EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
between
MERCANTILE BANCORPORATION INC.,
AMERIBANC, INC.
and
XXXX XXXXX BANCSHARES, INC.
Dated October 27, 1996
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this
"Agreement") is made and entered into on October 27, 1996 by
and between MERCANTILE BANCORPORATION INC., a Missouri cor-
poration ("Mercantile"), Ameribanc, Inc., a Missouri corpora-
tion and a wholly owned subsidiary of Mercantile ("Merger
Sub") and Xxxx Xxxxx Bancshares, Inc., a Missouri corporation
(together with its predecessors, "Bancshares").
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 amen-
ded (the "Holding Company Act"); and
WHEREAS, Bancshares is a registered bank holding
company under the Holding Company Act; and
WHEREAS, the Board of Directors of Bancshares and the
Executive Committee of the Board of Directors of Mercantile
have approved the merger (the "Merger") of Bancshares with and
into Merger Sub pursuant to the terms and subject to the condi-
tions of this Agreement; and
WHEREAS, for federal income tax purposes, it is in-
tended that the Merger shall qualify as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"); and
WHEREAS, as a condition to, and concurrently with
the execution of this Agreement, Mercantile and certain
shareholders of Bancshares are entering into Support Agree-
ments (the "Support Agreements") in the form attached hereto
as Exhibit A; and
WHEREAS, as a condition to, and concurrently with the
execution of this Agreement, Mercantile and Bancshares are en-
tering into a stock option agreement (the "Stock Option Agree-
ment") in the form attached hereto as Exhibit B; and
WHEREAS, the parties desire to provide for certain
undertakings, conditions, representations, warranties and cov-
enants in connection with the transactions contemplated by this
Agreement.
NOW THEREFORE, in consideration of the premises and
the representations, warranties and agreements herein con-
tained, the parties agree as follows:
ARTICLE I
THE MERGER
1.01. The Merger. (a) Subject to the terms and
conditions of this Agreement, Bancshares shall be merged with
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and into Merger Sub in accordance with The General and Busi-
ness Corporation Law of Missouri (the "Missouri Act") and the
separate corporate existence of Bancshares shall cease. Mer-
ger Sub shall be the surviving corporation of the Merger
(sometimes referred to herein as the "Surviving Corporation")
and shall continue to be governed by the laws of the State of
Missouri.
1.02. Closing. The closing (the "Closing") of the
Merger shall take place at 10:00 a.m., local time, on the
date that the Effective Time (as defined in Section 1.03)
occurs, or at such other time, and at such place, as Mercan-
tile and Bancshares shall agree (the "Closing Date").
1.03. Effective Time. The Merger shall become
effective on the date and at the time (the "Effective Time")
on which appropriate documents in respect of the Merger are
filed with the Secretary of State of the State of Missouri in
such form as required by, and in accordance with, the rel-
evant provisions of the Missouri Act. Subject to the terms
and conditions of this Agreement, the Effective Time shall
occur on such date as Mercantile shall notify Bancshares in
writing (such notice to be at least five business days in
advance of the Effective Time) but (i) not earlier than the
satisfaction of all conditions set forth in Section 6.01(a)
and 6.01(b) (the "Approval Date") and (ii) subject to clause
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(i), not later than the first business day of the first full
calendar month commencing at least five business days after
the Approval Date.
1.04. Additional Actions. If, at any time after
the Effective Time, Mercantile or the Surviving Corporation
shall consider or be advised that any further deeds, assign-
ments or assurances or any other acts are necessary or xxxxx-
able to (a) vest, perfect or confirm, of record or otherwise,
in the Surviving Corporation its right, title or interest in,
to or under any of the rights, properties or assets of Banc-
shares or Merger Sub or (b) otherwise carry out the purposes
of this Agreement, Bancshares and Merger Sub and each of
their respective officers and directors, shall be deemed to
have granted to the Surviving Corporation an irrevocable
power of attorney to execute and deliver all such deeds, as-
signments or assurances and to do all acts necessary or de-
sirable to vest, perfect or confirm title and possession to
such rights, properties or assets in the Surviving Corpora-
tion and otherwise to carry out the purposes of this Agree-
ment, and the officers and directors of the Surviving Corpo-
ration are authorized in the name of Bancshares or otherwise
to take any and all such action.
1.05. Effect of Merger. The Articles of Incorpo-
ration and Bylaws of Merger Sub in effect immediately prior
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to the Effective Time shall be the Articles of Incorporation
and Bylaws of the Surviving Corporation following the Merger
until otherwise amended or repealed. At the Effective Time,
the directors and officers of Merger Sub immediately prior to
the Effective Time shall be directors and officers, respec-
tively, of the Surviving Corporation following the Merger;
such directors and officers shall hold office in accordance
with the Surviving Corporation's Bylaws and applicable law.
1.06. Conversion of Securities. At the Effective
Time, by virtue of the Merger and without any action on the
part of Mercantile, Bancshares or the holder of any of the
following securities:
(i) Each share of the common stock, par value
$.01 per share, of Merger Sub that is issued and outstanding
immediately prior to the Effective Time shall remain out-
standing and shall be unchanged after the Merger and shall
thereafter constitute all of the issued and outstanding capi-
tal stock of the Surviving Corporation; and
(ii) Each share of the common stock, par value
$1.25 per share ("Bancshares Common Stock"), of Bancshares
issued and outstanding immediately prior to the Effective
Time, other than any Dissenting Shares (as defined in Section
1.08), shall cease to be outstanding and shall be converted
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into and become the right to receive .952 (the "Exchange Ra-
tio") of a share of common stock, par value $5.00 per share
("Mercantile Common Stock"), of Mercantile and the associated
Rights under the Mercantile Rights Agreement as those terms
are defined in Section 3.02; provided, however, that any
shares of Bancshares Common Stock held by Bancshares 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 Mercantile or any of its wholly
owned Subsidiaries, in each case other than in a fiduciary
capacity or as a result of debts previously contracted, shall
be cancelled and shall not represent capital stock of the
Surviving Corporation and shall not be exchanged for shares
of Mercantile Common Stock.
1.07. Exchange Procedures. (a) Mercantile shall
designate a person reasonably acceptable to Bancshares to act
as Exchange Agent hereunder (the "Exchange Agent"). At or
prior to the Effective Time, Mercantile shall deposit, or
cause to be deposited, with the Exchange Agent, for the ben-
efit of the holders of record of certificates representing
shares of Bancshares Common Stock (the "Certificates"), for
exchange in accordance with this Article I, certificates rep-
resenting the Mercantile Common Stock and cash in lieu of any
fractional shares issuable pursuant to Section 1.06(ii) (such
cash and certificates for Mercantile Common Stock, together
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with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund") in ex-
change for outstanding Bancshares Common Stock. As soon as
practicable after the Effective Time holders of Certificates
shall be instructed to tender such Certificates to the Ex-
change Agent pursuant to a letter of transmittal that the
Exchange Agent shall deliver or cause to be delivered to such
holders. Such letters of transmittal shall specify that risk
of loss and title to Certificates shall pass only upon deliv-
ery of such Certificates to the Exchange Agent.
(b) Subject to Section 1.09, after the Effective
Time, each holder of a Certificate that surrenders such Cer-
tificate with a properly completed transmittal letter to the
Exchange Agent will be entitled to (i) a certificate or cer-
tificates representing the number of full shares of Mercan-
tile Common Stock into which the Certificate so surrendered
shall have been converted pursuant to this Agreement and any
distribution theretofore declared and not yet paid with re-
spect to such shares of Mercantile Common Stock, without in-
terest, and (ii) a check representing the amount of any cash
in lieu of fractional shares which such holder has the right
to receive in respect of the Certificate surrendered pursuant
to this Article I.
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(c) The Exchange Agent shall accept Certificates
upon compliance with such reasonable terms and conditions as
the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with customary exchange practices.
Certificates shall be appropriately endorsed or accompanied
by such instruments of transfer as the Exchange Agent may
reasonably require in accordance with customary exchange
practices.
(d) Each outstanding Certificate shall until duly
surrendered to Mercantile or the Exchange Agent be deemed to
evidence ownership of the consideration into which the stock
previously represented by such Certificate shall have been
converted pursuant to this Agreement.
(e) After the Effective Time, holders of Certifi-
xxxxx shall cease to have rights with respect to the stock
previously represented by such Certificates, and their sole
rights shall be to exchange such Certificates for the con-
sideration provided for in this Agreement. After the Effec-
tive Time, there shall be no further transfer on the records
of Bancshares of Certificates, and if such Certificates are
presented to Bancshares for transfer, they shall be cancelled
against delivery of the consideration provided therefor in
this Agreement. No dividends declared will be remitted to
any person entitled to receive Mercantile Common Stock under
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this Agreement until such person surrenders the Certificate
representing the right to receive such Mercantile Common
Stock, at which time such dividends shall be remitted to such
person, without interest and less any taxes that may have
been imposed thereon. A restrictive legend will be placed
on, and stop transfer instructions shall be given to the Ex-
change Agent and Mercantile's transfer agent in respect of,
certificates representing Mercantile Common Stock issued in
exchange for certificates surrendered for exchange by any
person constituting an "affiliate" of Bancshares for purposes
of Rule 145 of the Securities Act of 1933, as amended (to-
gether with the rules and regulations thereunder, the "Secu-
rities Act"), and identified in the letter or letters re-
ferred to in Section 5.05 or otherwise identified as such by
Mercantile, until Mercantile has received a written agreement
from such person in the form attached as Exhibit C. Mercan-
tile and the Exchange Agent shall be entitled to rely upon
the stock transfer books of Bancshares to establish the iden-
tity of those persons entitled to receive consideration
specified in this Agreement, which books shall be conclusive
with respect thereto. In the event of a dispute with respect
to ownership of stock represented by any Certificate, Mercan-
tile and the Exchange Agent shall be entitled to deposit any
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consideration represented thereby in escrow with an indepen-
dent third party and thereafter be relieved with respect to
any claims thereto.
If any certificate representing shares of Mercantile
Common Stock is to be issued in a name other than that in which
the Certificate surrendered in exchange therefor is registered,
it shall be a condition of the issuance thereof that the Cer-
tificate so surrendered shall be properly endorsed (or other-
wise in proper form for transfer) and that the person request-
ing such exchange shall pay to the Exchange Agent in advance
any transfer or other taxes required by reason of the issuance
of a certificate representing shares of Mercantile Common Stock
in any name other than that of the registered holder of the
Certificate surrendered, or required for any other reason, or
shall establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not payable.
Any portion of the Exchange Fund that remains un-
claimed by the stockholders of Bancshares for 12 months after
the Effective Time shall be paid to Mercantile. Notwithstand-
ing the foregoing, none of Bancshares, Mercantile, the Exchange
Agent or any other person shall be liable to any former holder
of shares of Bancshares Common Stock for any amount delivered
in good faith to a public official pursuant to applicable aban-
doned property, escheat or similar laws.
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In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen
or destroyed and, if reasonably required by Mercantile, the
posting by such person of a bond in such amount as Mercantile
may determine is reasonably necessary as indemnity against any
claim that may be made against it with respect to such Cer-
tificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Certificate the shares of Mercantile
Common Stock, dividends and any cash in lieu of fractional
shares deliverable in respect thereof pursuant to this Agree-
ment.
1.08. 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 the Missouri
Act. 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 the Missouri Act; pro-
vided, however, that if, in accordance with the Missouri Act,
any holder of Dissenting Shares shall forfeit such right to
payment of the fair value of such shares, such shares shall
thereupon be deemed to have been converted into and to have
become exchangeable for, as of the Effective Time, the right
to receive the consideration provided in this Article I.
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(b) Bancshares shall give Mercantile (i) prompt
notice of any written objections to the Merger and any writ-
ten 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 Act received by
Bancshares and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands
under the Missouri Act. Bancshares shall not voluntarily
make any payment with respect to any demands for payment of
fair value and shall not, except with the prior written con-
sent of Mercantile, settle or offer to settle any such de-
mands.
1.09. No Fractional Shares. Notwithstanding any
other provision of this Agreement, neither certificates nor
scrip for fractional shares of Mercantile Common Stock shall
be issued in the Merger. Each holder who otherwise would
have been entitled to a fraction of a share of Mercantile
Common Stock shall receive in lieu thereof cash (without in-
terest) in an amount determined by multiplying the fractional
share interest to which such holder would otherwise be en-
titled by the Closing Price per share of Mercantile Common
Stock on the last business day preceding the Effective Time.
With respect to a share of stock, "Closing Price" shall mean:
the closing price as reported on the Consolidated Tape (as
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reported in The Wall Street Journal or in the absence there-
of, by any other authoritative source). No such holder shall
be entitled to dividends, voting rights or any other rights
in respect of any fractional share.
1.10. Anti-Dilution Adjustments. If prior to the
Effective Time Mercantile shall declare a stock dividend or
make distributions upon or subdivide, split up, reclassify,
combine or make other similar change to Mercantile Common
Stock, exchange Mercantile Common Stock for a different num-
ber or kind of shares or securities or declare a dividend or
make a distribution on Mercantile Common Stock in any secu-
rity convertible into Mercantile Common Stock, or is involved
in any transaction resulting in any of the foregoing (includ-
ing any exchange of Mercantile Common Stock for a different
number or kind of shares or securities), appropriate and pro-
portionate adjustment or adjustments will be made to the Ex-
change Ratio.
1.11. Reservation of Right to Revise Transaction.
Mercantile may at any time change the method of effecting the
reorganization of the parties (including without limitation
the provisions of this Article I) if and to the extent it
deems such change to be desirable, including without limita-
tion to provide for a merger of Bancshares directly into Mer-
cantile, in which Mercantile is the surviving corporation, or
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a merger of Merger Sub into Bancshares, in which Bancshares
is the surviving corporation, provided, however, that no such
change shall (A) alter or change the amount or kind of con-
sideration to be issued to holders of Bancshares Common Stock
as provided for in this Agreement (the "Merger Consider-
ation"), (B) adversely affect the tax treatment to Banc-
shares' stockholders as a result of receiving the Merger Con-
sideration or (C) materially impede or delay receipt of any
approval referred to in Section 6.01(b) or the consummation
of the transactions contemplated by this Agreement.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCSHARES
Bancshares represents and warrants to and covenants
with Mercantile as follows:
2.01. Organization and Authority. Bancshares 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 ju-
risdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified, ex-
cept where the failure to be so qualified would not have a
material adverse effect on the financial condition, results
of operations or business (collectively, the "Condition") of
Bancshares and its Subsidiaries, taken as a whole, and has
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corporate power and authority to own its properties and as-
sets and to carry on its business as it is now being con-
ducted. Bancshares is registered as a bank holding company
with the Board of Governors of the Federal Reserve System
(the "Board") under the Holding Company Act. True and com-
plete copies of the Restated Articles of Incorporation and
the Restated Bylaws of Bancshares and, to the extent reques-
xxx in writing by Mercantile, of the articles of incorpo-
ration and bylaws of the Bancshares Subsidiaries (as defined
in Section 2.02), each as in effect on the date of this Ag-
reement, have been provided to Mercantile.
2.02 Subsidiaries. Schedule 2.02 sets forth a
complete and correct list of all of Bancshares' Subsidiaries
(each a "Bancshares Subsidiary" and collectively the "Banc-
shares Subsidiaries"), all outstanding Equity Securities of
each of which, except as set forth on Schedule 2.02, are
owned directly or indirectly by Bancshares. "Equity Securi-
ties" of an issuer means capital stock or other equity secu-
rities of such issuer, options, warrants, scrip, rights to
subscribe to, calls or commitments of any character what-
soever 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
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Securities of such issuer, or options, warrants, scrip or
rights to purchase, acquire, subscribe to, calls on or com-
mitments for, or stock appreciation or similar rights in re-
spect of, any shares of its capital stock or other Equity
Securities. All of the outstanding shares of capital stock
of the Bancshares Subsidiaries are validly issued, fully paid
and nonassessable, and, except as set forth on Schedule 2.02,
those shares owned directly or indirectly by Bancshares are
owned free and clear of any lien, claim, charge, option, en-
cumbrance, agreement, mortgage, pledge, security interest or
restriction (a "Lien") with respect thereto. Each of the
Bancshares Subsidiaries is a corporation, bank, trust company
or other entity duly incorporated or organized, validly ex-
isting, and in good standing under the laws of its juris-
diction 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 Bancshares 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 to be
so qualified, except where the failure to so qualify would
not have a material adverse effect on the Condition of Banc-
shares and its Subsidiaries, taken as a whole. Except as set
forth on Schedule 2.02, Bancshares does not own beneficially,
directly or indirectly, any shares of any class of Equity
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Securities or similar interests of any corporation, bank,
business trust, association or similar organization except in
each case in a fiduciary capacity or as a result of debts
previously contracted. As of the date hereof, Bancshares'
bank Subsidiaries (the "Banks") consist of four state banking
associations chartered under the laws of the states of Mis-
souri and Illinois. The deposits of each of the Banks are
insured by the Bank Insurance Fund ("BIF") or, to the extent
transferred to a Bank by the Resolution Trust Corporation or
any savings association, by the Savings Association Insurance
Fund of the Federal Deposit Insurance Corporation (the
"FDIC"). The aggregate "adjusted attributable deposit
amount" (as defined in 12 U.S.C. Section 1815) of the Banks
is zero. None of the Banks identified as such on Schedule
2.02 are members of the Federal Reserve System. Except as
set forth on Schedule 2.02, neither Bancshares nor any Banc-
shares Subsidiary holds any interest in a partnership or
joint venture of any kind.
2.03. Capitalization. The authorized capital
stock of Bancshares consists of (i) 30,000,000 shares of
Bancshares Common Stock, of which, as of September 30, 1996,
16,384,722 shares were issued and outstanding and (ii)
500,000 shares of preferred stock, par value $25.00 ("Banc-
shares Preferred Stock"), of which none are outstanding. As
of September 30, 1996, Bancshares had reserved (i) 1,029,566
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shares of Bancshares Common Stock for issuance under Banc-
shares' stock option and incentive plans, a list of which is
set forth on Schedule 2.03 (the "Bancshares Stock Plans"),
pursuant to which options ("Bancshares Stock Options") cover-
ing 1,029,566 shares of Bancshares Common Stock are outstand-
ing as of the date hereof, (ii) 148,090 shares of Bancshares
Common Stock for issuance upon conversion of Bancshares' 7%
convertible subordinated capital notes due 1999 (the "Banc-
shares Convertible Notes") and (iii) approximately 261,479
(subject to adjustment) shares of Bancshares Common Stock for
issuance upon the acquisition of First City Bancshares, Inc.
pursuant to an agreement dated July 17, 1996 (the "First City
Acquisition Agreement"). Since September 30, 1996, no Equity
Securities of Bancshares have been issued other than shares
of Bancshares Common Stock which may have been issued upon
the exercise of Bancshares Stock Options, the conversion of
Bancshares Convertible Notes, as contemplated by the First
City Acquisition Agreement or as may be issued pursuant to
Bancshares' Savings Challenge Plan. Except as set forth in
this Section, there are no other Equity Securities of Banc-
shares outstanding. All of the issued and outstanding shares
of Bancshares Common Stock are validly issued, fully paid,
and nonassessable, and have not been issued in violation of
any preemptive right of any stockholder of Bancshares. Banc-
shares maintains a dividend reinvestment plan.
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2.04. Authorization. (a) Bancshares has the cor-
porate power and authority to enter into this Agreement and,
subject to the approval of this Agreement by the stockholders
of Bancshares, to carry out its obligations hereunder. The
only stockholder vote required for Bancshares to approve this
Agreement is the affirmative vote of the holders of at least
two thirds of the outstanding shares of Bancshares Common
Stock entitled to vote on the Agreement. The execution, de-
livery and performance of this Agreement by Bancshares and
the consummation by Bancshares of the transactions contem-
plated hereby have been duly authorized by the Board of Di-
rectors of Bancshares. Subject to approval by the stock-
holders of Bancshares, this Agreement is a valid and binding
obligation of Bancshares enforceable against Bancshares in
accordance with its terms.
(b) Except as set forth on Schedule 2.04B, neither
the execution, delivery nor performance by Bancshares of this
Agreement, nor the consummation by Bancshares of the trans-
actions contemplated hereby, nor compliance by Bancshares
with any of the provisions hereof, will (i) violate, conflict
with, or result in a breach of any provisions of, or consti-
tute 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
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by, or result in a right of termination or acceleration of,
or result in the creation of, any Lien upon any of the mate-
rial properties or assets of Bancshares or any Bancshares
Subsidiary under any of the terms, conditions or provisions
of (x) its articles or certificate of incorporation or bylaws
or (y) any material note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obli-
gation to which Bancshares or any Bancshares Subsidiary is a
party or by which it may be bound, or to which Bancshares or
any Bancshares Subsidiary or any of the material properties
or assets of Bancshares or any Bancshares Subsidiary may be
subject other than those as to which any such violation, con-
flict, breach, event, termination, acceleration or creation
would not have a material adverse effect on the Condition of
Bancshares and the Bancshares Subsidiaries, taken as a whole,
or (ii) subject to compliance with the statutes and regula-
tions referred to in paragraph (c) of this Section 2.04, to
the best knowledge of Bancshares, violate any judgment, rul-
ing, order, writ, injunction, decree, statute, rule or regu-
lation applicable to Bancshares or any Bancshares Subsidiary
or any of their respective material properties or assets.
(c) Other than in connection or in compliance with
the provisions of the Missouri Act, the Securities Act, the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (the "Exchange Act"), the Investment Company Act
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of 1940, as amended, and the rules and regulations thereunder
(the "Investment Company Act"), the securities or blue sky
laws of the various states or filings, consents, reviews,
authorizations, approvals or exemptions required under the
Holding Company Act, and the Xxxx-Xxxxx-Xxxxxx Antitrust Im-
provements Act of 0000 (xxx "XXX Xxx"), or any required ap-
provals of or filings with the Missouri Division of Finance
and Division of Insurance and the state banking regulators of
the states of Illinois and Kansas (the "State Bank Regula-
tors") or filings required with respect to any Transfer Taxes
described in Section 5.18, no notice to, filing with, exemp-
tion or review by, or authorization, consent or approval of,
any public body or authority is necessary for the consumma-
tion by Bancshares of the transactions contemplated by this
Agreement.
2.05. Bancshares Financial Statements. The con-
solidated and parent-company only condensed balance sheets of
Bancshares and its Subsidiaries as of December 31, 1995, 1994
and 1993 and related consolidated and condensed statements of
income, cash flows and changes in shareholders' equity for
each of the three years in the three-year period ended Decem-
ber 31, 1995, together with the notes thereto, audited by
Ernst & Young LLP and included in an annual report on Form
10-K as filed with the SEC, and the unaudited consolidated
balance sheets of Bancshares and its Subsidiaries as of March
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31 and June 30, 1996 and the related unaudited consolidated
statements of income and cash flows for the periods then
ended included in quarterly reports on Form 10-Q (each a
"Bancshares Form 10-Q") as filed with the SEC (collectively,
the "Bancshares Financial Statements"), have been prepared in
accordance with generally accepted accounting principles in
the United States applied on a consistent basis ("GAAP"),
present fairly the consolidated financial position of Banc-
shares and its Subsidiaries at the dates and the consolidated
results of operations, cash flows and changes in stockhold-
ers' equity of Bancshares and its Subsidiaries for the peri-
ods stated therein and are derived from the books and records
of Bancshares and its Subsidiaries, which are complete and
accurate in all material respects and have been maintained in
all material respects in accordance with applicable laws and
regulations. Neither Bancshares nor any of its Subsidiaries
has any contingent liabilities that are material, either in-
dividually or in the aggregate, to Bancshares and its Subsid-
iaries, taken as a whole, other than those reflected in the
Bancshares Financial Statements or disclosed in the footnotes
thereto, reflected in the Bancshares SEC Reports (as herein-
after defined), arising pursuant to agreements in the ordi-
nary course of business or set forth on Schedule 2.05.
2.06. Bancshares Reports. Since January 1, 1993,
each of Bancshares and the Bancshares Subsidiaries has filed
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all material reports, registrations and statements, together
with any required material amendments thereto, that it was
required to file with (i) the SEC, including, but not limited
to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements,
(ii) the Board, (iii) the FDIC, (iv) the State Bank Regula-
tors, and (v) except in the case of this clause (v) where the
failure to file such report, registration or statement, ei-
ther individually or in the aggregate, will not have a mate-
rial adverse effect on the Condition of Bancshares and its
Subsidiaries, taken as a whole, any other federal, state,
municipal, local or foreign government, securities, banking,
savings and loan, insurance and other governmental or regula-
tory authority and the agencies and staffs thereof (the en-
tities in the foregoing clauses (i) through (v) being re-
ferred to herein collectively as the "Regulatory Authorities"
and individually as a "Regulatory Authority"). All such re-
ports and statements filed with the SEC are collectively re-
ferred to herein as "Bancshares SEC Reports" and all such
reports and statements filed with any Regulatory Authority
are collectively referred to herein as "Bancshares Reports."
As of its respective date, each Bancshares Report complied in
all material respects with all the rules and regulations pro-
mulgated by the applicable Regulatory Authority and did not
contain any untrue statement of a material fact or omit to
-23-
state a material fact required to be stated therein or neces-
sary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
2.07. Properties and Leases. Except as may be
reflected in the Bancshares Financial Statements, except for
any Lien for current taxes not yet delinquent and except with
respect to assets classified as real estate owned, Bancshares
and its Subsidiaries have good title free and clear of any
Lien (except for Liens that do not materially interfere with
the use of, or materially affect the value of, the property
subject to such Lien) to all the real and personal property
reflected in Bancshares' consolidated balance sheet as of
June 30, 1996 included in the most recent Bancshares Form
10-Q and, in each case, all real and personal property ac-
quired since such date, except such real and personal prop-
erty as has been disposed of in the ordinary course of busi-
ness and real and personal property that is not material,
either individually or in the aggregate, to Bancshares and
its Subsidiaries, taken as a whole. All leases material to
Bancshares and the Bancshares Subsidiaries, taken as a whole,
pursuant to which Bancshares or any Bancshares Subsidiary, as
lessee, leases real or personal property, are valid and
effective in accordance with their respective terms, and
there is not, under any of such leases, any material existing
default by Bancshares or any Bancshares Subsidiary or any
event which, with
-24-
notice or lapse of time or both, would constitute such a ma-
terial default. Substantially all of Bancshares' and Banc-
shares Subsidiaries' buildings, structures and equipment in
regular use have been well maintained and are in good and
serviceable condition, normal wear and tear excepted.
2.08. Taxes. Except as previously disclosed by
Bancshares to Mercantile, (i) Bancshares and each Bancshares
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 except where failures to so
timely file would not, individually or in the aggregate, rea-
sonably be expected to have a material adverse effect on the
Condition of Bancshares and the Bancshares Subsidiaries,
taken as a whole ("Bancshares Returns"); (ii) each of Banc-
shares and its Subsidiaries has paid, or set up adequate re-
serves on the Bancshares Financial Statements for the payment
of, all taxes required to be paid in respect of the periods
covered by the Bancshares Financial Statements and has paid
or set up adequate reserves on the most recent financial
statements Bancshares has filed under the Exchange Act for
the payment of, all taxes anticipated to be payable in re-
spect of the periods covered by such financial statements, in
each case except where failures to so pay or set up adequate
reserves would not, individually or in the aggregate, reason-
ably be expected to have a material adverse effect on the
-25-
Condition of Bancshares and the Bancshares Subsidiaries,
taken as a whole; (iii) no material deficiencies for any tax,
assessment or governmental charge have been proposed, as-
serted or assessed in writing by any governmental or taxing
authority against any of Bancshares or any Bancshares Subsid-
iary which have not been settled or would not be covered by
existing reserves; (iv) neither Bancshares nor any Bancshares
Subsidiary is delinquent in the payment of any material tax,
assessment or governmental charge shown to be due on any
Bancshares Return (taking into account extensions properly
obtained), and no waiver of the time to assess any tax
granted in writing by Bancshares or any Bancshares Subsidiary
is pending; (v) the federal and state income tax returns of
Bancshares and the Bancshares Subsidiaries have been audited
and settled by the Internal Revenue Service (the "IRS") or
appropriate state tax authorities for all periods ended
through December 31, 1992, or the period for assessment of
taxes in respect of such periods has expired. To the best
knowledge of Bancshares, the representations set forth in the
Bancshares Tax Certificate attached as Exhibit D to this
Agreement, if made on the date hereof (assuming the Merger
was consummated on the date hereof), would be true and cor-
rect.
-26-
2.09. Material Adverse Change. Since December 31,
1995, there has been no material adverse change in the Con-
dition of Bancshares and its Subsidiaries, taken as a whole,
except (i) as may have resulted or may result from changes to
laws and regulations or changes in economic conditions appli-
cable to banking institutions generally or in general levels
of interest rates affecting banking institutions generally
and (ii) the costs incurred or to be incurred by Bancshares
in connection with this Agreement, including costs incurred
for investment banking, accounting and legal services.
2.10. Commitments and Contracts. (a) Except as set
forth on Schedule 2.10A, neither Bancshares nor any Bancshares
Subsidiary is a party or subject to any of the following (whe-
ther written or oral, express or implied):
(i) any material agreement, arrangement or
commitment (A) not made in the ordinary course of
business or (B) pursuant to which Bancshares or any
of its Subsidiaries is or may become obligated to
invest in or contribute capital to any Bancshares
Subsidiary;
(ii) any agreement, indenture or other in-
strument not disclosed in the Bancshares Financial
Statements relating to the borrowing of money by
-27-
Bancshares or any Bancshares Subsidiary or the gua-
rantee by Bancshares or any Bancshares Subsidiary
of any such obligation (other than trade payables
or instruments related to transactions entered into
in the ordinary course of business by any Banc-
shares Subsidiary, such as deposits, Fed Funds bor-
rowings, hedges, swaps, repurchase agreements and
other ordinary course money market transactions);
(iii) any contract, agreement or understand-
ing with any labor union or collective bargaining
organization relating to employees of Bancshares or
Bancshares Subsidiaries;
(iv) any contract containing covenants
which materially limit the ability of Bancshares or
any Bancshares Subsidiary to compete in any line of
business or with any person or which involve any
restriction of the geographical area in which Banc-
shares or any Bancshares Subsidiary may carry on
its business, or which materially limits the method
by which Bancshares or any Bancshares Subsidiary
may carry on its business (other than as may be
required by law or any applicable Regulatory Au-
thority and other than with respect to any matter
-28-
which is not material to Bancshares and its Subsid-
iaries, taken as a whole);
(v) any other contract or agreement which
is a "material contract" within the meaning of Item
601(b)(10) of Regulation S-K promulgated by the
SEC; or
(vi) any lease with annual rental payments
aggregating $250,000 or more.
(b) Neither Bancshares nor any Bancshares Subsidiary
is in violation of its charter documents or bylaws or in de-
fault under any material agreement, commitment, arrangement,
lease, insurance policy, or other instrument, whether entered
into in the ordinary course of business or otherwise and wheth-
er written or oral, and there has not occurred any event that,
with the lapse of time or giving of notice or both, would con-
stitute such a default, except, in all cases, where such de-
fault would not have a material adverse effect on the Condition
of Bancshares and its Subsidiaries, taken as a whole.
2.11. Litigation and Other Proceedings. Except as
set forth on Schedule 2.11, neither Bancshares nor any Banc-
shares Subsidiary is a party to any pending or, to the best
-29-
knowledge of Bancshares, threatened claim, action, suit, in-
vestigation or proceeding, or is subject to any order, judg-
ment or decree, except for matters which, in the aggregate,
will not have, or reasonably could not be expected to have, a
material adverse effect on the Condition of Bancshares and
its Subsidiaries, taken as a whole. Without limiting the
generality of the foregoing, as of the date of this Agree-
ment, there are no actions, suits, or proceedings pending or,
to the best knowledge of Bancshares, threatened against Banc-
shares or any Bancshares Subsidiary or any of their respec-
tive officers or directors by any stockholder of Bancshares
or any Bancshares Subsidiary (or any former stockholder of
Bancshares or any Bancshares Subsidiary) or involving claims
under the Securities Act, the Exchange Act, the Community
Reinvestment Act of 1977, as amended, or the fair lending
laws or which purport or seek to enjoin or restrain the
transactions contemplated by this Agreement.
2.12. Insurance. Each of Bancshares and its Sub-
sidiaries has taken 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 contem-
plated hereby) occurring prior to the Effective Time that are
-30-
known to Bancshares, except for such matters which, individu-
ally or in the aggregate, will not have and reasonably could
not be expected to have a material adverse effect on the Con-
dition of Bancshares and its Subsidiaries, taken as a whole.
Promptly after the date hereof, Bancshares shall provide a
list of all insurance policies maintained by or for the ben-
efit of Bancshares or its Subsidiaries or their directors,
officers, employees or agents.
2.13. Compliance with Laws. (a) Bancshares and
each of its Subsidiaries have all permits, licenses, authoriza-
tions, orders and approvals of, and have made all filings, ap-
plications and registrations with, all Regulatory Authorities
that are required in order to permit them to own or lease their
properties and assets and to carry on their business as pres-
ently conducted, except where the failure to so have or make
would not have a material adverse effect on the Condition of
Bancshares and its Subsidiaries, taken as a whole; all such
permits, licenses, certificates of authority, orders and ap-
provals are in full force and effect and, to the best knowledge
of Bancshares, no suspension or cancellation of any of them is
threatened; and all such filings, applications and registra-
tions are current.
-31-
(b) Except for failures to comply or defaults
which individually or in the aggregate would not have a ma-
terial adverse effect on the Condition of Bancshares and its
Subsidiaries, taken as a whole, (i) each of Bancshares and
its Subsidiaries has complied with all laws, regulations and
orders (including without limitation zoning ordinances, buil-
ding codes, the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and securities, tax, environmen-
tal, civil rights, and occupational health and safety laws
and regulations and including without limitation in the case
of any Bancshares Subsidiary that is a bank or savings as-
sociation, banking organization, banking corporation or trust
company, all statutes, rules, regulations and policy state-
ments pertaining to the conduct of a banking, deposit-taking,
lending or related business, or to the exercise of trust pow-
ers) and governing instruments applicable to them and to the
conduct of their business, and (ii) neither Bancshares nor
any Bancshares Subsidiary is in default under, and no event
has occurred which, with the lapse of time or notice or both,
could result in the default under, the terms of any judgment,
order, writ, decree, permit, or license of any Regulatory
Authority or court, whether federal, state, municipal, or
local and whether at law or in equity. Except for liabili-
ties which individually or in the aggregate would not have a
material adverse effect on the Condition of Bancshares and
-32-
its Subsidiaries, taken as a whole, neither Bancshares nor
any Bancshares Subsidiary is subject to or reasonably likely
to incur a liability as a result of its ownership, operation,
or use of any Property (as defined below) of Bancshares (whe-
ther directly or, to the best knowledge of Bancshares, as a
consequence of such Property being part of the investment
portfolio of Bancshares or any Bancshares Subsidiary) (A)
that is contaminated by or contains any hazardous waste,
toxic substance, or related materials, including without
limitation asbestos, PCBs, pesticides, herbicides, and any
other substance or waste that is hazardous to human health or
the environment (collectively, a "Toxic Substance"), or (B)
on which any Toxic Substance has been stored, disposed of,
placed, or used in the construction thereof. "Property" of a
person shall include all property (real or personal, tangible
or intangible) owned or controlled by such person, including
without limitation property under foreclosure, property held
by such person or any Subsidiary of such person in its capa-
city as a trustee and property in which any venture capital
or similar unit of such person or any Subsidiary of such per-
son has an interest. As of the date of this Agreement, no
claim, action, suit, or proceeding is pending against Banc-
shares or any Bancshares Subsidiary relating to Property of
Bancshares before any court or other Regulatory Authority or
-33-
arbitration tribunal relating to hazardous substances, pollu-
tion or the environment, and there is no outstanding judg-
ment, order, writ, injunction, decree, or award against or
affecting Bancshares or any Bancshares Subsidiary with re-
spect to the same. Except for statutory or regulatory re-
strictions of general application, no Regulatory Authority
has placed any restriction on the business of Bancshares or
any Bancshares Subsidiary which reasonably could be expected
to have a material adverse effect on the Condition of Banc-
shares and its Subsidiaries, taken as a whole.
(c) From and after January 1, 1993, neither Banc-
shares nor any Bancshares Subsidiary has received any notifica-
tion or communication which has not been resolved from any Reg-
ulatory Authority (i) asserting that Bancshares or any Banc-
shares Subsidiary, is not in substantial compliance with any of
the statutes, regulations or ordinances that such Regulatory
Authority enforces, except with respect to matters which (A)
are set forth on Schedule 2.13C or in any writing previously
furnished to Mercantile or (B) reasonably could not be expected
to have a material adverse effect on the Condition of Banc-
shares and its Subsidiaries, taken as a whole, (ii) threatening
to revoke any license, franchise, permit or governmental autho-
rization that is material to the Condition of Bancshares and
its Subsidiaries, taken as a whole, including without limita-
tion such company's status as an insured depositary institution
-34-
under the Federal Deposit Insurance Act, or (iii) requiring or
threatening to require Bancshares or any of its Subsidiaries,
or indicating that Bancshares or any of its Subsidiaries may be
required, to enter into a cease and desist order, agreement or
memorandum of understanding or any other agreement restricting
or limiting or purporting to direct, restrict or limit in any
material manner the operations of Bancshares or any of its Sub-
sidiaries, including without limitation any restriction on the
payment of dividends. No such cease and desist order, agree-
ment or memorandum of understanding or other agreement is cur-
rently in effect.
(d) Neither Bancshares nor any Bancshares Subsid-
iary is required by Section 32 of the Federal Deposit Insur-
ance 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 ex-
ecutive officer.
2.14. Labor. No work stoppage involving Bancshares
or any Bancshares Subsidiary, is pending or, to the best knowl-
edge of Bancshares, threatened which reasonably could be ex-
pected to have a material adverse effect on the Condition of
Bancshares and its Subsidiaries, taken as a whole. Neither
Bancshares nor any Bancshares Subsidiary is involved in, or, to
the best knowledge of Bancshares, threatened with or affected
-35-
by, any labor dispute, arbitration, lawsuit or administrative
proceeding which reasonably could be expected to have a mate-
rial adverse affect on the Condition of Bancshares and its Sub-
sidiaries, taken as a whole.
2.15. Material Interests of Certain Persons. (a)
Except as set forth in Bancshares' Proxy Statement for its
1996 Annual Meeting of Stockholders, to the best knowledge of
Bancshares, no officer or director of Bancshares or any Banc-
shares Subsidiary, or any "associate" (as such term is de-
fined in Rule 14a-1 under the Exchange Act) of any such of-
ficer or director, has any material interest in any material
contract or property (real or personal, tangible or intan-
gible), used in, or pertaining to the business of, Bancshares
or any Bancshares Subsidiary, which in the case of Bancshares
is required to be disclosed by Item 404 of Regulation S-K
promulgated by the SEC or in the case of any such Subsidiary
would be required to be so disclosed if such Subsidiary had a
class of securities registered under Section 12 of the Ex-
change Act.
(b) Except as set forth in Bancshares' Proxy
Statement for its 1996 Annual Meeting of Stockholders or on
Schedule 2.15B, as of September 30, 1996, there are no loans
from Bancshares or any Bancshares Subsidiary to any present
-36-
officer, director, employee or any associate or related in-
terest of any such person which was or would be required un-
der any rule or regulation to be approved by or reported to
Bancshares' or Bancshares Subsidiary's Board of Directors
("Insider Loans"), and no Insider Loans in excess of $500,000
have been made since September 30, 1996. All outstanding
Insider Loans from Bancshares or any Bancshares Subsidiary
were approved by or reported to the appropriate board of di-
rectors in accordance with applicable law and regulations.
2.16. Allowance for Loan and Lease Losses. The
allowances for loan and lease losses contained in the Banc-
shares Financial Statements were established in accordance
with the past practices and experiences of Bancshares and its
Subsidiaries.
2.17. Employee Benefit Plans. (a) Except as set
forth in Schedule 2.17A, neither Bancshares nor any Bancshares
Subsidiary is a party to any existing employment, management,
consulting, deferred compensation, change-in-control or other
similar contract. "Bancshares Employee Plans" means all pen-
sion, retirement, supplemental retirement, savings, profit
sharing, stock option, stock purchase, stock ownership, stock
appreciation right, deferred compensation, consulting, bonus,
medical, disability, workers' compensation, vacation, group
-37-
insurance, severance and other material employee benefit, in-
centive and welfare policies, contracts, plans and arrange-
ments, and all trust agreements related thereto, maintained
(currently or at any time in the last five years) by or con-
tributed to by Bancshares or any Bancshares Subsidiary in re-
spect of any of the present or former directors, officers, or
other employees of and/or consultants to Bancshares or any
Bancshares Subsidiary. Schedule 2.17A lists all Bancshares
Employee Plans currently in effect. Bancshares has furnished,
or will furnish promptly after the date hereof, Mercantile with
the following documents with respect to each Bancshares Em-
ployee Plan: (i) a true and complete copy of all written docu-
ments comprising such Bancshares Employee Plan (including
amendments and individual agreements relating thereto) or, if
there is no such written document, an accurate and complete
description of the Bancshares Employee Plan; (ii) the most re-
cent Form 5500 or Form 5500-C (including all schedules
thereto), if applicable; (iii) the most recent financial state-
ments and actuarial reports, if any; (iv) the summary plan de-
scription currently in effect and all material modifications
thereof, if any; and (v) the most recent IRS determination let-
ter, if any. Without limiting the generality of the foregoing,
-38-
Bancshares has furnished Mercantile with true and complete cop-
ies of each form of stock option grant or stock option agree-
ment that is outstanding under any stock option plan of Banc-
shares or any Bancshares Subsidiary.
(b) Except as set forth in Schedule 2.17B, all
Bancshares Employee Plans have been maintained and operated
materially in accordance with their terms and with the mate-
rial requirements of all applicable statutes, orders, rules
and final regulations, including without limitation ERISA and
the Internal Revenue Code. All contributions required to be
made to Bancshares Employee Plans have been made.
(c) With respect to each of the Bancshares Em-
ployee Plans which is a pension plan (as defined in Section
3(2) of ERISA) (the "Pension Plans"), except as set forth in
Schedule 2.17C: (i) each Pension Plan which is intended to
be "qualified" within the meaning of Section 401(a) of the
Internal Revenue Code has been determined to be so qualified
by the Internal Revenue Service and, to the knowledge of
Bancshares, such determination letter may still be relied
upon, and each related trust is exempt from taxation under
Section 501(a) of the Internal Revenue Code; (ii) the actu-
arial present value of accumulated plan benefits under each
Pension Plan which is subject to Title IV of ERISA, valued
using the assumptions in the most recent actuarial report,
-39-
did not, in each case, as of the last applicable annual valu-
ation date, exceed the value of the assets of the Pension
Plan allocable to such vested or accrued benefits; (iii) to
the best knowledge of Bancshares, there has been no "prohib-
ited transaction," as such term is defined in Section 4975 of
the Internal Revenue Code or Section 406 of ERISA, which
could subject any Pension Plan or associated trust, or the
Bancshares or any Bancshares Subsidiary, to any material tax
or penalty; (iv) except as set forth on Schedule 2.17C, no
Pension Plan subject to Title IV of ERISA or any trust cre-
ated thereunder has been terminated, nor have there been any
"reportable events" (as that term is defined in Section 4043
of ERISA) with respect to any Pension Plan for which the 30-
day notice requirement has not been waived on or after Janu-
ary 1, 1985; and (v) no Pension Plan or any trust created
thereunder has incurred any "accumulated funding deficiency,"
as such term is defined in Section 302 of ERISA (whether or
not waived). No Pension Plan is a "multiemployer plan" as
that term is defined in Section 3(37) of ERISA or a "multiple
employer pension plan" as described in Section 4063(a) of
ERISA.
(d) Except as set forth on Schedule 2.17D, neither
Bancshares nor any Bancshares Subsidiary has any liability
for any post-retirement health, medical or similar benefit of
-40-
any kind whatsoever, except as required by statute or regula-
tion.
(e) To the knowledge of Bancshares, neither Banc-
shares nor any Bancshares Subsidiary has any material lia-
bility under ERISA or the Internal Revenue Code as a result
of its being a member of a group described in Sections
414(b), (c), (m) or (o) of the Internal Revenue Code.
(f) Except as set forth on Schedule 2.17F, neither
the execution nor delivery of this Agreement, nor the con-
summation of any of the transactions contemplated hereby,
will (i) result in any material payment (including without
limitation severance, unemployment compensation or golden
parachute payment) becoming due to any director or employee
of Bancshares or any Bancshares Subsidiary from any of such
entities, (ii) materially increase any benefit otherwise pay-
able under any of the Bancshares Employee Plans or (iii) re-
xxxx in the acceleration of the time of payment of any such
benefit. No holder of an option to acquire stock of Banc-
shares has or will have at any time through the Effective
Time the right to receive any cash or other payment (other
than the issuance of stock of Bancshares) in exchange for or
with respect to all or any portion of such option. No Banc-
shares Employee Stock Option has an associated "re-load" fea-
ture.
-41-
2.18. Conduct of Bancshares to Date. From and
after January 1, 1996 through the date of this Agreement,
except as set forth on Schedule 2.18 or in Bancshares Xxxxx-
cial Statements or the Bancshares SEC Reports: (i) Banc-
shares and the Bancshares Subsidiaries have conducted their
respective businesses in all material respects in the or-
dinary and usual course consistent with past practices; (ii)
neither Bancshares nor any Bancshares Subsidiary has incurred
any material obligation or liability (absolute or contin-
gent), except normal trade or business obligations or li-
abilities 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 prac-
xxxx; (iii) neither Bancshares nor any Bancshares Subsidiary
has discharged or satisfied any material Lien or paid any
material obligation or liability (absolute or contingent),
other than in the ordinary course of business; (iv) neither
Bancshares nor any Bancshares Subsidiary has sold, assigned,
transferred, leased, exchanged, or otherwise disposed of any
of its material properties or assets other than for a fair
consideration in the ordinary course of business; (v) except
as required by contract or law, neither Bancshares nor any
Bancshares Subsidiary has (A) increased the rate of compensa-
tion of, or paid any bonus to, any of its directors, offic-
ers, or other employees, except merit or promotion increases
-42-
in accordance with existing policy, (B) entered into any new,
or amended or supplemented any existing, employment, manage-
ment, consulting, deferred compensation, severance, or other
similar contract, (C) entered into, terminated, or substan-
tially modified any of the Bancshares Employee Plans or (D)
agreed to do any of the foregoing; (vi) neither Bancshares
nor any Bancshares Subsidiary has suffered any material dam-
age, destruction, or loss, whether as the result of fire,
explosion, earthquake, accident, casualty, labor trouble,
requisition, or taking of property by any Regulatory Author-
ity, flood, windstorm, embargo, riot, act of God or the en-
emy, or other casualty or event, and whether or not covered
by insurance; and (vii) neither Bancshares nor any Bancshares
Subsidiary has cancelled or compromised any debt, except for
debts charged off or compromised in accordance with the past
practice of Bancshares and its Subsidiaries.
2.19. Proxy Statement, etc. None of the informa-
tion regarding Bancshares or any Bancshares Subsidiary sup-
plied or to be supplied by Bancshares for inclusion or in-
cluded in (i) the registration statement on Form S-4 to be
filed with the SEC by Mercantile for the purpose of register-
ing the shares of Mercantile Common Stock to be exchanged for
shares of Bancshares Common Stock pursuant to the provisions
of this Agreement (the "Registration Statement"), (ii) the
proxy statement (the "Joint Proxy Statement") to be mailed to
-43-
stockholders of Mercantile and Bancshares in connection with
the transactions contemplated by this Agreement or (iii) any
other documents to be filed with any Regulatory Authority in
connection with the transactions contemplated hereby will, at
the respective times such documents are filed with any Regu-
latory Authority and, in the case of the Registration State-
ment, when it becomes effective and, with respect to the
Joint Proxy Statement, when mailed, be false or misleading
with respect to any material fact, or omit to state any mate-
rial 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
meetings of stockholders referred to in Section 5.03 (the
"Meetings"), be false or misleading with respect to any mate-
rial fact, or omit to state any material fact necessary to
correct any statement in any earlier communication with re-
spect to the solicitation of any proxy for the Meetings. All
documents which Bancshares or any Bancshares Subsidiary is
responsible for filing with any Regulatory Authority in con-
nection with the Merger will comply as to form in all mate-
rial respects with the provisions of applicable law.
2.20. Registration Obligations. Except as set
forth on Schedule 2.20, neither Bancshares nor any Bancshares
Subsidiary is under any obligation, contingent or otherwise,
to register any of its securities under the Securities Act.
-44-
2.21. State Takeover Statutes. The transactions
contemplated by this Agreement are not subject to any appli-
cable state takeover law under the laws of the State of Mis-
souri or any other state applicable to Bancshares.
2.22. Accounting, Tax and Regulatory Matters.
Neither Bancshares nor any Bancshares Subsidiary has taken or
agreed to take any action or has any knowledge of any fact or
circumstance that would (i) prevent the transactions contem-
plated hereby from qualifying (A) for pooling-of-interests
accounting treatment or (B) as a reorganization within the
meaning of Section 368 of the Internal Revenue Code or (ii)
materially impede or delay receipt of any approval referred
to in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement.
2.23. Brokers and Finders. Except for Xxxxxx
Xxxxxxx & Co. Incorporated, neither Bancshares nor any Banc-
shares Subsidiary nor any of their respective officers, di-
rectors or employees has employed any broker or finder or
incurred any liability for any financial advisory fees, bro-
kerage fees, commissions or finder's fees, and no broker or
finder has acted directly or indirectly for Bancshares or any
Bancshares Subsidiary, in connection with this Agreement or
the transactions contemplated hereby. Schedule 2.23 dis-
closes a bona fide estimate of the aggregate amount of all
-45-
fees and expenses expected to be paid by Bancshares to all
attorneys, accountants or investment bankers in connection
with the Merger ("Merger Fees").
2.24. Other Activities. (a) Except as set forth
on Schedule 2.24A, neither Bancshares nor any of its Subsid-
iaries engages in any insurance activities other than acting
as a principal, agent or broker for insurance that is di-
rectly related to an extension of credit by Bancshares or any
of its Subsidiaries and limited to assuring the repayment of
the balance due on the extension of credit in the event of
the death, disability or involuntary unemployment of the
debtor.
(b) Except as set forth on Schedule 2.24B, to the
knowledge of Bancshares' management: each Bancshares Subsid-
iary that is a bank that performs personal trust, corporate
trust and other fiduciary activities ("Trust Activities") has
done so with requisite authority under applicable law of Reg-
ulatory Authorities and in material accordance with the
agreements and instruments governing such Trust Activities,
sound fiduciary principles and applicable law and regulation;
there is no investigation or inquiry by any governmental en-
tity pending or threatened against Bancshares or any of its
Subsidiaries thereof relating to the compliance by Bancshares
or any of its Subsidiaries with sound fiduciary principles
-46-
and applicable law and regulations; and except when such
failure would not have a material adverse effect on the Con-
dition of Bancshares and the Bancshares Subsidiary, taken as
a whole, each employee of any such bank had the authority to
act in the capacity in which such employee acted with respect
to Trust Activities in each case in which such employee was
held out as a representative of such bank; and such bank has
established policies and procedures for the purpose of com-
plying with applicable laws of governmental entities relating
to Trust Activities, has followed such policies and proce-
dures in all material respects and has performed appropriate
internal audit reviews of Trust Activities, which audits have
disclosed no material violations of applicable laws of gov-
ernmental entities or such policies and procedures.
2.25. Interest Rate Risk Management Instruments.
(a) Set forth on Schedule 2.25A is a list, as of the date
hereof, of all interest rate swaps, caps, floors, and option
agreements and other interest rate risk management arrange-
ments to which Bancshares or any of its Subsidiaries is a
party or by which any of their properties or assets may be
bound.
(b) All interest rate swaps, caps, floors and op-
tion agreements and other interest rate risk management
arrangements to which Bancshares or any of its Subsidiaries
-47-
is a party or by which any of their properties or assets may
be bound were entered into in the ordinary course of business
and, to the knowledge of Bancshares, in accordance with pru-
dent 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 and are in full force
and effect. Bancshares and each of its Subsidiaries has duly
performed in all material respects all of its obligations
thereunder to the extent that such obligations to perform
have accrued, and, to the knowledge of Bancshares, as of the
date hereof, there are no material breaches, violations or
defaults or allegations or assertions of such by any party
thereunder.
2.26. Accuracy of Information. To the knowledge
of Bancshares, the statements of Bancshares contained in this
Agreement, the Schedules and any other written document exe-
cuted and delivered by or on behalf of Bancshares pursuant to
the terms of this Agreement are true and correct in all mate-
rial respects, and such statements and documents do not omit
any material fact necessary to make the statements contained
therein not misleading.
-48-
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF MERCANTILE
Mercantile represents, and warrants to and cov-
enants with Bancshares as follows:
3.01. Organization and Authority. Mercantile is a
corporation and each of its Subsidiaries (each, a "Mercantile
Subsidiary") is a corporation, bank, trust company or other
entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of organization, is duly
qualified to do business and is in good standing in all ju-
risdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and
has corporate power and authority to own its properties and
assets and to carry on its business as it is now being con-
ducted, except where the failure to be so qualified would not
have a material adverse effect on the Condition of Mercantile
and its Subsidiaries, taken as a whole. Mercantile is regis-
tered as a bank holding company with the Board under the
Holding Company Act. True and complete copies of the Ar-
ticles of Incorporation and Bylaws of Mercantile and of
Merger Sub, each in effect on the date of this Agreement,
have been provided to Bancshares.
3.02. Capitalization. The authorized capital
stock of Mercantile consists of (i) 100,000,000 shares of
-00-
Xxxxxxxxxx Xxxxxx Stock, of which, as of September 30, 1996,
63,255,861 shares were issued and outstanding and (ii)
5,000,000 shares of preferred stock, no par value ("Mercan-
tile Preferred Stock"), issuable in series, none of which, as
of September 30, 1996, is 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 the exercise of Pre-
ferred Stock Purchase Rights (the "Rights") under a Rights
Agreement dated May 23, 1988 (the "Mercantile Rights Agree-
ment"), between Mercantile and Mercantile Bank of St. Louis
National Association, as Rights Agent. As of September 30,
1996, Mercantile had reserved (i) 1,166,068 shares of Mercan-
tile Common Stock for issuance under various stock option and
incentive plans ("Mercantile Stock Options"), (ii) 1,177,066
shares of Mercantile Common Stock for issuance upon the ac-
quisition of Today's Bancorp, Inc. ("Today's") pursuant to an
agreement dated Xxxxx 00, 0000, (xxx) 258,783 shares of Mer-
cantile Common Stock for issuance upon the acquisition of
First Financial Corp. of America ("First Financial") pursuant
to an agreement dated July 9, 1996, and (iv) 600,418 shares
of Mercantile Common Stock for issuance upon the acquisition
of Regional Bancshares, Inc. ("Regional") pursuant to an
agreement dated August 22, 1996. From September 30, 1996
through the date of this Agreement, no shares of Mercantile
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Common Stock or other Equity Securities of Mercantile have
been issued excluding any such shares which may have been
issued pursuant to stock-based employee benefit or incentive
plans and programs, or pursuant to the foregoing agreements.
Mercantile continually evaluates possible acquisitions and
may prior to the Effective Time enter into one or more agree-
ments providing for, and may consummate, the acquisition by
it of another bank, association, bank holding company, sav-
ings and loan holding company or other company (or the assets
thereof) for consideration that may include equity securi-
ties. In addition, prior to the Effective Time, Mercantile
may, depending on market conditions and other factors, other-
wise determine to issue equity, equity-linked or other se-
curities for financing purposes. Notwithstanding the fore-
going, Mercantile will not take any action that would (i)
prevent the transactions contemplated hereby from qualifying
(A) for pooling-of-interests accounting treatment or (B) as a
reorganization within the meaning of Section 368 of the In-
ternal Revenue Code or (ii) materially impede or delay re-
ceipt of any approval referred to in Section 6.01(b) or the
consummation of the transactions contemplated by this Agree-
ment. Except as set forth in this Section and except pur-
suant to the Mercantile Rights Agreement, there are no other
Equity Securities of Mercantile outstanding. All of the is-
sued and outstanding shares of Mercantile Common Stock are
-51-
validly issued, fully paid, and nonassessable, and have not
been issued in violation of any preemptive right of any
stockholder of Mercantile. The Mercantile Common Stock to be
issued in the Merger will be, when so issued, duly autho-
rized, validly issued, fully paid and non-assessable, and
will not be issued in violation of any preemptive right of
any stockholder of Mercantile.
3.03. Authorization. (a) Each of Mercantile and
Merger Sub has the corporate power and authority to enter
into this Agreement and to carry out its obligations here-
under. The only stockholder vote required for Mercantile to
approve the Agreement is the affirmative vote of the holders
of at least a majority of the votes cast in connection with
the Agreement by holders of Mercantile Common Stock. The
execution, delivery and performance of this Agreement by Mer-
cantile 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 Mercan-
tile and Merger Sub. This Agreement is a valid and binding
obligation of Mercantile and Merger Sub enforceable against
Mercantile and Merger Sub in accordance with its terms.
(b) Neither the execution, delivery nor perfor-
xxxxx by Mercantile or Merger Sub of this Agreement, nor the
consummation by Mercantile or Merger Sub of the transactions
-52-
contemplated hereby, nor compliance by Mercantile or Merger
Sub with any of the provisions hereof, will (i) violate, con-
flict 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 re-
xxxx in the creation of, any Lien upon any of the material
properties or assets of Mercantile or any Mercantile Subsid-
iary under any of the terms, conditions or provisions of (x)
its articles or certificate of incorporation or bylaws, or
(y) any material note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obli-
gation to which Mercantile or any Mercantile Subsidiary is a
party or by which it may be bound, or to which Mercantile or
any Mercantile Subsidiary or any of the material properties
of Mercantile or any Mercantile Subsidiary may be subject,
other than those as to which any such violation, conflict,
breach, event, termination, acceleration or creation would
not have a material adverse effect on the Condition of Mer-
cantile and the Mercantile Subsidiaries, taken as a whole, or
(ii) subject to compliance with the statutes and regulations
referred to in paragraph (c) of this Section 3.03, to the
best knowledge of Mercantile, violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation
-53-
applicable to Mercantile or any of its Subsidiaries or any of
their respective material properties or assets.
(c) Other than in connection with or in compliance
with the provisions of Missouri Act, the Securities Act, the
Exchange Act, the Investment Company Act, the securities or
blue sky laws of the various states or filings, consents,
reviews, authorizations, approvals or exemptions required
under the Holding Company Act, and the HSR Act, or any re-
quired approvals of the Federal Reserve Board or the State
Bank Regulators or filings required with respect to any
Transfer Taxes described in Section 5.18, no notice to, fil-
ing with, exemption or review by, or authorization, consent
or approval of, any public body or authority is necessary for
the consummation by Mercantile of the transactions contem-
plated by this Agreement.
3.04. Mercantile Financial Statements. The supp-
lemental consolidated and parent company only balance sheets
of Mercantile and its Subsidiaries as of December 31, 1995,
1994 and 1993 and related supplemental consolidated and
parent company only statements of income, cash flows and
changes in shareholders' equity for each of the three years
in the three-year period ended December 31, 1995, together
-54-
with the notes thereto, audited by KPMG Peat Marwick ("Mer-
cantile Auditors") and included in Mercantile's current re-
port on Form 8-K dated March 11, 1996 as filed with the SEC,
and the unaudited consolidated balance sheets of Mercantile
and its Subsidiaries as of March 31 and June 30, 1996 and the
related unaudited consolidated statements of income and cash
flows for the periods then ended included in quarterly re-
ports on Form 10-Q as filed with the SEC (collectively, the
"Mercantile Financial Statements"), have been prepared in
accordance with GAAP, present fairly the consolidated xxxxx-
cial position of Mercantile and its Subsidiaries at the dates
and the consolidated results of operations, changes in stock-
holders' equity and cash flows of Mercantile and its Subsid-
iaries 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 all material respects in accordance
with applicable laws and regulations. Neither Mercantile nor
any of its Subsidiaries has any contingent liabilities that
are material either individually, or in the aggregate, to
Mercantile and its Subsidiaries, taken as a whole, other than
those reflected in the Mercantile Financial Statements or
disclosed in the footnotes thereto, in the Mercantile SEC
Reports (as hereinafter defined) or arising pursuant to
agreements in the ordinary course of business.
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3.05. Mercantile Reports. Since January 1, 1993,
each of Mercantile and the Mercantile Subsidiaries has filed
all material reports, registrations and statements, together
with any required material amendments thereto, that it was
required to file with any Regulatory Authority. All such
reports and statements filed with the SEC are collectively
referred to herein as "Mercantile SEC Reports" and all such
reports and statements filed with any such Regulatory Author-
ity 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 re-
gulations promulgated by the applicable Regulatory Authority
and did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated there-
in or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading.
3.06. Material Adverse Change. Since December 31,
1995, there has been no material adverse change in the Con-
dition of Mercantile and its Subsidiaries, taken as a whole,
except (i) as may have resulted or may result from changes to
-56-
laws and regulations or changes in economic conditions ap-
plicable to banking institutions generally or in general lev-
els of interest rates affecting banking institutions gen-
erally and (ii) the costs incurred or to be incurred by Mer-
cantile in connection with this Agreement, including costs
incurred for investment banking, accounting and legal ser-
vices.
3.07. Compliance with Laws. (a) Each of Mercan-
tile and its Subsidiaries has complied with all laws, regula-
tions, and orders (including without limitation zoning ordi-
nances, building codes, ERISA, and securities, tax, environ-
mental, civil rights, and occupational health and safety laws
and regulations and including without limitation in the case
of any Mercantile Subsidiary that is a bank, banking organi-
zation, thrift, banking corporation or trust company, all
statutes, rules, regulations and policy statements pertaining
to the conduct of a banking, deposit-taking or lending or
related business or to the exercise of trust powers) and gov-
erning instruments applicable to them and to the conduct of
their business, except where such failure to comply would not
have a material adverse effect on the Condition of Mercantile
and its Subsidiaries, taken as a whole, and (ii) neither Mer-
cantile nor any Mercantile Subsidiary is in default under,
and no event has occurred which, with the lapse of time or
notice or both, could result in the default under, the terms
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of any judgment, order, writ, decree, permit, or license of
any Regulatory Authority or court, whether federal, state,
municipal, or local and whether at law or in equity, except
where such default would not have a material adverse effect
on the Condition of Mercantile and its Subsidiaries, taken as
a whole. Neither Mercantile nor any Mercantile Subsidiary is
subject to or reasonably likely to incur a liability as a
result of its ownership, operation, or use of any Property of
Mercantile (whether directly or, to the best knowledge of
Mercantile, as a consequence of such Property being part of
the investment portfolio of Mercantile or any Mercantile Sub-
sidiary) (A) that is contaminated by or contains any Toxic
Substance, or (B) on which any Toxic Substance has been
stored, disposed of, placed, or used in the construction
thereof; and which, in each case, reasonably could be ex-
pected to have a material adverse effect on the Condition of
Mercantile and its Subsidiaries, taken as a whole. Except
for statutory or regulatory restrictions of general applica-
tion, no Regulatory Authority has placed any restriction on
the business of Mercantile or any Mercantile Subsidiary which
reasonably could be expected to have a material adverse ef-
fect on the Condition of Mercantile and its Subsidiaries,
taken as a whole. As of the date of this Agreement, no
claim, action, suit, or proceeding is pending against Mer-
cantile or any Mercantile Subsidiary relating to Property of
-58-
Mercantile before any court or other Regulatory Authority or
arbitration tribunal relating to hazardous substances, pollu-
tion, or the environment, and there is no outstanding judg-
ment, order, writ, injunction, decree, or award against or
affecting Mercantile or any Mercantile Subsidiary with re-
spect to the same.
(b) Mercantile and each of its Subsidiaries have
all permits, licenses, authorizations, orders and approvals
of, and have made all filings, applications and registrations
with, all Regulatory Authorities that are required in order
to permit them to own or lease their properties and assets
and to carry on their business as presently conducted, except
where the failure to so have or make would not have a mate-
rial adverse effect on the Condition of Mercantile and its
Subsidiaries, taken as a whole; all such permits, licenses,
certificates of authority, orders and approvals are in full
force and effect and, to the best knowledge of Mercantile, no
suspension or cancellation of any of them is threatened; and
all such filings, applications and registrations are current.
(c) From and after January 1, 1993, neither Mer-
cantile nor any Mercantile Subsidiary has received any noti-
fication or communication which has not been resolved from
any Regulatory Authority (i) asserting that any Mercantile or
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any Subsidiary of Mercantile, is not in substantial compli-
ance with any of the statutes, regulations or ordinances that
such Regulatory Authority enforces, except with respect to
matters which (A) are set forth on Schedule 3.07C or in any
writing previously furnished to Bancshares or (B) reasonably
could not be expected to have a material adverse effect on
the Condition of Mercantile and its Subsidiaries, taken as a
whole, (ii) threatening to revoke any license, franchise,
permit or governmental authorization that is material to the
Condition of Mercantile and its Subsidiaries, taken as a
whole, including without limitation such company's status as
an insured depositary institution under the Federal Deposit
Insurance Act, or (iii) requiring or threatening to require
Mercantile or any of its Subsidiaries, or indicating that
Mercantile or any of its Subsidiaries may be required, to
enter into a cease and desist order, agreement or memorandum
of understanding or any other agreement restricting or limit-
ing or purporting to direct, restrict or limit in any mate-
rial manner the operations of Mercantile or any of its Sub-
sidiaries, 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.
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(d) Neither Mercantile nor any Mercantile Subsid-
iary is required by Section 32 of the Federal Deposit Insur-
ance 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 ex-
ecutive officer.
3.08. Registration Statement, etc. None of the in-
formation regarding Mercantile or any of its Subsidiaries sup-
plied or to be supplied by Mercantile for inclusion or included
in (i) the Registration Statement, (ii) the Proxy Statement, or
(iii) any other documents to be filed with any Regulatory Au-
thority 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 (or furnished to stockholders of
Bancshares), be false or misleading with respect to any mate-
rial fact, or omit to state any material fact necessary in or-
der to make the statements therein not misleading or, in the
case of the Proxy Statement or any amendment thereof or supple-
ment thereto, at the time of the Meeting, be false or mislead-
ing 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
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the Meeting. All documents which Mercantile or any of its Sub-
sidiaries are responsible for filing with any Regulatory Au-
thority 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. Except for UBS Secu-
rities Inc., neither Mercantile nor any of its Subsidiaries
nor any of their respective officers, directors or employees
has employed any broker or finder or incurred any liability
for any financial advisory fees, brokerage fees, commissions
or finder's fees, and no broker or finder has acted directly
or indirectly for Mercantile or any of its Subsidiaries, in
connection with this Agreement or the transactions contem-
plated hereby.
3.10. Commitments and Contracts. Neither Mercan-
tile nor any Mercantile Subsidiary is in violation of its
charter documents or bylaws or in default under any material
agreement, commitment, arrangement, lease, insurance policy,
or other instrument, whether entered into in the ordinary
course of business or otherwise and whether written or oral,
and there has not occurred any event that, with the lapse of
time or giving of notice or both, would constitute such a
default, except, in all cases, where such default would not
have a material adverse effect on the Condition of Mercantile
and its Subsidiaries, taken as a whole.
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3.11. Litigation and Other Proceedings. Neither
Mercantile nor any Mercantile Subsidiary is a party to any
pending or, to the best knowledge of Mercantile, threatened
claim, action, suit, investigation or proceeding, or is sub-
ject to any order, judgment or decree, except for matters
which, in the aggregate, will not have, or reasonably could
not be expected to have, a material adverse effect on the
Condition of Mercantile and its Subsidiaries, taken as a
whole. Without limiting the generality of the foregoing, as
of the date of this Agreement, there are no actions, suits,
or proceedings pending or, to the best knowledge of Mercan-
tile, threatened against Mercantile or any Mercantile Subsid-
iary or any of their respective officers or directors by any
stockholder of Mercantile or any Mercantile Subsidiary (or
any former stockholder of Mercantile or any Mercantile Sub-
sidiary) or involving claims under the Securities Act, the
Exchange Act, the Community Reinvestment Act of 1977, as
amended, or the fair lending laws or which purport or seek to
enjoin or restrain the transactions contemplated by this
Agreement.
3.12. Interest Rate Risk Management Instruments.
All interest rate swaps, caps, floors and option agreements
and other interest rate risk management arrangements to which
Mercantile or any of its Subsidiaries is a party or by which
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any of their properties or assets may be bound were entered
into in the ordinary course of business and, to the knowledge
of Mercantile, in accordance with prudent banking practice
and applicable rules, regulations and policies of Regulatory
Authorities and with counterparties believed to be xxxxx-
cially responsible at the time and are legal, valid and bind-
ing obligations and are in full force and effect. Mercantile
and each of its Subsidiaries has duly performed in all mate-
rial respects all of its obligations thereunder to the extent
that such obligations to perform have accrued, and, to the
knowledge of Mercantile, as of the date hereof, there are no
material breaches, violations or defaults or allegations or
assertions of such by any party thereunder.
3.13. Taxes. Mercantile and each Mercantile Subsid-
iary have timely filed or will timely file (including exten-
sions) all material tax returns required to be filed at or
prior to the Closing Date except where failures to so timely
file would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the Condition of
Mercantile and the Mercantile Subsidiaries, taken as a whole
("Mercantile Returns"). Each of Mercantile and its Subsid-
iaries has paid, or set up adequate reserves on the Mercantile
Financial Statements for the payment of, all taxes required to
be paid in respect of the periods covered by the Mercantile
Financial Statements and has paid or set up adequate reserves
-64-
on the most recent financial statements Mercantile has filed
under the Exchange Act for the payment of, all taxes antici-
pated to be payable in respect of the periods covered by such
financial statements, in each case except where failures to so
pay or set up adequate reserves would not, individually or in
the aggregate, reasonably be expected to have a material ad-
verse effect on the Condition of Mercantile and the Mercantile
Subsidiaries, taken as a whole. No material deficiencies for
any tax, assessment or governmental charge have been proposed,
asserted or assessed in writing by any governmental or taxing
authority against any of Mercantile or any Mercantile Subsid-
iary which have not been settled or would not be covered by
existing reserves. Neither Mercantile nor any Mercantile Sub-
sidiary is delinquent in the payment of any material tax, as-
sessment or governmental charge shown to be due on any Mercan-
tile Return (taking into account extensions properly obtained),
and no waiver of the time to assess any tax granted in writing
by Mercantile or any Mercantile Subsidiary is pending. The
federal and state income tax returns of Mercantile and the Mer-
cantile Subsidiaries have been audited and settled by the IRS
or appropriate state tax authorities for all periods ended
through December 31, 1992, or the period for assessment of
taxes in respect of such periods has expired. To the best
knowledge of Mercantile, the representations set forth in the
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Mercantile Tax Certificate attached as Exhibit E to this Agree-
ment, if made on the date hereof (assuming the Merger was con-
summated on the date hereof), would be true and correct.
3.14. Accounting, Tax and Regulatory Matters. Nei-
ther Mercantile nor any Mercantile Subsidiary has taken or
agreed to take any action or has any knowledge of any fact or
circumstance that would (i) prevent the transactions contem-
plated hereby from qualifying (A) for pooling-of-interests ac-
counting treatment or (B) as a reorganization within the mean-
ing of Section 368 of the Internal Revenue Code or (ii) materi-
ally impede or delay receipt of any approval referred to in
Section 6.01(b) or the consummation of the transactions con-
templated by this Agreement.
3.15. Accuracy of Information. To the knowledge of
Mercantile, the statements of Mercantile contained in this
Agreement, the Schedules and in any other written document ex-
ecuted and delivered by or on behalf of Mercantile pursuant to
the terms of this Agreement are true and correct in all mate-
rial respects, and such statements and documents do not omit
any material fact necessary to make the statements contained
herein or therein not misleading.
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3.16. Labor. No work stoppage involving Mercantile
or any Mercantile Subsidiary, is pending or, to the best knowl-
edge of Mercantile, threatened which reasonably could be ex-
pected to have a material adverse effect on the Condition of
Mercantile and its Subsidiaries, taken as a whole. Neither
Mercantile nor any Mercantile Subsidiary is involved in, or, to
the best knowledge of Mercantile, threatened with or affected
by, any labor dispute, arbitration, law suit or administration
proceeding which reasonably could be expected to have a mate-
rial adverse effect on the Condition of Mercantile and its Sub-
sidiaries, taken as a whole.
ARTICLE IV
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.01. Conduct of Businesses Prior to the Effective
Time. During the period from the date of this Agreement to
the Effective Time, each of Mercantile and Bancshares shall,
and shall cause each of their respective Subsidiaries to,
conduct its business according to the ordinary and usual
course consistent with past practices and shall, and shall
cause each such Subsidiary to, use its best efforts to main-
tain and preserve its business organization, employees and
advantageous business relationships and retain the services
of its officers and key employees.
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4.02. Forbearances. Except to the extent required
by law, regulation or Regulatory Authority, or as set forth
on Schedule 4.02 or as otherwise contemplated by this Agree-
ment, during the period from the date of this Agreement to
the Effective Time, Bancshares shall not and shall not permit
any of its Subsidiaries to, without the prior written consent
of Mercantile:
(a) declare, set aside or pay any dividends or
other distributions, directly or indirectly, in respect
of its capital stock (other than dividends from a Sub-
sidiary of Bancshares to Bancshares or another Subsid-
iary of Bancshares), except that Bancshares may declare
and pay cash dividends on the Bancshares Common Stock of
not more than $.35 per share per quarterly period; pro-
vided, that Bancshares shall not declare or pay any div-
idends on Bancshares Common Stock for any period in
which its stockholders will be entitled to receive any
regular quarterly dividend on the shares of Mercantile
Common Stock to be issued in the Merger; or,
(b) enter into or amend any employment, severance
or similar agreement or arrangement with any director or
officer or employee, or materially modify any of the
Bancshares Employee Plans or grant any salary or wage
increase or materially increase any employee benefit
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(including incentive or bonus payments), except hiring
employees in the ordinary course of business and normal
individual increases in compensation to employees con-
sistent with past practice, or as required by law or
contract; or,
(c) authorize, recommend (subject to the fiduciary
duties of Bancshares' Board of Directors as advised in
writing by outside counsel to Bancshares), propose or
announce an intention to authorize, so recommend or pro-
pose, or enter into an agreement in principle with re-
spect to, any merger, consolidation or business combina-
tion (other than the Merger), any acquisition of a mate-
rial amount of assets or securities, any disposition of
a material amount of assets or securities or any release
or relinquishment of any material contract rights; or
(d) propose or adopt any amendments to its ar-
ticles of incorporation, association or other charter
document or bylaws; or
(e) issue, sell, grant, confer or award any of its
Equity Securities (except that Bancshares may (i) grant
options for up to 250,000 shares of Bancshares Common
Stock under its existing stock option plans consistent
with its normal compensation practices, (ii) issue
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shares of Bancshares Common Stock upon exercise of Banc-
shares Stock Options outstanding on the date of this
Agreement or granted in compliance with this clause (e),
(iii) issue shares of Bancshares Common Stock upon the
conversion of the Bancshares Convertible Notes or as
contemplated by the Bancshares' Savings Challenge Plan,
and (iv) issue shares of Bancshares Common Stock pursu-
ant to the First City Acquisition Agreement and except
that Bancshares Subsidiaries may issue director qualify-
ing shares subject to repurchase agreements in accor-
dance with present practice) or effect any stock split
or adjust, combine, reclassify or otherwise change its
capitalization as it existed on the date of this Agree-
ment; or
(f) purchase, redeem, retire, repurchase, or ex-
change, or otherwise acquire or dispose of, directly or
indirectly, any of its Equity Securities, whether pur-
suant to the terms of such Equity Securities or other-
wise other than director qualifying shares; or
(g) (i) without first consulting with Mercantile,
enter into, renew or increase any loan or credit commit-
ment (including stand-by letters of credit) to, or in-
vest or agree to invest in any person or entity or modi-
fy any of the material provisions or renew or otherwise
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extend the maturity date of any existing loan or credit
commitment (collectively, "Lend to") in an amount that,
which under the credit policies and procedures of Banc-
shares and/or Banks in effect as of the date hereof,
would be referred to the executive loan committee(s) of
Bancshares and/or Banks as constituted and existing as
of the date of this Agreement; (ii) without first ob-
taining the written consent of Mercantile, lend to any
person or entity in an amount in excess of $16,000,000
or in an amount which, when aggregated with any and all
loans or credit commitments to such person or entity,
would be in excess of $16,000,000; or (iii) Lend to any
person other than in accordance with lending policies as
in effect on the date hereof; provided that in the case
of clauses (ii) and (iii) Bancshares or any Bancshares
Subsidiary may make any such loan in the event (A) Banc-
shares or any Bancshares Subsidiary has delivered to
Mercantile or its designated representative a notice of
its intention to make such loan and such information as
Mercantile or its designated representative may reason-
ably require in respect thereof and (B) Mercantile or
its designated representative shall not have reasonably
objected to such loan by giving written or facsimile
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notice of such objection within two business days fol-
lowing the delivery to Mercantile of the notice of in-
tention and information as aforesaid; provided, however,
that nothing in this paragraph shall prohibit Bancshares
or any Bancshares Subsidiary from honoring any contrac-
tual obligation in existence on the date of this Agree-
ment. For purposes of clause (i) of this Section, the
requirement of Bancshares to consult with Mercantile
shall be deemed to include the requirement of Bancshares
and/or the Banks to provide to designated representa-
tives of Mercantile copies of all information of the
type and nature provided to such executive loan
committee(s) in respect of each loan or credit commit-
ment referred to such committee(s) and the requirement
that such designated representatives of Mercantile be
invited to attend the meetings of such executive loan
committee(s) at which presentations shall be made in
respect of such referred loans and/or credit commit-
ments; or
(h) directly or indirectly (including through its
officers, directors, employees or other representatives)
initiate, solicit or encourage any discussions, inquir-
ies or proposals with any third party relating to the
disposition of any significant portion of the business
or assets of Bancshares or any Bancshares Subsidiary or
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the acquisition of Equity Securities of Bancshares or
any Bancshares Subsidiary or the merger of Bancshares or
any Bancshares Subsidiary with any person (other than
Mercantile) or any similar transaction (each such trans-
action being referred to herein as an "Acquisition
Transaction"), or provide any such person with informa-
tion or assistance or negotiate with any such person
with respect to an Acquisition Transaction, and Banc-
shares shall promptly notify Mercantile orally of all
the relevant details relating to all inquiries, indica-
tions of interest and proposals which it may receive
with respect to any Acquisition Transaction; or
(i) take any action that would (A) materially impede
or delay the consummation of the transactions contemplated
by this Agreement or the ability of Mercantile or Banc-
shares to obtain any approval of any Regulatory Authority
required for the transactions contemplated by this Agree-
ment or to perform its covenants and agreements under this
Agreement or (B) prevent the transactions contemplated
hereby from qualifying as a reorganization within the
meaning of Section 368 of the Internal Revenue Code; or
(j) other than in the ordinary course of business
consistent with past practice, incur any indebtedness for
borrowed money, assume, guarantee, endorse or otherwise as
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an accommodation become responsible or liable for the ob-
ligations of any other individual, corporation or other
entity, or, without prior approval of Mercantile, which
shall not be unreasonably withheld, pay any Merger Fees in
excess of the amount set forth on Schedule 2.23; or
(k) materially restructure or materially change its
investment securities portfolio, through purchases, sales
or otherwise, or the manner in which the portfolio is
classified or reported, or execute any individual invest-
ment transaction for its own account (i) in securities
backed by the full faith and credit of the United States
or an agency thereof in excess of $5,000,000 and (ii) in
any other investment securities in excess of $1,000,000;
or
(l) agree in writing or otherwise to take any of
the foregoing actions or engage in any activity, enter
into any transaction or take or omit to take any other
act which would make any of the representations and war-
ranties in Article II of this Agreement untrue or incor-
rect in any material respect if made anew after engaging
in such activity, entering into such transaction, or
taking or omitting such other act.
4.03. Forbearances of Mercantile. Except to the
extent required by law, regulation or Regulatory Authority,
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or with the prior written consent of Bancshares, during the
period from the date of this Agreement to the Effective Time,
Mercantile shall not and shall not permit any of the Mercan-
tile 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 Mercantile Subsidiaries to Mercan-
tile or to another of the Mercantile Subsidiaries),
except that Mercantile may pay its regular quar-
terly dividends in amounts as it shall determine
from time to time;
(b) take any action that would (A) materially
impede or delay the consummation of the transac-
tions contemplated by this Agreement or the ability
of Bancshares or Mercantile to obtain any approval
of any Regulatory Authority required for the trans-
actions contemplated by this Agreement or to per-
form its covenants and agreements under this Agree-
ment or (B) prevent the transactions contemplated
hereby from qualifying as a reorganization within
the meaning of Section 368 of the Code; or
(c) agree in writing or otherwise to take any
of the foregoing actions or engage in any activity,
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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
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. Mercantile and its
Subsidiaries, on the one hand, and Bancshares and its Subsid-
iaries, on the other hand, shall each afford to each other,
and to the other's accountants, counsel and other representa-
tives, 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 require-
ments of federal and state securities laws and (ii) all other
information concerning its business, properties and personnel
as such other party may reasonably request. Each party
hereto shall, and shall cause its advisors and representa-
tives to, (A) hold confidential all information obtained in
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connection with any transaction contemplated hereby with re-
spect to the other party which is not otherwise public knowl-
edge, (B) return all documents (including copies thereof)
obtained hereunder from the other party to such other party
and (C) use its best efforts to cause all information ob-
tained 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 in-
formation unless such information becomes generally available
to the public.
5.02. Registration Statement; Regulatory Matters.
(a) Mercantile shall prepare and, subject to the review and
consent of Bancshares with respect to matters relating to Banc-
shares, file with the SEC as soon as is reasonably practicable,
but in no event later than 45 days from the date hereof, the
Registration Statement (or the equivalent in the form of pre-
liminary proxy material) with respect to the shares of Mer-
cantile Common Stock to be issued in the Merger and the exer-
cise of Bancshares Stock Options after the Effective Time.
Mercantile shall prepare and file an application with the Fed-
eral Reserve Board as soon as reasonably practicable but in no
event later than 45 days from the date hereof. Mercantile
shall use all reasonable efforts to cause the Registration
Statement to become effective as soon as reasonably practi-
cable. Mercantile shall also take any action required to be
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taken under any applicable state blue sky or securities laws in
connection with the issuance of such shares and the exercise of
such options, and Bancshares and its Subsidiaries shall furnish
Mercantile all information concerning Bancshares and its Sub-
sidiaries and the stockholders thereof as Mercantile may rea-
sonably request in connection with any such action. Mercantile
shall use its best efforts to cause the shares of Mercantile
Common Stock to be issued in the Merger to be approved for
listing on the New York Stock Exchange, subject to official
notice of issuance, prior to the Effective Time.
(b) Bancshares and Mercantile shall cooperate and
use their respective best efforts to prepare all documenta-
tion, to effect all filings and to obtain all permits, con-
sents, approvals and authorizations of all third parties and
Regulatory Authorities necessary to consummate the transac-
tions contemplated by this Agreement and, as and if directed
by Mercantile, to consummate such other mergers, consolida-
tions or asset transfers or other transactions by and among
Mercantile's Subsidiaries and Bancshares' Subsidiaries con-
currently with or following the Effective Time, provided,
however, that the foregoing shall not (A) alter or change the
Merger Consideration, (B) adversely affect the tax treatment
to Bancshares' stockholders as a result of receiving the
Merger Consideration or (C) materially impede or delay re-
ceipt of any approval referred to in Section 6.01(b) or the
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consummation of the transactions contemplated by this Agree-
ment.
5.03. Stockholder Approval. Each party shall call
a meeting of its stockholders to be held as soon as practi-
cable for the purpose of voting upon the Merger or take other
action for stockholders to authorize the Merger. In connec-
tion therewith, Mercantile shall prepare the Joint Proxy
Statement, subject to the review and consent of Bancshares
and, with the approval of each of Mercantile and Bancshares,
the Joint Proxy Statement shall be filed with the SEC and
mailed to the stockholders of each party. The board of di-
rectors of each party shall submit for approval of its stock-
holders the matters to be voted upon in order to authorize
the Merger. The board of directors of each party hereby does
and (subject to the fiduciary duties of Bancshares' and
Mercantile's Boards of Directors, as advised by outside coun-
sel) will recommend approval of the matters to be voted upon
in order to authorize the Merger and the other transactions
contemplated hereby to stockholders of such party and will
use its best efforts to obtain any vote of its stockholders
that is necessary to authorize the Merger and to consummate
the transactions contemplated hereby.
5.04. Current Information. During the period from
the date of this Agreement to the Effective Time, each party
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shall promptly furnish the other with copies of all monthly
and other interim financial information or reports as the
same become available and shall cause one or more of its des-
ignated representatives to confer on a regular and frequent
basis with representatives of the other party. Each party
shall promptly notify the other party of any material change
in its business or operations and of any material governmen-
tal complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the insti-
tution or the threat of material litigation involving such
party, and shall keep the other party fully informed of such
events.
5.05. Agreements of Affiliates; Publication of
Combined Financial Results. (a) As soon as practicable af-
ter the date of this Agreement, Bancshares shall deliver to
Mercantile a letter identifying all persons whom Bancshares
believes to be, at the time this Agreement is submitted to a
vote of the stockholders of Bancshares, "affiliates" of Banc-
shares for purposes of Rule 145 under the Securities Act.
Bancshares shall use its best efforts to cause each person
who is so identified as an "affiliate" to deliver to Mercan-
tile as soon as practicable thereafter, a written agreement
in the form attached hereto as Exhibit C relating to compli-
ance with the applicable provisions of the Securities Act.
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Prior to the Effective Time, Bancshares shall amend and supp-
lement such letter and use its best efforts to cause each ad-
ditional person who is identified as an "affiliate" to ex-
ecute a written agreement as set forth in this Section 5.05.
(b) Mercantile shall use its best efforts to pub-
lish as promptly as reasonably practical, but in no event
later than 90 days after the end of the first month after the
Effective Time in which there are at least 30 days of post-
Merger combined operations, combined sales and net income
figures as contemplated by and in accordance with the terms
of SEC Accounting Series Release No. 135.
5.06. Expenses. Each party hereto shall bear its
own expenses incident to preparing, entering into and carry-
ing out this Agreement and to consummating the Merger.
5.07. Miscellaneous Agreements and Consents. (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
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ability of the parties to consummate the transactions con-
templated hereby. Each party shall, and shall cause each of
its respective subsidiaries to, use its reasonable efforts to
obtain consents of Regulatory Authorities that are, in the
opinion of Mercantile, desirable for the consummation of the
transactions contemplated by this Agreement.
(b) Subject to applicable laws, regulations and
requirements of Regulatory Authorities, Bancshares, prior to
the Effective Time, shall (i) consult and cooperate with Mer-
cantile regarding the implementation of those policies and
procedures established by Mercantile for its governance and
that of its Subsidiaries and not otherwise referenced in Sec-
tion 5.16 hereof, including, without limitation, policies and
procedures pertaining to the accounting, asset/liability man-
agement, audit, credit, human resources, treasury and legal
functions, and (ii) at the request of Mercantile, conform
Bancshares' existing policies and procedures in respect of
such matters to Mercantile's policies and procedures or, in
the absence of any existing Bancshares policy or procedure
regarding any such function, introduce Mercantile's policies
or procedures in respect thereof, unless to do so would cause
Bancshares or any of the Bancshares Subsidiaries to be in
violation of any law, rule or regulation of any Regulatory
Authority having jurisdiction over Bancshares and/or the
Bancshares Subsidiary affected thereby; provided, however,
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that prior to the date that it shall be a requirement
hereunder for such policies and procedures to be established,
Mercantile shall certify to Bancshares that Mercantile's rep-
resentations and warranties are true and correct as of such
date, that the approval conditions to its obligations
contemplated by Section 6.01(b) have been satisfied or waived
(except to the extent that any waiting period associated
therewith may then have commenced but not expired) and that
Mercantile is otherwise in compliance with this Agreement;
and provided, further, that Bancshares shall not be required
to take any such action that is not consistent with GAAP and
regulatory accounting principles.
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5.08. Employee Benefits. (a) The Bancshares Em-
ployee Plans shall not be terminated by reason of the Merger
but shall continue thereafter as plans of the Surviving Cor-
poration until such time as the employees of Bancshares and
the Bancshares Subsidiaries are integrated into Mercantile's
employee benefit plans that are available to other employees
of Mercantile and Mercantile Subsidiaries, subject to the
terms and conditions specified in such plans and to such
changes therein as may be necessary to reflect the consumma-
tion of the Merger. Mercantile shall take such steps as are
necessary or required to integrate the employees of Banc-
shares and the Bancshares Subsidiaries in Mercantile's em-
ployee benefit plans available to other employees of Mer-
cantile and Mercantile Subsidiaries as soon as practicable
after the Effective Time, (i) with full credit for prior ser-
vice with Bancshares or any of the Bancshares Subsidiaries
for all purposes other than determining the amount of benefit
accruals under any defined benefit plan, (ii) without any
waiting periods, evidence of insurability, or application of
any pre-existing condition limitations, and (iii) with full
credit for claims arising prior to the Effective Time for
purposes of deductibles, out-of-pocket maximums, benefit max-
imums, and all other similar limitations for the applicable
plan year during which the Merger is consummated. Each of
Mercantile and Bancshares shall use all reasonable efforts to
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insure that no amounts paid or payable by Bancshares, Banc-
shares Subsidiaries or Mercantile to or with respect to any
employee or former employee of Bancshares or any Bancshares
Subsidiary will fail to be deductible for federal income tax
purposes by reason of Section 280G of the Internal Revenue
Code. Bancshares shall ensure that following the Effective
Time no holder of Bancshares Employee Stock Options or any
participant in any Bancshares Stock Plan shall have any right
thereunder to acquire any securities of Bancshares or any
Bancshares Subsidiary.
(b) Mercantile agrees that the following prin-
ciples shall apply for purposes of determining bonuses for
1997 under Bancshares' executive performance incentive plan
as and to the extent adopted by Bancshares' Board of Direc-
tors, in its sole discretion, prior to the Effective Time:
(1) all employees of Bancshares and the Bancshares Subsidiar-
ies at the Effective Time who, at such time, are covered by
such plan (other than employees whose employment is termi-
nated (i) by Bancshares for any reason prior to the Effective
Time, or (ii) voluntarily by the employee or (iii) involun-
tarily for cause on or prior to the end of the calendar year
in which the Merger is consummated) shall be eligible to re-
ceive a pro rata portion of such bonuses; (2) whether any
bonuses are payable under such plan and, if so, the amount
thereof shall be determined as if the Merger had not occurred
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and Bancshares had remained an independent, publicly-owned
company through the calendar year in which the Merger is con-
summated, taking into account, to the extent reasonably ap-
plicable, action that could have been taken but for the limi-
tations imposed by Section 4.02; provided, that the aggregate
amount of bonuses paid for 1997 to such employees of Banc-
shares and its Subsidiaries shall not be in excess of
$2,850,000; and (3) any bonuses payable pursuant to clause
(2) above shall be paid as soon as practicable after the end
of the calendar year in which the Merger is consummated and
in any event no later than March 31, 1998. The pro rata por-
tion of an employee's bonus shall be the amount determined
pursuant to the preceding sentence multiplied by a fraction,
the numerator of which shall be the number of days during the
calendar year for which such employee was employed by Banc-
shares or a Bancshares Subsidiary or Mercantile or a Mercan-
tile Subsidiary and the denominator of which shall be 365.
Prior to the Effective Time, the Compensation Committee of
Bancshares' Board of Directors may, with Mercantile's ap-
proval, amend such plan and take other actions thereunder to
effectuate the foregoing principles. This paragraph (b)
shall not apply to any annual bonus payable pursuant to a
written employment or termination agreement in effect on the
date hereof.
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5.09. Bancshares Stock Options. At the Effective
Time, all rights with respect to Bancshares Common Stock pursu-
ant to Bancshares Stock Options that are outstanding at the
Effective Time, whether or not then exercisable, shall be con-
verted into and become rights with respect to Mercantile Common
Stock, and Mercantile shall assume each Bancshares Stock Option
in accordance with the terms of the stock option plan under
which it was issued and the stock option agreement by which it
is evidenced. From and after the Effective Time, (i) each
Bancshares Stock Option assumed by Mercantile shall be exer-
cised solely for shares of Mercantile Common Stock, (ii) the
number of shares of Mercantile Common Stock subject to each
Bancshares Stock Option shall be equal to the number of shares
of Bancshares Common Stock subject to such Bancshares Stock
Option immediately prior to the Effective Time multiplied by
the Exchange Ratio and (iii) the per share exercise price under
each Bancshares Stock Option shall be adjusted by dividing the
per share exercise price under such Bancshares Stock Option by
the Exchange Ratio and rounding to the nearest cent; provided,
however, that the terms of each Bancshares Stock Option shall,
in accordance with its terms, be subject to further adjustment
as appropriate to reflect any stock split, stock dividend, re-
capitalization or other similar transaction subsequent to the
Effective Time. It is intended that the foregoing assumption
shall be undertaken in a manner that will not constitute a
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"modification" as defined in the Internal Revenue Code, as to
any Bancshares Stock Option that is an "incentive stock op-
tion." Mercantile acknowledges that the consummation of the
Merger will constitute an "acceleration event" as such term is
defined in the Bancshares Stock Options plans and agreements.
5.10. Press Releases. Except as may be required
by law, Bancshares and Mercantile shall consult and agree
with each other as to the form and substance of any proposed
press release relating to this Agreement or any of the trans-
actions contemplated hereby.
5.11. State Takeover Statutes. Each party will
take all steps necessary to exempt the transactions contem-
plated by this Agreement and any agreement contemplated here-
by from, and if necessary challenge the validity of, any app-
licable state takeover law.
5.12. D&O Indemnification. From and after the
Effective Time, Mercantile agrees to indemnify and hold harm-
less the past and present employees, agents, directors or
officers of Bancshares or its Subsidiaries for all acts or
omissions occurring at or prior to the Effective Time to the
same extent such persons are indemnified and held harmless
(1) under their respective Articles of Incorporation or By-
laws of Bancshares and its Subsidiaries in the form in effect
at the date of this Agreement, (ii) by operation of law, or
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(iii) by virtue of any contract, resolution or other agree-
ment 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) other-
wise survive and continue in full force and effect. Mercan-
tile will provide, or cause to be provided, for a period of
not less than six years from the Effective Time, an insurance
and indemnification policy that provides the officers and
directors of Bancshares and its Subsidiaries immediately
prior to the Effective Time coverage no less favorable than
as currently provided by Mercantile to its officers and
directors.
5.13. Best Efforts. Each of Mercantile and Banc-
shares undertakes and agrees to use its best efforts to cause
the Merger (i) to qualify (A) for pooling-of-interests ac-
counting treatment and (B) as a reorganization within the
meaning of Section 368 of the Internal Revenue Code and (ii)
to occur as soon as practicable. Each of Mercantile and
Bancshares agrees to not take any action that would materi-
ally impede or delay the consummation of the transactions
contemplated by this Agreement or the ability of Mercantile
or Bancshares to obtain any approval of any Regulatory Au-
thority required for the transactions contemplated by this
Agreement or to perform its covenants and agreements under
this Agreement.
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5.14. Insurance. Bancshares shall, and Bancshares
shall cause each of its Subsidiaries to, use its best efforts
to maintain its existing insurance.
5.15. Bancshares Convertible Notes. Mercantile
acknowledges that at the Effective Time, by virtue of the
Merger and without any further action on the part of Banc-
shares, the Bancshares Convertible Notes shall be convertible
into shares of Mercantile Common Stock pursuant to the terms
of the indenture governing the Bancshares Convertible Notes.
Mercantile shall, and shall cause the Surviving Corporation
to, execute with the trustee under such indenture at the Ef-
fective Time a supplemental indenture providing that such
Bancshares Convertible Notes shall be convertible into shares
of Mercantile Common Stock as contemplated by such indenture.
5.16. Conforming Entries. (a) Notwithstanding
that Bancshares believes that Bancshares and the Bancshares
Subsidiaries have established all reserves and taken all pro-
visions for possible loan losses required by GAAP and ap-
plicable laws, rules and regulations, Bancshares recognizes
that Mercantile may have adopted different loan, accrual and
reserve policies (including loan classifications and levels
of reserves for possible loan losses). Subject to applicable
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laws, regulations and the requirements of Regulatory Authori-
ties, from and after the date of this Agreement to the Effec-
tive Time, Bancshares and Mercantile shall consult with each
other with respect to conforming the loan, accrual and re-
serve policies of Bancshares and the Bancshares Subsidiaries
to those policies of Mercantile.
(b) Subject to applicable laws, regulations and
the requirements of Regulatory Authorities, in addition, from
and after the date of this Agreement to the Effective Time,
Bancshares and Mercantile shall consult with each other with
respect to determining appropriate Bancshares accruals, re-
serves 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.
(c) Subject to applicable laws, regulations and
the requirements of Regulatory Authorities, Bancshares and
Mercantile shall consult with each other with respect to de-
termining the amount and the timing for recognizing for fi-
nancial accounting purposes Bancshares' expenses of the
Merger and any restructuring charges relating to or to be
incurred in connection with the Merger.
(d) Subject to applicable laws, regulations and
the requirements of Regulatory Authorities, Bancshares shall
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(i) establish and take such reserves and accruals at such
time as Mercantile shall reasonably request to conform Banc-
shares' loan, accrual and reserve policies to Mercantile's
policies, and (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 recog-
nize for financial accounting purposes such expenses of the
Merger and restructuring charges related to or to be incurred
in connection with the Merger, in each case at such times as
are reasonably requested by Mercantile; provided, however,
that on the date such reserves, accruals and charges are to
be taken, Mercantile shall certify to Bancshares that
Mercantile's representations and warranties are true and cor-
rect as of such date, that the approval conditions to its
obligations contemplated by Section 6.01(b) have been satis-
fied or waived (except to the extent that any waiting period
associated therewith may then have commenced but not expired)
and that Mercantile is otherwise in compliance with this
Agreement; and provided, further, that Bancshares shall not
be required to take any such action that is not consistent
with GAAP and regulatory accounting principles.
(e) No reserves, accruals or charges taken in ac-
cordance with Section 5.16(d) above may be a basis to assert
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a violation of a breach of a representation, warranty or cov-
enant of Bancshares herein.
5.17. Environmental Reports. Bancshares shall
cooperate with Mercantile so that Mercantile may as soon as
reasonably practicable obtain, at Mercantile's expense, a re-
port of a phase one environmental investigation on all real
property owned, leased or operated by Bancshares or any of
the Bancshares Subsidiaries as of the date hereof (but ex-
cluding "other real estate owned," property held in trust or
in a fiduciary capacity and space in retail or similar estab-
lishments leased by Bancshares or any of the Bancshares Sub-
sidiaries for automatic teller machines or bank branch fa-
cilities 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 Bancshares or any of the
Bancshares Subsidiaries after the date hereof (but excluding
space in retail and similar establishments leased by Banc-
shares or any of the Bancshares Subsidiaries 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). If advisable in light of the
phase one report with respect to any parcel of real property
referred to above, in the reasonable opinion of Mercantile,
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Bancshares shall also cooperate with Mercantile so that Mer-
cantile may obtain, at Mercantile's expense, a phase two in-
vestigation report on such designated parcels.
5.18. Real Estate Transfer Taxes. Mercantile and
Bancshares agree that either Bancshares or Merger Sub will
pay any state or local tax which is attributable to the
transfer of the beneficial ownership of Bancshares' or any
Bancshares Subsidiary's real property, if any (collectively,
the "Transfer Taxes"), and any penalties or interest with
respect to the Transfer Taxes, payable in connection with the
consummation of the Merger. Bancshares and Mercantile agree
to cooperate with the other in the filing of any returns with
respect to the Transfer Taxes, including supplying in a
timely manner a complete list of all real property interests
held by Bancshares and its Subsidiaries and any information
with respect to such property that is reasonably necessary to
complete such returns. The portion of the consideration al-
locable to the real property of Bancshares and its Subsidiar-
ies shall be agreed to between Mercantile and Bancshares.
The stockholders of Banchshares (who are intended third party
beneficiaries of this Section 5.18) shall be deemed to have
agreed to be bound by the allocation established pursuant to
this Section 5.18 in the preparation of any return with re-
spect to the Transfer Taxes.
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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 requi-
site approval of stockholders of each party.
(b) All requisite approvals of this Agreement and
the transactions contemplated hereby shall have been
received from the Federal Reserve Board, the State Bank
Regulators and any other Regulatory Authority (without
the imposition of any conditions that are in Mercan-
tile's reasonable judgment unduly burdensome) and the
expiration of all requisite waiting periods thereunder.
For purposes of this paragraph, a divestiture required
as a condition to any regulatory approval shall not be
unduly burdensome if such divestiture is consistent with
Federal Reserve Board guidelines, policies and practices
regarding the merger of bank holding companies that have
been utilized in transactions that have recently been
reviewed prior to the date of this Agreement.
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(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 Bancshares nor Mercantile shall be
subject to any order, decree or injunction of a court or
agency of competent jurisdiction which enjoins or pro-
hibits the consummation of the Merger.
(e) Mercantile and Bancshares shall have received
an opinion of Mercantile Auditors addressed to Mercan-
tile in form and substance reasonably satisfactory to
Mercantile and Bancshares, that the Merger will qualify
for pooling-of-interests accounting treatment, which
opinion shall not have been withdrawn.
6.02. Conditions to Obligations of Bancshares To
Effect the Merger. The obligations of Bancshares to effect the
Merger shall be subject to the fulfillment or waiver at or
prior to the Effective Time of the following additional condi-
tions:
(a) Representations and Warranties. The repre-
sentations and warranties of Mercantile set forth in
Article III of this Agreement shall be true and correct
in all material respects as of the date of this Agree-
ment and as of the Effective Time (as though made on and
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as of the Effective Time except (i) to the extent such
representations and warranties are by their express pro-
visions made as of a specified date or period and (ii)
for the effect of transactions and actions contemplated
or required by this Agreement) and Bancshares shall have
received a certificate of the chairman or chief
financial officer of Mercantile to that effect.
(b) Performance of Obligations. Mercantile shall
have performed in all material respects all obligations
required to be performed by it under this Agreement
prior to the Effective Time, and Bancshares shall have
received a certificate of the chairman or chief xxxxx-
cial officer of Mercantile to that effect.
(c) Tax Opinion. Bancshares shall have received
an opinion of Sidley & Austin or other counsel reason-
ably acceptable to Bancshares, in form and substance
reasonably satisfactory to Bancshares, dated the Effec-
tive Time, substantially to the effect that for federal
income tax purposes:
(i) the Merger will constitute a "reorganiza-
tion" within the meaning of Section 368(a) of the
Internal Revenue Code, and Bancshares, Merger Sub and
Mercantile will each be a party to the reorganization
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within the meaning of Section 368(b) of the Internal
Revenue Code;
(ii) no gain or loss will be recognized by Banc-
shares or Merger Sub as a result of the Merger;
(iii) no gain or loss will be recognized by the
stockholders of Bancshares upon the conversion of
their Bancshares Common Stock into Mercantile Common
Stock pursuant to the Merger, except with respect to
cash, if any, received in lieu of fractional shares
of Mercantile Common Stock;
(iv) the aggregate tax basis of the shares of
Mercantile Common Stock received in exchange for
shares of Bancshares Common Stock pursuant to the
Merger (including a fractional share of Mercantile
Common Stock for which cash is paid) will be the same
as the aggregate tax basis of such shares of Banc-
shares Common Stock;
(v) the holding period for shares of Mercantile
Common Stock issued in exchange for shares of Banc-
shares Common Stock pursuant to the Merger will in-
clude the holder's holding period for such shares of
Bancshares Common Stock, provided such shares of
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Xxxxxxxxxx Xxxxxx Stock were held as capital assets
by the holder at the Effective Time; and
(vi) a stockholder of Bancshares who receives
cash in lieu of a fractional share of Mercantile Com-
mon Stock will recognize gain or loss equal to the
difference, if any, between such stockholder's basis
in the fractional share (determined under clause (iv)
above) and the amount of cash received.
In rendering such opinion, such counsel may rely as to matters
of fact upon the representations contained herein and shall
receive, and may rely on, customary representations from Mer-
cantile, Bancshares, and others, including representations to
the effect of those contained in the Tax Certificates set forth
in Exhibits D and E.
6.03. Conditions to Obligations of Mercantile To
Effect the Merger. The obligations of Mercantile to effect
the Merger shall be subject to the fulfillment or waiver at
or prior to the Effective Time of the following additional
conditions:
(a) Representations and Warranties. The repre-
sentations and warranties of Bancshares set forth in
Article II of this Agreement shall be true and correct
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in all material respects as of the date of this Agree-
ment 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 pro-
visions made as of a specific date or period and (ii)
for the effect of transactions and actions contemplated
or required by this Agreement) and Mercantile shall have
received a certificate of the chairman of Bancshares and
a certificate of the president and chief executive
officer of Bancshares to that effect.
(b) Performance of Obligations. Bancshares shall
have performed in all material respects all obligations
required to be performed by it under this Agreement
prior to the Effective Time, and Mercantile shall have
received a certificate of the chairman of Bancshares and
a certificate of the president and chief executive of-
ficer of Bancshares to that effect.
(c) Tax Opinion. Mercantile shall have received
an opinion of Wachtell, Lipton, Xxxxx & Xxxx, or other
counsel reasonably acceptable to Mercantile, in form and
substance reasonably satisfactory to Mercantile, dated
the Effective Time, substantially to the effect that for
federal income tax purposes:
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(i) the Merger will constitute a "reorganiza-
tion" within the meaning of Section 368(a) of the
Internal Revenue Code, and Bancshares, Merger Sub and
Mercantile will each be a party to the reorganization
within the meaning of Section 368(b) of the Internal
Revenue Code;
(ii) no gain or loss will be recognized by Banc-
shares or Merger Sub as a result of the Merger;
(iii) no gain or loss will be recognized by the
stockholders of Bancshares upon the conversion of
their Bancshares Common Stock into Mercantile Common
Stock pursuant to the Merger, except with respect to
cash, if any, received in lieu of fractional shares
of Mercantile Common Stock;
(iv) the aggregate tax basis of the shares of
Mercantile Common Stock received in exchange for
shares of Bancshares Common Stock pursuant to the
Merger (including a fractional share of Mercantile
Common Stock for which cash is paid) will be the same
as the aggregate tax basis of such shares of Banc-
shares Common Stock;
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(v) the holding period for shares of Mercantile
Common Stock issued in exchange for shares of Banc-
shares Common Stock pursuant to the Merger will in-
clude the holder's holding period for such shares of
Bancshares Common Stock, provided such shares of
Bancshares Common Stock were held as capital assets
by the holder at the Effective Time; and
(vi) a stockholder of Bancshares who receives
cash in lieu of a fractional share of Mercantile Com-
mon Stock will recognize gain or loss equal to the
difference, if any, between such stockholder's basis
in the fractional share (determined under clause (iv)
above) and the amount of cash received.
In rendering such opinion, such counsel may rely as to matters
of fact upon the representations contained herein and shall
receive, and may rely on, customary representations from Mer-
cantile, Bancshares, and others, including representations to
the effect of those contained in the Tax Certificates set forth
in Exhibits D and E.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.01. Termination. This Agreement may be termi-
nated at any time prior to the Effective Time, whether before
or after any requisite stockholder approval:
(a) by mutual consent by the Executive Committee
of the Board of Directors of Mercantile and the Board of
Directors of Bancshares;
(b) by the Executive Committee of the Board of
Directors of Mercantile or the Board of Directors of
Bancshares at any time after the date that is twelve
months after the date of this Agreement if the Merger
shall not theretofore have been consummated (provided
that the terminating party is not then in material
breach of any representation, warranty, covenant or
other agreement contained herein);
(c) by the Executive Committee of the Board of
Directors of Mercantile or the Board of Directors of
Bancshares if (i) the Federal Reserve Board has denied
approval of the Merger and such denial has become final
and nonappealable or (ii) stockholders of Bancshares or
Mercantile shall not have approved this Agreement at
their respective Meetings;
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(d) by the Executive Committee of the Board of
Directors of Mercantile in the event of a material
breach by Bancshares of any representation, warranty,
covenant or other agreement contained in this Agreement,
which breach is not cured within 30 days after written
notice thereof to Bancshares by Mercantile; or
(e) by the Board of Directors of Bancshares in the
event of a material breach by Mercantile of any represen-
tation, warranty, covenant or other agreement contained in
this Agreement, which breach is not cured within 30 days
after written notice thereof is given to Mercantile by
Bancshares.
7.02. Effect of Termination. In the event of ter-
mination of this Agreement by either Mercantile or Bancshares
as provided in Section 7.01, this Agreement shall forthwith
become void and there shall be no liability or obligation on
the part of Mercantile or Bancshares, their respective Sub-
sidiaries or their respective officers or directors except that
(i) the second sentence of Section 5.01, Section 5.06, Section
7.02 and Section 8.01 shall survive any termination of this
Agreement and (ii) notwithstanding anything to the contrary
contained in this Agreement, neither Mercantile nor Bancshares
shall be relieved or released from any liabilities or damages
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arising out of its willful breach of any provision of this
Agreement.
7.03. Amendment. This Agreement and the Schedules
hereto may be amended by the parties hereto, by action taken
by or on behalf of their respective Boards of Directors, at
any time before or after approval of this Agreement by the
stockholders of Bancshares; provided, however, that after any
such approval by the stockholders of Bancshares no such modi-
fication shall alter or change the amount or kind of consid-
eration to be received by holders of Bancshares Common Stock
as provided in this Agreement. This Agreement may not be
amended except by an instrument in writing signed on behalf
of each of Mercantile and Bancshares.
7.04. Severability. Any term, provision, covenant
or restriction contained in this Agreement held by a court or
a Regulatory Authority of competent jurisdiction to be in-
valid, void or unenforceable, shall be ineffective to the
extent of such invalidity, voidness or unenforceability, but
neither the remaining terms, provisions, covenants or re-
strictions contained in this Agreement nor the validity or
enforceability thereof in any other jurisdiction shall be
affected or impaired thereby. Any term, provision, covenant
or restriction contained in this Agreement that is so found
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to be so broad as to be unenforceable shall be interpreted to
be as broad as is enforceable.
7.05. Waiver. Any term, condition or provision of
this Agreement may be waived in writing at any time by the
party which is, or whose stockholders are, entitled to the
benefits thereof.
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 investi-
gation. All representations, warranties and agreements in
this Agreement of Mercantile and Bancshares or in any instru-
ment delivered by Mercantile or Bancshares 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 or, in the case of any other such instrument, in
accordance with the terms of such instrument, except for
those agreements contained herein and therein which by their
terms apply in whole or in part after the Effective Time.
-105-
8.02. Notices. All notices and other communica-
tions hereunder shall be in writing and shall be deemed to be
duly received (i) on the date given if delivered personally,
(ii) upon confirmation of receipt if by facsimile transmis-
sion, (iii) on the date received if mailed by registered or
certified mail (return receipt requested), or (iv) on the
business date after being delivered to a reputable overnight
delivery service if by such service, to the parties at the
following addresses (or at such other address for a party as
shall be specified by like notice):
(i) if to Mercantile or Merger Sub:
Mercantile Bancorporation Inc.
Xxxxxxxxxx Xxxxx
X.X. Xxx 000
Xx. Xxxxx, Xxxxxxxx 00000-0000
Attention: Xxxx X. Xxxx
Executive Vice President,
Mercantile Bank of St. Louis,
National Association
Copies to:
Xxx X. Xxxxxxxx, Esq.
General Counsel
Mercantile Bancorporation Inc.
Xxxxxxxxxx Xxxxx
X.X. Xxx 000
Xx. Xxxxx, Xxxxxxxx 00000-0000
and
Wachtell, Lipton, Xxxxx & Xxxx
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Telecopy: (000) 000-0000
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(ii) if to Bancshares:
Xxxx Xxxxxxxx
President and Chief Executive Officer
Xxxx Xxxxx Bancshares, Inc.
0000 Xxxxx Xxxx
Xx. Xxxxx, Xxxxxxxx 00000
Copies to:
Sidley & Austin
Xxx Xxxxx Xxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxx, Esq.
Telecopy: (000) 000-0000
8.03. Miscellaneous. This Agreement (including
the Schedules and other written documents referred to herein
or provided hereunder) (i) constitutes the entire agreement
and supersedes all other prior agreements and understandings,
both written and oral, among the parties, or any of them,
with respect to the subject matter hereof, including any con-
fidentiality agreement between the parties hereto, (ii) ex-
cept for the provisions of Section 5.12, is not intended to
confer upon any person not a party hereto any rights or rem-
edies hereunder, (iii) shall not be assigned by operation of
law or otherwise and (iv) shall be governed in all respects
by the laws of the State of Missouri. Nothing in this Agree-
ment shall be construed to require any party (or any subsid-
iary or affiliate of any party) to take any action or fail to
take any action in violation of applicable law, rule or regu-
lation. This Agreement may be executed in counterparts which
together shall constitute a single agreement.
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IN WITNESS WHEREOF, Mercantile and Bancshares have
caused this Agreement to be signed and, by such signature,
acknowledged by their respective officers thereunto duly au-
thorized, and such signatures to be attested to by their re-
spective officers thereunto duly authorized, all as of the
date first written above.
Attest: MERCANTILE BANCORPORATION INC.
/s/ Xxx X. Xxxxxxxx By: /s/ Xxxxxx X. Xxxxxxxx
Name: Xxx X. Xxxxxxxx Name: Xxxxxx X. Xxxxxxxx
Title: General Counsel Title: Chairman, President &
Chief Executive Officer
Attest: AMERIBANC, INC.
/s/ Xxxxx Xxxxx By: /s/ Xxxx X. Xxxx
Name: Xxxxx Xxxxx Name: Xxxx X. Xxxx
Title: Senior Vice President Title: Vice President
Attest: XXXX XXXXX BANCSHARES, INC.
/s/ Xxxx X. Xxxxxxxxxx, Xx. By: /s/ Xxxx X. Xxxxxxxx
Name: Xxxx X. Xxxxxxxxxx, Xx. Name: Xxxx X. Xxxxxxxx
Title: Senior Vice President, Title: Presdient and Chief
Secretary and General Executive Officer
Counsel
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