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Exhibit 10.11    
    

 
 

EMPLOYMENT AND NON SOLICITATION AGREEMENT    
    

        THIS AGREEMENT made on the 23rd day of April, 2004, between STATE NATIONAL BANCSHARES, INC., a Texas corporation and registered bank holding
company with its principal offices in Lubbock, Texas (the "Employer"), and DAVID WOODLE, who resides in Lakeside, Texas (the "Employee"). 

        1.    TERM OF EMPLOYMENT.    

        1.01    Primary Term.    Employer hereby employs Employee for the purpose of rendering services to State National Bank
or its successor (the "Bank"), and Employee hereby accepts employment, for a period beginning on the effective date of the acquisition of Mercantile Bank Texas by Employer pursuant to the terms of the
Agreement and Plan of Reorganization dated April 12, 2004 between Employer and Mercantile Bank Texas and continuing through the eighteen month anniversary of the effective date of such
acquisition ("Primary Term"); provided, however, this Agreement may be terminated earlier as hereinafter provided in Section 5. 

        1.02    Extension of Term.    The term of this Agreement may be extended after expiration of the Primary Term hereof,
upon the mutual consent of Employer and Employee. The Primary Term of this Agreement plus the period of any extensions mutually agreed to by Employer and Employee shall be the "Term" of this
Agreement. 

        2.    DUTIES OF EMPLOYEE.    

        2.01.    General Duties.    During the Term of this Agreement, Employee agrees, at a minimum, to (i) serve as
Executive Vice President—Lending of the Bank, and (ii) attend such officer committee meetings as Employer requests. Employee further agrees to use his diligent and
good-faith efforts to (i) promote Employer's and Bank's goodwill, (ii) retain customers and clients of the Bank for Employer's and the Bank's benefit, and
(iii) maintain, promote and develop customer relations for Employer and the Bank. Employee shall also be available for any other projects mutually agreed upon between Employer or the Bank and
Employee. Employee's principal office during the Term of this Agreement shall be in Tarrant County, Texas unless otherwise mutually agreed by Employer and Employee. 

        2.02.    Engaging in Other Employment.    During the Term of this Agreement, Employee shall devote his full business
time and best efforts in carrying out his duties as an officer of the Bank and shall not have other employment during the term of this Agreement without the consent of Employer. 

        2.03.    Performance by Employee.    The Employee covenants and agrees that he will at all times faithfully and
industriously perform his duties under this Agreement. 

        3.    COMPENSATION.    

        3.01.    Basic Compensation.    As compensation for services rendered under this Agreement, Employee shall be entitled
to receive from the Bank a salary equivalent to One Hundred and Fourteen Thousand Dollars ($114,000) per year (which annual amount shall be pro rated for any partial year), payable in equal
semimonthly installments of Four Thousand Seven Hundred and Fifty Dollars ($4,750), payable on such days as the Bank normally pays its employees, prorated for any partial employment period. 

        3.02.    Signing Bonus.    In addition to the other compensation and benefits which Employee is to receive hereunder,
Employee shall be entitled to receive a signing bonus of Twenty-Five Thousand Dollars ($25,000) payable on the effective date of the acquisition of Mercantile Bank Texas by Employer. 

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        3.03.    Stock Options.    Upon execution of this Agreement, Employer shall grant to Employee, non qualified stock
options to purchase up to 10,000 shares of Employer's voting common stock at an exercise price equal to $18.50 per share. One-third of such options shall vest at the end of the first six
months, the second six months and the third six months from the date of the grant and shall be exercisable over a period of five years from date of grant. Such options shall be subject to and governed
by the terms of the State National Bancshares, Inc. Employee Stock Option Plan. 

        3.04.    Insurance Benefits.    During the Term of this Agreement, Employer shall provide or cause the Bank to provide
to Employee, his spouse and dependants insurance coverage providing benefits for sickness and hospitalization in such amounts and on such terms as generally available to all employees or officers of
the Bank as approved from time to time. Further, Employer shall provide or cause the Bank to provide to Employee insurance coverage benefits for disability in such amount and on such terms as are
generally available to the officers of the Bank. 

        3.05.    Bank Automobile.    During the Term of this Agreement, Employee shall continue to have the use of his
existing Bank automobile until Employee desires to replace such automobile. The Bank will continue to provide fuel and maintenance for the automobile. At that time, Employee shall have the option to
purchase his Bank automobile from the Bank for book value which shall reasonably approximate market value, and he will thereafter receive an automobile allowance comparable to that provided for
comparable officers of Employer and the Bank. 

        3.06.    Supplemental Executive Retirement Plan ("SERP").    In the event Employer and Employee elect to extend the
Term of this Agreement past the Primary Term set out in Section 1.01, Employee shall be entitled to participate in Employer's SERP following the end of the Primary Term. 

        3.07.    Employee Benefits and Bonuses.    During the Term of this Agreement, Employee shall receive such additional
fringe benefits and bonuses as allowed under the Bank's stated policies as may be determined from time to time in the sole discretion of the Employer. 

        3.08.    Bank's 401(k) Plan.    During the Term of this Agreement, Employee shall be entitled to participate in the
Bank's 401(k) Plan so long as a 401(k) Plan is available to the employees of the Bank. Employee shall be fully vested in the plan. Employer shall make or cause the Bank to make such contributions for
Employee as made for other officers of the Bank. 

        4.    NON SOLICITATION AND NON DISCLOSURE.    

        4.01.    Non Solicitation Covenants.    Employee agrees that for a period of one year after the earlier to occur of
(i) the end of the first six months of the Primary Term of this Agreement or (ii) the termination of Employee's employment with Employer, Employee shall not, directly or indirectly,
individually or as an employee, consultant, partner, officer, director or shareholder or in any other capacity whatsoever: 

	(i)
	solicit
the banking business of any customers except those customers that became customers after the earlier of the end of the Primary Term of this agreement or the termination of the
Employee's employment with Employer of the Bank; or

	(ii)
	recruit,
hire, assist others in recruiting or hiring, discuss employment with, or refer others concerning employment, any person who is, or within the preceding twelve
(12) months was, an employee of the Bank; provided, however, that nothing in this Section 1(a)(ii) shall apply to employment other than with a financial institution. 

        4.02    Judicial Limitation.    If any court of competent jurisdiction should determine that any term or terms of non
solicitation covenants are too broad in terms of time, lines of commerce or otherwise, such court shall modify and revise any such term or terms so that they comply with applicable law. 

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        4.03    Non-Disclosure and Proprietary Information.    Employee acknowledges that, by the nature of his
duties, he will have access to and become informed of confidential, proprietary, and highly sensitive information relating to the Bank and which is a competitive asset of the Bank, including, without
limitation, information pertaining to: (i) the identities of the Bank's existing and prospective customers or clients, including names, addresses, credit status, and pricing levels;
(ii) the borrowing habits and customs of the Bank's existing and prospective customers or clients; (iii) financial information about the Bank, including prices, costs, and profit
margins; (iv) the identities of and special skills possessed by the Bank's employees; (v) the identities of and pricing and cost information about the Bank's suppliers and vendors;
(vi) training programs developed by the Bank; (vii) current and prospective products and services; (viii) the Bank's financial results and business conditions; and (ix) the
Bank's business plans and strategies. The confidential, proprietary, and highly sensitive information described in this paragraph is hereinafter referred to as "Proprietary Information." Information
that is in the public domain is not Proprietary Information. Additionally, any disclosure of Proprietary Information required pursuant to subpoena or court order is not a violation of this agreement. 

        Employee
agrees that he will not, during the term of this Agreement including the nonsolicitation period: (i) use any Proprietary Information for his own benefit or for the
benefit of any other person, entity, or corporation; or (ii) disclose, directly or indirectly, any Proprietary Information to any person who is not an employee of the Bank; or (iii) use
or disclose, directly or indirectly, any Proprietary Information in connection with any business opportunity pursued or engaged in by Employee. 

        4.04    Return of Bank Property.    Employee acknowledges that all equipment, keys, passcodes or passwords, memoranda,
notes, records, reports, manuals, drawings, books, papers, letters, formulas, client and customer lists, loan files or information contracts, software programs, instruction books, catalogs,
information and records, technical manuals and documentation, drafts of instructions, guides and manuals, maintenance manuals, and other documentation (whether in draft or final form), and other sales
information and aids relating to the Bank's business, and any and all other documents containing Proprietary Information furnished to Employee by any representative of the Bank or otherwise
acquired or developed by Employee in connection with his employment with the Bank (collectively, "Recipient Materials") shall at all times be the property of the Bank. 

        At
the end of the Term of this Agreement, Employee will return to the Bank any Recipient Materials which are in his possession, custody or control. 

        4.05    Injunctive Relief.    Employer and Employee hereby acknowledge and agree that the Employer and the Bank will
be irreparably damaged if the provisions of Section 4 of this Agreement are not specifically enforced. Accordingly, Employer or the Bank shall be entitled to an injunction restraining any
violation of this Agreement by Employee (without any bond or other security being required), or any other appropriate decree of specific performance. Such remedies shall not be exclusive and shall be
in addition to any other remedy that Employer or the Bank may have at law or in equity. 

        5.    TERMINATION.    

        5.01.    Termination by Employer for Cause.    Employer may, at its option, terminate this Agreement by giving written
notice of termination for "cause" to Employee. For the purpose of this Section 5.01, the term "cause" shall mean (i) willful misconduct or gross malfeasance, or an act or acts of gross
negligence in the course of employment or any breach of the Employee's obligations contained in this Agreement; (ii) any intentional material misstatement or material omission to the Board or
any member thereof, respectively, with respect to the business, financial condition, or results of operations of the Bank; (iii) the intentional failure of the Employee to follow the reasonable
instructions or the policies of the Board; (iv) the Employee's conviction, admission, confession or agreed deferred adjudication of any felony or any other criminal act resulting in
incarceration or probation for a period 

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of
more than six months; or (v) the intentional violation by the Employee of applicable state or federal banking statutes, rules or regulations. 

        5.02.    Option to Terminate in Event of Bankruptcy or Similar Proceedings.    This Agreement may be terminated
immediately by either party to this Agreement at the option of either party and without prejudice to any other remedy to which either party may be entitled either at law, in equity or under this
Agreement by giving written notice of termination to the other party to this Agreement if either party to this Agreement: 

        (1)   Files
a petition in bankruptcy court or is adjudicated a bankrupt; 

        (2)   Institutes
or suffers to be instituted any procedure in bankruptcy court for reorganization or management of the financial affairs of such party; 

        (3)   Has
a receiver of the assets or property of such party appointed because of insolvency; or 

        (4)   Makes
a general assignment for the benefit of creditors. 

        5.03    Termination Upon Change in Control for State National BHC.    Notwithstanding anything to the contrary
contained in this Agreement, this Agreement shall terminate thirty (30) days following any "Change in Control" which occurs with respect to State National BHC during the Term of this Agreement
unless, during such thirty (30) day period, the Employee and State National BHC or its successor mutually agree in writing not to terminate this Agreement. Upon such termination, the Employee
shall be entitled only to compensation accrued hereunder at the time of termination and the Employee shall no longer be bound by the nonsolicitation obligations contained in Article 4 of this
Agreement. The Employee shall continue to be bound by the nondisclosure obligations contained in Section 4.03 hereof. 

        As
used in this Agreement, the term "Change in Control" shall be deemed to have occurred and mean if and when: 

        (i)    any
entity, person or group of persons acting in concert (other than current shareholders or members of the Board of Directors of State National BHC) become beneficial
owners (within the meaning of Section 13(d) of the Securities and Exchange Act of 1934), directly or indirectly, of securities of State National BHC representing more than fifty percent (50%)
of the combined voting power of State National BHC or any successor corporation; 

        (ii)   the
effective date of a merger or consolidation of State National BHC with one or more other corporations as a result of which the holders of the outstanding voting
stock of State National BHC immediately prior to the merger hold less than fifty percent (50%) of the combined voting power of the surviving or resulting corporation; or 

        (iii)  the
effective date of a transfer of all or substantially all of the assets of State National BHC other than to an entity of which State National BHC owns at least
eighty percent (80%) of the combined voting power. 

Notwithstanding
the above, no Change in Control shall be deemed to occur for purposes of this Agreement as a result of any transaction or series of transactions involving only State National BHC,
State National Bank, any affiliate (within the meaning of Section 3A of the Federal Reserve Act of 1913, as amended), or any of them, or any of their successors. 

        6.    GENERAL PROVISIONS.    

        6.01.    Notices.    Any notices to be given hereunder by either party to the other may be effected either by personal
delivery in writing or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing in the introductory
paragraph of this Agreement, but each party may change its/his address by written notice 

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in
accordance with this paragraph. Notices delivered personally shall be deemed communicated as of actual receipt; mailed notices shall be deemed communicated as of five (5) days after mailing. 

        6.02.    Inclusion of Entire Agreement Herein.    This Agreement supersedes any and all other agreements, either oral
or in writing, between the parties hereto with respect to the employment of the Employee by Employer and contains all of the covenants and agreements between the parties with respect to such
employment in any manner whatsoever. 

        6.03.    Law Governing Agreement.    This Agreement shall be governed by and construed in accordance with the laws of
the State of Texas. 

        6.04.    Arbitration.    Employer and the Employee recognize that in the event a dispute should arise between them
concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable time period. Consequently,
each party agrees that all disputes, disagreements, and questions of interpretation concerning this Agreement are to be submitted for resolution to the American Arbitration Association ("AAA") in
Lubbock County, Texas. Either Employer or the Employee may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the AAA's rules. The arbitrator shall not
have the authority to add to, detract from, or modify any provision hereof nor to award punitive damages to any injured party. The arbitrator shall have the authority to order pay-back,
severance compensation, vesting of options (or cash compensation in lieu of vesting of options), reimbursement of costs, including those incurred to enforce this Agreement and interest thereon. The
question of whether Employer or the Employee shall be liable for the costs incurred because of the arbitration shall also be decided by the arbitrator. The AAA shall designate a single arbitrator to
conduct the proceeding, but Employer and the Employee may, as a matter of right, require the substitution of a different arbitrator chosen by the AAA. This right of substitution may be exercised only
once by the Employer and the Employee. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of Texas, but shall be bound by the substantive law applicable to this
Agreement. The decision of the arbitrator, absent fraud, duress, incompetence, or gross and
obvious error of fact, shall be final and binding upon the Employer and the Employee and shall be construed to prevent Employer from asking a court of competent jurisdiction to enter appropriate
equitable relief to enjoin a violation of the covenants of Section 4. 

        6.05.    Payment of Moneys Due Deceased Employee.    If the Employee dies prior to the expiration of the term of
employment under this Agreement, any monies that may be due the Employee from the Employer under this Agreement as of the date of his death shall be paid to the Employee's executors, administrators,
heirs, personal representatives, successors and assigns. 

        6.06.    Assignments.    This Agreement is not assignable by either the Employee or Employer without the written
consent of each, other than by operation of law in connection with a merger of Employer or the Bank. 

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        EXECUTED on the day and year first above written. 

	EMPLOYER:	 	 	 
	
STATE NATIONAL BANCSHARES, INC.	
 	

 	

 
	

By:	

/s/  TOM NICHOLS      
 Tom Nichols, Chairman	
 	

 	

 
	
EMPLOYEE:	
 	

 	

 
	

/s/  DAVID WOODLE      
 David Woodle	
 	

 	

 

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Exhibit 10.11

EMPLOYMENT AND NON SOLICITATION AGREEMENTQuickLinks
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Exhibit 10.12    
    

	

	

	  

  

  

  

    
	AGREEMENT AND PLAN OF REORGANIZATION

BY AND BETWEEN

STATE NATIONAL BANCSHARES, INC.

LUBBOCK, TEXAS

AND

MERCANTILE BANK TEXAS

FORT WORTH, TEXAS

Dated as of April 12, 2004
	 

 

 

 

    
	

	

   

   

   

   

   

   

   

 
 

TABLE OF CONTENTS    
    

	 
	 	 
	 	PAGE

	
  ARTICLE I. ACQUISITION OF MERCANTILE BANK BY STATE NATIONAL BHC	
 	

1
	 	Section 1.01	 	Merger of New Mercantile with and into Mercantile Bank	 	1
	 	Section 1.02	 	Effects of the Merger	 	2
	 	Section 1.03	 	Articles of Incorporation and Bylaws	 	2
	 	Section 1.04	 	Directors and Officers	 	2
	 	Section 1.05	 	Conversion of the Mercantile Bank Stock.	 	2
	 	Section 1.06	 	Shareholder Approval	 	3
	 	Section 1.07	 	Dissenting Shareholders	 	3
	 	Section 1.08	 	Delivery of Consideration; Exchange of Certificates	 	3
	

ARTICLE II. THE CLOSING AND THE CLOSING DATE	
 	

4
	 	Section 2.01	 	Time and Place of the Closing and Closing Date	 	4
	 	Section 2.02	 	Actions to be Taken at the Closing by Mercantile Bank	 	4
	 	Section 2.03	 	Actions to be Taken at the Closing by State National BHC	 	5
	 	Section 2.04	 	Further Assurances	 	6
	 	Section 2.05	 	Effective Date	 	6
	

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF MERCANTILE BANK	
 	

6
	 	Section 3.01	 	Organization and Qualification	 	7
	 	Section 3.02	 	Execution and Delivery	 	7
	 	Section 3.03	 	Mercantile Bank Capitalization	 	7
	 	Section 3.04	 	Compliance with Laws, Permits and Instruments	 	8
	 	Section 3.05	 	Mercantile Bank Financial Statements	 	8
	 	Section 3.06	 	Mercantile Bank Call Reports	 	8
	 	Section 3.07	 	Litigation	 	9
	 	Section 3.08	 	Consents and Approvals	 	9
	 	Section 3.09	 	Undisclosed Liabilities	 	9
	 	Section 3.10	 	Title to Assets	 	9
	 	Section 3.11	 	Absence of Certain Changes or Events	 	10
	 	Section 3.12	 	Leases, Contracts and Agreements	 	12
	 	Section 3.13	 	Taxes	 	12
	 	Section 3.14	 	Insurance	 	13
	 	Section 3.15	 	No Adverse Change	 	13
	 	Section 3.16	 	Proprietary Rights	 	13
	 	Section 3.17	 	Transactions with Certain Persons and Entities	 	13
	 	Section 3.18	 	Evidences of Indebtedness	 	14
	 	Section 3.19	 	Employee Relationships	 	14
	 	Section 3.20	 	Condition of Assets	 	14
	 	Section 3.21	 	Environmental Compliance	 	14
	 	Section 3.22	 	Regulatory Compliance	 	15
	 	Section 3.23	 	Absence of Certain Business Practices	 	15
	 	Section 3.24	 	Dissenting Shareholders	 	15
	 	Section 3.25	 	Books and Records	 	15
	 	Section 3.26	 	Forms of Instruments, Etc	 	15
	 	Section 3.27	 	Fiduciary Responsibilities	 	16
	 	Section 3.28	 	Guaranties	 	16
	 	Section 3.29	 	Voting Trust or Buy-Sell Agreements	 	16
	 	Section 3.30	 	Employee Benefit Plans.	 	16
	 	Section 3.31	 	Representations Not Misleading	 	18
	 	 	 	 	 

 

	

ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF STATE NATIONAL BHC	
 	

18
	 	Section 4.01	 	Organization and Qualification	 	18
	 	Section 4.02	 	Execution and Delivery	 	18
	 	Section 4.03	 	Litigation	 	19
	 	Section 4.04	 	State National BHC Financial Statements	 	19
	 	Section 4.05	 	State National Bank Call Reports	 	19
	 	Section 4.06	 	Compliance with Laws, Permits and Instruments	 	19
	 	Section 4.07	 	Consents and Approvals	 	19
	 	Section 4.08	 	Financing	 	19
	 	Section 4.09	 	Representations Not Misleading	 	20
	

ARTICLE V. COVENANTS OF MERCANTILE BANK	
 	

20
	 	Section 5.01	 	Best Efforts	 	20
	 	Section 5.02	 	Merger Agreement	 	20
	 	Section 5.03	 	Information for Applications and Statements	 	20
	 	Section 5.04	 	Required Acts of Mercantile Bank	 	20
	 	Section 5.05	 	Prohibited Acts of Mercantile Bank	 	21
	 	Section 5.06	 	Access; Pre-Closing Investigation	 	23
	 	Section 5.07	 	Invitations to and Attendance at Directors' and Committee Meetings	 	24
	 	Section 5.08	 	Additional Financial Statements and Tax Returns	 	24
	 	Section 5.09	 	Untrue Representations	 	24
	 	Section 5.10	 	Litigation and Claims	 	24
	 	Section 5.11	 	Notice of Material Adverse Changes	 	24
	 	Section 5.12	 	No Negotiation with Others	 	24
	 	Section 5.13	 	Consents and Approvals	 	25
	 	Section 5.14	 	Environmental Investigation; Right to Terminate Agreement.	 	25
	 	Section 5.15	 	Allowance for Loan Losses	 	26
	

ARTICLE VI. COVENANTS OF STATE NATIONAL BHC	
 	

26
	 	Section 6.01	 	Best Efforts	 	26
	 	Section 6.02	 	Incorporation and Organization of New Mercantile	 	26
	 	Section 6.03	 	Merger Agreement	 	26
	 	Section 6.04	 	Information for Applications and Statements	 	27
	 	Section 6.05	 	Acts of New Mercantile	 	27
	 	Section 6.06	 	Untrue Representations	 	27
	 	Section 6.07	 	Litigation and Claims	 	27
	 	Section 6.08	 	Director and Officer Indemnification.	 	27
	 	Section 6.09	 	Regulatory and Other Approvals	 	28
	 	Section 6.10	 	Adverse Change	 	28
	 	Section 6.11	 	Financing	 	28
	

ARTICLE VII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MERCANTILE BANK	
 	

29
	 	Section 7.01	 	Compliance with Representations, Warranties and Agreements	 	29
	 	Section 7.02	 	Shareholder Approvals	 	29
	 	Section 7.03	 	Government and Other Approvals	 	29
	 	Section 7.04	 	No Litigation	 	29
	 	Section 7.05	 	Employment Agreements	 	29
	 	Section 7.06	 	Tax Gross Up Agreements	 	30
	 	Section 7.07	 	Opinion of Counsel	 	30
	 	 	 	 	 

ii

 

	

ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF STATE NATIONAL BHC	
 	

30
	 	Section 8.01	 	Compliance with Representations, Warranties and Agreements	 	30
	 	Section 8.02	 	Proxies and Shareholder Approvals	 	30
	 	Section 8.03	 	Government and Other Approvals	 	30
	 	Section 8.04	 	No Litigation	 	31
	 	Section 8.05	 	No Material Adverse Change	 	31
	 	Section 8.06	 	Employment Agreements	 	31
	 	Section 8.07	 	Director Support Agreements	 	31
	 	Section 8.08	 	Releases of Directors and Officers.	 	31
	 	Section 8.09	 	Available Funds	 	31
	 	Section 8.10	 	Opinion of Counsel	 	31
	 	Section 8.11	 	Allowance for Loan Losses	 	32
	

ARTICLE IX. TERMINATION AND ABANDONMENT	
 	

32
	 	Section 9.01	 	Right of Termination	 	32
	 	Section 9.02	 	Notice of Termination	 	32
	 	Section 9.03	 	Effect of Termination	 	33
	 	Section 9.04	 	Termination Fee	 	33
	

ARTICLE X. CONFIDENTIAL INFORMATION	
 	

33
	 	Section 10.01	 	Definition of "Recipient," "Disclosing Party" and "Representative"	 	33
	 	Section 10.02	 	Definition of "Subject Information"	 	34
	 	Section 10.03	 	Confidentiality	 	34
	 	Section 10.04	 	Securities Law Concerns	 	34
	 	Section 10.05	 	Return of Subject Information	 	34
	 	Section 10.06	 	Specific Performance/Injunctive Relief	 	35
	

ARTICLE XI. MISCELLANEOUS	
 	

35
	 	Section 11.01	 	Survival of Representations and Warranties	 	35
	 	Section 11.02	 	Expenses	 	35
	 	Section 11.03	 	Brokerage Fees and Commissions	 	35
	 	Section 11.04	 	Entire Agreement	 	35
	 	Section 11.05	 	Further Cooperation	 	36
	 	Section 11.06	 	Severability	 	36
	 	Section 11.07	 	Notices	 	36
	 	Section 11.08	 	GOVERNING LAW	 	37
	 	Section 11.09	 	Multiple Counterparts	 	37
	 	Section 11.10	 	Certain Definitions.	 	37
	 	Section 11.11	 	Specific Performance	 	39
	 	Section 11.12	 	Attorneys' Fees and Costs	 	39
	 	Section 11.13	 	Rules of Construction	 	39
	 	Section 11.14	 	Binding Effect; Assignment	 	39
	 	Section 11.15	 	Public Disclosure	 	39
	 	Section 11.16	 	Extension; Waiver	 	40
	 	Section 11.17	 	Amendments	 	40
	
 EXHIBITS	
 	

 
	Exhibit A—Form of Agreement and Plan of Merger	 	 
	Exhibit B—Form of Director Support Agreement	 	 
	Exhibit C—Form of Voting Agreement and Irrevocable Proxy	 	 
	Exhibit D—Form of Director Release	 	 
	Exhibit E—Form of Officer Release	 	 
	Exhibit F—Form of Opinion of Counsel to State National BHC	 	 
	Exhibit G—Form of Opinion of Counsel to Mercantile Bank Texas	 	 

iii

 
 

AGREEMENT AND PLAN OF REORGANIZATION    
    

        This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered into as of the 12th day of April, 2004, by and between STATE
NATIONAL BANCSHARES, INC., a Texas corporation and registered bank holding company with its principal offices in Lubbock, Texas ("State National BHC"), and MERCANTILE BANK TEXAS, Texas state
banking association with its principal offices in Fort Worth, Texas ("Mercantile Bank"). 

W
I T N E S S E T H: 

        WHEREAS,
Mercantile Bank is a Texas state banking association, with its principal offices located in Fort Worth, Texas; 

        WHEREAS,
State National BHC proposes to acquire all of the issued and outstanding shares of voting common stock, par value $4.00 per share, of Mercantile Bank (the "Mercantile Bank
Stock"), through the merger of New Mercantile, Inc., a to be formed wholly-owned transitory subsidiary of State National BHC incorporated under the laws of the state of Texas ("New
Mercantile"), with and into Mercantile Bank (the "Merger"); 

        WHEREAS,
State National BHC and Mercantile Bank believe that the Merger, as provided for and subject to the terms and conditions set forth in this Agreement and all exhibits, schedules
and supplements hereto, is in the best interests of State National BHC, Mercantile Bank and their respective shareholders; 

        WHEREAS,
State National BHC and Mercantile Bank desire to set forth certain representations, warranties and covenants made by each to the other as an inducement to the execution and
delivery of this Agreement and certain additional agreements related to the transactions contemplated hereby; and 

        WHEREAS,
the respective boards of directors of State National BHC and Mercantile Bank have approved this Agreement and the proposed transactions on the terms and conditions set forth in
this Agreement. 

        NOW,
THEREFORE, for and in consideration of the foregoing and of the mutual representations, warranties, covenants and agreements contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the conditions set forth below, State National BHC and Mercantile Bank undertake, promise, covenant and
agree with each other as follows: 

 
 

ARTICLE I.
  ACQUISITION OF MERCANTILE BANK BY STATE NATIONAL BHC    
    

        Section 1.01 Merger of New Mercantile with and into Mercantile Bank. Subject to the terms and conditions of
this Agreement and the Agreement and Plan of Merger to be entered into between Mercantile Bank and New Mercantile (the "Merger Agreement"), the form of which is attached hereto as  Exhibit A, State
National BHC shall cause New Mercantile to be merged with and into Mercantile Bank pursuant to the provisions of
Section 32.301 of the Texas Finance Code (the "Finance Code") and Part Five of the Texas Business Corporation Act (the "TBCA"). 

 

        Section 1.02
Effects of the Merger. The Merger shall have the effects set forth in Section 32.301 of the Finance Code and
Article 5.06 of the TBCA. Following the Merger, Mercantile Bank shall continue as the corporation resulting from the Merger (the "Resulting Bank"), and the separate corporate existence of New
Mercantile shall cease. The name of the Resulting Bank shall be "Mercantile Bank Texas." The existing offices and facilities of Mercantile Bank immediately preceding the Merger shall be the principal
offices and facilities of the Resulting Bank following the Merger. At the Effective Date, all rights, title and interests to all real estate and other property owned by each of New Mercantile and
Mercantile Bank shall be allocated to and vested in the Resulting Bank without reversion or impairment, without further act or deed, and without any transfer or assignment having occurred, but subject
to any existing liens or encumbrances thereon. At the Effective Date, all liabilities and obligations of New Mercantile and Mercantile Bank shall be allocated to the Resulting Bank, and the Resulting
Bank shall be the primary obligor therefor and no other party to the Merger shall be liable therefor. At the Effective Date (as defined in Section 2.05 of this Agreement), a proceeding pending
by or against either New Mercantile or Mercantile Bank may be continued as if the Merger did not occur, or the Resulting Bank may be substituted in the proceedings. 

        Section 1.03  Articles of Incorporation and Bylaws. The Articles of Incorporation and Bylaws, respectively, of the Resulting Bank
shall be as set forth in the Merger Agreement. 

        Section 1.04
Directors and Officers. The directors and officers, respectively, of the Resulting Bank shall be as set forth in the
Merger Agreement. 

        Section 1.05
Conversion of the Mercantile Bank Stock. 

        A.    At
the Effective Date by virtue of this Agreement and without any further action on the part of any holder of Mercantile Bank Stock ("Mercantile Bank Shareholders"), all
of the shares of Mercantile Bank Stock issued and outstanding as of the Effective Date shall be converted into the right to receive from State National BHC the aggregate merger consideration equal to
$51,285,000 (the "Merger Consideration"), or $205.14 per share (the "Per Share Consideration"). 

        B.    The
shares of New Mercantile (the "New Mercantile Stock") outstanding at the Effective Date shall, at the Effective Date and by virtue of the Merger and without any
action on the part of State National BHC or any other party as holder thereof, be converted into 250,000 shares of common stock of the Resulting Bank with a par value of $4.00 per share. The
authorized number of shares of common stock of the Resulting Bank shall be the same as the authorized number of shares of Mercantile Bank immediately prior to the Effective Date. 

        C.    The
shares of the Mercantile Bank Stock issued and outstanding at the Effective Date shall, at the Effective Date and by operation of law and without any action on the
part of the holder thereof, unless dissenters' rights under applicable law are being perfected with respect thereto, be converted into the right to receive the Merger Consideration. 

        D.    In
accordance with Section 1.08, each Mercantile Bank Shareholder shall be required to surrender his shares to State National Bank, a national banking association
and wholly-owned subsidiary of State National BHC, which shall act as exchange agent (the "Exchange Agent"), and upon such surrender, each such holder shall be entitled to receive from State National
BHC, the Merger Consideration which such holder is entitled to receive as described in Section 1.05A of this Agreement. Until so surrendered, each such outstanding certificate representing
shares of Mercantile Bank Stock shall be deemed for all purposes, subject only to dissenters' rights under applicable law, to evidence solely the right to receive such Merger Consideration from State
National BHC. 

2

 

        Section 1.06
Shareholder Approval. Mercantile Bank, acting through its Board of Directors, shall, in accordance with applicable
law: 

        A.    Use
its best efforts to obtain the written consent of its shareholders as soon as practicable for the purposes of (i) approving and adopting the Merger and the
Merger Agreement and the transactions contemplated hereby and thereby, and (ii) approving and ratifying certain payments listed on  Schedule 1.06A made in connection with the Merger (sometimes
collectively referred to as the "Parachute Payments"), to the extent that such
Parachute Payments constitute "excess parachute payments" under § 280G(b) of the Internal Revenue Code of 1986, as amended (the "Code"); and 

        B.    Require
(i) no greater than the minimum vote of the Mercantile Bank Stock required by applicable law in order to approve the Merger and the Merger Agreement and
(ii) the requisite vote of the Mercantile Bank shareholders necessary to approve the Parachute Payments under § 280G(b)(5)(A)(ii) of the Code. 

        Section 1.07
Dissenting Shareholders. Notwithstanding anything in this Agreement to the contrary, shares of Mercantile Bank Stock
that are outstanding immediately prior to the Effective Date and that are held by Mercantile Bank Shareholders who have not voted such shares in favor of the Merger and who shall have otherwise
complied with the terms and provisions of Section 5.12 of the TBCA (each a "Dissenting Shareholder") shall be entitled to those rights and remedies set forth in Section 5.12 of the TBCA;  provided,
however, in the event that a Mercantile Bank Shareholder fails to perfect, withdraws or otherwise loses any such right or remedy granted by
the TBCA, such shares of Mercantile Bank Stock shall be converted into and represent only the right to receive the consideration specified in Section 1.04 of this Agreement. 

        Section 1.08
Delivery of Consideration; Exchange of Certificates. The Exchange Agent shall send to each holder of one or more
certificates representing shares of Mercantile Bank Stock ("Certificates"), a letter of transmittal for use in exchanging such holder's Certificates for the Merger Consideration. Mercantile Bank shall
forward letters of transmittal to each of the Mercantile Bank Shareholders, addressed to the most current address of such Mercantile Bank Shareholders according to the records of Mercantile Bank, at
least fifteen (15) days prior to the Closing Date unless Mercantile Bank and State National BHC shall mutually agree to send such letters at a later date. If a holder of Certificates surrenders
such Certificates and a properly executed letter of transmittal to the Exchange Agent at least five (5) business days prior to the Closing Date, then, not later than 2:00 p.m. Fort
Worth, Texas time on the Closing Date, State National BHC shall deliver to such holder of such Certificates an amount in immediately available funds equal to the Per Share Consideration multiplied by
the number of Shares surrendered by such holder. If a holder of Certificates surrenders such Certificates and a properly executed letter of transmittal to the Exchange Agent at any time after five
(5) business days prior to the Closing Date, then promptly, and in no event later than five (5) business days after receipt of such Certificates and letter of transmittal, State National
BHC shall deliver to such holder of such Certificates the an amount equal to the Per Share Consideration multiplied by the number of Shares surrendered by such holder. If any record shareholder of
Mercantile Bank is unable to locate any Certificate evidencing the Mercantile Bank Stock, such shareholder shall submit to the Exchange Agent an affidavit of lost certificate and indemnification
agreement in form acceptable to State National BHC and, if required by State National BHC, a surety bond in an amount equal to the amount to be delivered to such shareholder, in lieu of such
Certificate. Notwithstanding the foregoing, neither the Exchange Agent nor any other party to this Agreement shall be liable to any holder of Certificates representing the Mercantile Bank Stock for
any amount paid to a public official pursuant to any applicable abandoned property, escheat or similar law. No interest shall be payable with respect to the payment of the Merger Consideration. 

3

 

 
 

ARTICLE II.
  THE CLOSING AND THE CLOSING DATE    
    

        Section 2.01 Time and Place of the Closing and Closing Date. On a date mutually agreeable to State National
BHC and Mercantile Bank (herein called the "Closing Date"), which date, unless extended by the mutual agreement of State National BHC and Mercantile Bank, shall be within fifteen (15) days
after the receipt of all necessary regulatory and shareholder approvals and the expiration of any mandatory waiting periods, a meeting (the "Closing") will take place at which the parties to this
Agreement will exchange certificates, letters and other documents in order to determine whether all of the conditions set forth in ARTICLE VII and ARTICLE VIII of this Agreement have been satisfied or
waived or whether any condition exists that would permit a party to this Agreement to terminate this Agreement. If no such condition then exists or if no party elects to exercise any right it may have
to terminate this Agreement, then and thereupon the appropriate parties shall execute such documents and instruments as may be necessary or appropriate in order to effect the transactions contemplated
by this Agreement. The Closing shall take place at a location mutually agreeable to the parties hereto. 

        Section 2.02
Actions to be Taken at the Closing by Mercantile Bank. At the Closing, Mercantile Bank shall execute and acknowledge
(where appropriate) and deliver to State National BHC, such documents and certificates necessary to carry out the terms and provisions of this Agreement, including without limitation, the following
(all of such actions constituting conditions precedent to State National BHC's obligations to close hereunder): 

        A.    True,
correct and complete copies of the Articles of Association of Mercantile Bank and all amendments thereto, duly certified as of a recent date by the Texas Department
of Banking ("TDB"); 

        B.    Good
standing and existence certificates of a recent date, issued by the TDB and appropriate state officials, duly certifying as to the existence and good standing of
Mercantile Bank in the State of Texas and all other jurisdictions where it is qualified to do business; 

        C.    A
certificate, dated as of a recent date, issued by the Federal Deposit Insurance Corporation (the "FDIC"), duly certifying that the deposits of Mercantile Bank are
insured by the FDIC pursuant to the Federal Deposit Insurance Act (the "FDIA"); 

        D.    A
certificate, dated as of the Closing Date, duly executed by the Secretary or an Assistant Secretary of Mercantile Bank, acting solely in his capacity as an officer of
Mercantile Bank, pursuant to which Mercantile Bank shall certify (i) the due adoption by the Board of Directors of Mercantile Bank of corporate resolutions attached to such certificate
authorizing the execution and delivery of this Agreement and the other agreements and documents contemplated hereby, including, but not limited to, the Merger Agreement, and the taking of all actions
contemplated hereby and thereby; (ii) the due adoption by the shareholders of Mercantile Bank (a) authorizing the transactions and the execution and delivery of this Agreement and the
other agreements and documents contemplated hereby and the taking of all actions contemplated hereby and thereby, and (b) approving the Parachute Payments in accordance with §
280G(b)(5)(A)(ii) of the Code; (iii) the incumbency and true signatures of those officers of Mercantile Bank duly authorized to act on its behalf in connection with the transactions
contemplated by this Agreement and to execute and deliver this Agreement and other agreements and documents contemplated hereby and the taking of all actions contemplated hereby and thereby on behalf
of Mercantile Bank; and (iv) that the copy of the Bylaws of Mercantile Bank attached to such certificate is true and correct and such Bylaws have not been amended except as reflected in such
copy; 

4

 

        E.    A
certificate duly executed by a duly authorized officer of Mercantile Bank, acting solely in his capacity as an officer of Mercantile Bank, dated as of the Closing Date,
pursuant to which Mercantile Bank shall certify that all of the representations and warranties made in ARTICLE III of this Agreement are true and correct on and as of the date of such certificate as
if made on such date and except as expressly permitted by this Agreement there shall have been no Material Adverse Change (as defined in Section 11.10E of this Agreement) since
December 31, 2003; 

        F.     All
consents required to be obtained by Mercantile Bank from third parties to consummate the transactions contemplated by this Agreement, including, but not limited to,
those listed on Schedule 3.08; and 

        G.    All
other documents required to be delivered to State National BHC by Mercantile Bank under the provisions of this Agreement, and all other documents, certificates and
instruments as are reasonably requested by State National BHC. 

        Section 2.03  Actions to be Taken at the Closing by State National BHC. At the Closing, State National BHC shall execute and
acknowledge (where appropriate) and deliver to Mercantile Bank, such documents and certificates necessary to carry out the terms and provisions of this Agreement, including without limitation, the
following (all of such actions constituting conditions precedent to Mercantile Bank's obligations to close hereunder): 

        A.    True,
correct and complete copies of State National BHC's Articles of Incorporation and all amendments thereto, duly certified as of a recent date by the Secretary of
State of the State of Texas; 

        B.    True,
correct and complete copies of New Mercantile's Articles of Incorporation and all amendments thereto, duly certified as of a recent date by the Secretary of State
of the State of Texas; 

        C.    Good
standing and existence certificates of a recent date, issued by the appropriate state officials, duly certifying as to the existence and good standing of State
National BHC and New Mercantile in the State of Texas and all other jurisdictions where it is qualified to do business; 

        D.    A
certificate, dated as of the Closing Date, executed by the Secretary or an Assistant Secretary of State National BHC, acting solely in his capacity as an officer of
State National BHC, pursuant to which State National BHC shall certify (i) the due adoption by the Board of Directors of State National BHC of corporate resolutions attached to such certificate
authorizing the execution and delivery of this Agreement and the other agreements and documents contemplated hereby and the taking of all actions contemplated hereby and thereby; (ii) the
incumbency and true signatures of those officers of State National BHC duly authorized to act on its behalf in connection with the transactions contemplated by this Agreement and to execute and
deliver this Agreement and other agreements and documents contemplated hereby and the taking of all actions contemplated hereby and thereby on behalf of State National BHC; and (iii) that the
copy of the Bylaws of State National BHC attached to such certificate is true and correct and such Bylaws have not been amended except as reflected in such copy; 

5

 

        E.    A
certificate duly executed by the Secretary or an Assistant Secretary of New Mercantile, acting solely in his capacity as an officer of New Mercantile, pursuant to which
New Mercantile shall certify (i) the due adoption by the Board of Directors of New Mercantile of corporate resolutions attached to such certificate authorizing the execution and delivery of the
Merger Agreement and the taking of all actions contemplated thereby; (ii) the due adoption by the sole shareholder of New Mercantile authorizing the transactions and the execution and delivery
of the Merger Agreement and the other agreements and documents contemplated thereby and the taking of all actions contemplated thereby; (iii) the incumbency and true signatures of those
officers of New Mercantile duly authorized to act on its behalf in connection with the transactions contemplated by the Merger Agreement and to execute and deliver the Merger Agreement and the taking
of all actions contemplated thereby on behalf of New Mercantile; and (iv) that the copy of the Bylaws of New Mercantile attached to such certificate is true and correct and such Bylaws have not
been amended except as reflected in such copy; 

        F.     A
certificate, dated as of the Closing Date, executed by a duly authorized officer of State National BHC, acting solely in his capacity as an officer of State National
BHC, pursuant to which State National BHC shall certify that all of the representations and warranties made in ARTICLE IV of this Agreement are true and correct in all material respects on and as of
the date of such certificate as if made on such date; 

        G.    All
consents required to be obtained by State National BHC or New Mercantile from third parties to consummate the transactions contemplated by this Agreement, including,
but not limited to, those listed on Schedule 4.07; and 

        H.    All
other documents required to be delivered to Mercantile Bank by State National BHC under the provisions of this Agreement, and all other documents, certificates and
instruments as are reasonably requested by Mercantile Bank. 

        Section 2.04
Further Assurances. At any time and from time to time after the Closing, at the request of any party to this Agreement
and without further consideration, any party so requested will execute and deliver such other instruments and take such other action as the requesting party may reasonably deem necessary or desirable
in order to effectuate the transactions contemplated hereby. In the event that, at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement,
each party hereto shall take or cause to be taken all such action. 

        Section 2.05
Effective Date. The "Effective Date" as that term is used in this Agreement means the effective date of the Merger
under the Merger Agreement. 

 
 

ARTICLE III.
  REPRESENTATIONS AND WARRANTIES OF MERCANTILE BANK    
    

        Subject to the limitations contained herein, Mercantile Bank hereby makes the representations and warranties set forth in this ARTICLE III to State National BHC.
Mercantile Bank agrees at the Closing to provide State National BHC with supplemental schedules reflecting any material changes thereto between the date of this Agreement and the Closing Date. 

6

 

        Section 3.01
Organization and Qualification. Mercantile Bank is a Texas banking association, validly existing and in good standing
under the laws of the State of Texas, and duly organized and in good standing under all laws, rules, and regulations of the State of Texas. Mercantile Bank has all requisite corporate power and
authority (including all licenses, franchises, permits and other governmental authorizations as are legally required) to carry on its business as now being conducted, to own, lease and operate its
properties and assets as now owned, leased or operated and to enter into and to carry on the business and activities now conducted by it. True and complete copies of the Articles of Association and
Bylaws of Mercantile Bank, as amended to date, have been delivered to State National BHC. Mercantile Bank is an insured bank as defined in the FDIA. Mercantile Bank does not own or control any
Affiliate (as defined in Section 11.10A) or Subsidiary (as defined in Section 11.10F). The nature of the business of Mercantile Bank does not require it to be qualified to do business in
any jurisdiction other than the State of Texas. Mercantile Bank has no equity interest, direct or indirect, in any other bank or corporation or in any partnership, joint venture or other business
enterprise or entity, except as acquired through settlement of indebtedness, foreclosure, the exercise of creditors' remedies or in a fiduciary capacity, and the business carried on by Mercantile Bank
has not been conducted through any other direct or indirect Subsidiary or Affiliate of Mercantile Bank. 

        Section 3.02
Execution and Delivery. Mercantile Bank has taken all corporate action necessary to authorize the execution, delivery
and (provided the required regulatory and shareholder approvals are obtained) performance of this Agreement and the other agreements and documents contemplated hereby to which it is a party,
including, but not limited to, the Merger Agreement. This Agreement has been, and the other agreements and documents contemplated hereby, including, but not limited to, the Merger Agreement, have been
or at Closing will be, duly executed by Mercantile Bank and each constitutes the legal, valid and binding obligation of Mercantile Bank, enforceable in accordance with its respective terms and
conditions, except as enforceability may be limited by bankruptcy, conservatorship, insolvency, moratorium, reorganization, receivership or similar laws and judicial decisions affecting the rights of
creditors generally and by general principles of equity (whether applied in a proceeding at law or in equity). 

        Section 3.03
Mercantile Bank Capitalization. The entire authorized capital stock of Mercantile Bank consists solely of 250,000
shares of Mercantile Bank common stock, par value $4.00 per share, all of which shares are issued and outstanding. There are no (A) other outstanding equity securities of any kind or character,
or (B) outstanding subscriptions, options, convertible securities, rights, warrants, calls or other agreements or commitments of any kind issued or granted by, or binding upon, Mercantile Bank
to purchase or otherwise acquire any security of or equity interest in Mercantile Bank, obligating Mercantile Bank to issue any shares of, restricting the transfer of or otherwise relating to shares
of its capital stock of any class. All of the issued and outstanding shares of Mercantile Bank Stock have been duly authorized, validly issued and are fully paid and nonassessable, and have not been
issued in violation of the preemptive rights of any person. Such shares of Mercantile Bank Stock have been issued in compliance with the securities laws of the United States and other jurisdictions
having applicable securities laws. There are no restrictions applicable to the payment of dividends on the shares of Mercantile Bank Stock except pursuant to applicable laws and regulations, and all
dividends declared prior to the date of this Agreement have been paid. 

7

 

        Section 3.04
Compliance with Laws, Permits and Instruments. Except as disclosed on  Schedule 3.04, Mercantile Bank has in all material respects performed and abided
by all obligations required to be performed by it to the date
hereof, and has complied with, and is in compliance with, and is not in default (or with the giving of notice or the passage of time will be in default) under, or in violation of, (i) any
provision of the Articles of Association or Bylaws of Mercantile Bank, (ii) any provision of any mortgage, indenture, lease, contract, agreement or other instrument applicable to Mercantile
Bank or its assets, operations, properties or businesses now conducted or heretofore conducted, or (iii) any permit, concession, grant, franchise, license, authorization, judgment, writ,
injunction, order, decree, award, statute, federal, state or local law, ordinance, rule or regulation of any court, arbitrator or any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality applicable to Mercantile Bank or its assets, operations, properties or businesses now conducted or heretofore conducted. 

        Except
as set forth on Schedule 3.04, the execution, delivery and (provided the required regulatory and shareholder approvals are
obtained) performance of this Agreement and the other agreements contemplated hereby, including, but not limited to the Merger Agreement, and the consummation of the transactions contemplated hereby
and thereby will not conflict with, or result, by itself or with the giving of notice or the passage of time, in any violation of or default or loss of a benefit under, (i) any provision of the
Articles of Association or Bylaws of Mercantile Bank, (ii) any material mortgage, indenture, lease, contract, agreement or other instrument applicable to Mercantile Bank or its assets,
operations, properties or businesses, or (iii) any material permit, concession, grant, franchise, license, authorization, judgment, writ, injunction, order, decree, statute, law, ordinance,
rule or regulation applicable to Mercantile Bank or its respective assets, operations, properties or businesses. 

        Section 3.05
Mercantile Bank Financial Statements. Mercantile Bank has furnished to State National BHC true and complete copies of
the audited consolidated financial statements of Mercantile Bank for the years ended December 31, 2003 and 2002 (the "Financial Statements"). Except as described in  Schedule 3.05, the
Mercantile Bank Financial Statements (including any related notes) were prepared in conformity with generally accepted
accounting principles ("GAAP"), applied on a basis consistent with prior periods, except as otherwise noted therein, and the accounting records underlying the Financial Statements accurately and
fairly reflect in all material respects the transactions of Mercantile Bank. The Financial Statements do not contain any items of material special or nonrecurring income or any other income not earned
in the ordinary course of business except as expressly specified therein or as set forth on Schedule 3.05. 

        Section 3.06
Mercantile Bank Call Reports. Mercantile Bank has furnished State National BHC with a true and complete copy of the
Reports of Condition and Income as of December 31, 2003 and September 30, 2003 (the "Call Reports"), for Mercantile Bank. The Call Reports fairly present, in all material respects, the
financial position of Mercantile Bank and the results of its operations at the date and for the period indicated in conformity with the Instructions for the Preparation of Call Reports as promulgated
by applicable regulatory authorities. The Call Reports do not contain any items of material special or nonrecurring income or any other income not earned in the ordinary course of business except as
expressly specified therein. Mercantile Bank has calculated its allowance for loan losses in accordance with regulatory accounting principles ("RAP") as applied to banking institutions and in
accordance with all applicable rules and regulations. To the best knowledge of Mercantile Bank, the allowance for loan losses account for Mercantile Bank is, and as of the Closing Date should be,
adequate in all material respects to provide for all losses, net of recoveries relating to loans previously charged off, on all outstanding loans of Mercantile Bank. 

8

 

        Section 3.07
Litigation. Except as set forth on Schedule 3.07, there are no
actions, claims, suits, investigations, reviews or other legal, quasi-judicial or administrative proceedings of any kind or nature now pending or threatened against or affecting Mercantile Bank at law
or in equity, or by or before any federal, state or municipal court or other governmental or administrative department, commission, board, bureau, agency or instrumentality, domestic or foreign, that
in any manner involve Mercantile Bank or any of its properties or capital stock that might reasonably be anticipated to result in a Material Adverse Change or materially and adversely affect the
transactions contemplated by this Agreement or the Merger Agreement, and Mercantile Bank does not know or have any reason to be aware of any basis for the same. No legal action, suit or proceeding or
judicial, administrative or governmental investigation is pending or, to the knowledge of Mercantile Bank, threatened against Mercantile Bank that questions or might question the validity of this
Agreement or the agreements contemplated hereby, including, but not limited to, the Merger Agreement, or any actions taken or to be taken by Mercantile Bank pursuant hereto or thereto or seeks to
enjoin or otherwise restrain the transactions contemplated hereby or thereby. 

        Section 3.08
Consents and Approvals. Mercantile Bank's Board of Directors (at a meeting duly called and held) has resolved to
recommend to its shareholders approval and adoption of the Merger and the Merger Agreement. Except as disclosed in Schedule 3.08, no approval,
consent, order or authorization of, or registration, declaration or filing with, any governmental authority or other third party is required on the part of Mercantile Bank in connection with the
execution, delivery or performance of this Agreement or the agreements contemplated hereby, including, but not limited to, the Merger Agreement or the consummation by Mercantile Bank of the
transactions contemplated hereby or thereby. 

        Section 3.09
Undisclosed Liabilities. Mercantile Bank does not have any material liability or obligation, accrued, absolute,
contingent or otherwise and whether due or to become due (including, without limitation, unfunded obligations under any Employee Benefit Plan (as defined in Section 3.30 of this Agreement) or
liabilities for federal, state or local taxes or assessments or liabilities under any tax sharing agreements (as described in Section 3.17 of this Agreement)) that are not reflected in or
disclosed in the Financial Statements or the Call Reports, except (A) those liabilities and expenses incurred in the ordinary course of business and consistent with prudent business practices
since the date of the Financial Statements or the Call Reports, respectively or (B) as disclosed on Schedule 3.09. Except as disclosed on  Schedule 3.09, Mercantile Bank is not liable and will not become liable for any change in control bonus, appreciation award, tax gross up payment
or similar payment to any person in connection with the proposed Merger. 

        Section 3.10
Title to Assets. True and complete copies of all existing deeds, leases and title insurance policies for all real
property owned or leased by Mercantile Bank, including all other real estate, and all mortgages, deeds of trust, security agreements and other documents describing encumbrances to which such property
is subject have been made available to State National BHC. Mercantile Bank has good and indefeasible title to all of its assets and properties used or useful in the operation of its business
including, without limitation, all personal and intangible properties reflected in the Financial Statements or the Call Reports or acquired subsequent thereto, subject to no liens, mortgages, security
interests, encumbrances or charges of any kind except (A) as described in Schedule 3.10, (B) as noted in the Financial Statements
or the Call Reports or as set forth in the documents delivered to State National BHC pursuant to this Section 3.10, (C) statutory liens not yet delinquent, (D) consensual landlord
liens, (E) minor defects and irregularities in title and encumbrances that do not materially impair the use thereof for the purpose for which they are held, (F) pledges of assets in the
ordinary course of business to secure public funds deposits, and (G) those assets and properties disposed of for fair value in the ordinary course of business since the dates of the Financial
Statements or the Call Reports. 

9

 

        Section 3.11
Absence of Certain Changes or Events. Except as disclosed on  Schedule 3.11 or as permitted in writing by State National BHC, since December 31,
2003, Mercantile Bank has conducted its business only
in the ordinary course and has not: 

        A.    Incurred
any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, except deposits taken and federal funds purchased and
current liabilities for trade or business obligations, none of which, individually or in the aggregate, result in a Material Adverse Change; 

        B.    Discharged
or satisfied any lien, charge or encumbrance or paid any obligation or liability, whether absolute or contingent, due or to become due, except in the ordinary
course of business consistent with normal banking practices; 

        C.    Declared
or made any payment of dividends or other distribution to its shareholders, or purchased, retired or redeemed, or obligated itself to purchase, retire or redeem,
any of its shares of capital stock or other securities; 

        D.    Issued,
reserved for issuance, granted, sold or authorized the issuance of any shares of its capital stock or other securities or subscriptions, options, warrants, calls,
rights or commitments of any kind relating to the issuance thereto; 

        E.    Except
for the purchase of Investment Securities acquired in the ordinary course of business, acquired any capital stock or other equity securities or acquired any
ownership interest in any bank, corporation, partnership or other entity (except through settlement of indebtedness, foreclosure, or the exercise of creditors' remedies or in a fiduciary capacity); 

        F.     Mortgaged,
pledged or subjected to lien, charge, security interest or any other encumbrance or restriction any of its property, business or assets, tangible or intangible
except (i) as described in Schedule 3.11, (ii) statutory liens not yet delinquent, (iii) consensual landlord liens,
(iv) minor defects and irregularities in title and encumbrances that do not materially impair the use thereof for the purpose for which they are held, (v) pledges of assets to secure
public funds deposits, and (vi) those assets and properties disposed of for fair value since the dates of the Financial Statements or the Call Reports; 

        G.    Sold,
transferred, leased to others or otherwise disposed of any of its assets (except for assets disposed of for fair value) or canceled or compromised any debt or
claim, or waived or released any right or claim (except pursuant to the settlement of litigation described in Section 3.11L), which individually or in the aggregate would constitute a Material
Adverse Change; 

        H.    Terminated,
canceled or surrendered, or received any notice of or threat of termination or cancellation of any contract, lease or other agreement or suffered any damage,
destruction or loss which, individually or in the aggregate, would constitute a Material Adverse Change; 

        I.     Disposed
of, permitted to lapse, transferred or granted any rights under, or entered into any settlement regarding the breach or infringement of, any United States or
foreign license or Proprietary Right (as defined in Section 3.16) or modified any existing rights with respect thereto; 

10

 

        J.     Except
as described in Schedule 3.11, made any change in the rate of compensation, commission, bonus or other
direct or indirect remuneration payable, paid or agreed or orally promised to pay, conditionally or otherwise, any bonus, extra compensation, pension or severance or vacation pay, to or for the
benefit of any of its shareholders, directors, officers, employees or agents, or entered into any employment or consulting contract or other agreement with any director, officer or employee or
adopted, amended in any material respect or terminated any pension, employee welfare, retirement, stock purchase, stock option, stock appreciation rights, termination, severance, income protection,
golden parachute, savings or profit-sharing plan (including trust agreements and insurance contracts embodying such plans), any deferred compensation, or collective bargaining agreement, any group
insurance contract or any other incentive, welfare or employee benefit plan or agreement maintained by it for the benefit of its directors, employees or former employees; 

        K.    Except
for improvements or betterments relating to Properties (as defined in Section 11.10), made any capital expenditures or capital additions or betterments in
excess of an aggregate of $25,000; 

        L.    Instituted,
had instituted against it, settled or agreed to settle any litigation, action or proceeding before any court or governmental body relating to its property
other than routine collection suits instituted by it to collect amounts owed or suits in which the amount in controversy is less than $10,000; 

        M.   Suffered
any change, event or condition that, in any case or in the aggregate, has caused or may result in a Material Adverse Change, or any Material Adverse Change in
earnings or costs or relations with its employees (provided, however, that Mercantile Bank shall continue to have the right to terminate employees in accordance with its existing policies and
procedures), agents, depositors, loan customers, correspondent banks or suppliers; 

        N.    Except
for the transactions contemplated by this Agreement, transactions in the ordinary course of business, or as otherwise permitted hereunder, entered into any
transaction, or entered into, modified or amended any contract or commitment; 

        O.    Except
in the ordinary course of business, entered into or given any promise, assurance or guarantee of the payment, discharge or fulfillment of any undertaking or
promise made by any person, firm or corporation; 

        P.     Sold,
or knowingly disposed of, or otherwise divested itself of the ownership, possession, custody or control, of any corporate books or records of any nature that, in
accordance with sound business practice, normally are retained for a period of time after their use, creation or receipt, except at the end of the normal retention period; 

        Q.    Made
any, or acquiesced with any, change in any accounting methods, principles or material practices except as required by GAAP or RAP; 

        R.    Sold
(provided, however, that payment at maturity is not deemed a sale) or purchased any Investment Securities (as defined in Section 11.10), except in the
ordinary course of business and consistent with past practices and safe and sound banking principles; 

        S.     Made,
renewed, extended the maturity of, or altered any of the material terms of any loan to any single borrower and his related interests in excess of the principal
amount of $100,000, except in the ordinary course of business and consistent with past practices and safe and sound banking principles; or 

        T.     Entered
into any agreement or made any commitment whether in writing or otherwise to take any of the types of action described in subsections A. through S. above. 

11

 

        Section 3.12
Leases, Contracts and Agreements. Schedule 3.12 sets forth an
accurate and complete description of all leases, subleases, licenses, contracts and agreements to which Mercantile Bank is a party or by which Mercantile Bank is bound that obligate or may obligate
Mercantile Bank in the aggregate for an amount in excess of $50,000 over the entire term of any such agreement or related contracts of a similar nature which in the aggregate obligate or may obligate
Mercantile Bank for an amount in excess of $50,000 over the entire term of such related contracts (the "Contracts"). Mercantile Bank has delivered true and correct copies of all Contracts to State
National BHC. For the purposes of this Agreement, the Contracts shall be deemed not to include loans made by, repurchase agreements made by, spot foreign exchange transactions of, bankers acceptances
of or deposits by Mercantile Bank, but does include unfunded loan commitments and letters of credit issued by Mercantile Bank where the borrowers' total direct and indirect indebtedness to Mercantile
Bank is in excess of $150,000. Except as set forth in Schedule 3.12, no participations or loans have been sold that have buy back, recourse or
guaranty provisions that create contingent or direct liabilities of Mercantile Bank. To the knowledge of Mercantile Bank, all of the Contracts are legal, valid and binding obligations of the parties
to the Contracts enforceable in accordance with their terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally
and to general equitable principles, and are in full force and effect. Except as described in Schedule 3.12, all rent and other payments by
Mercantile Bank under the Contracts are current, there are no existing defaults by Mercantile Bank under the Contracts and no termination, condition or other event has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other event) would constitute a default. Mercantile Bank has a good and indefeasible leasehold interest in each parcel of real
property leased by it free and clear of all mortgages, pledges, liens, encumbrances and security interests. 

        Section 3.13
Taxes. Mercantile Bank has duly and timely filed with the appropriate Federal, state and local governmental agencies
all tax returns and reports required to be filed, including, without limitation, income, excise, property, sales, use, franchise, value added, unemployment, employees' income withholding and social
security taxes, imposed by the United States or by any foreign country or by any state, municipality, subdivision or instrumentality of the United States or of any foreign country, or by any other
taxing authority, and has paid, or has established adequate reserves for the payment of, all taxes and assessments that are or are claimed to be due, payable or owed by Mercantile Bank, or for which
Mercantile Bank may have liability, whether as a result of its own activities or by virtue of its affiliation with other entities and all interest and penalties thereon, whether disputed or not. All
such tax returns and reports are accurately prepared and all deposits required by law to be made by
Mercantile Bank with respect to employees' withholding taxes have been duly made. Mercantile Bank is not and has not been delinquent in the payment of any foreign or domestic tax, assessment or
governmental charge or deposit and has no tax deficiency or claim outstanding, proposed or assessed against it, and there is no basis for any such deficiency or claim. Within the last four
(4) years, none of Mercantile Bank's Federal income tax returns have been audited or examined and no such audit is currently pending or threatened. Mercantile Bank has not been granted any
extension of time with respect to the date on which any tax return was or is due to be filed by or with respect to Mercantile Bank or any waiver or agreement by any such entity for the extension of
time for the assessment or collection of any tax. Mercantile Bank has not committed any violation of any applicable Federal, state, local or foreign tax laws. 

        The
amounts set up as provisions for current or deferred taxes on the Financial Statements and the Call Reports are sufficient for the payment of all unpaid Federal, state, county,
local, foreign or other taxes (including any interest or penalties) of or on behalf of Mercantile Bank applicable to the periods covered by each entity's financial statements, and all years and
periods prior thereto. True and complete copies of the Federal income tax returns of Mercantile Bank as filed with the Internal Revenue Service (the "IRS") for the years ended December 31,
2000, 2001 and 2002, have been delivered to State National BHC. 

12

 

        Section 3.14
Insurance. Schedule 3.14 contains an accurate and complete list
and brief description of all policies of insurance, including fidelity and bond insurance, of Mercantile Bank. Except as set forth on  Schedule 3.14, all such policies (A) are sufficient for
compliance by Mercantile Bank with all requirements of law and all agreements to
which Mercantile Bank is a party, (B) are valid, outstanding and enforceable except as enforceability may be limited by bankruptcy, conservatorship, insolvency, moratorium, reorganization,
receivership, or similar laws and judicial decisions affecting the rights of creditors generally and by general principles of equity (whether applied in a proceeding at law or equity), (C) will
not in any significant respect be affected by, and will not terminate or lapse by reason of, the transactions contemplated by this Agreement, and (D) are presently in full force and effect, no
notice has been received of the cancellation, or threatened or proposed cancellation, of any such policy and there are no unpaid premiums due thereon. To the best of its knowledge, Mercantile Bank is
not in default with respect to the provisions of any such policy and has not failed to give any notice or present any claim thereunder in a due and timely fashion. Each material property of Mercantile
Bank is insured for the benefit of Mercantile Bank in amounts deemed adequate by Mercantile Bank's management against risks customarily insured against. Except as set forth on  Schedule 3.14, there
have been no claims under any fidelity bonds of Mercantile Bank within the last three (3) years and Mercantile Bank
is not aware of any facts that would form the basis of a claim under such bonds. 

        Section 3.15  No Adverse Change. Except as disclosed in the representations and warranties made in this ARTICLE III, there has not
been any Material Adverse Change since December 31, 2003, nor has any event or condition occurred that has resulted in, or has a reasonable possibility of resulting in the future, in a Material
Adverse Change. 

        Section 3.16
Proprietary Rights. Except as set forth on Schedule 3.16,
Mercantile Bank does not own or require the use of any patent, patent application, patent right, invention, process, trademark (whether registered or unregistered), trademark application, trademark
right, trade name, service name, service mark, copyright or any trade secret ("Proprietary Rights") for the business or operations of Mercantile Bank. To the best knowledge of Mercantile Bank,
Mercantile Bank is not infringing upon or otherwise acting adversely to, and has not in the past three (3) years infringed upon or otherwise acted adversely to, any Proprietary Right owned by
any other person or persons. There is no claim or action by any such person pending, or to the knowledge of Mercantile Bank, threatened, with respect thereto. 

        Section 3.17
Transactions with Certain Persons and Entities. Except as disclosed in  Schedule 3.17, Mercantile Bank does not owe any amount to (excluding deposit
liabilities), or has any loan, contract, lease, commitment or other
obligation from or to any of the present or former directors or officers (other than compensation for current services not yet due and payable and reimbursement of expenses arising in the ordinary
course of business) of Mercantile Bank, and none of such persons owes any amount to Mercantile Bank. Except as set forth on Schedule 3.17, there
are no agreements, instruments, commitments, extensions of credit, tax sharing or allocation agreements or other contractual agreements of any kind between or among Mercantile Bank, whether on its own
behalf or in its capacity as trustee or custodian for the funds of any employee benefit plan (as defined in the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and any of its
Affiliates. 

13

 

        Section 3.18
Evidences of Indebtedness. All evidences of indebtedness and leases that are reflected as assets of Mercantile Bank
are legal, valid and binding obligations of the respective obligors thereof, enforceable in accordance with their respective terms (except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors generally and the availability of injunctive relief, specific performance and other equitable remedies) and are not subject to any known
or threatened defenses, offsets or counterclaims that may be asserted against, Mercantile Bank or the present holder thereof, except as disclosed in  Schedule 3.18; provided, however, that the
foregoing sentence shall not be deemed to be a representation or warranty of collectibility of any of
the assets. The credit files of Mercantile Bank contain all material information (excluding general, local or national industry, economic or similar conditions) known to Mercantile Bank that is
reasonably required to evaluate in accordance with generally prevailing practices in the banking industry the collectibility of the loan portfolio of Mercantile Bank (including loans that will be
outstanding if any of them advances funds they are obligated to advance). All SBA and other governmental guaranties of loans made by Mercantile Bank are legal, valid and binding obligations of the
respective guarantors and Mercantile Bank has taken all necessary actions to preserve and maintain the validity and enforceability of such guaranties. Mercantile Bank has disclosed all of the
substandard, doubtful, loss, nonperforming or problem loans on the internal watch list of Mercantile Bank, a copy of which as of December 31, 2003, has been provided to State National BHC. 

        Section 3.19
Employee Relationships. Mercantile Bank has complied with all applicable material laws relating to its relationships
with its employees, and Mercantile Bank believes that the relationships between Mercantile Bank and its employees are good. To the best knowledge of Mercantile Bank, no key executive officer or
manager of any of the operations operated by Mercantile Bank or any group of employees of Mercantile Bank has or have any present plans to terminate their employment with Mercantile Bank, except as
disclosed on Schedule 3.19. 

        Section 3.20
Condition of Assets. Except as set forth on Schedule 3.20, all
furniture, fixtures and equipment used by Mercantile Bank are in good operating condition, ordinary wear and tear excepted, and conform with all material ordinances, regulations, zoning and other
laws, whether Federal, state or local. Mercantile Bank's premises or equipment are not in need of maintenance or repairs other than ordinary routine maintenance and repairs that are not material in
nature or cost. 

        Section 3.21  Environmental Compliance. Except as disclosed on Schedule 3.21:

        A.    Each
of Mercantile Bank, its operations and all of its Properties are in material compliance with all Environmental Laws (as defined in Section 11.10). Mercantile
Bank is not aware of, nor has Mercantile Bank received notice of, any past, present, or future conditions, events, activities, practices or incidents that may interfere with or prevent the compliance
of Mercantile Bank with all Environmental Laws. 

        B.    Mercantile
Bank has obtained all material permits, licenses and authorizations that are required under all Environmental Laws. 

        C.    No
Hazardous Materials (as defined in Section 11.10) exist on, about or within any of the Properties, nor have any Hazardous Materials previously existed on, about
or within or been used, generated, stored, transported, disposed of, on or released from any of the Properties. The use that Mercantile Bank makes and intend to make of the Properties will not result
in the use, generation, storage, transportation, accumulation, disposal or release of any Hazardous Material on, in or from any of the Properties. 

14

 

        D.    There
is no action, suit, proceeding, investigation, or inquiry before any court, administrative agency or other governmental authority pending or, to the knowledge of
Mercantile Bank, threatened against Mercantile Bank relating in any way to any Environmental Law. Mercantile Bank has no liability for remedial action under any Environmental Law. Mercantile Bank has
not received any request for information by any governmental authority with respect to the condition, use or operation of any of the Properties nor has Mercantile Bank received any notice of any kind
from any governmental authority or other person with respect to any violation of or claimed or potential liability of any kind under any Environmental Law (including, without limitation, any letter,
notice or inquiry from any person or governmental entity informing Mercantile Bank that it is or may be liable in any way under CERCLA (as defined in Section 11.10) or requesting information to
enable such a determination to be made). 

        Section 3.22
Regulatory Compliance. Except as set forth on Schedule 3.22,
all reports, records, registrations, statements, notices and other documents or information required to be filed by Mercantile Bank with any federal or state regulatory authority, including, without
limitation, the TDB, the FDIC and the IRS have been duly and timely filed and all information and data contained in such reports, records or other documents are substantially true, accurate, correct
and complete. Except as set forth on Schedule 3.22, Mercantile Bank is not now or has not been within the last four (4) years subject to
any commitment letter, memorandum of understanding, cease and desist order, written agreement or other formal or informal administrative action with any such regulatory bodies. Mercantile Bank does
not believe any such regulatory bodies have any present intent to place Mercantile Bank under any such administrative action. Except as set forth on  Schedule 3.22, there are no actions or
proceedings pending or threatened against Mercantile Bank by or before any such regulatory bodies or any
other nation, state or subdivision thereof, or any other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 

        Section 3.23
Absence of Certain Business Practices. To the best knowledge of Mercantile Bank, none of Mercantile Bank nor any
officer, employee or agent of Mercantile Bank, nor any other person acting on its behalf, has, directly or indirectly, within the past five (5) years, given or agreed to give any gift or
similar benefit to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the business of Mercantile Bank (or assist Mercantile Bank in
connection with any actual or proposed transaction) that (A) might subject Mercantile Bank to any damage or penalty in any civil, criminal or governmental litigation or proceeding,
(B) if not given in the past, might have resulted in a Material Adverse Change or (C) if not continued in the future might result in a Material Adverse Change or might subject Mercantile
Bank to suit or penalty in any private or governmental litigation or proceeding. 

        Section 3.24
Dissenting Shareholders. Mercantile Bank has no knowledge of any plan or intention on the part of any Mercantile Bank
Shareholders to make written demand for payment of the fair value of their shares of the Mercantile Bank Stock in the manner provided by applicable law. 

        Section 3.25
Books and Records. The minute books, stock certificate books and stock transfer ledgers of Mercantile Bank
(A) have been kept accurately in the ordinary course of business, (B) are complete and correct in all material respects, (C) the transactions entered therein represent bona fide
transactions, and (D) there have been no transactions involving the business of Mercantile Bank that properly should have been set forth therein and that have not been accurately so set forth. 

        Section 3.26
Forms of Instruments, Etc. Mercantile Bank has made, and will make, available to State National BHC copies of all
standard forms of notes, mortgages, deeds of trust and other routine documents of a like nature used on a regular and recurring basis by Mercantile Bank in the ordinary course of its business. 

15

 

        Section 3.27
Fiduciary Responsibilities. Mercantile Bank has performed in all material respects all of its duties as a trustee,
custodian, guardian or as an escrow agent in a manner that complies in all material respects with all applicable laws, regulations, orders, agreements, instruments and common law standards, where the
failure to so perform would result in a Material Adverse Change or materially and adversely affect the transactions contemplated by this Agreement, and Mercantile Bank has no reason to be aware of any
basis for the same. 

        Section 3.28  Guaranties. Except for items in the process of collection in the ordinary course of Mercantile Bank's business, none
of the obligations or liabilities of Mercantile Bank are guaranteed by any other person, firm or corporation, nor, except in the ordinary course of business, according to prudent business practices
and in compliance with applicable law, has Mercantile Bank guaranteed the obligations or liabilities of any other person, firm or corporation. 

        Section 3.29
Voting Trust or Buy-Sell Agreements. Except as set forth on  Schedule 3.29, Mercantile Bank is not aware of any agreement between any of its
shareholders relating to a right of first refusal with respect to
the purchase or sale by any such shareholder of capital stock of Mercantile Bank or any voting agreement or voting trust with respect to shares of capital stock of Mercantile Bank. 

        Section 3.30
Employee Benefit Plans. 

        A.    Set
forth on Schedule 3.30 is a complete and correct list of all "employee benefit plans" (as defined in
Section 3(3) of ERISA), all specified fringe benefit plans as defined in Section 6039D of the Code, and all other bonus, incentive, compensation, change in control agreements (including
those listed on Schedule 1.06A which are incorporated by reference), appreciation awards, tax gross up agreements (including those listed on  Schedule 1.06A which are incorporated by reference), deferred compensation, profit sharing, stock option, stock appreciation right, stock bonus,
stock purchase, employee stock ownership, savings, severance, supplemental unemployment, layoff, salary continuation, retirement, pension, health, life insurance, disability, group insurance,
vacation, holiday, sick leave, fringe benefit or welfare plan, or any other similar plan, agreement, policy or understanding (whether written or oral, qualified or nonqualified, currently effective or
terminated), and any trust, escrow or other agreement related thereto, which (a) is currently or has been at any time within the last sixty (60) months, maintained or contributed to by
Mercantile Bank or any Subsidiary of Mercantile Bank, or with respect to which Mercantile Bank or any Subsidiary of Mercantile Bank has any liability, or (b) provides benefits, or describes
policies or procedures applicable to any officer, employee, service provider, former officer or former employee of Mercantile Bank or any Subsidiary of Mercantile Bank, or the dependents of any
thereof, regardless of whether funded or unfunded (herein collectively the "Employee Plans" and each individually an "Employee Plan"). 

        B.    No
Employee Plan is a defined benefit plan within the meaning of Section 3(35) of ERISA. Mercantile Bank has delivered or made available to State National BHC
true, accurate and complete copies of the documents comprising each Employee Plan and any related trust agreements, annuity contracts, insurance policies or any other funding instruments ("Funding
Arrangements"), any contracts with independent contractors (without limitation, actuaries investment managers, etc.) that relate to any Employee Plan, the Form 5500 filed in each of the three
(3) most recent plan years with respect to each Employee Plan, and related schedules and opinions, and such other documents, records or other materials related thereto reasonably requested by
State National BHC. There have been no prohibited transactions (described under Section 406 of ERISA or Section 4975(c) of the Code) breaches of fiduciary duty or any other breaches or
violations of any law applicable to the Employee Plans and related Funding Arrangements that would subject State National BHC, Mercantile Bank or any of their respective Subsidiaries to any taxes,
penalties or other liabilities. Each Employee Plan that is represented to be qualified under Section 401(a) of the Code has a current favorable determination letter, does 

16

 

not
have any amendments for which the remedial amendment period under Code Section 401(b) has expired, and has been operated in compliance with applicable law, and in accordance with its terms,
and all reports, descriptions and filings required by the Code, ERISA or any government agency with respect to each Employee Plan have been timely and completely filed or distributed. Each Employee
Plan has been operated in compliance with applicable law or in accordance with its terms and any related trust is exempt from federal income tax under Section 501(a) of the Code. There are no
pending claims, lawsuits or actions relating to any Employee Plan (other than ordinary course claims for benefits) and, to the best knowledge of Mercantile Bank, none are threatened. No written or
oral representations have been made to any employee or former employee of Mercantile Bank or any Subsidiary of Mercantile Bank promising or guaranteeing any employer payment or funding for the
continuation of medical, dental, life or disability coverage for such person, their dependent, or any beneficiary for any period of time beyond the end of the current plan year or beyond termination
of employment, (except to the extent of coverage required under Section 4980B of the Code). Compliance with FAS 106 will not create any material change to the Financial Statements.
Except as required in connection with qualified plan amendments required by tax law changes, the consummation of the transactions contemplated by this Agreement will not accelerate the time of payment
or vesting, or increase the amount, of compensation due to any employee, officer, former employee or former officer of Mercantile Bank or any Subsidiary of Mercantile Bank. Except as disclosed on  Schedule 3.30, there are no contracts or arrangements providing for payments that will be nondeductible or subject to excise tax under Code
Sections 4999 or 280G, nor will State National BHC be required to "gross up" or otherwise compensate any person because of the limits contained in such Code sections. There are no surrender charges,
penalties, or other costs or fees that would be imposed by any person against Mercantile Bank, an Employee Plan, or any other person, including without limitation, an Employee Plan, or any other
person, including an Employee Plan participant or beneficiary as a result of the consummation of the transactions contemplated by this Agreement with respect to any insurance, annuity or investment
contracts or other similar investment held by any Employee Plan. 

        C.    Except
as has been previously disclosed to State National BHC by Mercantile Bank, with respect to each "employee benefit plan" (as defined in ERISA) maintained or
contributed to or required to be contributed to, currently or in the past, by any trade or business with which Mercantile Bank or any Subsidiary of Mercantile Bank is required by any of the rules
contained in the Code or ERISA to be treated as a single employer ("Controlled Group Plans"): 

          (i)  All
Controlled Group Plans which are "group health plans" (as defined in the Code and ERISA) have been operated to the Closing such that failures to operate such group
health plans in full compliance with Part 6 of Subtitle B of Title 1 of ERISA and Sections 4980B and 4980D of the Code would not subject Mercantile Bank or any Subsidiary of Mercantile Bank to
liability; 

         (ii)  There
is no Controlled Group Plan that is a defined benefit plan (as defined in Section 3(35) of ERISA), nor has there been in the last five (5) calendar
years); and 

        (iii)  There
is no Controlled Group Plan that is a "multiple employer plan" or "multi-employer plan" (as either such term is defined in ERISA), nor has there been since 1974. 

        D.    Mercantile
Bank and each Subsidiary of Mercantile Bank is completely insured for all health insurance claims. No event has occurred or circumstances exist that could
result in a material increase in premium costs of Employee Plans that are insured or a material increase in self-insured costs. 

17

 

        E.    All
Employee Plan documents, annual reports or returns, audited or unaudited financial statements, actuarial valuations, summary annual reports, and summary plan
descriptions issued with respect to the Employee Plans are correct, complete, and current in all material respects, have been timely filed, and there have been no changes in the information set forth
therein. 

        F.     All
contributions (including, without limitations, all employer contributions, employee salary reduction contributions and all premiums or other payments (other than
claims)) that are due to have been paid to or with respect to each Employee Plan and all contributions (other than claims) for any period ending on or before the Effective Date that are not yet due
have been paid to each such Employee Plan. 

        Section 3.31
Representations Not Misleading. To the best knowledge of Mercantile Bank, all material facts relating to the business
operations, properties, assets, liabilities (contingent or otherwise) and financial condition of Mercantile Bank have been disclosed to State National BHC in or in connection with this Agreement. No
representation or warranty by Mercantile Bank contained in this Agreement, nor any statement, exhibit or schedule furnished to State National BHC by Mercantile Bank under and pursuant to, or in
anticipation of this Agreement, contains or will contain on the Closing Date any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances under which it was or will be made, not misleading and such representations and warranties would continue to be true and correct following
disclosure to any governmental authority having jurisdiction over Mercantile Bank or its properties of the facts and circumstances upon which they were based. Except as disclosed herein, there is no
matter that materially adversely affects Mercantile Bank or its ability to perform the transactions contemplated by this Agreement or the other agreements contemplated hereby, or to the knowledge of
Mercantile Bank, will in the future result in a Material Adverse Change. No information material to the Merger, and that is necessary to make the representations and warranties herein contained not
misleading, has been withheld by Mercantile Bank. 

 
 

ARTICLE IV.
  REPRESENTATIONS AND WARRANTIES OF STATE NATIONAL BHC    
    

        State National BHC hereby makes the representations and warranties set forth in this ARTICLE IV to Mercantile Bank. 

        Section 4.01
Organization and Qualification. State National BHC is a corporation, duly organized, validly existing under the laws
of the State of Texas, and in good standing under all laws, rules, and regulations applicable to corporations located in the State of Texas. State National BHC has all requisite corporate power and
authority (including all licenses, franchises, permits and other governmental authorizations as are legally required) to carry on its business as now being conducted, to own, lease and operate its
properties and assets as now owned, leased or operated and to enter into and carry out its obligations under this Agreement. 

        Section 4.02
Execution and Delivery. State National BHC has taken all corporate action necessary to authorize the execution,
delivery and (provided the required regulatory approvals are obtained) performance of this Agreement and the other agreements and documents contemplated hereby to which it is a party, including, but
not limited to, the Merger Agreement. This Agreement has been, and the other agreements and documents contemplated hereby, including, but not limited to, the Merger Agreement, have been or at Closing
will be, duly executed by State National BHC and each constitutes the valid and binding obligation of State National BHC, enforceable in accordance with its respective terms and conditions, except as
enforceability may be limited by bankruptcy, conservatorship, insolvency, moratorium, reorganization, receivership or similar laws and judicial decisions affecting the rights of creditors generally
and by general principles of equity (whether applied in a proceeding at law or in equity). 

18

 

        Section 4.03  Litigation. No legal action, suit or proceeding or judicial, administrative or governmental investigation is pending
or, to the knowledge of State National BHC, threatened against State National BHC that questions or might question the validity of this Agreement or the agreements contemplated hereby, including, but
not limited to, the Merger Agreement, or any actions taken or to be taken by State National BHC pursuant hereto or thereto or seeks to enjoin or otherwise restrain the transactions contemplated hereby
or thereby. 

        Section 4.04
State National BHC Financial Statements. State National BHC has furnished to Mercantile Bank true and complete copies
of the audited consolidated financial statements of State National BHC for the years ended December 31, 2003 and 2002 (the "State National BHC Financial Statements"). Except as described in  Schedule 4.04, the State National BHC Financial Statements (including any related notes) were prepared in conformity with GAAP, applied on a
basis consistent with prior periods, except as otherwise noted therein, and the accounting records underlying the State National BHC Financial Statements accurately and fairly reflect in all material
respects the transactions of State National BHC. The State National BHC Financial Statements do not contain any items of material special or nonrecurring income or any other income not earned in the
ordinary course of business except as expressly specified therein or as set forth on Schedule 4.04. 

        Section 4.05  State National Bank Call Reports. State National BHC has furnished Mercantile Bank with a true and complete copy of
the Reports of Condition and Income as of December 31, 2003 and September 30, 2003 (the "State National Call Reports"), for State National Bank. The State National Call Reports fairly
present, in all material respects, the financial position of State National Bank and the results of its operations at the date and for the period indicated in conformity with the Instructions for the
Preparation of Call Reports as promulgated by applicable regulatory authorities. The State National Call Reports do not contain any items of material special or nonrecurring income or any other income
not earned in the ordinary course of business except as expressly specified therein. State National Bank has calculated its allowance for loan losses in accordance with RAP as applied to banking
institutions and in accordance with all applicable rules and regulations. 

        Section 4.06
Compliance with Laws, Permits and Instruments. State National BHC and State National Bank are both "well capitalized"
(as that term is defined in 12 C.F.R. § 325.103(b)(1) or the relevant regulation of the institution's primary federal bank regulator), and "well managed" (as that term is defined in 12
C.F.R. § 225.2(s)), and State National Bank's Community Reinvestment Act of 1977 rating is no less than "satisfactory." Neither State National BHC nor State National Bank has been informed
that its status as "well capitalized," "well managed" or "satisfactory" for CRA purposes will change within one year. 

        Section 4.07
Consents and Approvals. Except for approvals as disclosed in  Schedule 4.07, no approval, consent, order or authorization of, or registration,
declaration or filing with, any governmental authority or other
third party is required on the part of State National BHC in connection with the execution, delivery or performance of this Agreement or the agreements contemplated hereby, including, but not limited
to, the Merger Agreement or the consummation by State National BHC of the transactions contemplated hereby or thereby. As of the date of this Agreement, State National BHC has no reason to believe
that it will not receive regulatory approval of the transactions contemplated hereby. 

        Section 4.08
Financing. State National BHC has previously investigated its financing options and whether outside financing will be
necessary and available in connection with the transactions contemplated by this Agreement. As of the date of this Agreement, State National BHC has no reason to believe that it will not be able to
obtain financing on terms acceptable to State National BHC, if necessary. 

19

 

        Section 4.09
Representations Not Misleading. No representation or warranty by State National BHC contained in this Agreement, or
any statement, exhibit or schedule furnished to Mercantile Bank by State National BHC under and pursuant to, or in anticipation of this Agreement, contains or will contain on the Closing Date any
untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances under which it was or
will be made, not misleading and such representations and warranties would continue to be true and correct following disclosure to any governmental authority having jurisdiction over State National
BHC of the facts and circumstances upon which they were based. 

 
 

ARTICLE V.
  COVENANTS OF MERCANTILE BANK    
    

        Mercantile Bank hereby makes the covenants set forth in this ARTICLE V to State National BHC. 

        Section 5.01  Best Efforts. Mercantile Bank will use its best efforts to cause the consummation of the transactions contemplated
hereby in accordance with the terms and conditions of this Agreement. 

        Section 5.02
Merger Agreement. Mercantile Bank will, as soon as practicable after the execution of this Agreement, duly authorize
and enter into the Merger Agreement, the form of which is attached hereto as Exhibit A, and perform all of its obligations thereunder. 

        Section 5.03  Information for Applications and Statements. Mercantile Bank will promptly furnish to State National BHC all
information concerning Mercantile Bank, including, but not limited to, financial statements, required for (i) inclusion in any private placement memorandum to be used by State National BHC to
raise additional capital to consummate the Merger, or (ii) inclusion in any application or statement to be made by State National BHC or filed by State National BHC with any governmental body
in connection with the transactions contemplated by this Agreement, or in connection with any unrelated transactions during the pendency of this Agreement (including, without limitation, any
transaction relating to the consolidation of the operations of Mercantile Bank with and into State National Bank and any subsequent sale by State National BHC of the shell charter of Mercantile Bank),
and Mercantile Bank represents and warrants that all information so furnished for such statements and applications shall be true and correct in all material respects and shall not omit any material
fact required to be stated therein or necessary to make the statements made, in light of the circumstances under which they were made, not misleading. Mercantile Bank shall otherwise fully cooperate
with State National BHC in the filing of any applications or other documents necessary to consummate the transactions contemplated by this Agreement, including the Merger. 

        Section 5.04  Required Acts of Mercantile Bank. Prior to the Closing, Mercantile Bank shall, unless otherwise permitted in writing
by State National BHC: 

        A.    Operate
only in the ordinary course of business and consistent with normal banking practices; 

        B.    Except
as required by normal business practices, use all reasonable efforts to preserve its business organization intact and to retain its present customers, depositors,
suppliers, correspondent banks, officers, directors, employees and agents; 

        C.    Act
in a manner intended to preserve or attempt to preserve its goodwill; 

        D.    Perform
all of its obligations under contracts, leases and documents relating to or affecting its assets, properties and business except such obligations as Mercantile
Bank may in good faith reasonably dispute; 

20

 

        E.    Except
as required by normal business practices, maintain all offices, machinery, equipment, materials, supplies, inventories, vehicles and other properties owned, leased
or used by it (whether under its control or the control of others), in good operating condition and repair, ordinary wear and tear excepted; 

        F.     Maintain
in full force and effect all insurance policies now in effect or renewals thereof and, except as required by normal business practices that do not jeopardize
insurance coverage, give all notices and present all claims under all insurance policies in due and timely fashion; 

        G.    Timely
file all reports required to be filed with governmental authorities and observe and conform to all applicable laws, rules, regulations, ordinances, codes, orders,
licenses and permits, except those being contested in good faith by appropriate proceedings; 

        H.    Timely
file all tax returns required to be filed by it and promptly pay all taxes, assessments, governmental charges, duties, penalties, interest and fines that become
due and payable, except those being contested in good faith by appropriate proceedings; 

        I.     Withhold
from each payment made to each of its employees the amount of all taxes (including, but not limited to, federal income taxes, FICA taxes and state and local
income and wage taxes) required to be withheld therefrom and pay the same to the proper tax receiving officers; 

        J.     Continue
to follow and implement policies, procedures and practices regarding the identification, monitoring, classification and treatment of all assets in substantially
the same manner as it has in the past; and 

        K.    Account
for all transactions in accordance with GAAP (unless otherwise instructed by RAP, in which instance account for such transaction in accordance with RAP), and
maintain the allowance for loan losses account for Mercantile Bank in an adequate amount to provide for all losses, net of recoveries relating to loans previously charged off, on all outstanding loans
of Mercantile Bank. 

        Section 5.05
Prohibited Acts of Mercantile Bank. After the date of this Agreement and prior to the Closing, Mercantile Bank shall
not, without the prior written consent of State National BHC: 

        A.    Introduce
any new material method of management or operation; 

        B.    Knowingly
take any action that could reasonably be anticipated to result in a Material Adverse Change; 

        C.    Take
or fail to take any action that would reasonably cause or permit the representations and warranties made in ARTICLE III hereof to be inaccurate at the time of the
Closing or preclude Mercantile Bank from making such representations and warranties at the time of the Closing; 

        D.    Mortgage,
pledge or subject to lien, charge, security interest or any other encumbrance or restriction any of its property, business or assets, tangible or intangible
except in the ordinary course of business and consistent with normal banking practices; 

        E.    Knowingly
cause or allow the loss of insurance coverage, unless replaced with coverage which is substantially similar (in amount and insurer) to that now in effect; 

        F.     Knowingly
incur any obligation or liability, whether absolute or contingent, except in the ordinary course of business and consistent with normal banking practices; 

        G.    Discharge
or satisfy any lien, charge or encumbrance or pay any obligation or liability, whether absolute or contingent, due or to become due, except in the ordinary
course of business consistent with normal banking practices; 

21

 

        H.    Issue,
reserve for issuance, grant, sell or authorize the issuance of any shares of its capital stock or other securities or subscriptions, options, warrants, calls,
rights or commitments of any kind relating to the issuance thereto; 

        I.     Purchase
or redeem any of its stock or options thereon or declare or pay any dividend or other distribution on Mercantile Bank's outstanding capital stock; 

        J.     Change
its articles or bylaws or its authorized capital stock; 

        K.    Sell,
transfer, lease to others or otherwise dispose of any of its assets or cancel or compromise any debt or claim, or waive or release any right or claim, which,
individually or in the aggregate, would constitute a Material Adverse Change, except in the ordinary course of business and consistent with past practices and safe and sound banking principles; 

        L.    Enter
into any transaction other than in the ordinary course of business; 

        M.   Except
in the ordinary course of Mercantile Bank's business and consistent with past practices, enter into or give any promise, assurance or guarantee of the payment,
discharge or fulfillment of any undertaking or promise made by any other person, firm or corporation; 

        N.    Sell
or knowingly dispose of, or otherwise divest itself of the ownership, possession, custody or control, of any corporate books or records of any nature that, in
accordance with sound business practice, normally are retained for a period of time after their use, creation or receipt, except at the end of the normal retention period; 

        O.    Except
with respect to the employment agreements and tax gross up agreements described in Section 7.05 and Section 7.06, respectively, which agreements
shall not be modified without the consent of State National BHC, make any change in the rate of compensation, commission, bonus or other direct or indirect remuneration payable, or, except for
payments contemplated in Schedule 1.06A, pay or agree or orally promise to pay, conditionally or otherwise, any bonus, extra compensation, extra
pension or extra severance or extra vacation pay, to or for the benefit of any of its shareholders, directors, officers, employees or agents, or enter into any employment or consulting contract (other
than as contemplated by this Agreement) or other agreement with any director, officer or employee or adopt, amend in any material respect or terminate any pension, employee welfare, retirement, stock
purchase, stock option, stock appreciation rights, termination, severance, income protection, golden parachute, savings or profit-sharing plan (including trust agreements and insurance contracts
embodying such plans), any deferred compensation, or collective bargaining agreement, any group insurance contract or any other incentive, welfare or employee benefit plan or agreement maintained by
it for the benefit of its directors, employees or former employees, except in the ordinary course of business and consistent with past practices and safe and sound banking principles, and except
normal periodic increases in the compensation payable to officers or salaried employees, consistent with past practices and made in the ordinary course of business, and Mercantile Bank shall not be
prohibited from continuing, consistent with past practices, the accrual of 401(k) matching funds, nor from paying such amounts to Mercantile Bank's 401(k) participants prior to Closing. 

        P.     Engage
in any transaction with any affiliated person or create any liability of Mercantile Bank owed to such persons other than in the form of loans, deposits, wages,
salaries and reimbursement of expenses created in the ordinary course of business and consistent with past practices; 

        Q.    Acquire
any capital stock or other equity securities or acquire any equity or ownership interest in any bank, corporation, partnership or other entity (except through
settlement of indebtedness, foreclosure, or the exercise of creditors' remedies or in a fiduciary capacity); 

22

 

        R.    Terminate,
cancel or surrender any contract, lease or other agreement or suffer any damage, destruction or loss that, in any case or in the aggregate, would constitute a
Material Adverse Change; 

        S.     Dispose
of, permit to lapse, transfer or grant any rights under, or breach or infringe upon, any United States or foreign license or Proprietary Right or modify any
existing rights with respect thereto, except in the ordinary course of business and consistent with past practices and safe and sound banking principles; 

        T.     Except
for improvements or betterments relating to Properties, make any capital expenditures or capital additions or betterments in excess of an aggregate of $50,000; 

        U.    Hire
or employ any person with an annual salary equal to or greater than $40,000; 

        V.     Make
any, or acquiesce with any, change in any accounting methods, principles or material practices, except as required by GAAP or RAP; 

        W.    Between
the date of the Agreement and the Closing Date, sell any Investment Securities or purchase any Investment Securities in excess of an aggregate amount of $100,000
(other than U.S. Treasuries with a maturity of less than one year, and except in the ordinary course of business as disclosed in the investment reports included in the monthly report to Mercantile
Bank's Board of Directors and consistent with Mercantile Bank's investment policy); or 

        X.    Other
than loans fully secured by certificates of deposit or liquid, readily marketable collateral, make or alter any of the material terms of any loan to any single
borrower and his related interests in excess of the principal amount of $600,000, or renew or extend the maturity of any loan to any single borrower and his related interests in excess of the
principal amount of $600,000; provided, however, that State National BHC shall act on any specific request for the extension of credit in excess of the amounts set forth in this Section 5.05X
within two (2) business days following receipt of such request from Mercantile Bank and that any such request shall be deemed approved by State National BHC in the event that no action is taken
by State National BHC within such period. 

        Section 5.06  Access; Pre-Closing Investigation. Subject to the provisions of ARTICLE X, Mercantile Bank shall afford
the officers, directors, employees, attorneys, accountants, investment bankers and authorized representatives of State National BHC, upon reasonable notice, full access to the properties, books,
contracts and records of Mercantile Bank, permit State National BHC to make such reasonable inspections (including without limitation with regard to such properties physical inspection of the surface
and subsurface thereof and any structure thereon) as they may require and furnish to State National BHC during such period all such information concerning Mercantile Bank and its affairs as State
National BHC may reasonably request, in order that State National BHC may have full opportunity to make such reasonable investigation as it shall desire to make of the affairs of Mercantile Bank,
including, without limitation, access sufficient to verify the value of the assets and the liabilities of Mercantile Bank and the satisfaction of the conditions precedent to State National BHC's
obligations described in ARTICLE VIII of this Agreement; provided that such investigation shall be conducted in the manner least disruptive to the business and operations of the Mercantile Bank.
Mercantile Bank agrees at any time, and from time to time, to furnish to State National BHC as soon as practicable, any additional information that State National BHC may reasonably request. 

23

 

        Section 5.07
Invitations to and Attendance at Directors' and Committee Meetings. Mercantile Bank shall give notice to three
(3) designees of State National BHC, and shall invite such persons to attend all regular and special meetings of the board of directors of Mercantile Bank and all regular and special meetings
of any senior management committee (including but not limited to the executive committee and the loan and discount committee of Mercantile Bank) of Mercantile Bank; provided, however, that State
National BHC's designees shall excuse themselves from the portion of any meeting at which the Agreement is discussed. If the Merger is finally disapproved by any appropriate regulatory authority or if
this Agreement is terminated pursuant to its terms, State National BHC's designees will no longer be entitled to notice of and permission to attend such meetings. 

        Section 5.08
Additional Financial Statements and Tax Returns. Mercantile Bank shall promptly furnish, when available, State
National BHC with (A) unaudited financial statements of Mercantile Bank as of and for the period ended March 31, 2004 (and for each subsequent quarter-ending during the term of this
Agreement), (B) true and complete copies of the Report of Condition and Income of Mercantile Bank as of March 31, 2004 (and for each subsequent quarter-ending during the term of this
Agreement), and (C) a true and complete copy of the Federal income tax return of Mercantile Bank as filed with the IRS for the year ended December 31, 2003. 

        Section 5.09
Untrue Representations. Mercantile Bank shall promptly notify State National BHC in writing if Mercantile Bank becomes
aware of any fact or condition that makes untrue, or shows to have been untrue, in any material respect, any schedule or any other information furnished to State National BHC or any representation or
warranty made in or pursuant to this Agreement or that results in Mercantile Bank's failure to comply with any covenant, condition or agreement contained in this Agreement. 

        Section 5.10  Litigation and Claims. Mercantile Bank shall promptly notify State National BHC in writing of any litigation, or of
any claim, controversy or contingent liability that might be expected to become the subject of litigation, against Mercantile Bank or affecting any of its properties, if such litigation or potential
litigation might, in the event of an unfavorable outcome, result in a Material Adverse Change, and Mercantile Bank shall promptly notify State National BHC of any legal action, suit or proceeding or
judicial, administrative or governmental investigation, pending or, to the knowledge of Mercantile Bank, threatened against Mercantile Bank that questions or might question the validity of this
Agreement or the agreements contemplated hereby, including, but not limited to, the Merger Agreement, or any actions taken or to be taken by Mercantile Bank pursuant hereto or thereto or seeks to
enjoin or otherwise restrain the transactions contemplated hereby or thereby. 

        Section 5.11
Notice of Material Adverse Changes. Mercantile Bank shall promptly notify State National BHC in writing if any change
shall have occurred or been threatened (or any development shall have occurred or been threatened involving a prospective change) in the business, financial condition, operations or prospects of
Mercantile Bank that has or may reasonably be expected to have or lead to a Material Adverse Change. 

        Section 5.12  No Negotiation with Others. Mercantile Bank shall not, directly or indirectly, nor shall it permit its officers,
directors, employees, representatives or agents to, directly or indirectly (A) encourage, solicit or initiate discussions or negotiations with, or (B) except upon advice of counsel to
the extent required to fulfill the fiduciary duties owed to the shareholders of Mercantile Bank, entertain, discuss or negotiate with, or provide any information to, or cooperate with, any
corporation, partnership, person or other entity or group (other than State National BHC or its Affiliates or associates or officers, partners, employees or other authorized representatives of State
National BHC or such Affiliates or associates) concerning any merger, tender offer or other takeover offer, sale of substantial assets, sale of shares of capital stock or similar transaction involving
Mercantile Bank. Immediately upon receipt of any unsolicited offer, Mercantile Bank will communicate to State National BHC the terms of any proposal or request for information and the identity of the
parties involved. 

24

 

        Section 5.13
Consents and Approvals. Mercantile Bank shall use its best efforts to obtain all consents and approvals from third
parties, including those listed on Schedule 3.08, at the earliest practicable time. 

        Section 5.14
Environmental Investigation; Right to Terminate Agreement. 

        A.    State
National BHC and its consultants, agents and representatives, at the sole cost and expense of State National BHC, shall have the right to the same extent that
Mercantile Bank has such right, but not the obligation or responsibility, to inspect any Property, including, without limitation, conducting asbestos surveys and sampling, environmental assessments
and investigation, and other environmental surveys and analyses including soil and ground sampling ("Environmental Inspections") at any time on or prior to May 15, 2004. State National BHC
shall notify Mercantile Bank prior to any physical inspections of the Property, and Mercantile Bank may place reasonable restrictions on the time of such inspections. If, as a result of any such
Environmental Inspection, further investigation ("secondary investigation") including, without limitation, test borings, soil, water and other sampling is deemed desirable by State National BHC, State
National BHC shall (i) notify Mercantile Bank of any Property for which it intends to conduct such a secondary investigation and the reasons for such secondary investigation, and (ii) at
the sole cost and expense of State National BHC, commence such secondary investigation, on or prior to June 15, 2004. State National BHC shall give reasonable notice to Mercantile Bank of such
secondary investigations, and Mercantile Bank may place reasonable time and place restrictions on such secondary investigations. 

        B.    Mercantile
Bank agrees to indemnify and hold harmless State National BHC for any claims for damage to property, or injury or death to persons, made as a result of any
Environmental Inspection or secondary investigation conducted by State National BHC or its agents, which damage or injury is attributable to the negligent actions of Mercantile Bank or its agents,
except to the extent caused by the negligence of State National BHC or its agents. State National BHC agrees to indemnify and hold harmless Mercantile Bank for any claims for damage to property, or
injury or death to persons, attributable to the negligent actions of State National BHC or its agents in performing any Environmental Inspection or secondary investigation except to the extent caused
in whole or in part by the negligence of Mercantile Bank. State National BHC shall not have any liability or responsibility of any nature whatsoever for the results, conclusions or other findings
related to any Environmental Inspection, secondary investigation or other environmental survey. If this Agreement is terminated, then except as otherwise required by law, reports to any governmental
authority of the results of any Environmental Inspection, secondary investigation or other environmental survey shall not be made by State National BHC. State National BHC shall make no such report
prior to Closing unless required to do so by law, and in such case will give Mercantile Bank reasonable notice of State National BHC's intentions. 

        C.    State
National BHC shall have the right to terminate this Agreement if (i) the factual substance of any warranty or representation set forth in Section 3.21
is not materially true and accurate; (ii) the results of such Environmental Inspection, secondary investigation or other environmental survey are in good faith disapproved by State National BHC
because the environmental inspection, secondary investigation or other environmental survey identifies material violations or potential violations of Environmental Laws; (iii) Mercantile Bank
has refused to allow State National BHC to conduct an Environmental Inspection or secondary investigation in a manner that State National BHC reasonably considers necessary; (iv) the
Environmental Inspection, secondary investigation or other environmental survey identifies any past or present event, condition or circumstance that would or potentially would require substantial
remedial or cleanup action or result in a Material Adverse Change; (v) the Environmental Inspection, secondary investigation or other environmental survey identifies the presence of any
underground or above ground storage tank in, on or under any Property that is not shown to be in compliance 

25

 

with
all Environmental Laws applicable to the tank either now or at a future time certain, or that has had a release of petroleum or some other Hazardous Material that has not been cleaned up to the
satisfaction of the relevant governmental authority or any other party with a legal right to compel cleanup; or (vi) the Environmental Inspection, secondary investigation or other environmental
survey identifies the presence of any asbestos-containing material in, on or under any Property, the removal of which would result in a Material Adverse Change. On or prior to July 15, 2004,
State National BHC shall advise Mercantile Bank in writing as to whether State National BHC intends to terminate this Agreement because State National BHC disapproves of the results of the
Environmental Inspection, secondary investigation or other environmental survey. Mercantile Bank shall have the opportunity to correct any objected to violations or conditions to State National BHC's
reasonable satisfaction prior to July 31, 2004. In the event that Mercantile Bank fails to demonstrate its satisfactory correction of the violations or conditions to State National BHC, State
National BHC may terminate the Agreement at any time after July 31, 2004. In the event that this Agreement is terminated in accordance with this Section 5.14, State National BHC shall
provide Mercantile Bank with a copy of all inspection reports and surveys upon which State National BHC has relied to terminate this Agreement. 

        D.    Mercantile
Bank agrees to make available to State National BHC and its consultants, agents and representatives all documents and other material relating to environmental
conditions of any Property including, without limitation, the results of other environmental inspections and surveys. Mercantile Bank also agrees that all engineers and consultants who prepared or
furnished such reports may discuss such reports and information with State National BHC and shall be entitled to certify the same in favor of State National BHC and its consultants, agents and
representatives and make all other data available to State National BHC and its consultants, agents and representatives. 

        Section 5.15
Allowance for Loan Losses. State National BHC and Mercantile Bank shall consult and cooperate to ensure that
Mercantile Bank's allowance for loan losses is maintained at a level consistent with peer group levels and consistent with State National BHC's allowance for loan loss methodology. Any additional
provisions made by Mercantile Bank pursuant to this Section 5.15 shall not be considered a Material Adverse Change for purposes of this Agreement. 

 
 

ARTICLE VI.
  COVENANTS OF STATE NATIONAL BHC    
    

        State National BHC hereby makes the covenants set forth in this ARTICLE VI to Mercantile Bank. 

        Section 6.01
Best Efforts. State National BHC agrees to use its best efforts to cause the consummation of the transactions
contemplated hereby in accordance with the terms and conditions of this Agreement. 

        Section 6.02  Incorporation and Organization of New Mercantile. State National BHC will incorporate, charter and organize New
Mercantile as a Texas corporation. 

        Section 6.03
Merger Agreement. State National BHC will, as soon as practicable after the execution of this Agreement, enter into
the Merger Agreement, the form of which is attached hereto as Exhibit A, and shall perform all of its obligations thereunder. State National BHC
will, as soon as practicable after the execution of this Agreement, cause New Mercantile to duly authorize and enter into the Merger Agreement and shall cause New Mercantile to perform all of its
obligations thereunder. State National BHC shall vote all of the stock of New Mercantile in favor of the Merger and the Merger Agreement. 

26

 

        Section 6.04
Information for Applications and Statements. State National BHC will promptly furnish to Mercantile Bank all
information concerning State National BHC and New Mercantile, including, but not limited to, financial statements, required for inclusion in any application or statement to be made by Mercantile Bank
or filed by Mercantile Bank with any governmental body in connection with the transactions contemplated by this Agreement, or in connection with any unrelated transactions during the pendency of this
Agreement, and State National BHC represents and warrants that all information so furnished for such statements and applications shall be true and correct in all material respects and shall not omit
any material fact required to be stated therein or necessary to make the statements made, in light of the circumstances under which they were made, not misleading. State National BHC shall otherwise
fully cooperate with Mercantile Bank in the filing of any applications or other documents necessary to consummate the transactions contemplated by this Agreement, including the Merger. 

        Section 6.05  Acts of New Mercantile. Prior to the Closing, State National BHC shall not cause New Mercantile to take any action or
execute any agreement, document or certificate except as contemplated by this Agreement and the other agreements contemplated hereby, including, but not limited to, the Merger Agreement. 

        Section 6.06
Untrue Representations. State National BHC shall promptly notify Mercantile Bank in writing if State National BHC
becomes aware of any fact or condition that makes untrue, or shows to have been untrue, in any material respect, any schedule or any other information furnished to Mercantile Bank or any
representation or warranty made in or pursuant to this Agreement or that results in State National BHC's failure to comply with any covenant, condition or agreement contained in this Agreement. 

        Section 6.07
Litigation and Claims. State National BHC shall promptly notify Mercantile Bank of any legal action, suit or
proceeding or judicial, administrative or governmental investigation, pending or, to the knowledge of State National BHC, threatened against State National BHC or New Mercantile that questions or
might question the validity of this Agreement or the agreements contemplated hereby, including, but not limited to, the Merger Agreement, or any actions taken or to be taken by State National BHC or
New Mercantile pursuant hereto or thereto or seeks to enjoin or otherwise restrain the transactions contemplated hereby or thereby. 

        Section 6.08
Director and Officer Indemnification. 

        A.    For
a period of three (3) years after the Effective Time of the Merger, State National BHC shall indemnify, defend and hold harmless each person entitled to
indemnification from Mercantile Bank (each, an "Indemnified Party") against all liabilities arising out of actions or omissions occurring at or prior to the Effective Time of the Merger (including,
without limitation, the transactions contemplated by this Agreement) to the same extent and subject to the conditions set forth in Mercantile Bank's Articles of Association and Bylaws, in each case as
in effect on the date hereof. 

27

 

        B.    State
National BHC shall use commercially reasonable efforts (and Mercantile Bank shall cooperate prior to the Effective Time of the Merger in these efforts) to maintain
in effect for a period of three (3) years after the Effective Time of the Merger, Mercantile Bank's existing directors' and officers' liability insurance policy; provided that State National
BHC may substitute therefor (i) policies of at least the same coverage and amounts containing terms and conditions which are substantially no less advantageous or (ii) with the consent
of Mercantile Bank (given prior to the Effective Time of the Merger) any other policy with respect to claims arising from facts or events which occurred prior the Effective Time of the Merger and
covering persons who are currently covered by such insurance; provided that State National BHC shall not be obligated to make premium payments for such period of three (3) years in respect of
such policy (or coverage replacing such policy) which exceed, for the portion related to Mercantile Bank's and their directors and officers, 125% of the annual premium payments on Mercantile Bank's
current policy, as in effect as of the date of this Agreement (the "Maximum Amount"). If the amount of premium that is necessary to maintain or procure such insurance coverage exceeds the Maximum
Amount, State National BHC shall use its reasonable efforts to maintain the most advantageous policies of directors' and officers' liability insurance obtainable for a premium equal to the Maximum
Amount. 

        Section 6.09
Regulatory and Other Approvals. State National BHC shall promptly, but in no event later than fifteen (15) days
following the receipt by State National BHC of a substantially complete response from Mercantile Bank of State National BHC's information request (which information request is hereby delivered
contemporaneously with the execution of this Agreement), file or cause to be filed applications for all regulatory approvals required to be obtained by State National BHC or New Mercantile in
connection with this Agreement and the other agreements contemplated hereby. State National BHC shall promptly furnish Mercantile Bank with copies of all such regulatory filings and all correspondence
for which confidential treatment has not been requested. State National BHC shall use its best efforts to obtain all such regulatory approvals and any other approvals from third parties, including
those listed on Schedule 4.07. 

        Section 6.10
Adverse Change. State National BHC shall promptly notify Mercantile Bank in writing if any change shall have occurred
or been threatened (or any development shall have occurred or been threatened involving a prospective change) that would adversely affect, prevent or delay consummation of the transactions
contemplated by this Agreement or the other agreements contemplated hereby. 

        Section 6.11
Financing. State National BHC shall use commercially reasonably efforts to raise sufficient funds, through an offering
of trust preferred securities, common stock or otherwise, necessary to (i) pay the Merger Consideration pursuant to the terms of this Agreement and to be "well-capitalized" for
regulatory purposes following consummation of the Merger, and (ii) permit the Merger to be closed as soon as practicable following the receipt of all necessary regulatory approvals and the
expiration of any mandatory waiting periods. 

28

 

 
 

ARTICLE VII.
  CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MERCANTILE BANK    
    

        All obligations of Mercantile Bank under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions, any or
all of which may be waived in whole or in part by Mercantile Bank: 

        Section 7.01
Compliance with Representations, Warranties and Agreements. All representations and warranties made by State National
BHC in this Agreement or in any document or schedule delivered to Mercantile Bank pursuant hereto shall have been true and correct in all material respects when made and shall be true and correct in
all material respects as of the Closing with the same force and effect as if such representations and warranties were made at and as of the Closing, except with respect to those representations and
warranties specifically made as of an earlier date (in which case such representations and warranties shall be true as of such earlier date). State National BHC shall have performed or complied in all
material respects with all agreements, terms, covenants and conditions required by this Agreement to be performed or complied with by State National BHC prior to or at the Closing. 

        Section 7.02
Shareholder Approvals. The holders of the Mercantile Bank Stock entitled to vote on the Merger and the Merger
Agreement shall have (A) approved the Merger and the Merger Agreement in accordance with Article 5.03 of the TBCA, and (B) approved the Parachute Payments under §
280G(b)(5)(A)(ii) of the Code. 

        Section 7.03  Government and Other Approvals. State National BHC shall have received approvals, acquiescence or consents of the
transactions contemplated by this Agreement and the Merger Agreement, from all necessary governmental agencies and authorities and other third parties, including but not limited to the Federal
Reserve, and all applicable waiting periods shall have expired, and the approvals and consents of all third parties required to consummate this Agreement and the other agreements contemplated hereby,
including, but not limited to, the Merger Agreement and the transactions contemplated hereby and thereby, including all consents described on  Schedule 3.08 and Schedule 4.07. Such approvals and the transactions contemplated hereby
shall not have been contested or threatened to be contested by any Federal or state governmental authority or by any other third party (except shareholders asserting statutory dissenters' appraisal
rights) by formal proceedings. 

        Section 7.04
No Litigation. No action shall have been taken, and no statute, rule, regulation or order shall have been promulgated,
enacted, entered, enforced or deemed applicable to the acquisition by any Federal, state or foreign government or governmental authority or by any court, domestic or foreign, including the entry of a
preliminary or permanent injunction, that would (A) make the Agreement or any other agreement contemplated hereby, including, but not limited to, the Merger Agreement, or the transactions
contemplated hereby or thereby illegal, invalid or unenforceable, (B) impose material limits in the ability of any party to this Agreement to consummate the Agreement or any other agreement
contemplated hereby, including, but not limited to, the Merger Agreement, or the transactions contemplated hereby or thereby, or (C) if the Agreement or any other agreement contemplated hereby,
including, but not limited to, the Merger Agreement, or the transactions contemplated hereby or thereby are consummated, subject Mercantile Bank or subject any officer, director, shareholder or
employee of Mercantile Bank to criminal or civil liability. No action or proceeding before any court or governmental authority, domestic or foreign, by any government or governmental authority or by
any other person, domestic or foreign, shall be threatened, instituted or pending that would reasonably be expected to result in any of the consequences referred to in clauses (A) through
(C) above. 

        Section 7.05
Employment Agreements. State National BHC and the individuals listed on  Schedule 7.05 shall have entered into employment agreements substantially in
the forms set forth on  Schedule 7.05 by April 23, 2004. 

29

 

        Section 7.06
Tax Gross Up Agreements. Mercantile Bank, the shareholders of Mercantile Bank, State National BHC and each of the
individuals listed on Schedule 7.06 shall have entered into the Tax Gross Up Agreements in the forms set forth on  Schedule 7.06 by April 23,
2004. 

        Section 7.07  Opinion of Counsel. Mercantile Bank shall have received an opinion of counsel from Jenkens & Gilchrist, a
Professional Corporation in substantially the form set forth in Exhibit F hereof. 

 
 

ARTICLE VIII.
  CONDITIONS PRECEDENT TO THE OBLIGATIONS OF STATE NATIONAL BHC    
    

        All obligations of State National BHC under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions, any or
all of which may be waived in whole or in part by State National BHC. 

        Section 8.01
Compliance with Representations, Warranties and Agreements. All representations and warranties made by Mercantile Bank
in this Agreement or in any document or schedule delivered to State National BHC pursuant hereto shall have been true and correct when made and shall be true and correct as of the Closing with the
same force and effect as if such representations and warranties were made at and as of the Closing, except with respect to those representations and warranties specifically made as of an earlier date
(in which case such representations and warranties shall be true as of such earlier date). Mercantile Bank shall have performed or complied in all material respects with all agreements, terms,
covenants and conditions required by this Agreement to be performed or complied with by Mercantile Bank prior to or at the Closing. 

        Section 8.02
Proxies and Shareholder Approvals. On or before April 23, 2004, Mercantile Bank and each of the persons set
forth on Schedule 8.02 shall have executed the Voting Agreement and Irrevocable Proxy in the form attached hereto as  Exhibit C, providing that
such persons agree that they will vote the shares of the Mercantile Bank Stock owned by them in favor of (A) the
Merger Agreement and the Merger and the transactions contemplated hereby and thereby, subject to required regulatory approvals, and (B) the Parachute Payments in accordance with §
280G(b)(5)(A)(ii) of the Code.The holders of the Mercantile Bank Stock entitled to vote on the Merger and the Merger Agreement shall have (A) approved the Merger and the Merger Agreement
in accordance with Article 5.03 of the TBCA, and (B) approved the Parachute Payments under § 280G(b)(5)(A)(ii) of the Code. 

        Section 8.03
Government and Other Approvals. State National BHC shall have received approvals, acquiescence or consents, all on
terms and conditions acceptable to State National BHC, of the transactions contemplated by this Agreement and the Merger Agreement from all necessary governmental agencies and authorities, including
but not limited to the Federal Reserve, and all applicable waiting periods shall have expired, and the approvals and consents of all third parties required to consummate this Agreement and the other
agreements contemplated hereby, including, but not limited to, the Merger Agreement and the transactions contemplated hereby and thereby, including all consents described on  Schedule 3.08 and
Schedule 4.07. Such approvals and the transactions contemplated hereby
shall not have been contested or threatened to be contested by any Federal or state governmental authority or by any other third party (except shareholders asserting statutory dissenters' appraisal
rights) by formal proceedings. It is understood that, if such contest is brought by formal proceedings, the State National BHC may, but shall not be obligated to, answer and defend such contest or
otherwise pursue this transaction over such objection. 

30

 

        Section 8.04
No Litigation. No action shall have been taken, and no statute, rule, regulation or order shall have been promulgated,
enacted, entered, enforced or deemed applicable to this Agreement, the Merger, or the transactions contemplated hereby or thereby by any Federal, state or foreign government or governmental authority
or by any court, domestic or foreign, including the entry of a preliminary or permanent injunction, that would (A) make this Agreement or any other agreement contemplated hereby, including, but
not limited to, the Merger Agreement, or the transactions contemplated hereby or thereby illegal, invalid or unenforceable, (B) require the divestiture of a material portion of the assets of
Mercantile Bank, (C) impose material limits in the ability of any party to this Agreement to consummate the Agreement or any other agreement contemplated hereby, including, but not limited to,
the Merger Agreement, or the transactions contemplated hereby or thereby, (D) otherwise result in a Material Adverse Change or (E) if this Agreement or any other agreement contemplated
hereby, including, but not limited to, the Merger Agreement, or the transactions contemplated hereby or thereby are consummated, subject State National BHC or New Mercantile or subject any officer,
director, shareholder or employee of State National BHC or New Mercantile to criminal or civil liability. No action or proceeding before any court or governmental authority, domestic or foreign, by
any government or governmental authority or by any other person, domestic or foreign, shall be threatened, instituted or pending that would reasonably be expected to result in any of the consequences
referred to in clauses (A) through (E) above. 

        Section 8.05
No Material Adverse Change. There shall have been no Material Adverse Change with respect to Mercantile Bank since
December 31, 2003. 

        Section 8.06
Employment Agreements. State National BHC and the individuals listed on  Schedule 7.05 shall have entered into employment agreements substantially in
the forms set forth on  Schedule 7.05 by April 23, 2004. 

        Section 8.07
Director Support Agreements. If requested by State National BHC in writing to Mercantile Bank at least five
(5) days prior to the Closing Date, State National BHC shall have received from each director that is not an officer of Mercantile Bank, each as listed on  Schedule 8.07, a Director Support
Agreement for a period not to exceed two (2) years, the form of which is attached hereto as  Exhibit B, which Director Support Agreement shall be supported by the payment to such director of
$10,000 per year that such agreement is in
effect. 

        Section 8.08
Releases of Directors and Officers. 

        A.    State
National BHC shall have received from each of the directors of Mercantile Bank, an instrument, the form of which is attached hereto as  Exhibit D, dated the Closing Date, releasing Mercantile Bank
from any and all claims of such directors (except to their deposits and accounts).
State National BHC shall have received from each of the officers of Mercantile Bank listed on Schedule 8.08A, an instrument, the form of which is
attached hereto as Exhibit E, dated the Closing Date, releasing Mercantile Bank from any and all claims of such officers (except to their
deposits and accounts). 

        B.    Mercantile
Bank shall have used its best efforts to obtain from each of the officers of Mercantile Bank, other than those listed on  Schedule 8.08A, an instrument, the forms of which are attached hereto as
Exhibit E, dated
the Closing Date, releasing Mercantile Bank from any and all claims of such officers (except to their deposits and accounts). 

        Section 8.09  Available Funds. State National BHC shall have raised sufficient funds, through an offering of trust preferred
securities, common stock or otherwise, necessary to pay the Merger Consideration pursuant to the terms of this Agreement and to be "well-capitalized" for regulatory purposes following
consummation of the Merger. 

        Section 8.10
Opinion of Counsel. State National BHC shall have received an opinion of counsel from Haynie, Rake & Repass,
P.C. in substantially the form set forth in Exhibit G hereof. 

31

 

        Section 8.11
Allowance for Loan Losses. Mercantile Bank shall have made any additional provisions to its allowance for loan losses
pursuant to Section 5.15 of this Agreement. 

 
 

ARTICLE IX.
  TERMINATION AND ABANDONMENT    
    

        Section 9.01 Right of Termination. This Agreement and the transactions contemplated hereby may be
terminated and abandoned at any time prior to or at the Closing (notwithstanding approval thereof by the shareholders of Mercantile Bank), as follows, and in no other manner: 

        A.    By
the mutual consent of Mercantile Bank and State National BHC, duly authorized by the board of directors of each of Mercantile Bank and State National BHC. 

        B.    By
either Mercantile Bank or State National BHC if the conditions precedent to such parties' obligations to close specified in ARTICLE VII and ARTICLE VIII, respectively,
hereof have not been met or waived by September 30, 2004, or such later date as has been approved by Mercantile Bank and State National BHC. 

        C.    By
either Mercantile Bank or State National BHC if any of the transactions contemplated by this Agreement or the Merger Agreement are disapproved by any regulatory
authority whose approval is required to consummate such transactions or if any court of competent jurisdiction in the United States or other United States (federal or state) governmental body shall
have issued an order, decree or ruling or taken any other action restraining, enjoining, invalidating or otherwise prohibiting the Agreement or the transactions contemplated hereby and such order,
decree, ruling or other action shall have been final and nonappealable. 

        D.    By
State National BHC if it reasonably determines, in good faith and after consulting with counsel, there is substantial likelihood that any necessary regulatory approval
will not be obtained or will be obtained only upon a condition or conditions that make it inadvisable to proceed with the transactions contemplated by this Agreement. 

        E.    By
State National BHC if there shall have been any Material Adverse Change. 

        F.     By
State National BHC in accordance with Section 5.14. 

        G.    By
State National BHC if Mercantile Bank shall fail to comply in any material respect with any of its covenants or agreements contained in this Agreement or in any other
agreement contemplated hereby, including, but not limited to, the Merger Agreement, and such failure shall not have been cured within a period of thirty (30) calendar days after written notice
from State National BHC, or if any of the representations or warranties of Mercantile Bank contained herein or therein shall be inaccurate in any material respect. 

        H.    By
Mercantile Bank if State National BHC shall fail to comply in any material respect with any of its covenants or agreements contained in this Agreement or in any other
agreement contemplated hereby and such failure shall not have been cured within a period of thirty (30) calendar days after notice from Mercantile Bank, or if any of the representations or
warranties of State National BHC contained herein or therein shall be inaccurate in any material respect. 

        I.     By
State National BHC if it determines, after consulting with its investment bankers, that it will not be able to raise sufficient capital to fund the Merger
Consideration and to remain "well capitalized" for regulatory capital purposes following the Closing. 

        Section 9.02  Notice of Termination. The power of termination provided for by Section 9.01 hereof may be exercised only by a
notice given in writing, as provided in Section 11.07 of this Agreement. 

32

 

        Section 9.03
Effect of Termination. Without limiting any other relief to which either party hereto may be entitled for breach of
this Agreement or pursuant to Section 9.04, in the event of the termination and abandonment of this Agreement pursuant to the provisions of Section 9.01 hereof, no party to this
Agreement shall have any further liability or obligation in respect of this Agreement, except that (A) each party shall be responsible for their expenses and costs pursuant to
Section 11.02 hereof, and (B) the provisions of ARTICLE X hereof shall remain applicable. Notwithstanding any provision in this Agreement to the contrary, the sole remedy available to a
party for any unknowing misrepresentation or breach of warranty by the other party which is discovered by the non-breaching party prior to the Closing Date shall be the termination of this
Agreement. 

        Section 9.04  Termination Fee. In the event this Agreement is terminated (A) by State National BHC pursuant to
(i) Section 9.01B, due to the failure to meet or waive the condition precedent set forth in (1) Section 8.03, if the inability to obtain regulatory approval of the
transactions contemplated by this Agreement is because State National BHC would not be "well-capitalized" following the Merger, or (2) Section 8.09,
(ii) Section 9.01C because any of State National BHC's regulatory applications have been disapproved due to State National BHC's inability to obtain sufficient capital to fund the Merger
Consideration or to be "well capitalized" upon consummation of the transactions contemplated by this Agreement, (iii) Section 9.01D, if the reason why State National BHC determines that
there is a substantial likelihood that regulatory approval will not be obtained or that it is inadvisable to proceed because State National BHC would not be "well-capitalized" upon
consummation of the transactions contemplated by this Agreement, or (iv) Section 9.01I or (B) by Mercantile Bank pursuant to Section 9.01B because (i) State National
BHC has not obtained sufficient capital to fund the Merger Consideration by September 30, 2004, or (ii) State National BHC has not obtained regulatory approval by September 30,
2004 as a result of the fact that State National BHC would not be "well capitalized" upon consummation of the transactions contemplated by this Agreement, then State National BHC shall, within three
(3) business days of such termination, pay a termination fee to Mercantile Bank in the amount of $1,000,000. Mercantile Bank's exclusive remedy for any termination pursuant to this
Section 9.04 shall be the payment of such termination fee; provided, however, State National BHC and Mercantile Bank will continue to be
responsible for their respective expenses pursuant to Section 11.02 hereof and the provisions of ARTICLE X hereof shall survive such termination. 

 
 

ARTICLE X.
  CONFIDENTIAL INFORMATION    
    

        Section 10.01 Definition of "Recipient," "Disclosing Party" and "Representative". For purposes of this
ARTICLE X, the term "Recipient" shall mean the party receiving the Subject Information (as defined in Section 10.02) and the term "Disclosing Party" shall mean the party furnishing the Subject
Information. The terms "Recipient" or "Disclosing Party", as used herein, include: (1) all persons and entities related to or affiliated in any way with the Recipient or the Disclosing Party,
as the case may be, and (2) any person or entity controlling, controlled by or under common control with the Recipient or the Disclosing Party, as the case may be. The term "Representative" as
used herein, shall include all directors, officers, shareholders, employees, representatives, advisors, attorneys, accountants and agents of any of the foregoing. The term "person" as used in this
ARTICLE X shall be broadly interpreted to include, without limitation, any corporation, company, group, partnership, governmental agency or individual. 

33

 

        Section 10.02
Definition of "Subject Information". For purposes of this ARTICLE X, the term "Subject Information" shall mean all
information furnished to the Recipient or its Representatives (whether prepared by the Disclosing Party, its Representatives or otherwise and whether or not identified as being non public,
confidential or proprietary) by or on behalf of the Disclosing Party or its Representatives relating to or involving the business, operations or affairs of the Disclosing Party or otherwise in
possession of the Disclosing Party. The term "Subject Information" shall not include information that (A) was already in the Recipient's possession at the time it was first furnished to
Recipient by or on behalf of Disclosing Party, provided that such information is not known by the Recipient to be subject to another confidentiality agreement with or other obligation of secrecy to
the Disclosing Party, its Subsidiaries or another party, or (B) becomes generally available to the public other than as a result of a disclosure by the Recipient or its Representatives, or
(C) becomes available to the Recipient on a non-confidential basis from a source other than the Disclosing Party, its Representative or otherwise, provided that such source is not
known by the Recipient to be bound by a confidentiality agreement with or other obligation of secrecy to the Disclosing Party, its Representative or another party. 

        Section 10.03
Confidentiality. Each Recipient hereby agrees that the Subject Information will be used solely for the purpose of
reviewing and evaluating the transactions contemplated by this Agreement and the other agreements contemplated hereby, including the Merger Agreement, and that the Subject Information will be kept
confidential by the Recipient and the Recipient's Representatives; provided, however, that (A) any of such Subject Information may be disclosed to the Recipient's Representatives (including,
but not limited to, the Recipient's accountants, attorneys and investment bankers) who need to know such information for the purpose of evaluating any such possible transaction between the Disclosing
Party and the Recipient (it being understood that such Representatives shall be informed by the Recipient of the confidential nature of such information and that the Recipient shall direct and cause
such persons to treat such information confidentially); and (B) any disclosure of such Subject Information may be made to which the Disclosing Party consents in writing prior to any such
disclosure by Recipient. 

        Section 10.04
Securities Law Concerns. Each Recipient hereby acknowledges that the Recipient is aware, and the Recipient will
advise the Recipient's Representatives who are informed as to the matters that are the subject of this Agreement, that the United States securities laws prohibit any person who has received material,
non-public information from an issuer of securities from purchasing or selling securities of such issuer or from communicating such information to any other person under circumstances in
which it is reasonably foreseeable that such person is likely to purchase or sell such securities. 

        Section 10.05
Return of Subject Information. In the event of termination of this Agreement or the Merger Agreement, for any reason,
the Recipient shall promptly return to the Disclosing Party all written material containing or reflecting any of the Subject Information other than information contained in any application, notice or
other document filed with any governmental agency and not returned to the Recipient by such governmental agency. In making any such filing, the Recipient will request confidential treatment of such
Subject Information included in any application, notice or other document filed with any governmental agency. 

34

 

        Section 10.06
Specific Performance/Injunctive Relief. Each Recipient acknowledges that the Subject Information constitutes
valuable, special and unique property of the Disclosing Party critical to its business and that any breach of ARTICLE X of this Agreement by it will give rise to irreparable injury to the Disclosing
Party that is not compensable in damages. Accordingly, each Recipient agrees that the Disclosing Party shall be entitled to obtain specific performance and/or injunctive relief against the breach or
threatened breach of ARTICLE X of this Agreement by the Recipient or its Representatives. Each Recipient further agrees to waive, and use its reasonable efforts to cause its Representatives to waive,
any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of ARTICLE X of this Agreement, but
shall be in addition to all other remedies available at law or in equity to the Disclosing Party. 

 
 

ARTICLE XI.
  MISCELLANEOUS    
    

        Section 11.01 Survival of Representations and Warranties. The parties hereto agree that all of their
respective representations and warranties contained in this Agreement shall not survive the Closing Date. 

        Section 11.02
Expenses. State National BHC shall pay all of its expenses and costs (including, without limitation, all counsel fees
and expenses) and Mercantile Bank shall pay all of its expenses and costs (including, without limitation, all counsel fees and expenses), incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby. 

        Section 11.03
Brokerage Fees and Commissions. State National BHC hereby represents to Mercantile Bank that no agent, representative
or broker has represented State National BHC in connection with the transactions described in this Agreement. Mercantile Bank shall not have any responsibility or liability for any fees, expenses or
commissions payable to any agent, representative or broker of State National BHC, and State National BHC hereby agrees to indemnify and hold Mercantile Bank harmless for any amounts owed to any agent,
representative or broker of State National BHC. Mercantile Bank hereby represents to State National BHC that no agent, representative or broker has represented Mercantile Bank or any or all of the
shareholders in connection with the transactions described in this Agreement. State National BHC shall have no responsibility or liability for any fees, expenses or commissions payable to any agent,
representative or broker of Mercantile Bank or any shareholder of Mercantile Bank and Mercantile Bank hereby agrees to indemnify and hold State National BHC harmless for any amounts owed to any agent,
representative or broker of Mercantile Bank or any shareholder of Mercantile Bank. 

        Section 11.04
Entire Agreement. This Agreement and the other agreements, documents, schedules and instruments executed and
delivered by the parties to each other at the Closing constitute the full understanding of the parties, a complete allocation of risks between them and a complete and exclusive statement of the terms
and conditions of their agreement relating to the subject matter hereof and supersede any and all prior agreements, whether written or oral, that may exist between the parties with respect thereto.
Except as otherwise specifically provided in this Agreement, no conditions, usage of trade, course of dealing or performance, understanding or agreement purporting to modify, vary, explain or
supplement the terms or conditions of this Agreement shall be binding unless hereafter or contemporaneously herewith made in writing and signed by the party to be bound, and no modification shall be
effected by the acknowledgment or acceptance of documents containing terms or conditions at variance with or in addition to those set forth in this Agreement. 

35

 

        Section 11.05
Further Cooperation. The parties agree that they will, at any time and from time to time after the Closing, upon
request by the other and without further consideration, do, perform, execute, acknowledge and deliver all such further acts, deeds, assignments, assumptions, transfers, conveyances, powers of
attorney, certificates and assurances as may be reasonably required in order to fully consummate the transactions contemplated hereby in accordance with this Agreement or to carry out and perform any
undertaking made by the parties hereunder. 

        Section 11.06
Severability. In the event that any provision of this Agreement is held to be illegal, invalid or unenforceable under
present or future laws, then (A) such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision were not a
part hereof; (B) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by such illegal, invalid or unenforceable provision or by its
severance from this Agreement; and (C) there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may
be possible and still be legal, valid and enforceable. 

        Section 11.07
Notices. Any and all payments (other than payments at the Closing), notices, requests, instructions and other
communications required or permitted to be given under this Agreement after the date hereof by any party hereto to any other party may be delivered personally or by nationally recognized overnight
courier service or sent by mail or (except in the case of payments) by telex or facsimile transmission, at the respective addresses or transmission numbers set forth below and shall be effective
(A) in the case of personal delivery, telex or facsimile transmission, when received; (B) in the case of mail, upon the earlier of actual receipt or five (5) business days after
deposit in the United States Postal Service, first class certified or registered mail, postage prepaid, return receipt requested; and (C) in the case of nationally-recognized overnight courier
service, one (1) business day after delivery to such courier service together with all appropriate fees or charges and instructions for such overnight delivery. The parties may change their
respective addresses and transmission numbers by written notice to all other parties, sent as provided in this Section 11.07. All communications must be in writing and addressed as follows: 

IF
TO MERCANTILE BANK: 

Mr. Morrie
B. Minshew

Chairman of the Board

Mercantile Bank Texas

4500 Mercantile Plaza Drive #100

Fort Worth, Texas 76161

Telecopy: (817) 831-2218 

With
a copy to: 

Mark
Haynie, Esq.

Haynie, Rake & Repass, P.C.

14651 Dallas Parkway, Suite 136

Dallas, Texas 75240

Telecopy: (972) 716-1850 

36

 

And 

IF
TO STATE NATIONAL BHC: 

Mr. Tom
C. Nichols

Chairman of the Board

State National Bancshares, Inc.

1617 Broadway

P.O. Box 5240

Lubbock, Texas 79408

Telecopy: (806) 749-5670 

With
a copy to: 

Charles
E. Greef, Esq.

Jenkens & Gilchrist,

a Professional Corporation

1445 Ross Avenue, Suite 3200

Dallas, Texas 75202-2799

Telecopy: (214) 855-4300 

        Section 11.08
GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS
(INCLUDING THOSE LAWS RELATING TO CHOICE OF LAW) APPLYING TO CONTRACTS ENTERED INTO AND TO BE PERFORMED WITHIN THE STATE OF TEXAS, WITHOUT REGARD FOR THE PROVISIONS THEREOF REGARDING CHOICE OF LAW. 

        Section 11.09
Multiple Counterparts. For the convenience of the parties hereto, this Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all counterparts hereof so executed by the parties hereto, whether or not such counterpart shall bear the execution of each of the parties
hereto, shall be deemed to be, and shall be construed as, one and the same Agreement. A telecopy or facsimile transmission of a signed counterpart of this Agreement shall be sufficient to bind the
party or parties whose signature(s) appear thereon. 

        Section 11.10  Certain Definitions. 

        A.    "Affiliate"
means, with respect to any person, any person that, directly or indirectly, controls, is controlled by, or is under common control with, such person in
question. For the purposes of this definition, "control" (including, with correlative meaning, the terms "controlled by" and "under common control with") as used with respect to any person, shall mean
the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract
or otherwise. 

37

 

        B.    "Environmental
Laws" mean all federal, state and local laws, regulations, statutes, ordinances, codes, rules, decisions, orders or decrees relating or pertaining to the
public health and safety or the environment, or otherwise governing the generation, use, handling, collection, treatment, storage, transportation, recovery, recycling, removal, discharge or disposal
of Hazardous Materials, including, without limitation, (i) the Solid Waste Disposal Act, 42 U.S.C. 6901 et seq., as amended ("SWDA," also known as "RCRA" for a subsequent amending
act), (ii) the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §9601 et seq., as amended ("CERCLA"), (iii) the Clean Water Act, 33 U.S.C.
§1251 et seq., as amended ("CWA"), (iv) the Clean Air Act, 42 U.S.C. §7401 et seq., as amended ("CAA"), (v) the Toxic Substances Control Act,
15 U.S.C. §2601 et seq., as amended ("TSCA"), (vi) the Emergency Planning and Community Right to Know Act, 15 U.S.C. §2601 et seq., as
amended ("EPCRKA"), and (vii) the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., as amended. 

        C.    "Hazardous
Material" means, without limitation, (i) any "hazardous wastes" as defined under RCRA, (ii) any "hazardous substances as defined under CERCLA,
(iii) any toxic pollutants as defined under CWA, (iv) any hazardous air pollutants as defined under CAA, (v) any hazardous chemicals as defined under TSCA, (vi) any
hazardous substances or extremely hazardous substances as defined under EPCRKA, (vii) asbestos, (viii) polychlorinated biphenyls, (ix) underground storage tanks, whether empty,
filled or partially filled with any substance, (x) any substance the presence of which on the property in question is prohibited under any Environmental Law, and (xi) any other substance
which under any Environmental Law requires special handling or notification of or reporting to any federal, state or local governmental entity in its generation, use, handling, collection, treatment,
storage, re-cycling, treatment, transportation, recovery, removal, discharge or disposal. 

        D.    The
term "Property" or "Properties" shall include all real property owned or leased by Mercantile Bank, including, but not limited to properties that Mercantile Bank has
foreclosed on as well as their respective premises and all improvements and fixtures thereon. 

        E.    "Material
Adverse Change" means (i) a reduction in the shareholders' equity of Mercantile Bank by an amount equaling or exceeding 5% of the shareholders' equity of
Mercantile Bank as of December 31, 2003, or (ii) any event or circumstance that could reasonably be expected to result in such a reduction within one (1) year. "Material Adverse
Change" shall not be deemed to include (i) changes in banking and similar laws of general applicability, (ii) changes in generally accepted accounting principles or regulatory accounting
principles, (iii) actions or omissions of a party taken with the prior informed consent of the other party in contemplation of the transactions contemplated by this Agreement,
(iv) changes in general economic or market conditions in the securities industry, (v) changes in general levels of interest rates, (vi) other events or changes affecting the
banking industry as a whole except to the extent that such events or changes affect Mercantile Bank to a greater degree than other similar size bank holding companies or banks, or
(vii) payments made by Mercantile Bank pursuant to the terms of the Change in Control Agreements listed on Schedule 1.06A or the Tax Gross
Up Agreements listed on Schedule 1.06A. 

        F.     "Subsidiary"
means, when used with reference to an entity, any corporation, a majority of the outstanding voting securities of which are owned directly or indirectly by
such entity or any partnership, joint venture or other enterprise in which any entity has, directly or indirectly, any equity interest. 

        G.    "Investment
Securities" means all securities held by Mercantile Bank and reflected as an asset of Mercantile Bank in accordance with RAP. 

38

 

        Section 11.11
Specific Performance. Each of the parties hereto acknowledges that the other parties would be irreparably damaged and
would not have an adequate remedy at law for money damages in the event that any of the covenants contained in this Agreement were not performed in accordance with its terms or otherwise were
materially breached. Each of the parties hereto therefore agrees that, without the necessity of proving actual damages or posting bond or other security, the other party shall be entitled to temporary
and/or permanent injunction or injunctions to prevent breaches of such performance and to specific enforcement of such covenants in addition to any other remedy to which they may be entitled, at law
or in equity. 

        Section 11.12
Attorneys' Fees and Costs. In the event attorneys' fees or other costs are incurred to secure performance of any of
the obligations herein provided for, or to establish damages for the breach thereof, or to obtain any other appropriate relief, whether by way of prosecution or defense, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs incurred therein. 

        Section 11.13  Rules of Construction. Each use herein of the masculine, neuter or feminine gender shall be deemed to include the
other genders. Each use herein of the plural shall include the singular and vice versa, in each case as the context requires or as it is otherwise appropriate. The word "or" is used in the inclusive
sense. All articles and sections referred to herein are articles and sections, respectively, of this Agreement and all exhibits and schedules referred to herein are exhibits and schedules,
respectively, attached to this Agreement. Descriptive headings as to the contents of particular sections are for convenience only and shall not control or affect the meaning, construction or
interpretation of any provision of this Agreement. Any and all schedules, exhibits, annexes, statements, reports, certificates or other documents or instruments referred to herein or attached hereto
are and shall be incorporated herein by reference hereto as though fully set forth herein verbatim. 

        Section 11.14
Binding Effect; Assignment. All of the terms, covenants, representations, warranties and conditions of this Agreement
shall be binding upon, and inure to the benefit of and be enforceable by, the parties hereto and their respective successors, representatives and permitted assigns. Nothing expressed or referred to
herein is intended or shall be construed to give any person other than the parties hereto any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provision herein
contained, it being the intention of the parties hereto that this Agreement, the assumption of obligations and statements of responsibilities hereunder, and all other conditions and provisions hereof
are for the sole benefit of the parties to this Agreement and for the benefit of no other person. Nothing in this Agreement shall act to relieve or discharge the obligation or liability of any third
party to any party to this Agreement, nor shall any provision give any third party any right of subrogation or action over or against any party to this Agreement. No party to this Agreement shall
assign this Agreement, by operation of law or otherwise, in whole or in part, without the prior written consent of the other parties. Any assignment made or attempted in violation of this
Section 11.14 shall be void and of no effect. 

        Section 11.15  Public Disclosure. Neither Mercantile Bank nor State National BHC will make, issue or release any announcement,
statement, press release, acknowledgment or other public disclosure of the existence of, or reveal the terms, conditions or the status of, this Agreement or the transactions contemplated hereby
without the prior written consent of the other parties to this Agreement; provided, however, that notwithstanding the foregoing, Mercantile Bank and State National BHC will be permitted to make any
public disclosures or governmental filings as legal counsel may deem necessary to maintain compliance with or to prevent violations of applicable federal or state laws or regulations or that may be
necessary to obtain regulatory approval for the transactions contemplated hereby. 

39

 

        Section 11.16
Extension; Waiver. At any time prior to the Closing Date, the parties may (A) extend the time for the
performance of any of the obligations or other acts of the other parties hereto, (B) waive any inaccuracies in the representations and warranties contained herein or in any document,
certificate or writing delivered pursuant hereto, or (C) waive compliance with any of the agreements or conditions contained herein. Such action shall be evidenced by a signed written notice
given in the manner provided in Section 11.07 hereof. No party to this Agreement shall by any act (except by a written instrument given pursuant to Section 11.07 hereof) be deemed to
have waived any right or remedy hereunder or to have acquiesced in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising any right, power or
privilege hereunder by any party hereto shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. A waiver of any party of any right or remedy on any one occasion shall not be construed as a bar to any right or remedy that such party would
otherwise have on any future occasion or to any right or remedy that any other party may have hereunder. 

        Section 11.17
Amendments. To the extent permitted by applicable law, this Agreement may be amended by action taken by or on behalf
of the Board of Directors of State National BHC and Mercantile Bank at any time before or after adoption of this Agreement by the shareholders of Mercantile Bank but, after any submission of this
Agreement to such shareholders for approval, no amendment shall be made that decreases the consideration to be paid for the Mercantile Bank Stock as set forth in Section 1.04 or that materially
and adversely affects the rights of Mercantile Bank's shareholders hereunder without the requisite approval of such shareholders. This Agreement may be amended, modified or supplemented only by an
instrument in writing executed by the party against which enforcement of the amendment, modification or supplement is sought. 

[Signature Page Follows]

40

 
[Signature Page to Agreement and Plan of Reorganization]

        IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date first above written. 

	

 	
 	

STATE NATIONAL BANCSHARES, INC.
	

 	
 	

By:	

/s/  Tom C. Nichols      
 Tom C. Nichols, Chairman of the Board
	

    	
 	

 	

 
	

 	
 	

MERCANTILE BANK TEXAS
	

 	
 	

By:	

/s/  Morrie B. Minshew      
 Morris B. Minshew, Chairman of the Board

41

EXHIBIT A

FORM OF AGREEMENT AND PLAN OF MERGER  

EXHIBIT B

FORM OF DIRECTOR SUPPORT AGREEMENT  

EXHIBIT C

FORM OF VOTING AGREEMENT AND IRREVOCABLE PROXY  

EXHIBIT D

FORM OF DIRECTOR RELEASE  

EXHIBIT E

FORM OF OFFICER RELEASE  

EXHIBIT F

FORM OF OPINION OF COUNSEL TO STATE NATIONAL BANCSHARES, INC.  

EXHIBIT G

FORM OF OPINION OF COUNSEL TO MERCANTILE BANK TEXAS  

QuickLinks

Exhibit 10.12

TABLE OF CONTENTS

AGREEMENT AND PLAN OF REORGANIZATION

ARTICLE I. ACQUISITION OF MERCANTILE BANK BY STATE NATIONAL BHC

ARTICLE II. THE CLOSING AND THE CLOSING DATE

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF MERCANTILE BANK

ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF STATE NATIONAL BHC

ARTICLE V. COVENANTS OF MERCANTILE BANK

ARTICLE VI. COVENANTS OF STATE NATIONAL BHC

ARTICLE VII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MERCANTILE BANK

ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF STATE NATIONAL BHC

ARTICLE IX. TERMINATION AND ABANDONMENT

ARTICLE X. CONFIDENTIAL INFORMATION

ARTICLE XI. MISCELLANEOUS

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