
stock of Ameribanc will be issued in connection with the Merger.
5. In the Merger, MBI, and Ameribanc will tender no
consideration for First Financial Common Stock other than the
"Merger Consideration" (as the quoted term is defined in the Merger
Agreement) and cash in lieu of fractional shares of MBI Common
Stock.
6. Neither MBI nor any other member of the MBI
"Affiliated Group" has any plan or intention to redeem or otherwise
reacquire any of the MBI Common Stock issued to the shareholders of
First Financial in the Merger.
7. Neither MBI nor any other member of the MBI
Affiliated Group has any plan or intention (a) to liquidate
Ameribanc, (b) to merge Ameribanc with and into another
corporation (i.e., a Merger where Ameribanc is not the surviving
corporation), (c) to sell or otherwise dispose of whether by
dividend distribution or otherwise the stock of Ameribanc, or (d)
except for transfers described in section 368(a)(2)(C) of the Code,
dispositions made in the ordinary course of business or
dispositions approved in writing by Thompson Coburn, to cause,
suffer, or permit Ameribanc to sell or otherwise dispose of
(whether by dividend distribution or otherwise) (i) any assets of
First Financial acquired in the Merger, or (ii) any assets of any
other member of First Financial's "affiliated group" (as the quoted
term is defined in Code section 1504, the "First Financial
Affiliated Group").
8. After the Merger, Ameribanc will continue the
historic businesses of First Financial and the other members of the
First Financial Affiliated Group, or will use a significant portion
of the historic business assets of the members of the First
Financial Affiliated Group in a business (no stock of any member of
the First Financial Affiliated Group shall be treated as a business
asset for purposes of this representation).
9. MBI, Ameribanc, First Financial, and the
shareholders of First Financial will each pay their respective
expenses, if any, incurred in connection with the Merger; provided,
however, that MBI or Ameribanc may pay and assume those expenses of
First Financial that are solely and directly related to the Merger
in accordance with the guidelines established in Rev. Rul.
<PAGE> 9
73-54, 1973-1 C.B. 187, including those printing, mailing and filing
expenses described in Section 5.08 of the Merger Agreement.
10. Except with regard to Transaction Costs (as defined
below), neither MBI nor any other member of the MBI Affiliated
Group will pay any amount or incur any liability to or for the
benefit of, or assume or cancel any liability of, any shareholder
of First Financial in connection with the Merger, and no liability
to which First Financial Common Stock is subject will be
extinguished as a result of the Merger. For purposes of this
representation, (a) the term "liability" shall include any
undertaking to pay or to cause the reduction, release, or
extinguishment of any obligation, without regard to whether any
such undertaking or obligation is contingent or legally enforceable
(for example and without limitation, the term "liability" includes
an unenforceable agreement to cause the repayment of an obligation
guaranteed by a First Financial shareholder or to cause by other
means the release of such guaranty), and (b) the term "Transaction
Costs" shall mean amounts paid or liabilities incurred in
connection with the Merger (i) to First Financial shareholders with
respect to the MBI Common Stock and cash (including cash in lieu of
fractional shares thereof) to be delivered in the Merger, (ii) to
dissenters, if any, (iii) for legal, accounting, and investment
banking and/or advisor services rendered to MBI or Ameribanc, if
any, (iv) for those expenses payable or assumable by MBI or
Ameribanc in accordance with representation 9 above, and (v) as
compensation to any employee of MBI or First Financial or of any
other member of the MBI Affiliated Group or the First Financial
Affiliated Group for services rendered in the ordinary course of
his or her employment.
11. No indebtedness between First Financial or any other
member of the First Financial Affiliated Group, on the one hand,
and Ameribanc or MBI or any other member of the MBI Affiliated
Group, on the other hand, exists or will exist prior to the Merger
that (a) was issued or acquired at a discount, (b) will be settled,
as a result of the Merger, at a discount, or (c) will result in the
recognition of gain under Treasury Regulation Section 1.1502-13.
No "installment obligation" (as the quoted term is defined for
purposes of Code section 453B), between First Financial, on the one
hand, and Ameribanc, on the other hand, exists or will exist prior
to the Merger that will be extinguished as a result of the Merger.
12. The payment of cash in lieu of fractional shares of
MBI Common Stock in the Merger will be solely for the purpose of
avoiding the expense and inconvenience to MBI of issuing fractional
shares and will not represent separately bargained-for
consideration. The total cash consideration that will be paid in
the Merger to the First Financial shareholders in lieu of fractional
<PAGE> 10
shares of MBI Common Stock will not exceed one percent of the total
consideration that will be issued in the transaction to the First Financial
shareholders in exchange for their shares of First Financial Common Stock.
The fractional share interests of each First Financial shareholder will be
aggregated, and no First Financial shareholder will receive cash in lieu of
fractional share interests in an amount equal to or greater than the value
of one full share of MBI Common Stock.
13. All payments made to dissenters and all cash
payments made in lieu of fractional shares of MBI Common Stock will
be funded with assets of MBI. No such payments will be funded with
assets of Ameribanc or First Financial.
14. None of the compensation to be paid or accrued after
the Merger to or for the benefit of any shareholder-employee of
First Financial will be separate consideration for, or allocable
to, any of his or her shares of First Financial Common Stock; none
of the shares of MBI Common Stock received in the Merger by any
First Financial shareholder-employee will be separate consideration
for, or allocable to, any employment agreement; and all
compensation to be paid or accrued after the Merger to or for the
benefit of any First Financial shareholder-employee will be for
services actually rendered in the ordinary course of his or her
employment and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
15. With regard to the Rights Plan between MBI and
Mercantile Bank of St. Louis National Association, as rights agent,
dated May 23, 1988 (the "Rights Agreement"), no "Distribution Date"
(as the quoted term is defined in the Rights Agreement) has
occurred, and the Acquisition will not cause the occurrence of a
Distribution Date.
16. Neither MBI nor any other member of the MBI
Affiliated Group has owned, directly or indirectly, any stock of
First Financial within the last five years.
17. No material terms or conditions of the Merger
Agreement (including the schedules and exhibits thereto) have been
waived or modified. The Merger Agreement represents the complete
agreement among MBI, Ameribanc and First Financial regarding the
Merger.
The undersigned HEREBY AGREES to immediately communicate
in writing to Thompson Coburn at One Mercantile Center, St. Louis,
Missouri 63101, to the attention of Charles
<PAGE> 11
H. Binger, any information that could indicate (i) any of the foregoing
representations was inaccurate when made, or (ii) any of the
foregoing representations would be inaccurate if it were made again
immediately before the Merger.
IN WITNESS WHEREOF, I have hereunto signed my name and
affixed the seal of MBI this ----- day of ------------, 1996.
----------------------------------
<PAGE> 12
Exhibit B
CERTIFICATE
-----------
The undersigned, * , [Undersigned's Title]
-------------
of First Financial Corporation of America, a Missouri corporation
("FFCA"), HEREBY CERTIFIES that (a) I am familiar with the terms
and conditions of the Agreement and Plan of Merger by and among
Mercantile Bancorporation Inc., a Missouri corporation ("MBI"),
Ameribanc, Inc., a Missouri corporation ("Ameribanc"), and FFCA
dated July 9, 1996, including the schedules and exhibits thereto
(the "Merger Agreement"), and (b) I am aware that (i) this
Certificate will be relied on by Thompson Coburn, counsel for MBI,
in rendering its opinion to FFCA that the merger of FFCA with and
into Ameribanc (the "Merger") will constitute a reorganization
within the meaning of section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"), and (ii) the representations
and undertaking recited herein will survive the Merger.
The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF
FFCA, that:
1. The terms of the exchange of FFCA common stock, par
value $0.10 per share ("FFCA Common Stock"), for MBI common stock,
par value $5.00 per share ("MBI Common Stock"), and/or cash
(including cash to be received in lieu of fractional shares of MBI
Common Stock, if any) to be received by each FFCA shareholder in
the Merger were arrived at in arm's length negotiations between
FFCA and MBI.
2. There is no plan, intention or other arrangement
(including any option or pledge) on the part of the holders of 1%
or more of the FFCA Common Stock and, to the best knowledge of the
undersigned, there is no plan, intention or other arrangement
(including any option or pledge) on the part of the other holders
of FFCA Common Stock to sell, exchange or otherwise dispose of a
number of shares of MBI Common Stock received by such holders in
the Merger that would reduce such holders' aggregate ownership of
MBI Common Stock to a number of shares having a value, as of the
date on which the Merger is consummated (the "Effective Date"), of
less than 50 percent of the value of all of the formerly
outstanding FFCA Common Stock as of the Effective Date. For
purposes of this representation, shares of FFCA Common Stock
exchanged for cash or other property, surrendered by dissenters, or
exchanged for cash in lieu of fractional shares of MBI Common Stock
will be treated as outstanding on the Effective Date. Moreover,
all shares of FFCA Common Stock and shares of MBI Common Stock held
by FFCA shareholders and otherwise
<PAGE> 13
sold, redeemed, or disposed of before or after the Effective Date will be
taken into account in making this representation.
3. In the Merger, Ameribanc will acquire (directly or
indirectly) assets representing at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair
market value of the gross assets, in each case, that were held by
FFCA or any other member of FFCA's "affiliated group" (as the
quoted term is defined in Code section 1504, the "FFCA Affiliated
Group") immediately prior to the Merger. For purposes of this
representation, amounts paid by any member of the FFCA Affiliated
Group to shareholders who receive cash or other property, FFCA
assets used to pay expenses of the Merger, and all redemptions and
distributions (except for regular, normal dividends) made by any
member of the FFCA Affiliated Group immediately preceding the
Merger (including the special $6.00 dividend and the distribution
of shares of, or cash proceeds in respect of, relating to West
Pointe stock described in Section 4.02(a) of the Merger Agreement
(collectively, the "Special Distribution")), shall be included as
assets held immediately prior to the Merger. For purposes of this
representation, the phrases "immediately preceding the Merger" and
"immediately prior to the Merger" shall be interpreted expansively
in accordance with the step transaction doctrine and other
applicable substance-over-form doctrines.
4. At the time of the Merger and except with regard to
Transaction Costs (as defined below), each liability of FFCA and
each liability to which an asset of FFCA is subject will have been
incurred by FFCA in the ordinary course of business and no such
liability will have been incurred in anticipation of the Merger.
In addition, at the time of the Merger and except with regard to
Transaction Costs, FFCA will not, directly or indirectly, have paid
(or loaned) any amount or incurred any liability to or for the
benefit of, or assumed or cancelled any liability of, any FFCA
shareholder in connection with the Merger. For purposes of this
representation, (a) the term "FFCA" shall be deemed also to refer
to each other member of the FFCA Affiliated Group, (b) the term
"liability" shall include any undertaking to pay or to cause the
reduction, release, or extinguishment of, any obligation, without
regard to whether any such undertaking or obligation is contingent
or legally enforceable (for example and without limitation, the
term "liability" includes an unenforceable agreement to cause the
repayment of an obligation guaranteed by a FFCA shareholder or to
cause by other means the release of such guaranty), and (c) the
term "Transaction Costs" shall mean amounts paid or liabilities
incurred in connection with the Merger (i) to dissenters, if any,
(ii) for legal, accounting, and investment banking and/or advisor
services rendered to FFCA or to any other member of the FFCA
Affiliated Group, if any, (iii) as compensation to any employee of
FFCA or of any other member of the FFCA Affiliated Group for
services rendered in the ordinary course of his
<PAGE> 14
or her employment, and (iv) the Special Distribution.
5. Before the Merger, FFCA will not have outstanding
any warrants, options, convertible securities, or any other type of
right (including any preemptive right) pursuant to which any person
could acquire stock in FFCA that, if exercised or converted after
the Merger, would affect MBI's retention of control of Ameribanc
(within the meaning of section 368(c) of the Code).
6. Expenses, if any, that are incurred in connection
with the Merger and are properly attributable to FFCA's
shareholders will be paid by those shareholders and not by FFCA.
With the exception of those printing, mailing and filing expenses
described in Section 5.08 of the Merger Agreement, FFCA will pay
its own expenses that are incurred in connection with the Merger.
7. No indebtedness between FFCA or any other member of
the FFCA Affiliated Group, on the one hand, and Ameribanc or MBI or
any other member of MBI's "affiliated group" (as the quoted term is
defined in Code section 1504, the "MBI Affiliated Group"), on the
other hand, exists or will exist prior to the Merger that (a) was
issued or acquired at a discount, (b) will be settled, as a result
of the Merger, at a discount, or (c) will result in the recognition
of gain under Treasury Regulation Section 1.1502-13. For purposes
of this representation, the term "indebtedness" does not include
any indebtedness between FFCA or any other member of the FFCA
Affiliated Group, on the one hand, and Ameribanc or MBI or any
other member of the MBI Affiliated Group, on the other hand,
arising as a result of First National Bank's status as a
correspondent bank with respect to MBI. No "installment
obligation" (as the quoted term is defined for purposes of Code
section 453B), between FFCA, on the one hand, and Ameribanc, on the
other hand, exists or will exist prior to the Merger that will be
extinguished as a result of the Merger.
8. The fair market value of the assets of FFCA to be
transferred to Ameribanc will exceed the sum of the amount of
liabilities to be assumed by Ameribanc, plus the amount of
liabilities, if any, to which the assets to be transferred are
subject.
9. The payment of cash in lieu of fractional shares of
MBI Common Stock will be solely for the purpose of avoiding the
expense and inconvenience to MBI of issuing fractional shares and
will not represent separately bargained-for consideration. The
total cash consideration that will be paid in the Merger to the
FFCA shareholders in lieu of fractional shares of MBI Common Stock
will not exceed one percent of the total consideration that will be
issued in the transaction to the
<PAGE> 15
FFCA shareholders in exchange for their shares of FFCA Common Stock.
The fractional share interests of each FFCA shareholder will be aggregated,
and no FFCA shareholder will receive cash in lieu of fractional share
interests in an amount equal to or greater than the value of one full share
of MBI Common Stock.
10. None of the compensation paid or accrued before the
Merger to or for the benefit of any FFCA shareholder-employee will
be separate consideration for, or allocable to, any of his or her
shares of FFCA Common Stock; none of the shares of MBI Common Stock
received in the Merger by any FFCA shareholder-employee will be
separate consideration for, or allocable to, any employment
agreement; and all compensation paid or accrued before the Merger
to or for the benefit of any FFCA shareholder-employee will be for
services actually rendered in the ordinary course of his or her
employment and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
11. All payments made to dissenters and all cash
payments made in lieu of fractional shares of MBI Common Stock will
be funded with assets of MBI. No such payments will be funded with
FFCA assets.
12. FFCA meets the requirements of Code section
368(a)(2)(F) or is not an investment company as defined in Code
section 368(a)(2)(F)(iii) and (iv).
13. The Merger Agreement represents the complete
agreement and understanding among MBI, Ameribanc and FFCA
regarding the Merger.
The undersigned HEREBY AGREES to immediately communicate
in writing to Thompson Coburn at One Mercantile Center, St. Louis,
Missouri 63101, to the attention of Charles H. Binger, any
information received by the undersigned on or before the Effective
Date that could indicate (i) any of the foregoing representations
was inaccurate when made, or (ii) any of the foregoing
representations would be inaccurate if it were made again
immediately before the Merger.
<PAGE> 16
IN WITNESS WHEREOF, I have hereunto signed my name and
affixed the seal of FFCA this ----- day of ---------------, 1996.
----------------------------------
<PAGE> 17
Exhibit C
STOCKHOLDER CERTIFICATE
-----------------------
The undersigned shareholder of First Financial
Corporation of America, a Missouri corporation ("FFCA"),
[SHAREHOLDER'S NAME], a holder of * shares of common
- -------------------- ------
stock, par value $0.10 per share HEREBY CERTIFIES that (a) I am
familiar with the terms and conditions of the Agreement and Plan of
Merger by and among Mercantile Bancorporation Inc., a Missouri
corporation ("MBI"), Ameribanc, Inc., a Missouri corporation
("Ameribanc"), and FFCA dated July 9, 1996, including the schedules
and exhibits thereto, and (b) I am aware that (i) this Certificate
will be relied on by Thompson Coburn, counsel for MBI, in rendering
its opinion to FFCA that the merger of FFCA with and into Ameribanc
(the "Merger") will constitute a reorganization within the meaning
of section 368(a)(1) of the Internal Revenue Code of 1986, as
amended, and (ii) the representations and undertaking recited
herein will survive the Merger.
The undersigned HEREBY FURTHER CERTIFIES that the
undersigned has no plan, intention or arrangement (including any
option or pledge) to sell, exchange or otherwise dispose of any of
the MBI common stock, par value $5.00 per share ("MBI Common
Stock"), to be received in the Merger, with the exception of any
fractional share of MBI Common Stock to be exchanged for cash
pursuant to the Merger.
If, on or before the date of the Merger, the undersigned
forms any plan, intention or arrangement (including any option) to
sell, exchange or otherwise dispose of, or enter into any
transaction that reduces the risk of loss with respect to (whether
by short sale, hedging or otherwise), any of the MBI Common Stock
to be received in the Merger, the undersigned HEREBY AGREES to
immediately communicate the same in writing to Thompson Coburn at
One Mercantile Center, St. Louis, Missouri 63101, to the attention
of Charles H. Binger.
IN WITNESS WHEREOF, the undersigned has executed this
certificate, or caused this certificate to be executed by its duly
authorized representative, this ----- day of ---------------, 1996.
----------------------------
[Certain additional representations will be required from entities
regarding their authority to hold the MBI Common Stock to be
received.]
<PAGE> 18
Exhibit 23.3
------------
Independent Auditors' Consent
-----------------------------
To the Board of Directors and Stockholders of
Mercantile Bancorporation Inc.:
We consent to the use of our reports incorporated herein by
reference and to the reference to our firm under the heading
"Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
August 15, 1996
<PAGE> 19
[Letterhead of Thompson Coburn]
August 15, 1996 Valerie J. Pacer
314-552-6184
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Mercantile Bancorporation Inc. Registration Statement on Form S-4
Ladies and Gentlemen:
On behalf of our client, Mercantile Bancorporation Inc., a Missouri
corporation (the "Company"), we are pleased to electronically
transmit for filing pursuant to the Securities Act of 1933, as
amended, the Company's Registration Statement on Form S-4 in
connection with the proposed issuance of up to 258,783 shares of
the Company's common stock with respect to the acquisition by the
Company of First Financial Corporation of America, a Missouri
corporation.
The registration fee has been computed pursuant to Rule 457(f), and
is based upon a proposed maximum offering price of $7,100,934.00.
Such proposed maximum offering price has been estimated solely for
the purpose of computing the registration fee and constitutes the
book value of the securities to be received by the Company with
respect to the transaction, computed as of July 31, 1996, less the
respective portion of such book value paid in cash by the Company in
connection with the exchange.
Should you require any further information or documentation, please
contact the undersigned, telephone number (314) 552-6184, at your
earliest convenience.
Very truly yours,
Thompson Coburn
By /s/ Valerie J. Pacer
Valerie J. Pacer
VJP/mw
cc: Jon W. Bilstrom, Esq.
Michael J. Marshall, Esq.
Robert M. LaRose, Esq.
<PAGE> 1
Exhibit 23.2
[Letterhead of Alex Sheshunoff & Co. Investment Banking]
CONSENT OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING
In connection with the proposed merger of First Financial Corporation of
America, Salem, Missouri and Mercantile Bancorporation, Inc. the
undersigned, acting as an independent financial analyst to the common
shareholders of First Financial Corporation of America, hereby consents to
the reference to our firm in the proxy statement and to the inclusion of
our fairness opinion as an exhibit to the proxy statement.
August 13, 1996
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
<PAGE> 1
Exhibit 23.4
[Letterhead of Williams-Keepers, LLP]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement of Mercantile
Bancorporation, Inc., on Form S-4 of our report dated March 15, 1996,
relating to the consolidated balance sheets of First Financial Corporation
of America, Inc. (First Financial) and subsidiary as of December 31, 1995
and 1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995. We also consent to the reference to our
firm under the heading "Experts" in the Proxy Statement/Prospectus, which
is a part of this Registration Statement.
Our report refers to a change in First Financial's method of accounting for
income taxes in 1993, investments in 1994, and impaired loans in 1995.
August 14, 1996
Columbia, Missouri
