FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MARCH 31, 1999 COMMISSION FILE NUMBER 1-2981
FIRSTAR CORPORATION
(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 39-1940778
(State of Incorporation) (I.R.S. EMPLOYER
Identification No.)
777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
Telephone Number (414) 765-4321
The registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the precedeing 12 months and (2) has been subject to such filing
requirements for the past 90 days.
As of April 30, 1999, 661,424,492 shares of common stock were
outstanding.
-1-
<PAGE>
FIRSTAR CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 1999
Page
Table of Contents Number
- ----------------------------------------------------------------------
Part I. Financial Information:
Financial Highlights.........................................3
Item 1. Financial Statements:
Condensed Consolidated Financial Statements..........4
Notes to Condensed Consolidated Financial Statements.8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk...................................17
Part II. Other Information:
Item 1. Legal Proceedings.................................none
Item 2. Changes in Securities.............................none
Item 3. Defaults Upon Senior Securities...................none
Item 4. Submission of Matters to a Vote
of Security Holders...............................none
Item 5. Other Information...................................27
Item 6. Exhibits and Reports on Form 8-K....................34
Signatures..........................................................34
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<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
FIRSTAR CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
<CAPTION>
First Quarter
-------------------------------------
Percent
1999 1998 Change
------------ ----------- --------
<S> <C> <C> <C>
Net income............................... $ 169,587 $ 138,834 22.2 %
Per share:
Basic earnings per common share........ $ 0.26 $ 0.22 17.7 %
Diluted earnings per common share...... 0.25 0.21 17.9
Common dividends declared.............. 0.10 0.08 25.0
Book value per common share............ 5.56 5.11 8.9
Market value per common share.......... 29.83 19.71 51.3
Average balances:
Total assets........................... $ 38,202,899 $ 34,429,252 11.0 %
Earning assets......................... 33,732,071 31,061,688 8.6
Loans, net of unearned interest........ 26,170,012 24,198,975 8.1
Deposits............................... 27,825,322 25,399,428 9.6
Total shareholders' equity............. 3,656,466 3,077,477 18.8
Ratios:
Return on average assets............... 1.80 % 1.64 %
Return on average equity............... 18.81 18.30
Average total shareholders' equity
to average total assets.............. 9.57 8.94
Risk-based capital ratios:
Tier 1............................... 9.29 9.88
Total................................ 11.29 12.26
Leverage - average assets (a).......... 8.07 8.36
Net interest margin.................... 4.49 4.51
Noninterest expense to net revenue..... 50.10 55.02
Noninterest income as a percent
of net revenue....................... 37.24 36.09
Net income to net revenue.............. 28.31 25.43
Excluding Merger Related Charges:
Net income............................. $ 179,272 $ 138,834 29.1 %
Noninterest expense.................... 285,169 300,395 (5.1)
Basic earnings per common share........ 0.27 0.22 22.7
Diluted earnings per common share...... 0.27 0.21 28.6
Return on average assets............... 1.90 % 1.64 %
Return on average common equity........ 19.88 18.30
Noninterest expense to net revenue..... 47.60 55.02
(a) - defined by regulatory authorities as tier 1 equity to the current quarter'
average assets.
All per share data has been restated to reflect the three for one stock split
completed as of March 31, 1999.
</TABLE>
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<PAGE>
<TABLE>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS:
Cash and due from banks.............................$ 2,069,888 $ 2,349,532
Money market investments............................. 86,220 75,524
Trading securities................................... -- 2,754
Investment securities:
Available-for-sale................................. 5,720,607 6,220,902
Held-to-maturity (market value of $229,713 at
March 31, 1999 and $137,287 at December 31, 1998) 219,007 135,407
---------- ----------
Total securities................................... 5,939,614 6,356,309
Loans:
Commercial loans................................... 9,284,217 9,264,143
Real estate loans.................................. 9,269,501 9,110,524
Retail loans....................................... 7,773,591 7,493,390
---------- ----------
Total loans......................................26,327,309 25,868,057
Allowance for loan losses.................. 401,943 395,956
---------- ----------
Net loans........................................25,925,366 25,472,101
Loans held for sale.................................. 1,179,985 1,539,892
Premises and equipment............................... 609,377 629,464
Acceptances - customers' liability................... 22,438 29,916
Other assets......................................... 2,118,962 2,020,347
---------- ----------
Total assets....................................$37,951,850 $38,475,839
---------- ----------
---------- ----------
LIABILITIES:
Deposits:
Noninterest-bearing deposits......................$ 5,982,868 $ 6,649,199
Interest-bearing deposits..........................21,884,893 22,201,566
---------- ----------
Total deposits.................................27,867,761 28,850,765
Short-term borrowings................................ 3,913,666 3,643,308
Long-term debt....................................... 1,687,599 1,708,869
Acceptances outstanding.............................. 22,438 29,916
Other liabilities.................................... 782,132 713,068
---------- ----------
Total liabilities................................34,273,596 34,945,926
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock:
Shares authorized - 800,000,000 at March 31, 1999 and
December 31, 1998
Shares issued - 664,101,978 at March 31, 1999 and
658,291,470 at December 31, 1998................. 6,641 6,583
Surplus.............................................. 1,266,731 1,172,148
Retained earnings.................................... 2,370,742 2,267,263
Treasury stock, at cost - 2,887,734 shares at March 31,
1999 and 2,050,458 shares at December 31, 1998..... (41,720) (15,928)
Accumulated other comprehensive income............... 75,860 99,847
---------- ----------
Total shareholders' equity....................... 3,678,254 3,529,913
---------- ----------
Total liabilities and shareholders' equity......$37,951,850 $38,475,839
---------- ----------
---------- ----------
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(dollars in thousands, except per share data)
<CAPTION>
First Quarter
------------------
1999 1998
-------- --------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans.............$528,102 $524,083
Interest and fees on loans held for sale 27,156 11,154
Interest on investment securities:
Taxable............................... 75,533 78,857
Non-taxable........................... 17,385 17,006
Interest on trading secyrities.......... 11 26
Interest on money market investments.... 1,298 2,670
------- -------
Total interest income.................649,485 633,796
------- -------
INTEREST EXPENSE:
Interest on deposits....................210,579 218,462
Interest on short-term borrowings....... 46,873 47,681
Interest on long-term debt.............. 26,180 28,922
------- -------
Total interest expense................283,632 295,065
------- -------
Net interest income.................365,853 338,731
Provision for loan losses............... 35,910 28,645
------- -------
Net interest income after
provision for loan losses.........329,943 310,086
------- -------
NONINTEREST INCOME:
Trust income............................ 72,353 62,741
Mortgage banking income................. 33,899 33,529
Retail deposit income................... 22,111 21,613
Cash management income.................. 23,028 20,042
Credit card income...................... 21,674 18,088
ATM Income.............................. 6,661 6,019
Investment securities gains/(losses)-net (2) 329
All other income........................ 43,360 34,682
------- -------
Total noninterest income..............223,084 197,043
------- -------
NONINTEREST EXPENSE:
Salaries................................116,767 127,746
Pension and other employee benefits..... 22,379 28,196
Equipment expense....................... 21,742 23,351
Occupancy expense - net................. 26,215 24,353
All other expense....................... 98,066 96,749
------- -------
285,169 300,395
Merger related charges.................. 15,000 --
------- -------
Total noninterest expense.............300,169 300,395
------- -------
INCOME BEFORE TAX.......................252,858 206,734
Income tax.............................. 83,271 67,900
------- -------
NET INCOME.............................$169,587 $138,834
------- -------
------- -------
PER SHARE:
Basic earnings per common share........$ 0.26 $ 0.22
Diluted earnings per common share....... 0.25 0.21
Common stock cash dividends declared.... 0.10 0.08
The accompanying notes are an integral part of these statement
All per share data has been restated to reflect the three for
stock split completed in as of March 31, 1999.
</TABLE>
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<PAGE>
<TABLE>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands)
(Unaudited)
<CAPTION> Employee
Stock
Accumulated Ownership
Other Plan Shares
Preferred Common Retained Treasury Comprehensive Purchased Total
Stock Stock Surplus Earnings Stock Income With Debt Equity
--------- -------- ---------- ---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998....$ 5,308 $ 6,328 $ 778,990 $2,095,443 $ (167,180) $ 32,848 $ (1,846) $ 2,749,891
Net income................. 138,834 138,834
Unrealized gain
on securities
available for sale........ 7,164 7,164
Reclassification adjustment
for gains realized
in net income............ (329) (329)
Income taxes............... (2,750) (2,750)
---------
Comprehensive income 142,919
Cash dividends declared
on common stock........... (54,528) (54,528)
Cash dividends declared
on preferred stock........ (83) (83)
Conversion of preferred
stock into common stock... (591) 34 492 64 (1)
Issuance of common stock
and treasury shares....... 183 305,883 12,509 173,067 491,642
Purchase of treasury
stock..................... (14,312) (14,312)
Shares reserved to meet
deferred compensation
obligations............... 1,912 (719) 1,193
Amortization of stock
awards.................... 142 142
ESOP debt reduction, net... 167 167
-------- --------- ----------- ----------- --------- ---------- ---------- -----------
Balance, March 31, 1998.....$ 4,717 $ 6,511 $ 1,086,961 $ 2,192,667 $ (9,080) $ 36,933 $ (1,679) $ 3,317,030
-------- --------- ----------- ----------- --------- ---------- ---------- -----------
-------- --------- ----------- ----------- --------- ---------- ---------- -----------
Balance, January 1, 1999....$ -- $ 6,583 $ 1,172,148 $ 2,267,263 $(15,928) $ 99,847 $ -- $ 3,529,913
Net income................. 169,587 169,587
Unrealized loss
on securities
available for sale........ (39,361) (39,361)
Reclassification adjustment
for losses realized
in net income............ 2 2
Income taxes............... 15,372 15,372
---------
Comprehensive income 145,600
Cash dividends declared
on common stock........... (66,108) (66,108)
Issuance of common stock
and treasury shares....... 58 92,047 31 92,136
Purchase of treasury
stock..................... (24,407) (24,407)
Shares reserved to meet
deferred compensation
obligations............... 1,416 (1,416) --
Amortization of stock
awards.................... 1,120 1,120
-------- --------- ----------- ----------- --------- ---------- ---------- -----------
Balance, March 31, 1999.....$ -- $ 6,641 $ 1,266,731 $ 2,370,742 $(41,720) $ 75,860 $ -- $ 3,678,254
-------- --------- ----------- ----------- --------- ---------- ---------- -----------
-------- --------- ----------- ----------- --------- ---------- ---------- -----------
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<CAPTION>
Three Months Ended
March 31
1999 1998
-------------------------------
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 169,587 $ 138,834
Adjustments:
Depreciation and amortization 32,194 24,508
Intangible amortization 15,991 11,301
Provision for loan losses 35,910 28,645
Net (increase) decrease in trading securities 2,753 (2,516)
Provision for deferred taxes 50,794 13,050
(Gain) / loss on sale of premises and equipment - net 393 (386)
(Gain) / loss on sale of securities - and other assets (84) (285)
(Gain) / loss on sale of mortgage loans (26,261) (12,403)
Proceeds from sale of mortgage loans 2,198,366 1,223,344
Mortgage loans originated for sale on the secondary market (1,812,198) (1,704,831)
Net change in other assets and liabilities (3,279) 6,140
------------- --------------
Total adjustments 494,579 (413,433)
------------- --------------
Net cash provided by/(used in) operating activities 664,166 (274,599)
------------- --------------
Cash Flows from Investing Activities:
Proceeds from maturities of held-to-maturity securities 3,028 119,828
Proceeds from maturities of available-for-sale securities 426,242 149,310
Proceeds from sales of available-for-sale securities 15,782 311,676
Purchase of held-to-maturity securities 0 (65,207)
Purchase of available-for-sale securities (3,258) (285,384)
Net change in loans (646,121) (100,247)
Proceeds from sales of loans 28,443 47,720
Proceeds from sales of premises and equipment 727 (8,727)
Purchases of premises and equipment (25,894) (26,661)
Acquisitions, net of cash acquired 0 (134,854)
------------- --------------
Net cash provided by/(used in) investing activities (201,051) 7,454
------------- --------------
Cash Flows from Financing Activities:
Net change in deposits (983,004) 647,719
Net change in short-term borrowings 270,358 22,752
Principal payments on long-term debt (61,522) (425,042)
Proceeds from issuance of long-term debt 40,000 127,022
Proceeds from issuance of common stock 92,136 21,117
Purchase of treasury stock (24,407) (14,312)
Shares reserved to meet deferred compensation obligations 0 1,193
Dividends paid (65,624) (49,730)
------------- --------------
Net cash provided by/(used in) financing activities (732,063) 330,719
------------- --------------
Net change in cash and cash equivalents (268,948) 63,574
Cash and cash equivalents at beginning of period 2,425,056 2,228,920
------------- --------------
Cash and cash equivalents at end of period $ 2,156,108 $ 2,292,494
============= ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 285,526 $ 256,045
Income taxes 3,123 1,562
Transfer to foreclosed assets from loans $ 10,457 $ 3,787
-7-
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
Note 1. Basis of Presentation
- ------------------------------
These condensed consolidated financial statements have been
prepared by Firstar Corporation ("Firstar") pursuant to the
rules and regulations of the Securities and Exchange Commission
and, therefore, certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted.
It is suggested that these financial statements be read in
conjunction with the financial statements and notes included in
Firstar's annual report on Form 10-K for the year ended December
31, 1998, filed with the Securities and Exchange Commission.
These condensed consolidated financial statements include the
accounts of Firstar and all of its subsidiaries and reflect all
adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the periods reported.
All such adjustments are of a normal recurring nature.
Note 2. Investment Securities
- ------------------------------
The following table summarizes unrealized gains and losses for
held-to-maturity and available-for-sale securities at March 31,
1999 and December 31, 1998. (dollars in thousands)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
------------------------------------------------ --------------------------------------------
Amortized Unrealized Fair Amortized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
---------- ---------- --------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-Maturity
- ----------------
Mortgage-backed
securities $ 56,540 $ -- $ 167 $ 56,373 $ 61,955 $ -- $ 448 $ 61,507
Obligations of state and
political subdivisions 162,467 10,993 120 173,340 73,452 2,951 623 75,780
---------- ---------- --------- ---------- ---------- -------- -------- ----------
Total held-to-
maturity securities $ 219,007 $ 10,993 $ 287 $ 230,713 $ 135,407 $ 2,951 $ 1,071 $ 137,287
---------- ---------- ---------- ---------- ---------- -------- -------- ----------
---------- ---------- ---------- ---------- ---------- -------- -------- ----------
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
------------------------------------------------ --------------------------------------------
Amortized Unrealized Fair Amortized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
---------- ---------- --------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-Sale
- ------------------
U.S. Treasuries and
agencies $1,178,301 $ 38,000 $ 1 $1,216,300 $1,263,768 $ 53,076 $ 12 $1,316,832
Mortgage-backed
securities 2,744,412 47,290 3,667 2,788,035 3,042,011 66,666 2,152 3,106,525
Obligations of state and
political subdivisions 1,396,026 36,975 346 1,432,655 1,467,641 39,737 346 1,507,032
Other debt securities 5,661 4 51 5,614 8,176 1 31 8,146
Money market mutual funds 61,509 -- -- 61,509 47,492 -- -- 47,492
Federal Reserve/FHLB
stock and other -- -- -- -- -- -- -- --
equity securities 216,494 -- -- 216,494 234,708 167 -- 234,875
---------- ---------- ------- ---------- ---------- -------- -------- ----------
Total available-for-
sale securities $5,602,403 $ 122,269 $ 4,065 $5,720,607 $6,063,796 $159,647 $ 2,541 $6,220,902
---------- ---------- ------- ---------- ---------- -------- ------- ----------
---------- ---------- ------- ---------- ---------- -------- ------- ----------
</TABLE>
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<PAGE>
As of March 31, 1999, Firstar reported a net unrealized gain
of $118.2 million for available-for-sale securities. For the
first three months of 1999, the after-tax net unrealized gain/
(loss) reported as a separate component of equity decreased from
a net unrealized gain of $99.8 million to a net unrealized gain
of $75.9 million.
During the first quarter of 1999 approximately $89 million
in municipal loans were reclassified to obligations of state
and political subdivisions.
The following table presents the amortized cost and fair
value of held-to-maturity and available-for-sale debt
securities at March 31, 1999 (dollars in thousands)
<TABLE>
<CAPTION>
Amortized Fair
Held-to-Maturity Cost Value
- ---------------- ----------- -----------
<S> <C> <C>
One year or less $ 92,637 $ 92,669
After one year through five years 33,273 34,651
After five years through ten years 46,789 50,726
After ten years 46,308 51,667
----------- -----------
Total $ 219,007 $ 229,713
----------- -----------
----------- -----------
Available-for-Sale
- ------------------
One year or less $ 691,156 $ 699,882
After one year through five years 3,437,983 3,520,221
After five years through ten years 1,062,897 1,087,213
After ten years 193,873 196,797
----------- -----------
Total $ 5,385,909 $ 5,504,113
----------- -----------
----------- -----------
Note: Maturity information related to mortgage-backed
securities included above is presented based
upon weighted average maturities anticipating
future prepayments.
</TABLE>
-9-
<PAGE>
Note 3. Loans
- -------------
The following table summarizes the composition of the
loan portfolio, net of unearned interest, as of
March 31, 1999 and December 31, 1998.
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Commercial loans:
Corporate loans $ 6,995,395 $ 6,889,149
Asset-based lending 767,836 860,024
Commercial leasing 1,307,493 1,204,549
Industrial revenue bonds 213,493 310,421
----------- -----------
Total commercial loans 9,284,217 9,264,143
----------- -----------
Real estate loans:
Residential mortgage 3,211,104 3,285,400
Commercial mortgage 4,868,793 4,611,442
Construction and land development 1,189,604 1,213,682
----------- -----------
Total real estate loans 9,269,501 9,110,524
----------- -----------
Retail loans:
Installment 5,106,120 4,907,715
Credit cards 1,184,806 1,220,240
Retail leasing 1,482,665 1,365,435
----------- -----------
Total retail loans 7,773,591 7,493,390
----------- -----------
Total loans $26,327,309 $25,868,057
----------- -----------
----------- -----------
</TABLE>
Note 4. Impaired Loans
- -----------------------
The following table shows Firstar's recorded investment
in impaired loans and the related valuation allowance
calculated under SFAS No. 114 (as amended by SFAS No. 118)
at March 31, 1999 and December 31, 1998.
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
---------- ---------- ---------- ----------
Impaired Loans:
Valuation allowance required $ 34,532 $ 10,094 $ 44,096 $ 9,042
No valuation allowance required 57,376 -- 53,568 --
---------- ---------- ---------- ----------
Total impaired loans $ 91,908 $ 10,094 $ 97,664 $ 9,042
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The average recorded investment in impaired loans for
the three months ended March 31, 1999 was $94.6 million,
compared to $87.1 million for the same period in 1998.
As a general policy, Firstar applies both principal and
interest payments received on impaired loans as a
reduction of principal.
-10-
<PAGE>
Note 5. Allowance for Loan Losses
- ---------------------------------
A summary of the activity in the allowance for loan
losses is shown in the following table.
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
--------------------- -----------
March 31, December 31,
--------------------- -----------
1999 1998 1998
--------- --------- ---------
<S> <C> <C> <C>
Balance - beginning of period $ 395,956 $ 372,933 $ 372,933
Loans charged-off (41,981) (40,161) (170,838)
Recoveries on loans previously charged-off 12,058 13,163 49,437
--------- --------- ---------
Net charge-offs (29,923) (26,998) (121,401)
Provision charged to earnings 35,910 28,645 113,636
Allowances of banks purchased -- 18,367 30,788
--------- --------- ---------
Balance - end of period $ 401,943 $ 392,947 $ 395,956
--------- --------- ---------
--------- --------- ---------
</TABLE>
Note 6. Deposits
- -----------------
The following table summarizes the composition of
deposits of Firstar as of March 31, 1999 and
December 31, 1998. (dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Noninterest-bearing deposits $5,982,868 $6,649,199
Interest-bearing deposits:
Savings 2,236,033 2,272,495
NOW accounts 3,601,242 3,848,752
Money market deposit accounts 6,109,870 5,959,710
Time deposits $100,000 and over - domestic 1,404,532 1,614,748
Foreign deposits $100,000 and over 512,688 343,574
All other deposits 8,020,528 8,162,287
----------- -----------
Total interest-bearing deposits 21,884,893 22,201,566
----------- -----------
Total deposits $27,867,761 $28,850,765
----------- -----------
----------- -----------
</TABLE>
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<PAGE>
Note 7. Income Tax
- ------------------
The components of the net deferred tax liability included
in other liabilities on the Corporation's consolidated balance
sheets at March 31, 1999 and December 31, 1998 are shown in
the following table. (dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Deferred tax liabilities:
Equipment leased to customers (287,151) (251,215)
Securities available for sale (42,559) (57,716)
Bank premises and equipment (16,886) (16,886)
Acquired assets accounted for
as a purchase (11,455) (11,777)
Pension and post-retirement
benefits (9,527) (8,492)
Deferred loan fees and costs (5,615) (4,525)
FHLB dividends (10,459) (9,959)
Other--net (7,789) (6,214)
Deferred tax assets:
Allowance for loan losses 151,502 144,625
State and federal net
operating loss carry forwards 20,406 20,406
Deferred compensation 18,986 14,977
Merger-related charges 24,409 43,790
Federal ATM credit carryforward 12,568 7,568
Charitable contributions carryforward 4,100 4,100
---------- ----------
Subtotal (159,470) (131,318)
---------- ----------
Valuation Allowance (10,854) (10,854)
---------- ----------
Net deferred tax liability $ (170,324) $(142,172)
---------- ----------
---------- ----------
</TABLE>
Note 8. Merger and Related Charges
- ----------------------------------
Firstar recorded merger and integration charges of $243.0
million in 1998 and $15.0 million in the first quarter
of 1999. Merger and integration charges were associated
with the mergers of Firstar Corporation and Star Banc
Corporation in the fourth quarter of 1998 and the
acquisition of Trans Financial Inc. in the third
quarter of 1998. The components of the charges are
shown below. (dollars in thousands)
<TABLE>
<CAPTION>
First Quarter
1999 1998
------------- --------
<S> <C> <C>
Severance and related costs $ 1,030 $ 86,576
Fixed asset write-downs -- 26,646
Lease termination charges -- 16,476
System conversions 13,636 34,026
Charitable contributions -- 23,000
Professional fees -- 45,700
Other merger-related expenses 334 10,546
-------- --------
Total $ 15,000 $242,970
-------- --------
-------- --------
</TABLE>
-12-
<PAGE>
The following table presents a summary of activity
with respect to the merger related accrual:
<TABLE>
<S> <C>
Balance at December 31, 1998 $ 129,198
Merger-related charge 15,000
Cash payments (47,642)
Noncash write-downs (27,509)
---------
Balance at March 31, 1999 $ 69,047
---------
---------
</TABLE>
Firstar expects to incur additional merger-related
expenses during 1999 in connection with the combining
of operations of Firstar Corporation and Star Banc
Corporation.
Note 9. Mortgage Servicing Assets
- ---------------------------------
Mortgage servicing rights are capitalized based upon
their fair value at the time a loan is sold. Impairment
testing is performed on a quarterly basis in accordance
with SFAS No. 125 which was adopted by Firstar in 1997.
The fair value of capitalized mortgage servicing rights
was $202.3 million on March 31, 1999 and $199.8 million
on December 31, 1998. Firstar serviced $14.9 billion of
mortgage loans for other investors as of March 31, 1999
and $14.7 billion of mortgage loans for other
investors as of December 31, 1998.
Changes in capitalized mortgage servicing rights at
March 31, 1999 and December 31, 1998 are summarized
in the following table. (dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- -----------
<S> <C> <C>
Mortgage Servicing Assets:
Balance at beginning of year $ 182,692 $ 72,337
Amount added in acquisitions -- 51,731
Amount capitalized 46,497 152,070
Amortization (10,227) (28,586)
Sales (39,747) (64,630)
Valuation allowance (230) (230)
--------- ---------
Balance at end of period $ 178,985 $ 182,692
--------- ---------
--------- ---------
</TABLE>
-13-
<PAGE>
Note 10. Earnings Per Share
- ----------------------------
The following table shows the amounts used in the
computation of basic and diluted earnings per share,
in accordance with SFAS No. 128 for the three months
ended March 31, 1999 and 1998. (dollars in thousands)
<TABLE>
<CAPTION>
First Quarter
------------------------
1999 1998
-------- --------
<S> <C> <C>
Net income $169,587 $138,834
Dividends on preferred stock -- 83
-------- --------
Net income available to
common shareholders $169,587 $138,751
-------- --------
-------- --------
Weighted average shares (000's):
Common shares 661,572 637,416
Options and stock plan 13,546 14,112
-------- --------
Weighted average diluted common shares 675,118 651,527
-------- --------
-------- --------
Basic earnings per common share $ 0.26 $ 0.22
-------- --------
-------- --------
Diluted earnings per common share $ 0.25 $ 0.21
-------- --------
-------- --------
</TABLE>
Note 11. Pending Acquisitions
- ------------------------------
On April 30, 1999, Firstar Corporation and Mercantile
Bancorporation Inc. signed a definitive agreement to
merge through an exchange of shares. Under the terms
of the agreement, Mercantile shareholders will receive
2.091 shares of Firstar common stock for each share of
Mercantile common stock. The combined company will have
assets of approximately $75 billion. The merger is
expected to be completed in the fourth quarter of
1999 and, subsequent to regulatory and shareholder
approvals, will be accounted for as a pooling of
interests.
A summary of unaudited pro forma financial information
giving effect to the merger is shown below. The
unaudited financial information is not indicative of the
results that would have been realized had the entities
been a single company during these periods, nor is it
indicative of the actual results the combined company
will report in the future.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1998 1997 1996
-------- -------- --------
(millions of dollars, except per share)
<S> <C> <C> <C>
Total average assets $ 71,096 $ 60,722 $ 54,565
Net interest revenue 2,517 2,350 2,201
Other operating revenue 1,402 1,126 989
Other operating expense 2,548 2,113 1,957
Net income 805 761 700
Diluted earnings per common share .81 .82 .75
</TABLE>
-14-
<PAGE>
Note 12. Business Segments
- ---------------------------
Firstar's operations include three primary business segments:
Consumer Banking, Wholesale Banking, and Trust and Private Banking.
Selected financial information by business segment is summarized below.
This information is derived from the internal reporting systems used by
management to assess segment performance.
Consumer banking provides deposit, installment and credit card
lending, mortgage banking, leasing, investment, payment systems and
other financial services to individuals and small businesses. These
services are provided through retail branch offices, ATMs, voice
banking, PC and video banking options.
Wholesale banking provides traditional business lending, asset-
based lending, commercial real estate loans, equipment financing,
cash management services and international trade services to businesses
and governmental entities.
Trust and private banking provides personal financial and asset
management services, comprehensive employee benefit plan services,
mutual fund custody and corporate bond and stock transfer services.
Treasury includes the net effect of transfer pricing of interest
income and expense along with the operating results of the investment
securities and residential loan portfolios. All revenue and expenses
of administrative and support functions has been allocated to the
primary business segments.
Certain asset balances have been reclassified between business
segments during the first quarter of 1999. Prior year segment data has
been restated to be comparable to the current period's presentation.
Additionally, transfer pricing methodology used for allocating net
interest income for certain asset and liability categories is different
from that used in the prior year's reporting. The transfer pricing
methodology used in the first quarter of 1999 was based upon the
anticipated cash flows ("cash flow method") of underlying assets and
liabilities. During 1998, net interest revenue was allocated to segments
based upon average maturities ("average maturity method") of the
underlying assets and liabilities. Accurate data related to the
anticipated cash flows of the underlying assets and liabilities for
periods during 1998 or data related to average maturities of assets and
liabilities during 1999 is impracticable to cost effectively obtain.
Therefore, segment information for 1998 has not been restated using the
cash flow method. Additionally, restatement of segment information for
1999 determined under the average maturity method is also impracticable.
<TABLE>
<CAPTION>
For the quarter ended March 31, 1999
-------------------------------------------------------------------------------------------
Trust and Merger-
Consumer Wholesale Private Related
Banking Banking Banking Treasury Total Expenses Consolidated
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income* $ 226,874 $ 85,864 $ 15,618 $ 47,660 $ 376,016 $ $ 376,016
Provision for loan losses 24,412 8,260 180 3,058 35,910 35,910
Noninterest income 112,561 29,820 74,185 6,518 223,084 223,084
Noninterest expense 205,238 26,990 48,214 4,727 285,169 15,000 300,169
Income taxes* 38,994 28,569 14,708 16,478 98,749 (5,315) 93,434
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 70,791 $ 51,865 $ 26,701 $ 29,915 $ 179,272 $ (9,685) $ 169,587
- ----------------------------------------------------------------------------------------------------------------------
Average balances:
Loans $11,427,935 $11,105,815 $ 872,658 $ 2,763,604 $25,990,012
Total assets 14,082,840 12,617,111 1,117,466 10,385,482 38,202,899
Deposits 22,240,773 3,534,295 1,537,862 512,392 27,825,322
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the quarter ended March 31, 1998
-------------------------------------------------------------------------------------------
Trust and Merger-
Consumer Wholesale Private Related
Banking Banking Banking Treasury Total Expenses Consolidated
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income* $ 196,116 $ 78,056 $ 14,032 $ 60,736 $ 348,940 $ $ 348,940
Provision for loan losses 22,677 5,475 49 444 28,645 28,645
Noninterest income 101,082 24,462 66,994 4,505 197,043 197,043
Noninterest expense 203,153 26,770 65,171 5,301 300,395 300,395
Income taxes* 25,696 25,302 5,691 21,421 78,110 78,110
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 45,672 $ 44,971 $ 10,115 $ 38,075 $ 138,833 $ 0 $ 138,833
- ----------------------------------------------------------------------------------------------------------------------
Average balances:
Loans $10,355,444 $ 9,398,857 $ 798,879 $ 3,645,795 $24,198,975
Total assets 11,966,801 10,506,217 988,092 10,968,142 34,429,252
Deposits 20,356,776 3,131,779 1,398,225 512,648 25,399,428
- ----------------------------------------------------------------------------------------------------------------------
*Taxable equivalent basis
</TABLE>
-15-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Net income of Firstar Corporation ("Firstar") for the
quarter ended March 31, 1999 was $169.6 million, a 22.2%
increase over the first quarter of 1998. Diluted earnings
per common share was $.25 for the first quarter of 1999,
compared to $.21 for the same period of the prior year, an
increase of 17.9%. All per share amounts have been
restated for the three for one stock split completed as of
March 31, 1999. Return on average assets was 1.80% for the
first quarter of 1999, compared to 1.64% for the same
period in 1998. Return on average common equity was
18.81% compared to 18.30% in the first quarter of last
year.
Included in the first quarter of 1999 expenses were
$15.0 million of merger related charges relating to the
November 1998 merger of Star Banc Corporation and Firstar.
Firstar anticipates a total of $325.0 million of
restructuring and merger related charges of which $232.0
million have been recognized through the end of the first
quarter of this year.
Excluding the merger related charges, net income for
the first quarter would have been $179.3 million, an
increase of 29.1% over the first quarter of 1998. First
quarter 1999 diluted earnings per common share, before
merger-related charges, was $.27, or a 28.6% increase
over the same quarter of last year. Return on average
assets was 1.90% and return on average common equity
was 19.88% in the first quarter of 1999, excluding
merger-related charges.
The improvement in net income before merger-related
charges resulted from higher net interest revenue and
noninterest revenue partially offset by somewhat higher
operating costs and an increased loan loss provision.
Financial Condition
Total assets at March 31, 1999 were $37.95 billion,
up $524 million from the $38.48 billion level at
December 31, 1998. Total loans increased $459 million,
or 1.8% from last year end to $26.33 billion at
March 31, 1999. Retail loans increased by $280.2 million,
or 3.7%, to $7.77 billion at March 31, 1999. Strong growth
in retail installment loans and leases of 4.0% and 8.6%,
respectively, were achieved in the first quarter of this
year. Commercial loans, including real estate loans, were
up $253.3 million, or 1.7%, from December 31, 1998 levels.
Residential mortgages continue to decline, down $74.3
million, as normal amortization and prepayments reduce
outstandings while new originations are held as an available
for sale asset.
Investment securities declined by $416.7 million during
the quarter to $5.94 billion as of March 31, 1999. Scheduled
maturities of the investment securities were used to fund in
part the increase in loans during the quarter. At March 31,
1999 the net unrealized gain on available for sale securities
was $118.2 million and the related after tax increase to
shareholders' equity was $75.9 million. Mortgage loans
held for sale were $1.18 billion at March 31, 1999, a
reduction from the $1.54 billion level at December 31, 1998.
-16-
<PAGE>
Total deposits were $27.87 billion at March 31, 1999, a
reduction of $983.0 million, or 3.4%, from the December 31,
1998 level. Demand deposit balances declined by $666.3
million to $5.98 billion at March 31, 1999 reflecting, in
part, the tendency of commercial customers to maintain
higher cash balances at year ends. Interest bearing
deposits decreased by $316.7 million, or 1.4%, from year
end levels. The shift in deposit preferences continues
with reductions in savings, NOW accounts, and small
CDs, collectively down by $425.7 million, being partially
offset by the $150.2 million increase in money market
accounts. Retail deposit customers are seeking higher
yields in deposit accounts and alternative investment
vehicles thus limiting Firstar's ability to maintain or
increase deposits. Short-term borrowed funds increased
by $270.4 million, or 7.4%, during the quarter to a level
of $3.91 billion. Increased usage of this funding source
was necessary to replace the reduced levels of deposits.
Results of Operations
Net interest income, Firstar's principal source of
revenue, increased by $27.1 million, or 7.8% on a tax
equivalent basis compared to the first quarter of 1998.
The increase was due to higher average earning asset
balances partially offset by a slightly reduced net
interest margin. Average earning assets were up $2.67
billion, or 8.6% over the first quarter of 1998.
Average retail loans increased by $862 million, or 12.7%,
while commercial loans rose by $1.93 billion, or 14.6%.
Average loans held for sale more than doubled due to
both the acquisition of a mortgage banking business
in the first quarter of last year and increased market
activity this year.
The net interest margin decreased by two basis points
to 4.49% in the first quarter of 1999 compared to the
first quarter of 1998. The yield on total earning assets
declined by 46 basis points to 7.90% in the current
quarter. The yield on total loans decreased by 58
basis points reflecting generally market driven forces.
The rate paid on interest bearing liabilities declined
by 54 basis points similarly reflecting lower market
rates. Interest spread, the difference between the rate
on total earning assets and the rate on interest bearing
liabilities increased by eight basis points. The
contribution of interest free funds to net interest
margin declined, however, by ten basis points producing
the net reduction in margin of two basis points. The
contribution of interest free funds was lessened by the
absolute reduction in interest rate levels along with a
higher proportion of earning assets funded by interest
bearing liabilities. Table 1 provides detailed
information on the average balances, interest
income/expense and rates earned or paid.
Firstar's major market risk exposure is to changing
interest rates. To minimize the volatility of net interest
income to adverse changes in interest rates, Firstar has
established guidelines for its asset and liability
activities through its Asset/Liability Policy Committee.
This committee has the responsibility for approving and
ensuring compliance with policies including interest
rate risk exposure, off-balance-sheet activity and
the investment portfolio position.
One of the primary tools to measure interest rate
risk and the effect of interest rate changes on net
interest income is simulation analysis. This
earnings simulation model estimates net interest
income under a variety of scenarios that incorporate
changes in the shape of the yield
-17-
<PAGE>
<TABLE>
FIRSTAR CORPORATION AND SUBSIDIARIES
TABLE 1 AVERAGE BALANCE SHEETS AND AVERAGE RATES
(dollars in thousands)
<CAPTION>
First Quarter, 1999 First Quarter, 1998
--------------------------------- --------------------------------
Daily Average Daily Average
Average Interest Rate Average Interest Rate
----------- --------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Commercial loans...................$ 9,447,227 $ 177,471 7.60 % $8,558,458 $ 177,749 8.41 %
Real estate loans.................. 9,079,713 180,904 8.04 8,859,346 185,026 8.37
Retail loans....................... 7,643,072 171,774 9.10 6,781,171 163,219 9.75
---------- ------- ---------- -------
Total loans.................. 26,170,012 530,149 8.19 24,198,975 525,994 8.77
Loans held for sale................ 1,493,754 27,156 7.27 634,564 11,154 7.03
Taxable investment securities...... 5,955,329 101,035 6.81 6,035,705 104,162 6.93
Money market investments........... 112,976 1,308 4.70 192,444 2,696 5.68
---------- ------- ---------- -------
Total interest-earning
assets..................... 33,732,071 $ 659,648 7.90 % 31,061,688 $ 644,006 8.36 %
------- ---- ------- ----
------- ---- ------- ----
Cash and due from banks............ 1,900,638 1,634,331
Allowance for loan losses.......... (397,604) (383,477)
Other assets....................... 2,967,794 2,116,710
---------- ----------
Total assets..................$38,202,899 $34,429,252
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and NOW....................$ 5,963,638 $ 27,091 1.84 % $5,559,661 $ 29,723 2.17 %
Money market deposit accounts...... 5,999,374 59,339 4.01 4,518,195 49,831 4.47
Time deposits...................... 9,847,594 124,149 5.11 10,068,835 138,908 5.59
Short-term borrowings.............. 4,325,306 46,873 4.39 3,699,460 47,681 5.23
Long-term debt..................... 1,707,222 26,180 6.15 1,740,417 28,922 6.65
---------- ------- ---------- -------
Total interest-bearing
liabilities................ 27,843,134 $ 283,632 4.13 % 25,586,568 $ 295,065 4.67 %
------- ---- ------- ----
------- ---- ------- ----
Noninterest-bearing deposits....... 6,014,716 5,252,737
Other liabilities.................. 688,583 512,470
Shareholders' equity............... 3,656,466 3,077,477
---------- ----------
Total liabilities and
shareholders' equity........$38,202,899 $34,429,252
---------- ----------
---------- ----------
Net interest revenue/margin............. $ 376,016 4.49 % $ 348,941 4.51 %
Interest rate spread.................... 3.77 3.69
Note: Interest and average rate are presented on a fully-taxable
equivalent basis. Taxable equivalent amounts are calculated
utilizing marginal federal income tax rate of 35 percent. The
yield on available for sale securities is based upon historical
cost balances. The total of nonaccruing loans is included in
average amounts outstanding.
</TABLE>
-18-
<PAGE>
curve, changes in interest rate relationships,
changes in the direction rates, and changes in
the mix and levels of balance sheet accounts.
The most recent simulation projected the impact
of a 300 basis point upward or downward gradual
change of market interest rates over a one year
time period. The results of this simulation
indicate that a declining interest rate scenario
would increase net interest revenue by 1.0% from
a base case, while an increasing rate scenario
would decrease net interest revenue by 1.3%.
The loan loss provision charged to earnings
increased by $7.3 million to $35.9 million in the
first quarter of 1999 from the first quarter of 1998
due in part to slightly higher charge-offs. Net loan
charge-offs were $29.9 million in the first quarter
of 1999 compared to $27.0 a year earlier.
Additionally, loan growth during the period
required an increased loan loss reserve to maintain
adequate reserve levels.
Noninterest income is a growing source of revenue
for Firstar, representing 37.2% of tax equivalent net
revenue in the first quarter of 1999, up from 36.1%
in the same period of last year. Noninterest income
increased by $26.0 million, or 13.2%, to a level of
$223.1 million in the first quarter of 1999. Trust
income increased $9.6 million, or 15.3%, due to new
business in all product lines and market segments as
well as higher stock market values. Additionally,
first quarter trust income benefited from the transfer
of Firstar sponsored Stellar Funds to in-house processing.
Mortgage banking revenue was up slightly by 1.1% with
higher servicing income and origination gains being
offset by increased amortization of servicing rights
and a lower level of gains realized on the sale
of servicing rights. Corporate cash management
income increased $3.0 million, or 14.9%, due to new
business development, an expanded product line and
higher customer transaction volumes. Credit card
revenue rose $3.6 million, or 19.8%, due to an expanded
customer base, increased merchant activity and card
usage. Brokerage revenue declined as a result of the
outsourcing of that product to a third party broker.
All other income increased by $5.9 million, or 31.5%,
and included leasing related revenues from a recently
acquired leasing company. Table 2 shows the components
of noninterest income.
Noninterest expense, excluding merger related expenses,
totaled $285.2 million, a decrease of $15.2 million, or 5.1%,
from the first quarter of 1998. Staff expense for the first
quarter decreased $16.8 million, 10.8%. This decrease resulted
primarily from staff reductions in support and back room
operations as a result of recently completed mergers. In
addition, staff expenses were reduced through new deferrals
of loan origination costs and the outsourcing of the brokerage
business. Offsetting these decreases somewhat were normal
salary increases and staff additions for new branches.
Fringe benefits also declined as result of merging the
separate companies' plans.
Equipment expense declined by $1.6 million, or 6.9%, due
to savings resulting from the merger. Occupancy expense
increased $1.9 million, or 7.6%, due to both the opening of
new branches and acquisitions. Amortization of intangible
assets increased $4.7 million, or 41.5%, due to new
acquisitions. All other operating expenses declined an
aggregate $3.4 million, or
-19-
<PAGE>
<TABLE>
FIRSTAR CORPORATION AND SUBSIDIARIES
TABLE 2 NONINTEREST INCOME
(dollars in thousands)
<CAPTION>
% Increase/
First Quarter (decrease)
--------------------
1999 1998 1999/1998
-----------------------------------
<S> <C> <C> <C>
Trust income $ 72,353 $ 62,741 15.3 %
Mortgage banking 33,899 33,529 1.1
Cash management income 23,028 20,042 14.9
Retail deposit fees 22,111 21,613 2.3
Credit card income 21,674 18,088 19.8
ATM income 6,661 6,019 10.7
Insurance commissions 6,551 3,892 68.3
International income 4,933 4,013 22.9
Corporate owned life insurance 4,795 3,211 49.3
Brokerage revenue 2,621 4,962 (47.2)
All other income 24,460 18,604 31.5
--------- --------- ------
223,086 196,714 13.4
Investment securities gains/(losses)--net (2) 329 n/m
--------- --------- ------
Total noninterest income $ 223,084 $ 197,043 13.2 %
--------- --------- ------
--------- --------- ------
n/m = not meaningful
</TABLE>
<TABLE>
FIRSTAR CORPORATION AND SUBSIDIARIES
TABLE 3 NONINTEREST EXPENSE
(dollars in thousands)
<CAPTION>
% Increase/
First Quarter (decrease)
--------------------
1999 1998 1999/1998
-----------------------------------
<S> <C> <C> <C>
Salaries $ 116,767 $ 127,746 (8.6)%
Pension and other
employee benefits 22,379 28,196 (20.6)
Equipment expense 21,742 23,351 (6.9)
Occupancy expense--net 26,215 24,353 7.6
Amortization of goodwill
and other intangible assets 15,991 11,301 41.5
Outside services 15,720 15,843 (0.8)
Postage and courier 10,197 8,339 22.3
Marketing expense 6,665 9,325 (28.5)
Professional services 3,412 6,347 (46.2)
Travel and entertainment 3,450 3,445 0.1
Stationery and supplies 5,104 6,359 (19.7)
All other noninterest expense 37,527 35,790 4.9
--------- --------- ------
285,169 300,395 (5.1)
Merger related expenses 15,000 n/m
--------- --------- ------
Total noninterest expense $ 300,169 $ 300,395 (0.1)%
--------- --------- ------
--------- --------- ------
n/m = not meaningful
</TABLE>
-20-
<PAGE>
3.9%, reflecting various cost saving initiatives. Table 3
shows the components of noninterest expenses.
Before merger related costs, Firstar's efficiency ratio
was 47.60% in the first quarter of 1999, a significant
improvement over the 55.02% of the first quarter of last year.
Asset Quality
As of March 31,1999, the allowance for loan losses was $401.9
million, or 1.53% of loans outstanding compared to 1.53% at
December 31, 1998 and 1.60% a year earlier. The decrease from
the prior year resulted from a change in the management of
problem loans as a result of the merger. A more aggressive charge-
off policy has been adopted. The allowance as a percentage of
nonperforming loans was 330% at March 31, 1999 compared to 318%
at December 31, 1998 and 317% a year earlier. Table 4 provides a
summary of activity in the allowance for loan losses by type of
loan. Net charge-offs totaled $29.9 million in the first quarter
of 1999 compared with $27.0 million in the same period of last
year. Annualized net charge-offs as a percent of average loans
remained essentially level from period to period. Credit card
net charge-offs increased from 4.52% of average outstandings in
the first quarter of 1998 to 5.19% in the current quarter. Lower
charge-off levels in other retail lending and in commercial loans
partially offset the increase in credit card losses. Other retail
lending net charge-offs declined from .54% of average outstandings
in the first quarter on 1998 to .29% in the current quarter, while
commercial loans charge-offs declined from .34% to .31%.
Nonperforming assets, as shown in Tables 5 and 6, were $136.7
million at March 31, 1999. This level is unchanged from
December 31, 1998 and down slightly from a year earlier.
Measured as a percent of loans and other real estate,
nonperforming assets have declined from .56% at March 31, 1998
to .52% on March 31, 1999. Nonperforming loans are currently
at historically low levels and it can be expected that they
may increase in future periods.
Capital Resources
Total shareholders' equity was $3.68 billion at March 31,
1999, an increase of $148.3 million from December 31, 1998
and $361.2 million from a year earlier. The ratio of
shareholders' equity to assets was 9.69% at March 31, 1999,
compared to 9.17% at December 31, 1998 and 9.11% at March
31, 1998.
Banking industry regulators define minimum capital
requirements for bank holding companies. Firstar's tier 1
and total risk-based capital ratios as of March 31, 1999
amounted to 9.29% and 11.29%, respectively, well above the
minimum requirements of 4.00% for tier 1 and 8.00% for
total risk-based capital. This compares to tier 1 and
total risk-based capital ratios of 8.92% and 11.01% at
December 31, 1998. Regulatory authorities have also
established a
-21-
<PAGE>
<TABLE>
FIRSTAR CORPORATION AND SUBSIDIARIES
TABLE 4 SUMMARY OF LOAN LOSS EXPERIENCE
(dollars in thousands)
<CAPTION>
First Quarter
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Average loans..................... $ 26,170,012 $ 24,198,975
---------- ----------
---------- ----------
Allowance for loan losses:
Balance - beginning of period... $ 395,956 $ 372,933
Charge-offs:
Commercial.................... (11,263) (12,937)
Commercial real estate........ (1,055) (476)
Residential real estate....... (2,460) (411)
Credit card................... (17,350) (15,163)
Other retail.................. (9,853) (11,174)
---------- ----------
Total charge-offs........... (41,981) (40,161)
---------- ----------
Recoveries:
Commercial.................... 4,036 5,840
Commercial real estate........ 800 1,043
Residential real estate....... 1 215
Credit card................... 2,022 2,432
Other retail.................. 5,199 3,633
---------- ----------
Total recoveries............ 12,058 13,163
---------- ----------
Net charge-offs........... (29,923) (26,998)
Provision charged to earnings... 35,910 28,645
Allowances of banks purchased... -- 18,367
---------- ----------
Balance - end of period......... $ 401,943 $ 392,947
---------- ----------
---------- ----------
Ratio of net charge-offs to average
loans:
Commercial.................... 0.31% 0.34%
Commercial real estate........ 0.02% (0.05%)
Residential real estate....... 0.30% 0.02%
Credit card................... 5.19% 4.52%
Other Retail.................. 0.29% 0.54%
Total loans..................... 0.46% 0.45%
------ ------
------ ------
</TABLE>
-22-
<PAGE>
<TABLE>
FIRSTAR CORPORATION AND SUBSIDIARIES
TABLE 5 NONPERFORMING ASSETS
(Dollars in thousands)
<CAPTION>
March 31, December 31, March 31,
1999 1998 1998
--------- ------------ -----------
<S> <C> <C> <C>
Loans on nonaccrual status:
Commercial........................$ 59,887 $ 60,587 $ 65,653
Residential mortgage.............. 20,352 20,717 26,958
Commercial mortgage............... 25,677 28,942 21,556
Construction and land development. 6,337 7,766 3,553
Retail loans...................... 8,070 6,463 5,537
------- ------- -------
Total nonaccrual loans.......... 120,323 124,475 123,257
Loans which have been
renegotiated...................... 1,455 48 894
------- ------- -------
Total nonperforming loans....... 121,778 124,523 124,151
Other real estate owned............. 14,880 11,852 13,327
------- ------- -------
Total nonperforming assets......$ 136,658 $ 136,375 $ 137,478
------- ------- -------
------- ------- -------
Percentage of nonperforming
loans to loans.................... 0.46% 0.48% 0.51%
------- ------- -------
------- ------- -------
Percentage of nonperforming
assets to loans and other
real estate owned................. 0.52% 0.53% 0.56%
------- ------- -------
------- ------- -------
Loans past due 90 days
or more...........................$ 70,928 $ 75,094 $ 76,896
------- ------- -------
------- ------- -------
</TABLE>
-23-
<PAGE>
<TABLE>
FIRSTAR CORPORATION AND SUBSIDIARIES
TABLE 6 COMPOSITION OF NONPERFORMING LOANS
(dollars in thousands)
<CAPTION>
March 31, 1999
---------------------------------------------------------
Nonperforming Loans 90 Days
----------------------------------------------
Non- Restruc- Percentage or More
accrual tured Total of Loans Past Due
-------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Commercial loans:
Corporate.............. $ 48,526 $ 5 $ 48,531 0.61 % $12,190
Commercial leasing..... 11,361 -- 11,361 0.87 629
-------- ------- -------- -------
Total commercial loans 59,887 5 59,892 0.65 12,819
-------- ------- -------- -------
Real estate loans:
Residential............ 20,352 -- 20,352 0.63 11,914
Commercial mortgage.... 25,677 -- 25,677 0.53 7,192
Construction/land
development.......... 6,337 -- 6,337 0.53 4,050
-------- ------ -------- -------
Total real estate loans 52,366 -- 52,366 0.56 23,156
-------- ------ -------- -------
Retail loans:
Other retail........... 5,572 1373 6,945 0.14 12,192
Credit cards........... 2,042 -- 2,042 0.17 20,983
Retail leasing......... 456 77 533 0.03 1,778
-------- ------ -------- -------
Total retail loans... 8,070 1450 9,520 0.10 34,953
-------- ------ -------- -------
Total loans.......... $120,323 $1,455 $121,778 0.46 % $70,928
-------- ------ -------- ------- -------
-------- ------ -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------
Nonperforming Loans 90 Days
----------------------------------------------
Non- Restruc- Percentage or More
accrual tured Total of Loans Past Due
-------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Commercial loans:
Corporate.............. $ 54,171 $ 6 $ 54,177 0.67 % $14,137
Commercial leasing..... 6,416 -- 6,416 0.53 --
-------- ------ -------- -------
Total commercial loans 60,587 6 60,593 0.65 14,137
-------- ------ -------- -------
Real estate loans:
Residential............ 20,717 -- 20,717 0.63 16,473
Commercial mortgage.... 28,942 42 28,984 0.75 8,823
Construction/land
development.......... 7,766 -- 7,766 0.17 2,979
-------- ------ -------- -------
Total real estate loans 57,425 42 57,467 0.63 28,275
-------- ------ -------- -------
Retail loans:
Other retail........... 3,344 -- 3,344 0.07 13,604
Credit cards........... 2,629 -- 2,629 0.22 17,608
Retail leasing......... 490 -- 490 0.04 1,470
-------- ------ -------- -------
Total retail loans... 6,463 -- 6,463 0.09 32,682
-------- ------ -------- -------
Total loans.......... $124,475 $ 48 $124,523 0.48 % $75,094
-------- ------ -------- ------- -------
-------- ------ -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
---------------------------------------------------------
Nonperforming Loans 90 Days
----------------------------------------------
Non- Restruc- Percentage or More
accrual tured Total of Loans Past Due
-------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Commercial loans:
Corporate.............. $ 65,338 $ 632 $ 65,970 0.85 % $26,221
Commercial leasing..... 315 -- 315 0.06 --
-------- ------ -------- -------
Total commercial loans 65,653 632 66,285 0.80 26,221
-------- ------ -------- -------
Real estate loans:
Residential............ 26,958 -- 26,958 0.71 7,799
Commercial mortgage.... 21,556 -- 21,556 0.48 16,067
Construction/land
development.......... 3,553 -- 3,553 0.33 --
-------- ------ -------- -------
Total real estate loans 52,067 -- 52,067 0.56 23,866
-------- ------ -------- -------
Retail loans:
Other retail........... 2,623 262 2,885 0.06 11,085
Credit cards........... 2,328 -- 2,328 0.21 15,222
Retail leasing......... 586 -- 586 0.05 502
-------- ------ -------- -------
Total retail loans... 5,537 262 5,799 0.08 26,809
-------- ------ -------- -------
Total loans.......... $123,257 $ 894 $124,151 0.51 % $76,896
-------- ------ -------- ------- -------
-------- ------ -------- ------- -------
</TABLE>
-24-
<PAGE>
minimum leverage ratio of 3.00%, which is defined as
tier 1 equity to average quarterly assets. At March
31, 1999, Firstar's leverage ratio was 8.07%,
compared to 7.52% at December 31, 1998.
In March 1999, the Board of Directors approved a
three-for-one stock split and a stock buyback plan.
The stock split was completed on April 15, 1999 to all
shareholders of record on March 31, 1999. All stock
and per share amounts included in these financial
statements have been restated to reflect the split.
The stock buyback program authorizes the repurchase
of up to fifteen million shares periodically over
the next two years. The repurchased shares will be
held as treasury shares for reissue for various
corporate purposes, including stock option plans.
Through March 31, 1999, 793,800 shares have been
repurchased.
Year 2000
Firstar's Year 2000 ("Y2K") project is directed by
a committee that provides direct oversight of the Y2K
initiative. Firstar has completed its assessment
of Y2K issues, developed a plan, and arranged resources
to complete the necessary remediation efforts. Firstar
is utilizing both internal and external resources to
reprogram, or replace, and test the software and
hardware for Y2K modifications. Currently Firstar
has remediated and tested 99% of its mission critical
applications. The remaining significant applications
are expected to be completed by June 30, 1999. A
separate test environment has been established to
accommodate testing activity and the anticipated need
to test with customers and other third parties during
the remainder of the year.
Firstar relies on several third party service
providers for key business processes and works closely
to monitor their Y2K efforts. Firstar has obtained written
and verbal verification from significant third party
service providers and vendors of their Y2K readiness.
While Firstar continues to discuss, obtain written
certification from, and test the systems of critical
vendors and third party service providers as to Y2K
compliance, no assurance exists that any impact associated
with incompatible systems after December 31, 1999 will
not have a material adverse effect on Firstar's business,
financial condition or results of operations.
Firstar previously established business continuity
plans for its various lines of business and is assessing
these plans for the possible impact of Y2K anticipated
failures. Existing business continuity plans will be
adjusted where appropriate for those scenarios that may
have the most severe impact on its operations. This
activity is expected to be completed by June 30, 1999.
Major risks associated with the Y2K issue as it applies
to external parties include, but are not limited to,
failure of voice and data communications systems due to
loss of satellites or problems at communication companies;
ATM shutdowns; non-availability or delays in cash
-25-
<PAGE>
couriers/shipments; failure of government systems; and
shutdown of government facilities or power companies.
Major risks associated with internal systems include,
but are not limited to, inability to complete transactions
or properly process customer data; inability to process
electronic transactions; failure of time locks or security
systems and inability to meet customer demands for cash.
The costs of the Y2K project are primarily staff related
and are expensed as incurred. Currently, Firstar estimates
that the total cost of the Y2K project will be approximately
$32 million of which $5 million was expensed in 1997; $18
million in 1998; and $3 million in the first quarter of 1999.
This discussion may contain forward looking statements
with respect to the financial condition, results of
operations and business of Firstar. These forward looking
statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially
from those contemplated include among other things, the
following possibilities: (i)expected cost savings from
recent acquisitions cannot be fully realized or realized
within the expected time; (ii)revenues are lower than
expected; (iii)competitive pressure among depository
institutions increases significantly; (iv)changes in the
interest rate environment reduces interest margins;
(v)general economic conditions are less favorable than
expected; and (vi)legislation or regulatory requirements
adversely affect the business that Firstar is engaged in.
-26-
<PAGE>
Item 5. Other Information
Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited Pro Forma Condensed Combined
Financial Information and Notes are presented to show the
impact on the historical financial position and the
results of operations of the combined company for the
proposed merger of Firstar Corporation and Mercantile
Bancorporation Inc. This pro forma information should
be read in conjunction with the consolidated financial
statements, including notes thereto, of Firstar
Corporation and Mercantile Bancorporation Inc. The
unaudited Pro Forma Condensed Combined Financial
Information is presented for illustration purposes only
in accordance with the assumptions set forth below, and
is not necessarily indicative of the operating reults or
financial position that would have occurred if the merger
had been consummated nor is it necessarily indicative of
future operating results or financial position of the
combined company.
The unaudited Pro Forma Condensed Combined Balance Sheet
as March 31, 1999 combines the historical consolidated
balance sheets of Firstar Corporation and Mercantile
Bancorporation Inc, as if the merger had been effective
on that date. The unaudited Pro Forma Condensed Combined
Income Statements for the quarter ended March 31, 1999 and
the years ended December 31, 1998, 1997 and 1996 present
the combined results of operations of Firstar Corporation
and Mercantile Bancorporation Inc. as if the merger had
been effective at January 1, 1996. This pro forma
financial information reflects the application of the
pooling of interests method of accounting for the merger.
Under this method of accounting, the recorded asset,
liabilities, shareholders' equity, income and expenses
of both companies are combined and reflected at their
historical amounts.
The combined company expects to achieve substantial
merger benefits including operating cost savings.
The pro forma earnings do not reflect any financial
benefits which are expected to result from the
consolidation of operations and are not indicative of
the results of future operations. No assurances can
be given with respect to the ultimate level of
financial benefits to be realized.
-27-
<PAGE>
<TABLE>
Firstar/Mercantile
Unaudited Pro Forma Condensed Combined Balance Sheet
As of March 31, 1999
(amounts in thousands)
<CAPTION>
Mercantile Pro Forma
Firstar Bancorporation Pro Forma Firstar
Corporation Inc. Ajustments Corporation
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks..............$ 2,069,888 $ 1,210,972 $ $ 3,280,860
Money market investments............. 86,220 657,831 744,051
Trading securities................... 0 188,069 188,069
Investment securities:
Available-for-sale................. 5,720,607 9,308,727 15,029,334
Held-to-maturity................... 219,007 81,906 300,913
------------- ------------- ------------- -------------
Total securities................... 5,939,614 9,390,633 0 15,330,247
Loans:
Commercial loans................... 9,284,217 6,498,961 15,783,178
Real estate loans.................. 9,269,501 12,438,037 21,707,538
Retail loans....................... 7,773,591 3,363,951 11,137,542
------------- ------------- ------------- -------------
Total loans...................... 26,327,309 22,300,949 0 48,628,258
Allowance for loan losses.. 401,943 309,048 710,991
------------- ------------- ------------- -------------
Net loans........................ 25,925,366 21,991,901 0 47,917,267
Loans held for sale.................. 1,179,985 176,050 1,356,035
Premises and equipment............... 609,377 533,807 (24,000) 1,119,184
Intangible assets.................... 1,085,725 765,560 1,851,285
Other assets......................... 1,055,675 663,996 1,719,671
------------- ------------- ------------- -------------
Total assets.....................$ 37,951,850 $ 35,578,819 $ (24,000) $ 73,506,669
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
LIABILITIES:
Deposits:
Noninterest-bearing deposits.......$ 5,982,868 $ 3,901,014 $ $ 9,883,882
Interest-bearing deposits........... 21,884,893 20,821,383 42,706,276
------------- ------------- ------------- -------------
Total deposits................. 27,867,761 24,722,397 0 52,590,158
Short-term borrowings................ 3,913,666 2,730,375 6,644,041
Long-term debt....................... 1,687,599 4,406,070 6,093,669
Other liabilities.................... 804,570 618,514 262,000 1,685,084
------------- ------------- ------------- -------------
Total liabilities................ 34,273,596 32,477,356 262,000 67,012,952
------------- ------------- ------------- -------------
SHAREHOLDERS' EQUITY:
Common stock......................... 6,641 1,578 1,695 9,914
Surplus.............................. 1,266,731 1,009,106 (3,848) 2,271,989
Retained earnings.................... 2,370,742 2,099,532 (286,000) 4,184,274
Treasury stock, at cost.............. (41,720) (2,153) 2,153 (41,720)
Accumulated other comprehensive
income.............................. 75,860 (6,600) 69,260
------------- ------------- ------------- -------------
Total shareholders' equity....... 3,678,254 3,101,463 (286,000) 6,493,717
------------- ------------- ------------- -------------
Total liabilities and
shareholders' equity..........$ 37,951,850 $ 35,578,819 $ (24,000) $ 73,506,669
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
</TABLE>
-28-
<PAGE>
<TABLE>
Firstar/Mercantile
Unaudited Pro Forma Condensed Combined Income Statement
For the Three Months Ended March 31, 1999
(amounts in thousands, except per share amounts)
<CAPTION>
Mercantile Pro Forma
Firstar Bancorporation Pro Forma Firstar
Corporation Inc. Ajustments Corporation
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans.................$ 528,102 $ 431,903 $ $ 960,005
Interest and fees on loans held for sale... 27,156 27,156
Interest on investment securities.......... 92,918 145,756 238,674
Interest on trading securities............. 11 2,579 2,590
Interest on money market investments....... 1,298 6,700 7,998
----------- ----------- ----------- -----------
Total interest income.................... 649,485 586,938 0 1,236,423
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits....................... 210,579 216,638 427,217
Interest on short-term borrowings.......... 46,873 30,857 77,730
Interest on long-term debt................. 26,180 55,214 81,394
----------- ----------- ----------- -----------
Total interest expense................... 283,632 302,709 0 586,341
----------- ----------- ----------- -----------
Net interest income.................... 365,853 284,229 0 650,082
Provision for loan losses.................. 35,910 7,479 43,389
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses............ 329,943 276,750 0 606,693
----------- ----------- ----------- -----------
NONINTEREST INCOME:
Trust income............................... 72,353 29,142 101,495
Mortgage banking income.................... 33,899 6,199 40,098
Service charges on deposits................ 45,139 29,640 74,779
Credit card income......................... 21,674 3,503 25,177
ATM Income................................. 6,661 3,772 10,433
All other income........................... 43,360 41,225 84,585
----------- ----------- ----------- -----------
223,086 113,481 0 336,567
Investment securities gains/(losses) - net. (2) 12,963 12,961
----------- ----------- ----------- -----------
Total noninterest income................. 223,084 126,444 0 349,528
----------- ----------- ----------- -----------
NONINTEREST EXPENSE:
Salaries................................... 116,767 101,687 218,454
Pension and other employee benefits........ 22,379 21,652 44,031
Equipment expense.......................... 21,742 23,689 45,431
Occupancy expense - net.................... 26,215 17,191 43,406
All other expense.......................... 98,066 61,135 159,201
----------- ----------- ----------- -----------
285,169 225,354 0 510,523
Merger and retructuring expenses........... 15,000 15,000
----------- ----------- ----------- -----------
Total noninterest expense................ 300,169 225,354 0 525,523
----------- ----------- ----------- -----------
INCOME BEFORE TAX.......................... 252,858 177,840 0 430,698
Income tax................................. 83,271 59,803 143,074
----------- ----------- ----------- -----------
NET INCOME.................................$ 169,587 $ 118,037 $ 0 $ 287,624
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
PER SHARE:
Basic earnings per common share............$ 0.26 $ 0.75 $ 0.29
Diluted earnings per common share.......... 0.25 0.74 0.29
Average common shares - basic.............. 661,572 157,633 991,182
Average common shares - diluted............ 675,118 159,602 1,008,845
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
</TABLE>
-29-
<PAGE>
<TABLE>
Firstar/Mercantile
Unaudited Pro Forma Condensed Combined Income Statement
For the Year Ended December 31, 1998
(amounts in thousands, except per share amounts)
<CAPTION>
Mercantile Pro Forma
Firstar Bancorporation Pro Forma Firstar
Corporation Inc. Ajustments Corporation
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans.................$ 2,152,359 $ 1,771,235 $ $ 3,923,594
Interest and fees on loans held for sale... 70,808 70,808
Interest on investment securities.......... 412,212 581,865 994,077
Interest on trading securities............. 73 8,821 8,894
Interest on money market investments....... 6,036 30,197 36,233
----------- ----------- ----------- -----------
Total interest income.................... 2,641,488 2,392,118 0 5,033,606
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits....................... 911,958 931,716 1,843,674
Interest on short-term borrowings.......... 207,650 174,335 381,985
Interest on long-term debt................. 109,101 181,807 290,908
----------- ----------- ----------- -----------
Total interest expense................... 1,228,709 1,287,858 0 2,516,567
----------- ----------- ----------- -----------
Net interest income.................... 1,412,779 1,104,260 0 2,517,039
Provision for loan losses.................. 113,636 51,154 164,790
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses............ 1,299,143 1,053,106 0 2,352,249
----------- ----------- ----------- -----------
NONINTEREST INCOME:
Trust income............................... 262,259 112,999 375,258
Mortgage banking income.................... 151,096 54,455 205,551
Service charges on deposits................ 177,008 119,277 296,285
Credit card income......................... 84,853 12,556 97,409
ATM Income................................. 28,672 15,556 44,228
All other income........................... 155,165 163,589 318,754
----------- ----------- ----------- -----------
859,053 478,432 0 1,337,485
Investment securities gains/(losses) - net. 1,095 15,435 16,530
Gain on sale of subsidiaries............... 48,051 48,051
----------- ----------- ----------- -----------
Total noninterest income................. 860,148 541,918 0 1,402,066
----------- ----------- ----------- -----------
NONINTEREST EXPENSE:
Salaries................................... 540,977 418,351 959,328
Pension and other employee benefits........ 97,025 77,608 174,633
Equipment expense.......................... 103,713 85,426 189,139
Occupancy expense - net.................... 102,464 67,003 169,467
All other expense.......................... 434,043 244,047 678,090
----------- ----------- ----------- -----------
1,278,222 892,435 0 2,170,657
Merger and retructuring expenses........... 242,970 134,322 377,292
----------- ----------- ----------- -----------
Total noninterest expense................ 1,521,192 1,026,757 0 2,547,949
----------- ----------- ----------- -----------
INCOME BEFORE TAX.......................... 638,099 568,267 0 1,206,366
Income tax................................. 207,952 192,964 400,916
----------- ----------- ----------- -----------
NET INCOME................................$ 430,147 $ 375,303 $ 0 $ 805,450
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
PER SHARE:
Basic earnings per common share............$ 0.66 $ 2.45 $ 0.83
Diluted earnings per common share.......... 0.65 2.41 0.81
Average common shares - basic.............. 649,530 153,462 970,420
Average common shares - diluted............ 663,054 155,921 989,085
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
</TABLE>
-30-
<PAGE>
<TABLE>
Firstar/Mercantile
Unaudited Pro Forma Condensed Combined Income Statement
For the Year Ended December 31, 1997
(amounts in thousands, except per share amounts)
<CAPTION>
Mercantile Pro Forma
Firstar Bancorporation Pro Forma Firstar
Corporation Inc. Ajustments Corporation
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans.................$ 1,982,684 $ 1,651,816 $ $ 3,634,500
Interest and fees on loans held for sale... 20,878 20,878
Interest on investment securities.......... 362,224 432,460 794,684
Interest on trading securities............. 131 7,077 7,208
Interest on money market investments....... 11,182 27,325 38,507
----------- ----------- ----------- -----------
Total interest income.................... 2,377,099 2,118,678 0 4,495,777
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits....................... 804,406 842,949 1,647,355
Interest on short-term borrowings.......... 183,642 159,013 342,655
Interest on long-term debt................. 86,884 68,978 155,862
----------- ----------- ----------- -----------
Total interest expense................... 1,074,932 1,070,940 0 2,145,872
----------- ----------- ----------- -----------
Net interest income.................... 1,302,167 1,047,738 0 2,349,905
Provision for loan losses.................. 117,772 86,355 204,127
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses............ 1,184,395 961,383 0 2,145,778
----------- ----------- ----------- -----------
NONINTEREST INCOME:
Trust income............................... 234,195 103,928 338,123
Mortgage banking income.................... 70,644 26,625 97,269
Service charges on deposits................ 152,410 109,058 261,468
Credit card income......................... 88,615 21,169 109,784
ATM Income................................. 22,397 13,271 35,668
All other income........................... 124,877 132,493 257,370
----------- ----------- ----------- -----------
693,138 406,544 0 1,099,682
Investment securities gains/(losses) - net. (3,916) 7,649 3,733
Gain on sale of merchant processing........ 22,821 22,821
----------- ----------- ----------- -----------
Total noninterest income................. 712,043 414,193 0 1,126,236
----------- ----------- ----------- -----------
NONINTEREST EXPENSE:
Salaries................................... 478,159 381,942 860,101
Pension and other employee benefits........ 91,114 85,048 176,162
Equipment expense.......................... 94,369 70,272 164,641
Occupancy expense - net.................... 91,348 61,697 153,045
All other expense.......................... 371,516 216,026 587,542
----------- ----------- ----------- -----------
1,126,506 814,985 0 1,941,491
Loss on sale of credit card loans.......... 50,000 50,000
Merger and retructuring expenses........... 121,393 121,393
----------- ----------- ----------- -----------
Total noninterest expense................ 1,126,506 986,378 0 2,112,884
----------- ----------- ----------- -----------
INCOME BEFORE TAX.......................... 769,932 389,198 0 1,159,130
Income tax................................. 256,038 142,376 398,414
----------- ----------- ----------- -----------
NET INCOME.................................$ 513,894 $ 246,822 $ 0 $ 760,716
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
PER SHARE:
Basic earnings per common share............$ 0.83 $ 1.76 $ 0.83
Diluted earnings per common share.......... 0.81 1.73 0.82
Average common shares - basic.............. 620,283 140,009 913,042
Average common shares - diluted............ 634,149 142,639 932,407
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
</TABLE>
-31-
<PAGE>
<TABLE>
Firstar/Mercantile
Unaudited Pro Forma Condensed Combined Income Statement
For the Year Ended December 31, 1996
(amounts in thousands, except per share amounts)
<CAPTION>
Mercantile Pro Forma
Firstar Bancorporation Pro Forma Firstar
Corporation Inc. Ajustments Corporation
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans.................$ 1,869,407 $ 1,404,809 $ $ 3,274,216
Interest and fees on loans held for sale... 20,454 20,454
Interest on investment securities.......... 378,408 343,375 721,783
Interest on trading securities............. 344 3,630 3,974
Interest on money market investments....... 7,062 19,306 26,368
----------- ----------- ----------- -----------
Total interest income.................... 2,275,675 1,771,120 0 4,046,795
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits....................... 788,023 692,138 1,480,161
Interest on short-term borrowings.......... 171,694 89,676 261,370
Interest on long-term debt................. 63,687 40,343 104,030
----------- ----------- ----------- -----------
Total interest expense................... 1,023,404 822,157 0 1,845,561
----------- ----------- ----------- -----------
Net interest income.................... 1,252,271 948,963 0 2,201,234
Provision for loan losses.................. 97,334 78,766 176,100
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses............ 1,154,937 870,197 0 2,025,134
----------- ----------- ----------- -----------
NONINTEREST INCOME:
Trust income............................... 196,891 93,704 290,595
Mortgage banking income.................... 64,811 13,518 78,329
Service charges on deposits................ 147,424 98,908 246,332
Credit card income......................... 81,622 28,415 110,037
ATM Income................................. 15,547 8,450 23,997
All other income........................... 117,485 124,723 242,208
----------- ----------- ----------- -----------
623,780 367,718 0 991,498
Investment securities gains/(losses) - net. (2,365) 292 (2,073)
----------- ----------- ----------- -----------
Total noninterest income................. 621,415 368,010 0 989,425
----------- ----------- ----------- -----------
NONINTEREST EXPENSE:
Salaries................................... 466,133 335,803 801,936
Pension and other employee benefits........ 97,089 77,437 174,526
Equipment expense.......................... 86,952 60,605 147,557
Occupancy expense - net.................... 91,460 55,489 146,949
All other expense.......................... 341,829 212,397 554,226
----------- ----------- ----------- -----------
1,083,463 741,731 0 1,825,194
SAIF assessments........................... 15,522 12,385 27,907
Merger and retructuring expenses........... 53,267 51,071 104,338
----------- ----------- ----------- -----------
Total noninterest expense................ 1,152,252 805,187 0 1,957,439
INCOME BEFORE TAX.......................... 624,100 433,020 0 1,057,120
Income tax................................. 208,682 148,567 357,249
----------- ----------- ----------- -----------
NET INCOME.................................$ 415,418 $ 284,453 $ 0 $ 699,871
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
PER SHARE:
Basic earnings per common share............$ 0.65 $ 2.12 $ 0.77
Diluted earnings per common share.......... 0.64 2.09 0.75
Average common shares - basic.............. 633,858 133,926 913,897
Average common shares - diluted............ 644,640 135,996 929,008
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
</TABLE>
-32-
<PAGE>
Firstar Corporation/Mercantile Bancorporation Inc.
Notes to the Unaudited Pro Forma
Condensed Combined Financial Information
Note 1 - Basis of Presentation
On April 30, 1999 Firstar Corporation announced that
it had signed a definitive agreement to acquire Mercantile
Bancorporation Inc. through an exchange of shares.
The unaudited Pro Forma Condensed Combined Financial
Information has been prepared assuming that the merger will
be accounted for under the pooling of interests method
and is based on the historical consolidated financial
statements of the two companies. A review of each company's
respective accounting policies has not been completed. As a
result of this review, it might be necessary to restate
certain amounts in the financial statements of the combined
company to conform to those accounting policies that are most
appropriate. Any such restatements are not expected to be
material.
Note 2 - Shareholders' Equity
Under the terms of the agreement, Mercantile shareholders
will receive 2.091 shares of Firstar common stock for each
share of Mercantile common stock owned. Mercantile had
157,869,000 shares of common stock outstanding at March 31,
1999 which will be exchanged for approximately 330,104,000
shares of Firstar common stock. The combined company will
have approximately 991,318,000 shares outstanding after the
merger. The common stock in the unaudited Pro Forma
Condensed Combined Balance Sheet has been adjusted to
reflect the par value amount of shares of the combined
company. Pro Forma retained earnings reflects an adjustment
for estimated merger related charges as described in
Note 3 below.
Note 3 - Merger Related Charges
In connection with the merger, Firstar and Mercantile
expect the combined company to incur pre-tax merge
related charges of approximately $428 million. The
are expected to include approximately $159 million in
employee related payments, $94 million in direct
conversion costs, $60 million in charges related to
consolidation of systems and operations, $24 million in
occupancy and equipment charges (elimination of duplicate
facilities and write-off of equipment) and $91 million
in other merger related costs ( including legal and
investment banking fees).
The merger related charges and related tax effect have
been reflected in the unaudited Pro Forma Condensed
Combined Balance Sheet as of March 31, 1999, and have not
been reflected in the unaudited Pro Forma Condensed
Combined Income Statements as they are not expected to
have a continuing impact on the operations of the
combined company.
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<PAGE>
PART II. OTHER INFORMATION
- --------------------------
ITEM 6. Exhibits and Reports on Form 8-K
- -------
(A) Exhibits filed:
Exhibit 2. Agreement and Plan of Merger by and
between Mercantile Bancorporation Inc. and
Firstar Corporation.
Exhibit 27. Financial Data Schedule
Exhibit 99.1 Stock Option Agreement between
Mercantile Bancorporation Inc. (Issuer),
and Firstar Corporation (Grantee).
Exhibit 99.2 Stock Option Agreement between
Firstar Corporation (Issuer), and
and Mercantile Bancorporation Inc. (Grantee).
(B) A Form 8-K dated March 9, 1999 was filed relating
to the change of Firstar's independent public
accountants, the announcement of a three-for-one
stock split and the announcement of stock buyback
plan.
A Form 8-K dated April 30, 1999 reported the
announcement of a plan of merger between Mercantile
Bancorporation Inc. and Firstar Corporation.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
FIRSTAR CORPORATION
May 14, 1999 /s/ Jerry A. Grundhoffer
- --------------------- -----------------------------
Date Jerry A. Grundhoffer
President and Chief
Executive Officer
May 14, 1999
- --------------------- /s/ David M. Moffett
Date -----------------------------
David M. Moffett
Vice Chairman
and Chief Financial Officer
May 14, 1999 /s/ James D. Hogan
- --------------------- -----------------------------
Date James D. Hogan
Senior Vice President and
Controller
-34-
<PAGE>
AGREEMENT AND PLAN OF MERGER
by and between
MERCANTILE BANCORPORATION INC.
and
FIRSTAR CORPORATION
DATED AS OF APRIL 30, 1999
<PAGE>
<TABLE>
TABLE OF CONTENTS
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Page
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<S> <C>
AGREEMENT AND PLAN OF MERGER
ARTICLE I
THE MERGER
1.1 The Merger 2
1.2 Effective Time 2
1.3 Effects of the Merger 2
1.4 Conversion of Mercantile Common Stock 2
1.5 Firstar Capital Stock 4
1.6 Options 4
1.7 Certificate of Incorporation 5
1.8 By-Laws 5
1.9 Tax and Accounting Consequences 5
1.10 Board of Directors; Management 5
1.11 Headquarters of Surviving Corporation 6
ARTICLE II
EXCHANGE OF SHARES
2.1 Firstar to Make Shares Available 6
2.2 Exchange of Shares 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRSTAR
3.1 Corporate Organization 8
3.2 Capitalization 9
3.3 Authority; No Violation 10
3.4 Consents and Approvals 11
3.5 Reports 11
3.6 Financial Statements 12
3.7 Broker's Fees 12
3.8 Absence of Certain Changes or Events 12
3.9 Legal Proceedings 13
3.10 Taxes and Tax Returns 13
3.11 Employee Benefit Plans 14
3.12 SEC Reports 16
3.13 Compliance with Applicable Law 16
-i-
<PAGE>
3.14 Certain Contracts 17
3.15 Agreements with Regulatory Agencies 17
3.16 Interest Rate Risk Management Instruments 18
3.17 Undisclosed Liabilities 18
3.18 Insurance 18
3.19 Environmental Liability 18
3.20 Charter Provisions; State Takeover Laws; Firstar Rights Agreement 19
3.21 Year 2000 19
3.22 Reorganization; Pooling of Interests 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERCANTILE
4.1 Corporate Organization 20
4.2 Capitalization 20
4.3 Authority; No Violation 21
4.4 Consents and Approvals 22
4.5 Reports 23
4.6 Financial Statements 23
4.7 Broker's Fees 24
4.8 Absence of Certain Changes or Events 24
4.9 Legal Proceedings 24
4.10 Taxes and Tax Returns 25
4.11 Employee Benefit Plans 26
4.12 SEC Reports 27
4.13 Compliance with Applicable Law 28
4.14 Certain Contracts 28
4.15 Agreements with Regulatory Agencies 29
4.16 Interest Rate Risk Management Instruments 29
4.17 Undisclosed Liabilities 29
4.18 Insurance 30
4.19 Environmental Liability 30
4.20 Charter Provisions; State Takeover Laws; Mercantile Rights Agreement 30
4.21 Year 2000 31
4.22 Reorganization; Pooling of Interests 31
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Time 31
5.2 Forbearances 31
-ii-
<PAGE>
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters 34
6.2 Access to Information 35
6.3 Shareholders' Approvals 36
6.4 Legal Conditions to Merger 36
6.5 Affiliates; Publication of Combined Financial Results 37
6.6 Stock Exchange Listing 37
6.7 Employee Benefit Plans 37
6.8 Indemnification; Directors' and Officers' Insurance 38
6.9 Additional Agreements 39
6.10 Advice of Changes 39
6.11 Dividends 39
6.12 Exemption from Liability Under Section 16(b) 40
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger 40
7.2 Conditions to Obligations of Mercantile 41
7.3 Conditions to Obligations of Firstar 42
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination 43
8.2 Effect of Termination 43
8.3 Amendment 44
8.4 Extension; Waiver 44
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing 45
9.2 Nonsurvival of Representations, Warranties and Agreements 45
9.3 Expenses 45
9.4 Notices 45
9.5 Interpretation 46
9.6 Counterparts 46
9.7 Entire Agreement 46
9.8 Governing Law 46
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<PAGE>
9.9 Publicity 46
9.10 Assignment; Third Party Beneficiaries 47
9.11 Certain Agreements of the Surviving Corporation 47
Exhibit A - Mercantile Option Agreement
Exhibit B - Firstar Option Agreement
Exhibit 6.5(a)(1) - Form of Affiliate Letter Addressed to Firstar
Exhibit 6.5(a)(2) - Form of Affiliate Letter Addressed to Mercantile
</TABLE>
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<PAGE>
<TABLE>
INDEX OF DEFINED TERMS
<CAPTION>
Section Page No.
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<S> <C> <C>
Agreement Recitals 1
BHC Act 3.1(a) 8
CERCLA 3.19 17
Certificate 1.4(b) 3
Closing 9.1 41
Closing Date 9.1 41
Code 1.6(b) 4
Confidentiality Agreement 6.2(b) 33
Derivative Instruments 3.16 16
Dissenting Shares 1.4(d) 3
DPC Shares 1.4(a) 2
DRIP Suspension Date 4.2(a) 19
Effective Time 1.2 2
ERISA 3.11(a) 13
Exchange Act 3.6 11
Exchange Agent 2.1 5
Exchange Fund 2.1 5
Exchange Ratio 1.4(a) 2
Federal Reserve Board 3.4 10
Firstar Recitals 1
Firstar 10-K 3.6 11
Firstar Articles 1.7 4
Firstar Benefit Plans 3.11(a) 13
Firstar Capital Stock 3.2(a) 8
Firstar Common Stock 1.4(a) 2
Firstar Contract 3.14(a) 16
Firstar Disclosure Schedule 3 7
Firstar DRIP 3.2(a) 8
Firstar ERISA Affiliate 3.11(a) 13
Firstar Option Agreement Recitals 1
Firstar Preferred Stock 3.2(a) 8
Firstar Regulatory Agreement 3.15 16
Firstar Reports 3.12(a) 15
Firstar Rights 3.2(a) 8
Firstar Rights Agreement 1.4(a) 3
Firstar Shareholder Rights 1.4(a) 3
Firstar Stock Plans 3.2(a) 8
GAAP 1.9 5
Governmental Entity 3.4 10
Indemnified Parties 6.8(a) 35
-v-
<PAGE>
<CAPTION>
Section Page No.
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<S> <C> <C>
IRS 3.10(a) 12
Joint Proxy Statement 3.4 10
Liens 3.2(b) 9
Material Adverse Effect 3.1(a) 8
MBCL 1.1(a) 1
Merger Recitals 1
Merger Consideration 1.1(b) 2
Missouri Articles 1.2 2
Missouri Secretary 1.2 2
Mercantile Recitals 1
Mercantile 10-K 4.6 21
Mercantile Articles 4.1(a) 18
Mercantile Benefit Plans 4.11(a) 24
Mercantile Capital Stock 4.2(a) 19
Mercantile Common Stock 1.4(a) 2
Mercantile Contract 4.14(a) 26
Mercantile Disclosure Schedule 4 18
Mercantile Employees 6.7(a) 35
Mercantile DRIP 4.2(a) 19
Mercantile ERISA Affiliate 4.11(a) 24
Mercantile Insiders 6.12 37
Mercantile Option Agreement Recitals 1
Mercantile Preferred Stock 4.2(a) 19
Mercantile Regulatory Agreement 4.15 27
Mercantile Reports 4.12(a) 25
Mercantile Rights 4.2(a) 19
Mercantile Rights Agreement 1.4(a) 3
Mercantile Shareholder Rights 1.4(a) 3
Mercantile Stock Plans 4.2(a) 19
New Benefit Plans 6.7(a) 35
Non-Subsidiary Affiliate 3.2(b) 9
NYSE 2.2(e) 7
OCC 3.5 10
Option Agreements Recitals 1
Regulatory Agencies 3.5 10
Requisite Regulatory Approvals 7.1(c) 37
S-4 3.4 10
SEC 3.4 10
Section 16 Information 6.12 37
Securities Act 3.12(a) 15
SRO 3.4 10
State Approvals 3.4 10
State Regulator 3.5 10
-vi-
<PAGE>
<CAPTION>
Section Page No.
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<S> <C> <C>
Subsidiary 3.1(a) 8
Surviving Corporation Recitals 1
Tax 3.10(b) 13
Taxes 3.10(b) 13
Trust Account Shares 1.4(a) 2
WBCL 1.1(a) 1
Wisconsin Articles 1.2 2
Wisconsin Department 1.2 2
Year 2000 Issues 3.21 18
</TABLE>
-vii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 30, 1999 (this
"Agreement"), by and between FIRSTAR CORPORATION, a Wisconsin
corporation ("Firstar"), and MERCANTILE BANCORPORATION INC., a Missouri
corporation ("Mercantile").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Boards of Directors of each of Firstar and Mercantile
have determined that it is in the best interests of their respective
companies and their shareholders to consummate the strategic business
combination transaction provided for herein in which Mercantile will,
subject to the terms and conditions set forth herein, merge with and
into Firstar (the "Merger"), so that Firstar is the surviving
corporation (hereinafter sometimes referred to in such capacity as the
"Surviving Corporation") in the Merger; and
WHEREAS, as a condition to, and immediately after, the execution
of this Agreement, and as a condition to the execution of the Firstar
Option Agreement, Mercantile and Firstar are entering into a stock
option agreement with Mercantile as issuer, and Firstar as grantee, of
the stock option contemplated thereby (the "Mercantile Option
Agreement") in the form attached hereto as Exhibit A; and
WHEREAS, as a condition to, and immediately after, the execution
of this Agreement, and as a condition to the execution of the Mercantile
Option Agreement, Mercantile and Firstar are entering into a Firstar
stock option agreement with Firstar as issuer, and Mercantile as
grantee, of the stock option contemplated thereby (the "Firstar Option
Agreement"; and together with the Mercantile Option Agreement, the
"Option Agreements") in the form attached hereto as Exhibit B; and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to
prescribe certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and
intending to be legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. (a) Subject to the terms and conditions of
this Agreement, in accordance with Business Corporation Law of the State
of Wisconsin (the "WBCL") and the General and Business Corporation Law
of the State of Missouri (the "MBCL"), at the Effective Time, Mercantile
shall merge with and into Firstar. Firstar shall be the Surviving
Corporation in the Merger, and shall continue its corporate existence
under the laws of the State of
<PAGE>
Wisconsin. Upon consummation of the Merger, the separate corporate
existence of Mercantile shall terminate.
(b) Firstar and Mercantile may, upon mutual agreement, at
any time change the method of effecting the combination of Mercantile
and Firstar (including without limitation the provisions of this Article
I) if and to the extent they deem such change to be desirable, including
without limitation to provide for a merger of either party with a
wholly-owned subsidiary of the other; provided, however, that no
-------- -------
such change shall (A) alter or change the amount of consideration to be
provided to holders of Mercantile Common Stock as provided for in this
Agreement (the "Merger Consideration"), (B) adversely affect the tax
treatment of shareholders as a result of receiving the Merger
Consideration or (C) materially impede or delay consummation of the
transactions contemplated by this Agreement.
1.2 Effective Time. The Merger shall become effective as set
forth in articles of merger (the "Wisconsin Articles") that shall be
filed with the Wisconsin Department of Financial Institutions (the
"Wisconsin Department"), and in the articles of merger (the "Missouri
Articles") that shall be filed with the Secretary of State of the State
of Missouri (the "Missouri Secretary"), in each case on the Closing
Date. The term "Effective Time" shall be the date and time when the
Merger becomes effective, as set forth in the Wisconsin Articles and the
Missouri Articles.
1.3 Effects of the Merger. At and after the Effective Time, the
Merger shall have the effects set forth in the WBCL and the MBCL.
1.4 Conversion of Mercantile Common Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of
Mercantile, Firstar or the holder of any of the following securities:
(a) Subject to Section 2.2(e), each share of the common stock,
par value $0.01 per share, of Mercantile (together with the Mercantile
Shareholder Right attached thereto, the "Mercantile Common Stock")
issued and outstanding immediately prior to the Effective Time, except
for Dissenting Shares (as defined herein) and shares of Mercantile
Common Stock owned, directly or indirectly, by Mercantile or Firstar or
any of their respective wholly-owned Subsidiaries (other than (A) shares
of Mercantile Common Stock held, directly or indirectly, in trust
accounts, managed accounts and the like, or otherwise held in a
fiduciary capacity, that are beneficially owned by third parties (any
such shares, whether held directly or indirectly by Mercantile or
Firstar, as the case may be, being referred to herein as "Trust Account
Shares") and (B) any shares of Mercantile Common Stock held by
Mercantile or Firstar or any of their respective Subsidiaries in respect
of a debt previously contracted (any such shares of Mercantile Common
Stock, and shares of Firstar Common Stock that are similarly held,
whether held directly or indirectly by Mercantile or Firstar, being
referred to herein as "DPC Shares")) shall be converted into the right
to receive 2.091 shares (the "Exchange Ratio") of the common stock, par
value $0.01 per share, of Firstar (together with the Firstar Shareholder
Rights attached thereto, the "Firstar Common Stock"), together with the
same number of Firstar Shareholder Rights attached thereto.
-2-
<PAGE>
As used herein, (i) "Mercantile Shareholder Rights" shall mean the
preferred share purchase rights issued to the holders of Mercantile
Common Stock pursuant to the Rights Agreement, dated as of May 20, 1998
(as such may be amended, supplemented, restated or replaced from time to
time), between Mercantile and Harris Trust and Savings Bank (the
"Mercantile Rights Agreement"), and (ii) "Firstar Shareholder Rights"
shall mean the preferred share purchase rights issued to the holders
Firstar Common Stock pursuant to the Rights Agreement, dated as of
November 20, 1998 (as such may be amended, supplemented, restated or
replaced from time to time), between Firstar and Firstar Bank Milwaukee,
N.A. (the "Firstar Rights Agreement").
(b) All of the shares of Mercantile Common Stock converted into
the right to receive Firstar Common Stock pursuant to this Article I
shall no longer be outstanding and shall automatically be cancelled and
shall cease to exist as of the Effective Time, and each certificate
previously representing any such shares of Mercantile Common Stock (each
a "Certificate") shall thereafter represent only the right to receive
(i) a certificate representing the number of whole shares of Firstar
Common Stock and (ii) cash in lieu of fractional shares into which the
shares of Mercantile Common Stock represented by such Certificate have
been converted pursuant to this Section 1.4 and Section 2.2(e).
Certificates previously representing shares of Mercantile Common Stock
shall be exchanged for certificates representing whole shares of Firstar
Common Stock and cash in lieu of fractional shares issued in
consideration therefor upon the surrender of such Certificates in
accordance with Section 2.2, without any interest thereon. If, prior to
the Effective Time and as permitted by this Agreement, the outstanding
shares of Firstar Common Stock or Mercantile Common Stock shall have
been increased, decreased, changed into or exchanged for a different
number or kind of shares or securities as a result of a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse
stock split, or other similar change in capitalization, an appropriate
and proportionate adjustment shall be made to the Exchange Ratio.
(c) At the Effective Time, all shares of Mercantile Common Stock
that are owned, directly or indirectly, by Mercantile or Firstar or any
of their respective wholly-owned Subsidiaries (other than Trust Account
Shares and DPC Shares) shall be cancelled and shall cease to exist and
no capital stock of Firstar or other consideration shall be delivered in
exchange therefor. All shares of Firstar Common Stock that are owned by
Mercantile or any of its wholly-owned Subsidiaries (other than Trust
Account Shares and DPC Shares) shall as of the Effective Time become
authorized but unissued shares of Firstar Common Stock.
(d) Notwithstanding anything in this Agreement to the contrary,
shares of Mercantile Common Stock that are outstanding immediately prior
to the Effective Time and with respect to which dissenters' rights shall
have been properly demanded in accordance with Section 455 of the MBCL
("Dissenting Shares") shall not be converted into the right to receive,
or be exchangeable for, Firstar Common Stock or cash in lieu of
fractional shares but, instead, the holders thereof shall be entitled to
payment of the appraised value of such Dissenting Shares in accordance
with the provisions of Section 455 of the MBCL; provided, however,
-------- -------
that (i) if any holder of Dissenting Shares shall subsequently deliver a
written withdrawal of such holder's demand for appraisal of such shares,
or (ii) if any holder fails to establish such holder's entitlement to
dis-
-3-
<PAGE>
senters' rights as provided in Section 455 of the MBCL, such holder or
holders (as the case may be) shall forfeit the right to appraisal of
such shares of Mercantile Common Stock and each of such shares shall
thereupon be deemed to have been converted into the right to receive,
and to have become exchangeable for, as of the Effective Time, Firstar
Common Stock and/or cash in lieu of fractional shares, without any
interest thereon, as provided in Section 1.4(a) and Article II hereof.
1.5 Firstar Capital Stock. Except as otherwise provided in
Section 1.4(c), at and after the Effective Time, each share of Firstar
capital stock (including Firstar Common Stock) issued and outstanding
immediately prior to the Closing Date shall remain an issued and
outstanding share of capital stock of the Surviving Corporation and
shall not be affected by the Merger.
1.6 Options. (a) At the Effective Time, each option granted by
Mercantile to purchase shares of Mercantile Common Stock that is
outstanding and unexercised immediately prior thereto shall cease to
represent a right to acquire shares of Mercantile Common Stock and shall
be converted automatically into an option to purchase shares of Firstar
Common Stock in an amount and at an exercise price determined as
provided below (and otherwise subject to the terms of the Mercantile
Stock Plans and the agreements evidencing grants thereunder):
(i) The number of shares of Firstar Common Stock to be
subject to the new option shall be equal to the product of the
number of shares of Mercantile Common Stock subject to the
original option and the Exchange Ratio, provided that any
--------
fractional shares of Firstar Common Stock resulting from such
multiplication shall be rounded to the nearest whole share; and
(ii) The exercise price per share of Firstar Common Stock
under the new option shall be equal to the exercise price per
share of Mercantile Common Stock under the original option divided
by the Exchange Ratio, provided that such exercise price shall
--------
be rounded to the nearest whole cent.
(b) The adjustment provided herein with respect to any options
that are "incentive stock options" (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")) shall be and is
intended to be effected in a manner that is consistent with Section
424(a) of the Code. The duration and other terms of the new option shall
be the same as the original option, except that all references to
Mercantile shall be deemed to be references to Firstar.
1.7 Certificate of Incorporation. Subject to the terms and
conditions of this Agreement, at the Effective Time, the Articles of
Incorporation of Firstar, as the same may be amended as permitted hereby
at the Effective Time (the "Firstar Articles"), shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with applicable law, except that the first sentence of
Section 1 of Article III thereof shall state in its entirety:
-4-
<PAGE>
(1) The number of shares which the Corporation shall have
authority to issue is 1,610,000,000, divided into the
following classes:
(a) 1,600,000,000 shares of the par value of $.01
each, designated as "Common Stock"; and
(b) 10,000,000 shares of the par value of $1.00
each, designated as "Preferred Stock".
1.8 By-Laws. Subject to the terms and conditions of this
Agreement, at the Effective Time, the By-Laws of Firstar shall be the
By-Laws of the Surviving Corporation until thereafter amended in
accordance with applicable law.
1.9 Tax and Accounting Consequences. It is intended that the
Merger shall constitute a "reorganization" within the meaning of Section
368(a) of the Code, that this Agreement shall constitute a "plan of
reorganization" for the purposes of Sections 354 and 361 of the Code and
that the Merger shall be accounted for as a "pooling of interests" under
generally accepted accounting principles ("GAAP").
1.10 Board of Directors; Management. The directors and officers
of Firstar immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation of the Surviving
Corporation until their respective successors are duly elected or
appointed and qualified.
1.11 Headquarters of Surviving Corporation. From and after the
Effective Time, the location of the headquarters and principal executive
offices of the Surviving Corporation shall be that of the headquarters
and principal executive offices of Firstar as of the date of this
Agreement.
ARTICLE II
EXCHANGE OF SHARES
2.1 Firstar to Make Shares Available. At or prior to the
Effective Time, Firstar shall deposit, or shall cause to be deposited,
with Firstar Bank Milwaukee, N.A., or another bank or trust company
reasonably acceptable to each of Mercantile and Firstar (the "Exchange
Agent"), for the benefit of the holders of Certificates, for exchange in
accordance with this Article II, certificates representing the shares of
Firstar Common Stock, and cash in lieu of any fractional shares (such
cash and certificates for shares of Firstar Common Stock, together with
any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund"), to be issued pursuant to Section
1.4 and paid pursuant to Section 2.2(a) in exchange for outstanding
shares of Mercantile Common Stock.
2.2 Exchange of Shares. (a) As soon as practicable after the
Effective Time, and in no event later than five business days
thereafter, the Exchange Agent shall mail to each holder of record of
one or more Certificates a letter of transmittal (which shall specify
that
-5-
<PAGE>
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing the shares of
Firstar Common Stock and any cash in lieu of fractional shares into
which the shares of Mercantile Common Stock represented by such
Certificate or Certificates shall have been converted pursuant to this
Agreement. Upon proper surrender of a Certificate or Certificates for
exchange and cancellation to the Exchange Agent, together with such
properly completed letter of transmittal, duly executed, the holder of
such Certificate or Certificates shall be entitled to receive in
exchange therefor, as applicable, (i) a certificate representing that
number of whole shares of Firstar Common Stock to which such holder of
Mercantile Common Stock shall have become entitled pursuant to the
provisions of Article I and (ii) a check representing the amount of any
cash in lieu of fractional shares that such holder has the right to
receive in respect of the Certificate or Certificates surrendered
pursuant to the provisions of this Article II, and the Certificate or
Certificates so surrendered shall forthwith be cancelled. No interest
will be paid or accrued on any cash in lieu of fractional shares or on
any unpaid dividends and distributions payable to holders of
Certificates.
(b) No dividends or other distributions declared with respect to
Firstar Common Stock shall be paid to the holder of any unsurrendered
Certificate until the holder thereof shall surrender such Certificate in
accordance with this Article II. After the surrender of a Certificate in
accordance with this Article II, the record holder thereof shall be
entitled to receive any such dividends or other distributions, without
any interest thereon, that theretofore had become payable with respect
to shares of Firstar Common Stock represented by such Certificate.
(c) If any certificate representing shares of Firstar Common
Stock is to be issued in a name other than that in which the Certificate
or Certificates surrendered in exchange therefor is or are registered,
it shall be a condition of the issuance thereof that the Certificate or
Certificates so surrendered shall be properly endorsed (or accompanied
by an appropriate instrument of transfer) and otherwise in proper form
for transfer, and that the person requesting such exchange shall pay to
the Exchange Agent in advance any transfer or other taxes required by
reason of the issuance of a certificate representing shares of Firstar
Common Stock in any name other than that of the registered holder of the
Certificate or Certificates surrendered, or required for any other
reason, or shall establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the
stock transfer books of Mercantile of the shares of Mercantile Common
Stock that were issued and outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented
for transfer to the Exchange Agent, they shall be cancelled and
exchanged for certificates representing shares of Firstar Common Stock
as provided in this Article II.
(e) Notwithstanding anything to the contrary contained herein,
no certificates or scrip representing fractional shares of Firstar
Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution with respect to Firstar Common
Stock shall be payable on or with respect to any fractional share, and
such fractional share
-6-
<PAGE>
interests shall not entitle the owner thereof to vote or to any other
rights of a shareholder of Firstar. In lieu of the issuance of any such
fractional share, Firstar shall pay to each former shareholder of
Mercantile who otherwise would be entitled to receive such fractional
share an amount in cash determined by multiplying (i) the closing-sale
price of Firstar Common Stock on the New York Stock Exchange, Inc. (the
"NYSE") as reported by The Wall Street Journal for the trading day
-----------------------
immediately preceding the date of the Effective Time by (ii) the
fraction of a share (rounded to the nearest thousandth when expressed in
decimal form) of Firstar Common Stock to which such holder would
otherwise be entitled to receive pursuant to Section 1.4.
(f) Any portion of the Exchange Fund that remains unclaimed by
the shareholders of Mercantile for 12 months after the Effective Time
shall be paid to Firstar. Any former shareholders of Mercantile who have
not theretofore complied with this Article II shall thereafter look only
to Firstar for payment of the shares of Firstar Common Stock, cash in
lieu of any fractional shares and any unpaid dividends and distributions
on the Firstar Common Stock deliverable in respect of each share of
Mercantile Common Stock, as the case may be, such shareholder holds as
determined pursuant to this Agreement, in each case, without any
interest thereon. Notwithstanding the foregoing, none of Mercantile,
Firstar, the Exchange Agent or any other person shall be liable to any
former holder of shares of Mercantile Common Stock for any amount
delivered in good faith to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if
reasonably required by Firstar, the posting by such person of a bond in
such amount as Firstar may determine is reasonably necessary as
indemnity against any claim that may be made against it with respect to
such Certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Certificate the shares of Firstar Common Stock
and any cash in lieu of fractional shares deliverable in respect thereof
pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRSTAR
Except as disclosed in the Firstar disclosure schedule delivered
to Mercantile concurrently herewith (the "Firstar Disclosure Schedule")
Firstar hereby represents and warrants to Mercantile as follows:
3.1 Corporate Organization. (a) Firstar is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Wisconsin. Firstar has the corporate power and authority to own
or lease all of its properties and assets and to carry on its business
as it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would
not, either individually or in the
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aggregate, have a Material Adverse Effect on Firstar. As used in this
Agreement, the term "Material Adverse Effect" means, with respect to
Mercantile, Firstar or the Surviving Corporation, as the case may be, a
material adverse effect on (i) the business, operations, results of
operations or financial condition of such party and its Subsidiaries
taken as a whole or (ii) the ability of such party to timely consummate
the transactions contemplated hereby. As used in this Agreement, the
word "Subsidiary", when used with respect to any party, means any bank,
corporation, partnership, limited liability company, or other
organization, whether incorporated or unincorporated, that is
consolidated with such party for financial reporting purposes. Firstar
is duly registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHC Act").
(b) Each Firstar Subsidiary (i) is duly organized and validly
existing under the laws of its jurisdiction of organization, (ii) is
duly qualified to do business and in good standing in all jurisdictions
(whether federal, state, local or foreign) where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified and in which the failure to be so qualified would have a
Material Adverse Effect on Firstar and (iii) has all requisite corporate
power and authority to own or lease its properties and assets and to
carry on its business as now conducted.
3.2 Capitalization. (a) The authorized capital stock of
Firstar consists of (i) 800,000,000 shares of Firstar Common Stock, of
which, as of March 31, 1999, 661,214,244 shares were issued and
outstanding and 2,887,734 shares were held in treasury, (ii) 10,000,000
shares of preferred stock, par value $1.00 per share (the "Firstar
Preferred Stock" and, together with the Firstar Common Stock, the
"Firstar Capital Stock"), of which, as of the date hereof, no shares are
issued and outstanding. All of the issued and outstanding shares of
Firstar Common Stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. As of the date of
this Agreement, except pursuant to the terms of (i) the Firstar Option
Agreement, (ii) options and stock issued pursuant to employee and
director stock plans of Firstar in effect as of the date hereof (the
"Firstar Stock Plans") and (iii) the Firstar Rights Agreement, Firstar
does not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character
calling for the purchase or issuance of any shares of Firstar Capital
Stock or any other equity securities of Firstar or any securities
representing the right to purchase or otherwise receive any shares of
Firstar Capital Stock (collectively, including the items contemplated by
clauses (i) through (iii) of this sentence, the "Firstar Rights"). As of
March 31, 1999, no shares of Firstar Capital Stock were reserved for
issuance, except for 65,460,211 shares of Firstar Common Stock reserved
for issuance upon exercise of the Firstar Option Agreement, no shares of
Firstar Common Stock reserved for issuance in connection with the
Firstar Dividend Reinvestment Plan (the "Firstar DRIP"), 25,897,722
shares of Firstar Common Stock reserved for issuance upon the exercise
of stock options pursuant to the Firstar Stock Plans and 2,300,000
shares of Series A Junior Participating Preferred Stock reserved for
issuance in connection with the Firstar Rights Agreement. Since March
31, 1999, Firstar has not issued any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital
stock, other than as would be permitted by Section 5.2 hereof and
pursuant to the Firstar Option Agreement.
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(b) Firstar owns, directly or indirectly, all of the issued and
outstanding shares of capital stock or other equity ownership interests
of each of the Firstar Subsidiaries, free and clear of any liens,
pledges, charges, encumbrances and security interests whatsoever
("Liens"), and all of such shares or equity ownership interests are duly
authorized and validly issued and are fully paid, nonassessable (subject
to 12 U.S.C. Section 55) and free of preemptive rights, with no personal
liability attaching to the ownership thereof. No Firstar Subsidiary has
or is bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or
issuance of any shares of capital stock or any other equity security of
such Subsidiary or any securities representing the right to purchase or
otherwise receive any shares of capital stock or any other equity
security of such Subsidiary. Section 3.2(b) of the Firstar Disclosure
Schedule sets forth a list of the material investments of Firstar in
corporations, joint ventures, partnerships, limited liability companies
and other entities other than its Subsidiaries (each, a "Non-Subsidiary
Affiliate").
3.3 Authority; No Violation. (a) Firstar has full corporate
power and authority to execute and deliver this Agreement and each of
the Option Agreements and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and the
Option Agreements and the consummation of the transactions contemplated
hereby and thereby have been duly and validly approved by the Board of
Directors of Firstar. The Board of Directors of Firstar has directed
that this Agreement and the transactions contemplated hereby be
submitted to Firstar's shareholders for approval at a meeting of such
shareholders and, except for the approval of this Agreement and the
transactions contemplated hereby by the affirmative vote of the holders
of a majority of the outstanding shares of Firstar Common Stock entitled
to vote thereon, no corporate proceedings on the part of Firstar are
necessary to approve this Agreement and the Option Agreements and to
consummate the transactions contemplated hereby and thereby. This
Agreement and each of the Option Agreements have been duly and validly
executed and delivered by Firstar and (assuming due authorization,
execution and delivery by Mercantile) constitute valid and binding
obligations of Firstar, enforceable against Firstar in accordance with
their terms (except as may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the rights of
creditors generally and the availability of equitable remedies).
(b) Neither the execution and delivery of this Agreement and the
Option Agreements by Firstar nor the consummation by Firstar of the
transactions contemplated hereby or thereby, nor compliance by Firstar
with any of the terms or provisions hereof or thereof, will (i) violate
any provision of the Firstar Articles or By-Laws or (ii) assuming that
the consents and approvals referred to in Section 3.4 are duly obtained,
(x) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Firstar, any of its
Subsidiaries or Non-Subsidiary Affiliates or any of their respective
properties or assets or (y) violate, conflict with, result in a breach
of any provision of or the loss of any benefit under, constitute a
default (or an event that, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required
by, or result in the creation of any Lien upon any of the respective
properties or assets of Firstar, any of its Subsidiaries or Non-
Subsidiary Affiliates under, any of the terms, conditions or provisions
of any note, bond, mortgage, inden-
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ture, deed of trust, license, lease, agreement or other instrument or
obligation to which Firstar, any of its Subsidiaries or its Non-
Subsidiary Affiliates is a party, or by which they or any of their
respective properties or assets may be bound or affected, except (in the
case of clause (y) above) for such violations, conflicts, breaches or
defaults that, either individually or in the aggregate, will not have a
Material Adverse Effect on Firstar.
3.4 Consents and Approvals. Except for (i) the filing of
applications and notices, as applicable, with the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") under the BHC
Act and the Federal Reserve Act, as amended, and approval of such
applications and notices, (ii) the filing of any required applications
or notices with any state or foreign agencies and approval of such
applications and notices (the "State Approvals"), (iii) the filing with
the Securities and Exchange Commission (the "SEC") of a joint proxy
statement in definitive form relating to the meetings of Mercantile's
and Firstar's shareholders to be held in connection with this Agreement
and the transactions contemplated hereby (the "Joint Proxy Statement"),
and of the registration statement on Form S-4 (the "S-4") in which the
Joint Proxy Statement will be included as a prospectus, (iv) the filing
of the Wisconsin Articles with the Wisconsin Department pursuant to the
WBCL, (v) the filing of the Missouri Articles with the Missouri
Secretary pursuant to the MBCL, (vi) any consents, authorizations,
approvals, filings or exemptions in connection with compliance with the
applicable provisions of federal and state securities laws relating to
the regulation of broker-dealers, investment advisers or transfer
agents, and federal commodities laws relating to the regulation of
futures commission merchants and the rules and regulations thereunder
and of any applicable industry self-regulatory organization ("SRO"), and
the rules of the NYSE, or that are required under consumer finance,
mortgage banking and other similar laws and (vii) such filings and
approvals as are required to be made or obtained under the securities or
"Blue Sky" laws of various states in connection with the issuance of the
shares of Firstar Common Stock pursuant to this Agreement, no consents
or approvals of or filings or registrations with any court,
administrative agency or commission or other governmental authority or
instrumentality (each a "Governmental Entity") are necessary in
connection with (A) the execution and delivery by Firstar of this
Agreement and the Option Agreements and (B) the consummation by Firstar
of the transactions contemplated hereby and thereby.
3.5 Reports. Firstar and each of its Subsidiaries have timely
filed all reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were
required to file since January 1, 1997 with (i) the Federal Reserve
Board, (ii) the Federal Deposit Insurance Corporation, (iii) any state
regulatory authority (each a "State Regulator"), (iv) the Office of the
Comptroller of the Currency (the "OCC"), (v) the SEC and (vi) any SRO
(collectively "Regulatory Agencies"), and all other reports and
statements required to be filed by them since January 1, 1997,
including, without limitation, any report or statement required to be
filed pursuant to the laws, rules or regulations of the United States,
any state, or any Regulatory Agency, and have paid all fees and
assessments due and payable in connection therewith, except where the
failure to file such report, registration or statement or to pay such
fees and assessments, either individually or in the aggregate, will not
have a Material Adverse Effect on Firstar. Except for normal
examinations conducted by a Regulatory Agency in the ordinary course of
the business of Firstar and its Subsidiaries, no
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Regulatory Agency has initiated any proceeding or, to the best knowledge
of Firstar, investigation into the business or operations of Firstar or
any of its Subsidiaries since January 1, 1997, except where such
proceedings or investigation will not, either individually or in the
aggregate, have a Material Adverse Effect on Firstar. There is no
unresolved violation, criticism, or exception by any Regulatory Agency
with respect to any report or statement relating to any examinations of
Firstar or any of its Subsidiaries that, in the reasonable judgment of
Firstar, will, either individually or in the aggregate, have a Material
Adverse Effect on Firstar.
3.6 Financial Statements. The consolidated balance sheets of
Firstar and its Subsidiaries as of December 31, for the fiscal years
1997 and 1998, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for the fiscal years 1996
through 1998, inclusive, are reported in Firstar's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 (the "Firstar 10-K")
filed with the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and are accompanied by the audit report of Arthur
Andersen LLP, independent public accountants with respect to Firstar.
The December 31, 1998 consolidated balance sheet of Firstar (including
the related notes, where applicable) fairly presents in all material
respects the consolidated financial position of Firstar and its
Subsidiaries as of the date thereof, and the other financial statements
referred to in this Section 3.6 (including the related notes, where
applicable) fairly present in all material respects the results of the
consolidated operations and changes in shareholders' equity and
consolidated financial position of Firstar and its Subsidiaries for the
respective fiscal periods or as of the respective dates therein set
forth; each of such statements (including the related notes, where
applicable) complies in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC
with respect thereto; and each of such statements (including the related
notes, where applicable) has been prepared in all material respects in
accordance with GAAP consistently applied during the periods involved,
except, in each case, as indicated in such statements or in the notes
thereto. The books and records of Firstar and its Subsidiaries have
been, and are being, maintained in all material respects in accordance
with GAAP and any other applicable legal and accounting requirements and
reflect only actual transactions.
3.7 Broker's Fees. Except for Credit Suisse First Boston
Corporation, none of Firstar nor any Firstar Subsidiary nor any of their
respective officers or directors has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's
fees in connection with the Merger or related transactions contemplated
by this Agreement or the Option Agreements.
3.8 Absence of Certain Changes or Events. (a) Except as
publicly disclosed in Firstar Reports filed prior to the date hereof,
since December 31, 1998, no event or events have occurred that have had,
either individually or in the aggregate, a Material Adverse Effect on
Firstar.
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(b) Except as publicly disclosed in Firstar Reports filed prior
to the date hereof, since December 31, 1998, Firstar and its
Subsidiaries have carried on their respective businesses in all material
respects in the ordinary course.
(c) Since December 31, 1998, neither Firstar nor any of its
Subsidiaries has suffered any strike, work stoppage, slowdown, or other
labor disturbance that will, either individually or in the aggregate,
have a Material Adverse Effect on Firstar.
3.9 Legal Proceedings. (a) Neither Firstar nor any of its
Subsidiaries is a party to any, and there are no pending or, to the best
of Firstar's knowledge, threatened, legal, administrative, arbitral or
other proceedings, claims, actions or governmental or regulatory
investigations of any nature against Firstar or any of its Subsidiaries
or challenging the validity or propriety of the transactions
contemplated by this Agreement or the Firstar Option Agreement as to
which, in any such case, there is a reasonable probability of an adverse
determination and that, if adversely determined, will, either
individually or in the aggregate, have a Material Adverse Effect on
Firstar.
(b) There is no injunction, order, judgment, decree, or
regulatory restriction (other than those that apply to similarly
situated bank holding companies or banks) imposed upon Firstar, any of
its Subsidiaries or the assets of Firstar or any of its Subsidiaries
that has had, or will have, either individually or in the aggregate, a
Material Adverse Effect on Firstar or the Surviving Corporation.
3.10 Taxes and Tax Returns. (a) Each of Firstar and its
Subsidiaries has duly filed all federal, state, foreign and local
information returns and tax returns required to be filed by it on or
prior to the date hereof (all such returns being accurate and complete
in all material respects) and has duly paid or made provisions for the
payment of all Taxes and other governmental charges that have been
incurred or are due or claimed to be due from it by federal, state,
foreign or local taxing authorities on or prior to the date of this
Agreement (including, without limitation, if and to the extent
applicable, those due in respect of its properties, income, business,
capital stock, deposits, franchises, licenses, sales and payrolls) other
than (i) Taxes or other charges that are not yet delinquent or are being
contested in good faith and have not been finally determined, or (ii)
information returns, tax returns, Taxes or other governmental charges as
to which the failure to file, pay or make provision for will not, either
individually or in the aggregate, have a Material Adverse Effect on
Firstar. The federal and material state income tax returns of Firstar
and its Subsidiaries have been examined by the Internal Revenue Service
(the "IRS") or the relevant state taxing authorities, as the case may
be, for all years to and including 1993 and any liability with respect
thereto has been satisfied or any liability with respect to deficiencies
asserted as a result of such examination has been reserved against in
accordance with GAAP. To the best of Firstar's knowledge, there are no
material disputes pending, or claims asserted for, Taxes or assessments
upon Firstar or any of its Subsidiaries for which Firstar has not
established reserves in accordance with GAAP. In addition, (A) proper
and accurate amounts have been withheld by Firstar and its Subsidiaries
from their employees for all prior periods in compliance in all material
respects with the tax withholding provisions of applicable federal,
state and local laws, except where failure to do
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so will not, either individually or in the aggregate, have a Material
Adverse Effect on Firstar, (B) federal, state, and local returns that
are accurate and complete in all material respects have been filed by
Firstar and its Subsidiaries for all periods for which returns were due
with respect to income tax withholding, Social Security and unemployment
taxes, except where failure to do so will not, either individually or in
the aggregate, have a Material Adverse Effect on Firstar, (C) the
amounts shown on such federal, state or local returns to be due and
payable have been paid in full or provision therefor has been included
by Firstar in its consolidated financial statements in accordance with
GAAP, except where failure to do so will not, either individually or in
the aggregate, have a Material Adverse Effect on Firstar and (D) there
are no Tax liens upon any property or assets of Firstar or its
Subsidiaries except liens for current Taxes not yet due or liens that
will not, either individually or in the aggregate, have a Material
Adverse Effect on Firstar. Neither Firstar nor any of its Subsidiaries
has been required to include in income any adjustment pursuant to
Section 481 of the Code by reason of a voluntary change in accounting
method initiated by Firstar or any of its Subsidiaries, and the IRS has
not initiated or proposed in writing any such adjustment or change in
accounting method, in either case that has had or will have, either
individually or in the aggregate, a Material Adverse Effect on Firstar.
Except as set forth in the financial statements described in Section 3.6
(including the related notes, where applicable), neither Firstar nor any
of its Subsidiaries has entered into a transaction that is being
accounted for as an installment obligation under Section 453 of the
Code, that will have, either individually or in the aggregate, a
Material Adverse Effect on Firstar.
(b) As used in this Agreement, the term "Tax" or "Taxes" means
all federal, state, local, and foreign income, excise, gross receipts,
gross income, ad valorem, profits, gains, property, capital, sales,
-- -------
transfer, use, payroll, employment, severance, withholding, duties,
intangibles, franchise, backup withholding, and other taxes, charges,
levies or like assessments together with all penalties and additions to
tax and interest thereon.
(c) No deduction has been disallowed under Section 162(m) of the
Code for employee remuneration of any amount paid or payable by Firstar
or any Subsidiary of Firstar under any contract, plan, program,
arrangement or understanding.
3.11 Employee Benefit Plans. (a) The Firstar Disclosure
Schedule sets forth a true and complete list of each material employee
or director benefit, employment or compensation plan, arrangement or
agreement that is maintained, or contributed to, as of the date of this
Agreement (the "Firstar Benefit Plans") by Firstar, any of its
Subsidiaries or by any trade or business, whether or not incorporated (a
"Firstar ERISA Affiliate"), all of which together with Firstar would be
deemed a "single employer" within the meaning of Section 4001 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Firstar has heretofore made available to Mercantile true and
complete copies of each of the Firstar Benefit Plans and certain related
documents, including, but not limited to, (i) the actuarial report for
such Firstar Benefit Plan (if applicable) for each of the last two years
and (ii) the most recent determination letter from the IRS (if
applicable) for such Firstar Benefit Plan.
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(c) (i) Each of the Firstar Benefit Plans has been operated and
administered in all material respects in compliance with applicable
laws, including, but not limited to, ERISA and the Code, (ii) each of
the Firstar Benefit Plans intended to be "qualified" within the meaning
of Section 401(a) of the Code is so qualified, and, to the knowledge of
Firstar, there are no existing circumstances or any events that have
occurred that will adversely affect the qualified status of any such
Firstar Benefit Plan, (iii) with respect to each Firstar Benefit Plan
that is subject to Title IV of ERISA, the present value of accrued
benefits under such Firstar Benefit Plan, based upon the actuarial
assumptions used for funding purposes in the most recent actuarial
report prepared by such Firstar Benefit Plan's actuary with respect to
such Firstar Benefit Plan, did not, as of its latest valuation date,
exceed the then-current value of the assets of such Firstar Benefit Plan
allocable to such accrued benefits, (iv) no Firstar Benefit Plan
provides benefits, including, without limitation, death or medical
benefits (whether or not insured), with respect to current or former
employees or directors of Firstar or its Subsidiaries beyond their
retirement or other termination of service, other than (A) coverage
mandated by applicable law, (B) death benefits or retirement benefits
under any "employee pension plan" (as such term is defined in Section
3(2) of ERISA), (C) deferred compensation benefits accrued as
liabilities on the books of Firstar or its Subsidiaries or (D) benefits
the full cost of which is borne by the current or former employee or
director (or his or her beneficiary), (v) no material liability under
Title IV of ERISA has been incurred by Firstar, its Subsidiaries or any
Firstar ERISA Affiliate that has not been satisfied in full, and no
condition exists that presents a material risk to Firstar, its
Subsidiaries or any Firstar ERISA Affiliate of incurring a material
liability thereunder, (vi) no Firstar Benefit Plan is a "multiemployer
pension plan" (as such term is defined in Section 3(37) of ERISA), (vii)
all contributions or other amounts payable by Firstar or its
Subsidiaries as of the Effective Time with respect to each Firstar
Benefit Plan in respect of current or prior plan years have been paid or
accrued in accordance with GAAP and Section 412 of the Code, (viii) none
of Firstar, its Subsidiaries or any other person, including any
fiduciary, has engaged in a transaction in connection with which
Firstar, its Subsidiaries or any Firstar Benefit Plan will be subject to
either a material civil penalty assessed pursuant to Section 409 or
502(i) of ERISA or a material tax imposed pursuant to Section 4975 or
4976 of the Code, and (ix) to the best knowledge of Firstar there are no
pending, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Firstar Benefit Plans
or any trusts related thereto that will have, either individually or in
the aggregate, a Material Adverse Effect on Firstar.
(d) Neither the execution and delivery of this Agreement nor the
shareholder approval or consummation of the transactions contemplated
hereby will (either alone or in conjunction with any other event)
(i) result (either alone or upon the occurrence of any additional acts
or events) in any payment (including, without limitation, severance,
unemployment compensation, "excess parachute payment" (within the
meaning of Section 280G of the Code), forgiveness of indebtedness or
otherwise) becoming due to any director or any employee of Firstar or
any of its affiliates from Firstar or any of its affiliates under any
Firstar Benefit Plan or otherwise, (ii) increase or affect the
calculation of the amount of any benefits otherwise payable under any
Firstar Benefit Plan or (iii) result in any acceleration of the time of
payment or vesting of any such benefits.
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3.12 SEC Reports. No (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since
January 1, 1997 by Firstar with the SEC pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), or the Exchange Act (the
"Firstar Reports") and prior to the date hereof or (b) communication
mailed by Firstar to its shareholders since January 1, 1997 and prior to
the date hereof, as of the date thereof, contained any untrue statement
of a material fact or omitted to state any material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading,
except that information as of a later date (but before the date hereof)
shall be deemed to modify information as of an earlier date. Since
January 1, 1997, as of their respective dates, all Firstar Reports filed
under the Securities Act and the Exchange Act complied in all material
respects with the published rules and regulations of the SEC with
respect thereto.
3.13 Compliance with Applicable Law. (a) Firstar and each of
its Subsidiaries hold all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective
businesses under and pursuant to each, and have complied in all material
respects with and are not in default in any material respect under any,
applicable law, statute, order, rule, regulation, policy and/or
guideline of any Governmental Entity relating to Firstar or any of its
Subsidiaries, except where the failure to hold such license, franchise,
permit or authorization or such noncompliance or default will not,
either individually or in the aggregate, have a Material Adverse Effect
on Firstar.
(b) Except as will not have, either individually or in the
aggregate, a Material Adverse Effect on Firstar, Firstar and each
Firstar Subsidiary have properly administered all accounts for which it
acts as a fiduciary, including accounts for which it serves as a
trustee, agent, custodian, personal representative, guardian,
conservator or investment advisor, in accordance with the terms of the
governing documents, applicable state and federal law and regulation and
common law. None of Firstar, any Firstar Subsidiary, or any director,
officer or employee of Firstar or of any Firstar Subsidiary, has
committed any breach of trust with respect to any such fiduciary account
that will have a Material Adverse Effect on Firstar, and the accountings
for each such fiduciary account are true and correct in all material
respects and accurately reflect the assets of such fiduciary account.
3.14 Certain Contracts. (a) Neither Firstar nor any of its
Subsidiaries is a party to or bound by any contract, arrangement,
commitment or understanding (whether written or oral) (i) with respect
to the employment of any directors, officers or employees, other than in
the ordinary course of business consistent with past practice, (ii) that
is a "material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC) to be performed after the date of this
Agreement that has not been filed or incorporated by reference in the
Firstar Reports, (iii) that materially restricts the conduct of any line
of business by Firstar or upon consummation of the Merger will
materially restrict the ability of the Surviving Corporation to engage
in any line of business in which a bank holding company may lawfully
engage or (iv) with or to a labor union or guild (including any
collective bargaining agreement). Firstar has previously made available
to Mercantile true and correct copies of all employment and deferred
compensation agreements that are in writing and to which Firstar is a
party. Each
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contract, arrangement, commitment or understanding of the type described
in this Section 3.14(a) and in Section 3.11(a), whether or not set forth
in the Firstar Disclosure Schedule, is referred to herein as a "Firstar
Contract", and neither Firstar nor any of its Subsidiaries knows of, or
has received notice of, any violation of the above by any of the other
parties thereto that, either individually or in the aggregate, will have
a Material Adverse Effect on Firstar.
(b) (i) Each Firstar Contract is valid and binding on Firstar
or any of its Subsidiaries, as applicable, and in full force and effect,
(ii) Firstar and each of its Subsidiaries has in all material respects
performed all obligations required to be performed by it to date under
each Firstar Contract, except where such noncompliance, either
individually or in the aggregate, will not have a Material Adverse
Effect on Firstar, and (iii) no event or condition exists that
constitutes or, after notice or lapse of time or both, will constitute,
a material default on the part of Firstar or any of its Subsidiaries
under any such Firstar Contract, except where such default, either
individually or in the aggregate, will not have a Material Adverse
Effect on Firstar.
3.15 Agreements with Regulatory Agencies. Neither Firstar nor
any of its Subsidiaries is subject to any cease-and-desist or other
order issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any
commitment letter or similar undertaking to, or is subject to any order
or directive by, or has been since January 1, 1997, a recipient of any
supervisory letter from, or since January 1, 1997, has adopted any board
resolutions at the request of any Regulatory Agency or other
Governmental Entity that currently restricts in any material respect the
conduct of its business or that in any material manner relates to its
capital adequacy, its credit policies, its management or its business
(each, whether or not set forth in the Firstar Disclosure Schedule, a
"Firstar Regulatory Agreement"), nor has Firstar or any of its
Subsidiaries been advised since January 1, 1997, by any Regulatory
Agency or other Governmental Entity that it is considering issuing or
requesting any such Regulatory Agreement.
3.16 Interest Rate Risk Management Instruments. All derivative
instruments, as such term is used in Statement of Financial Accounting
Standards No. 133 (including, without limitation, interest rate swaps,
caps, floors and option agreements and other interest rate risk
management arrangements) ("Derivative Instruments"), to which Firstar or
any of its Subsidiaries is a party, whether entered into for the account
of Firstar or for the account of a customer of Firstar or one of its
Subsidiaries, were entered into in the ordinary course of business and,
to Firstar's knowledge, in accordance with prudent banking practice and
applicable rules, regulations and policies of any Regulatory Authority
and with counterparties believed to be financially responsible at the
time and are legal, valid and binding obligations of Firstar or one of
its Subsidiaries enforceable in accordance with their terms (except as
may be limited by bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting the rights of creditors generally and the
availability of equitable remedies), and are in full force and effect.
Firstar and each of its Subsidiaries have duly performed in all material
respects all of their material obligations thereunder to the extent that
such obligations to perform have accrued; and, to Firstar's knowledge,
there are no material breaches, violations or defaults or allegations or
assertions of such by any party thereunder.
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3.17 Undisclosed Liabilities. Except for those liabilities that
are fully reflected or reserved against on the consolidated balance
sheet of Firstar included in the Firstar December 31, 1998 Form 10-K and
for liabilities incurred in the ordinary course of business consistent
with past practice, since December 31, 1998, neither Firstar nor any of
its Subsidiaries has incurred any liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or
to become due) that, either individually or in the aggregate, has had or
will have a Material Adverse Effect on Firstar.
3.18 Insurance. Firstar and its Subsidiaries have in effect
insurance coverage with reputable insurers or are self-insured, that in
respect of amounts, premiums, types and risks insured, constitutes
reasonably adequate coverage against all risks customarily insured
against by bank holding companies and their subsidiaries comparable in
size and operations to Firstar and its Subsidiaries.
3.19 Environmental Liability. There are no legal,
administrative, arbitral or other proceedings, claims, actions, causes
of action, private environmental investigations or remediation
activities or governmental investigations of any nature seeking to
impose, or that could reasonably result in the imposition, on Firstar of
any liability or obligation arising under common law or under any local,
state or federal environmental statute, regulation or ordinance
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), pending
or threatened against Firstar, which liability or obligation will,
either individually or in the aggregate, have a Material Adverse Effect
on Firstar. To the knowledge of Firstar, there is no reasonable basis
for any such proceeding, claim, action or governmental investigation
that would impose any liability or obligation that will, individually or
in the aggregate, have a Material Adverse Effect on Firstar. Firstar is
not subject to any agreement, order, judgment, decree, letter or
memorandum by or with any Governmental Entity, regulatory agency or
third party imposing any liability or obligation with respect to the
foregoing that will have, either individually or in the aggregate, a
Material Adverse Effect on Firstar.
3.20 Charter Provisions; State Takeover Laws; Firstar Rights
Agreement. (a) The provisions of Section 1131 of the WBCL are not
applicable to this Agreement, the Firstar Option Agreement or the
transactions contemplated hereby or thereby. The Board of Directors of
Firstar has approved the transactions contemplated by this Agreement and
the Firstar Option Agreement for purposes of Article V of the Firstar
Articles and Section 1141 of the WBCL such that the provisions of such
Article V and such Section 1141 will not apply to this Agreement or
Firstar Option Agreement or any of the transactions contemplated hereby
or thereby.
(b) Firstar has taken all action, if any, necessary or
appropriate so that the entering into of this Agreement and the Firstar
Option Agreement, and the consummation of the transactions contemplated
hereby and thereby, do not and will not result in the ability of any
person to exercise any Firstar Shareholder Rights under the Firstar
Rights Agreement or enable or require the Firstar Shareholder Rights to
separate from the shares of Firstar Common Stock to which they are
attached or to be triggered or become exercisable. No "Distribution
Date" or "Shares Acquisition Date" (as such terms are defined in the
Firstar Rights Plan) has occurred.
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3.21 Year 2000. None of Firstar or any of the Firstar
Subsidiaries has received, or reasonably expects to receive, a "Year
2000 Deficiency Notification Letter" (as such term is employed in the
Federal Reserve Board's Supervision and Regulation Letter No.
SR 98-3(SUP), dated March 4, 1998). Firstar has made available to
Mercantile a complete and accurate copy of Firstar's plan, including an
estimate of the anticipated associated costs, for addressing the issues
("Year 2000 Issues") set forth in the interagency statements of the
Federal Financial Institutions Examination Council addressed to the
boards of directors and chief executive officers of all federally
supervised financial institutions regarding Year 2000 safety and soundness
for insured depository institutions. Between the date of this Agreement
and the Effective Time, Firstar shall use reasonable best efforts to
implement such plan. Firstar and its Subsidiaries has complied in all
material respects with the "Interagency Guidelines Establishing Year
2000 Standards for Safety and Soundness" issued pursuant to section 39
of the Federal Deposit Insurance Act and effective October 15, 1998.
3.22 Reorganization; Pooling of Interests. As of the date of
this Agreement, Firstar has no reason to believe that the Merger will
not qualify as a "reorganization" within the meaning of Section 368(a)
of the Code and as a "pooling of interests" for accounting purposes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF MERCANTILE
Except as disclosed in the Mercantile disclosure schedule
delivered to Firstar concurrently herewith (the "Mercantile Disclosure
Schedule") Mercantile hereby represents and warrants to Firstar as
follows:
4.1 Corporate Organization. (a) Mercantile is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Missouri. Mercantile has the corporate power and authority
to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or qualified
to do business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would
not, either individually or in the aggregate, have a Material Adverse
Effect on Mercantile. Mercantile is duly registered as a bank holding
company under the BHC Act. True and complete copies of the Articles of
Incorporation of Mercantile (the "Mercantile Articles") and By-Laws of
Mercantile, as in effect as of the date of this Agreement, have
previously been made available by Mercantile to Firstar.
(b) Each Mercantile Subsidiary (i) is duly organized and validly
existing under the laws of its jurisdiction of organization, (ii) is
duly qualified to do business and in good standing in all jurisdictions
(whether Federal, state, local or foreign) where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified and in which the failure
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to be so qualified would have a Material Adverse Effect on Mercantile,
and (iii) has all requisite corporate power and authority to own or
lease its properties and assets and to carry on its business as now
conducted.
4.2 Capitalization. (a) The authorized capital stock of
Mercantile consists of 400,000,000 shares of Mercantile Common Stock, of
which, as of March 31, 1999, 157,868,547 shares were issued and
outstanding, and 5,000,000 shares of preferred stock, no par value
("Mercantile Preferred Stock" and, together with the Mercantile Common
Stock, the "Mercantile Capital Stock"), of which none is issued and
outstanding as of the date hereof. As of March 31, 1999, 47,363 shares
of Mercantile Common Stock were held in Mercantile's treasury. As of the
date hereof, no shares of Mercantile Common Stock or Mercantile
Preferred Stock were reserved for issuance, except for (i) the shares of
Mercantile Common Stock issuable pursuant to the Mercantile Option
Agreement, (ii) 11,074,528 shares reserved for issuance pursuant to
employee and director stock plans of Mercantile in effect as of the date
hereof (the "Mercantile Stock Plans"), (iii) 2,000,000 shares reserved
for issuance pursuant to the Mercantile Shareholder Investment Plan (the
"Mercantile DRIP") and (iv) 2,000,000 shares of Series B Junior
Participating Preferred Stock reserved for issuance pursuant to the
Mercantile Rights Agreement. All of the issued and outstanding shares of
Mercantile Capital Stock have been duly authorized and validly issued
and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. As of the date of
this Agreement, except for the Mercantile Option Agreement, the
Mercantile Stock Plans and as contemplated by the Mercantile Rights
Agreement, Mercantile does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of
any character calling for the purchase or issuance of any shares of
Mercantile Capital Stock or any other equity securities of Mercantile or
any securities representing the right to purchase or otherwise receive
any shares of Mercantile Capital Stock (collectively, "Mercantile
Rights"). Since March 31, 1999, Mercantile has not issued any shares of
its capital stock or any securities convertible into or exercisable for
any shares of its capital stock, other than as permitted by Section
5.2(b) and pursuant to (A) the exercise of employee stock options
granted prior to such date, (B) the Mercantile DRIP and (C) pursuant to
the Mercantile Option Agreement. Mercantile shall terminate or suspend
the Mercantile DRIP prior to the next record date to be declared
following the date hereof with respect to the quarterly dividend payable
on shares of Mercantile Common Stock (currently anticipated to be on or
about June 10, 1999) such that no shares of Mercantile Capital Stock
shall thereafter be issued or become issuable pursuant thereto (the date
of such termination or suspension, the "DRIP Suspension Date").
Mercantile has previously provided Firstar with a list of the option
holders, the date of each option to purchase Mercantile Common Stock
granted, the number of shares subject to each such option, the
expiration date of each such option and the price at which each such
option may be exercised under an applicable Mercantile Stock Plan.
(b) Mercantile owns, directly or indirectly, all of the issued
and outstanding shares of capital stock or other equity ownership
interests of each of the Mercantile Subsidiaries, free and clear of any
Liens, and all of such shares or equity ownership interests are duly
authorized and validly issued and are fully paid, nonassessable (subject
to 12 U.S.C. Section 55) and free of preemptive rights, with no personal
liability attaching to the ownership thereof. No Mercantile
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Subsidiary has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of capital stock or any other
equity security of such Subsidiary or any securities representing the
right to purchase or otherwise receive any shares of capital stock or
any other equity security of such Subsidiary. Section 4.2(b) of the
Mercantile Disclosure Schedule sets forth a list of the material
investments of Mercantile in Non-Subsidiary Affiliates.
4.3 Authority; No Violation. (a) Mercantile has full corporate
power and authority to execute and deliver this Agreement and each of
the Option Agreements and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and
each of the Option Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly and validly approved by
the Board of Directors of Mercantile. The Board of Directors of
Mercantile has directed that this Agreement and the transactions
contemplated hereby be submitted to Mercantile's shareholders for
adoption at a meeting of such shareholders and, except for the adoption
of this Agreement by the affirmative vote of the holders of two-thirds
of the outstanding shares of Mercantile Common Stock entitled to vote
thereon, no other corporate proceedings on the part of Mercantile are
necessary to approve this Agreement and the Option Agreements and to
consummate the transactions contemplated hereby and thereby. This
Agreement and each of the Option Agreements have been duly and validly
executed and delivered by Mercantile and (assuming due authorization,
execution and delivery by Firstar) constitute valid and binding
obligations of Mercantile, enforceable against Mercantile in accordance
with their terms (except as may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the rights of
creditors generally and the availability of equitable remedies).
(b) Neither the execution and delivery of this Agreement or the
Option Agreements by Mercantile, nor the consummation by Mercantile of
the transactions contemplated hereby or thereby, nor compliance by
Mercantile with any of the terms or provisions hereof or thereof, will
(i) violate any provision of the Mercantile Articles or By-Laws, or (ii)
assuming that the consents and approvals referred to in Section 4.4 are
duly obtained, (x) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to
Mercantile, any of its Subsidiaries or Non-Subsidiary Affiliates or any
of their respective properties or assets or (y) violate, conflict with,
result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event that, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of or
a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any Lien upon any of the
respective properties or assets of Mercantile, any of its Subsidiaries
or its Non-Subsidiary Affiliates under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which
Mercantile, any of its Subsidiaries or Non-Subsidiary Affiliates is a
party, or by which they or any of their respective properties or assets
may be bound or affected, except (in the case of clause (y) above) for
such violations, conflicts, breaches or defaults that either
individually or in the aggregate will not have a Material Adverse Effect
on Mercantile.
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4.4 Consents and Approvals. Except for (i) the filing of
applications and notices, as applicable, with the Federal Reserve Board
under the BHC Act and the Federal Reserve Act, as amended, and approval
of such applications and notices, (ii) the State Approvals, (iii) the
filing with the SEC of the Joint Proxy Statement and the S-4, (iv) the
filing of the Wisconsin Articles with the Wisconsin Department pursuant
to the WBCL, (v) the filing of the Missouri Articles with the Missouri
Secretary pursuant to the MBCL, (vi) any consents, authorizations,
approvals, filings or exemptions in connection with compliance with the
applicable provisions of federal and state securities laws relating to
the regulation of broker-dealers, investment advisers or transfer
agents, and federal commodities laws relating to the regulation of
futures commission merchants and the rules and regulations thereunder
and of any applicable SRO, and the rules of the NYSE, or that are
required under consumer finance, mortgage banking and other similar laws
and (vii) such filings and approvals as are required to be made or
obtained under the securities or "Blue Sky" laws of various states in
connection with the issuance of shares of Firstar Capital Stock pursuant
to this Agreement, no consents or approvals of or filings or
registrations with any Governmental Entity are necessary in connection
with (A) the execution and delivery by Mercantile of this Agreement and
the Option Agreements and (B) the consummation by Mercantile of the
transactions contemplated hereby or thereby.
4.5 Reports. Mercantile and each of its Subsidiaries have
timely filed all reports, registrations and statements, together with
any amendments required to be made with respect thereto, that they were
required to file since January 1, 1997 with the Regulatory Agencies, and
all other reports and statements required to be filed by them since
January 1, 1997, including, without limitation, any report or statement
required to be filed pursuant to the laws, rules or regulations of the
United States, any state, or any Regulatory Agency, and have paid all
fees and assessments due and payable in connection therewith, except
where the failure to file such report, registration or statement or to
pay such fees and assessments, either individually or in the aggregate,
will not have a Material Adverse Effect on Mercantile. Except for normal
examinations conducted by a Regulatory Agency in the ordinary course of
the business of Mercantile and its Subsidiaries, no Regulatory Agency
has initiated any proceeding or, to the best knowledge of Mercantile,
investigation into the business or operations of Mercantile or any of
its Subsidiaries since January 1, 1997, except where such proceedings or
investigation will not have, either individually or in the aggregate, a
Material Adverse Effect on Mercantile. There is no unresolved violation,
criticism, or exception by any Regulatory Agency with respect to any
report or statement relating to any examinations of Mercantile or any of
its Subsidiaries that, in the reasonable judgment of Mercantile, will
have, either individually or in the aggregate, a Material Adverse Effect
on Mercantile.
4.6 Financial Statements. Mercantile has previously made
available to Firstar copies of the consolidated balance sheets of
Mercantile and its Subsidiaries as of December 31, for the fiscal years
1997 and 1998, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for the fiscal years 1996
through 1998, inclusive, as reported in Mercantile's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 filed with the SEC
under the Exchange Act (the "Mercantile 10-K"), in each case accompanied
by the audit report of KPMG LLP, independent public accountants with
respect to Mercantile. The December 31, 1998 consolidated balance sheet
of Mercantile (including the
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related notes, where applicable) fairly presents in all material
respects the consolidated financial position of Mercantile and its
Subsidiaries as of the date thereof, and the other financial statements
referred to in this Section 4.6 (including the related notes, where
applicable) fairly present in all material respects the results of the
consolidated operations and changes in shareholders' equity and
consolidated financial position of Mercantile and its Subsidiaries for
the respective fiscal periods or as of the respective dates therein set
forth; each of such statements (including the related notes, where
applicable) complies in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC
with respect thereto; and each of such statements (including the related
notes, where applicable) has been prepared in all material respects in
accordance with GAAP consistently applied during the periods involved,
except, in each case, as indicated in such statements or in the notes
thereto. The books and records of Mercantile and its Subsidiaries have
been, and are being, maintained in all material respects in accordance
with GAAP and any other applicable legal and accounting requirements and
reflect only actual transactions.
4.7 Broker's Fees. Except for Donaldson, Lufkin & Jenrette and
Morgan Stanley & Co. Incorporated, none of Mercantile nor any Mercantile
Subsidiary nor any of their respective officers or directors has
employed any broker or finder or incurred any liability for any broker's
fees, commissions or finder's fees in connection with the Merger or
related transactions contemplated by this Agreement or the Option
Agreements.
4.8 Absence of Certain Changes or Events. (a) Except as
publicly disclosed in Mercantile Reports filed prior to the date hereof,
since December 31, 1998, no event or events have occurred that has had,
individually or in the aggregate, a Material Adverse Effect on
Mercantile.
(b) Except as publicly disclosed in Mercantile Reports filed
prior to the date hereof, since December 31, 1998, Mercantile and its
Subsidiaries have carried on their respective businesses in all material
respects in the ordinary course.
(c) Since December 31, 1998, neither Mercantile nor any of its
Subsidiaries has (i) except for such actions as are in the ordinary
course of business or except as required by applicable law, (A)
increased the wages, salaries, compensation, pension, or other fringe
benefits or perquisites payable to any executive officer, employee, or
director from the amount thereof in effect as of December 31, 1998, or
(B) granted any severance or termination pay, entered into any contract
to make or grant any severance or termination pay, or paid any bonuses,
that in the aggregate exceed 5% of Mercantile's 1998 salary and employee
benefit expenses (other than customary year-end bonuses for fiscal 1998
and, if applicable, 1999) or (ii) suffered any strike, work stoppage,
slowdown, or other labor disturbance that will have, either individually
or in the aggregate, a Material Adverse Effect on Mercantile.
4.9 Legal Proceedings. (a) Neither Mercantile nor any of its
Subsidiaries is a party to any, and there are no pending or, to the best
of Mercantile's knowledge, threatened, legal, administrative, arbitral
or other proceedings, claims, actions or governmental or regulatory
investigations of any nature against Mercantile or any of its
Subsidiaries or challenging
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the validity or propriety of the transactions contemplated by this
Agreement or the Mercantile Option Agreement as to which, in any such
case, there is a reasonable probability of an adverse determination and
that, if adversely determined, will have, either individually or in the
aggregate, a Material Adverse Effect on Mercantile.
(b) There is no injunction, order, judgment, decree, or
regulatory restriction (other than those that apply to similarly
situated bank holding companies or banks) imposed upon Mercantile, any
of its Subsidiaries or the assets of Mercantile or any of its
Subsidiaries that has had or will have, either individually or in the
aggregate, a Material Adverse Effect on Mercantile or the Surviving
Corporation.
4.10 Taxes and Tax Returns. (a) Each of Mercantile and its
Subsidiaries has duly filed all federal, state, foreign and local
information returns and tax returns required to be filed by it on or
prior to the date hereof (all such returns being accurate and complete
in all material respects) and has duly paid or made provisions for the
payment of all Taxes and other governmental charges that have been
incurred or are due or claimed to be due from it by federal, state,
foreign or local taxing authorities on or prior to the date of this
Agreement (including, without limitation, if and to the extent
applicable, those due in respect of its properties, income, business,
capital stock, deposits, franchises, licenses, sales and payrolls) other
than (i) Taxes or other charges that are not yet delinquent or are being
contested in good faith and have not been finally determined, or (ii)
information returns, tax returns, Taxes or other governmental charges as
to which the failure to file, pay or make provision for will not have,
either individually or in the aggregate, a Material Adverse Effect on
Mercantile. The federal and material state income tax returns of
Mercantile and its Subsidiaries have been examined by the IRS or the
relevant state taxing authorities, as the case may be, through 1994 and
any liability with respect thereto has been satisfied or any liability
with respect to deficiencies asserted as a result of such examination
has been reserved against in accordance with GAAP. To the best of
Mercantile's knowledge, there are no material disputes pending, or
claims asserted for, Taxes or assessments upon Mercantile or any of its
Subsidiaries for which Mercantile has not established reserves in
accordance with GAAP. In addition, (A) proper and accurate amounts have
been withheld by Mercantile and its Subsidiaries from their employees
for all prior periods in compliance in all material respects with the
tax withholding provisions of applicable federal, state and local laws,
except where failure to do so will not, either individually or in the
aggregate, have a Material Adverse Effect on Mercantile, (B) federal,
state and local returns that are accurate and complete in all material
respects have been filed by Mercantile and its Subsidiaries for all
periods for which returns were due with respect to income tax
withholding, Social Security and unemployment taxes, except where
failure to do so will not, either individually or in the aggregate, have
a Material Adverse Effect on Mercantile, (C) the amounts shown on such
federal, state or local returns to be due and payable have been paid in
full or provision therefor has been included by Mercantile in its
consolidated financial statements in accordance with GAAP, except where
failure to do so will not, individually or in the aggregate, have a
Material Adverse Effect on Mercantile and (D) there are no Tax liens
upon any property or assets of Mercantile or its Subsidiaries except
liens for current Taxes not yet due or liens that will not have, either
individually or in the aggregate, a Material Adverse Effect on
Mercantile. Neither Mercantile nor any of its Subsidiaries has been
required to in-
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clude in income any adjustment pursuant to Section 481 of the Code by
reason of a voluntary change in accounting method initiated by
Mercantile or any of its Subsidiaries, and the IRS has not initiated or
proposed in writing any such adjustment or change in accounting method,
in either case, that has had or will have, either individually or in the
aggregate, a Material Adverse Effect on Mercantile. Except as set forth
in the financial statements described in Section 4.6 (including the
related notes, where applicable), neither Mercantile nor any of its
Subsidiaries has entered into a transaction that is being accounted for
as an installment obligation under Section 453 of the Code, that will
have, either individually or in the aggregate, a Material Adverse Effect
on Mercantile.
(b) No deduction has been disallowed under Section 162(m) of the
Code for employee remuneration of any amount paid or payable by
Mercantile or any Subsidiary of Mercantile under any contract, plan,
program, arrangement or understanding.
4.11 Employee Benefit Plans. (a) The Mercantile Disclosure
Schedule sets forth a true and complete list of each material employee
benefit, employment or compensation plan, arrangement or agreement that
is maintained, or contributed to, as of the date of this Agreement (the
"Mercantile Benefit Plans") by Mercantile, any of its Subsidiaries or by
any trade or business, whether or not incorporated (a "Mercantile ERISA
Affiliate"), all of which together with Mercantile would be deemed a
"single employer" within the meaning of Section 4001 of ERISA.
(b) Mercantile has heretofore made available to Firstar true and
complete copies of each of the Mercantile Benefit Plans and certain
related documents, including, but not limited to, (i) the actuarial
report for such Mercantile Benefit Plan (if applicable) for the plan
year ended December 31, 1998, and (ii) the most recent determination
letter from the IRS (if applicable) for such Mercantile Benefit Plan.
(c) (i) Each of the Mercantile Benefit Plans has been operated
and administered in all material respects in compliance with applicable
laws, including, but not limited to, ERISA and the Code, (ii) each of
the Mercantile Benefit Plans intended to be "qualified" within the
meaning of Section 401(a) of the Code is so qualified, and, to the
knowledge of Mercantile, there are no existing circumstances or any
events that have occurred that will adversely affect the qualified
status of any such Mercantile Benefit Plan, (iii) with respect to each
Mercantile Benefit Plan that is subject to Title IV of ERISA, the
present value of accrued benefits under such Mercantile Benefit Plan,
based upon the actuarial assumptions used for funding purposes in the
most recent actuarial report prepared by such Mercantile Benefit Plan's
actuary with respect to such Mercantile Benefit Plan, did not, as of its
latest valuation date, exceed the then current value of the assets of
such Mercantile Benefit Plan allocable to such accrued benefits, (iv) no
Mercantile Benefit Plan provides benefits, including, without
limitation, death or medical benefits (whether or not insured), with
respect to current or former employees or directors of Mercantile or its
Subsidiaries beyond their retirement or other termination of service,
other than (A) coverage mandated by applicable law, (B) death benefits
or retirement benefits under any "employee pension plan" (as such term
is defined in Section 3(2) of ERISA), (C) deferred compensation benefits
accrued as liabilities on the books of Mercantile or its Subsidiaries or
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(D) benefits the full cost of which is borne by the current or former
employee or director (or his beneficiary), (v) no material liability
under Title IV of ERISA has been incurred by Mercantile, its
Subsidiaries or any Mercantile ERISA Affiliate that has not been
satisfied in full, and no condition exists that presents a material risk
to Mercantile, its Subsidiaries or any Mercantile ERISA Affiliate of
incurring a material liability thereunder, (vi) no Mercantile Benefit
Plan is a "multiemployer pension plan" (as such term is defined in
Section 3(37) of ERISA), (vii) all contributions or other amounts
payable by Mercantile or its Subsidiaries as of the Effective Time with
respect to each Mercantile Benefit Plan in respect of current or prior
plan years have been paid or accrued in accordance with GAAP and Section
412 of the Code, (viii) none of Mercantile, its Subsidiaries or any
other person, including any fiduciary, has engaged in a transaction in
connection with which Mercantile, its Subsidiaries or any Mercantile
Benefit Plan will be subject to either a material civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a material tax imposed
pursuant to Section 4975 or 4976 of the Code, and (ix) to the best
knowledge of Mercantile there are no pending, threatened or anticipated
claims (other than routine claims for benefits) by, on behalf of or
against any of the Mercantile Benefit Plans or any trusts related
thereto that will have, either individually or in the aggregate, a
Material Adverse Effect on Mercantile.
(d) Neither the execution and delivery of this Agreement nor the
shareholder approval or consummation of the transactions contemplated
hereby will (either alone or in conjunction with any other event)
(i) result (either alone or upon the occurrence of any additional acts
or events) in any payment (including, without limitation, severance,
unemployment compensation, "excess parachute payment" (within the
meaning of Section 280G of the Code), forgiveness of indebtedness or
otherwise) becoming due to any director or any employee of Mercantile or
any of its affiliates from Mercantile or any of its affiliates under any
Mercantile Benefit Plan or otherwise, (ii) increase or affect the
calculation of the amount of any benefits otherwise payable under any
Mercantile Benefit Plan or (iii) result in any acceleration of the time
of payment or vesting of any such benefits.
4.12 SEC Reports. Mercantile has previously made available to
Firstar an accurate and complete copy of each (a) final registration
statement, prospectus, report, schedule and definitive proxy statement
filed since January 1, 1997 by Mercantile with the SEC pursuant to the
Securities Act or the Exchange Act (the "Mercantile Reports") and prior
to the date hereof and (b) communication mailed by Mercantile to its
shareholders since January 1, 1997 and prior to the date hereof, and no
such Mercantile Report or communication, as of the date thereof,
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they
were made, not misleading, except that information as of a later date
(but before the date hereof) shall be deemed to modify information as of
an earlier date. Since January 1, 1997, as of their respective dates,
all Mercantile Reports filed under the Securities Act and the Exchange
Act complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
4.13 Compliance with Applicable Law. (a) Mercantile and each of
its Subsidiaries hold all material licenses, franchises, permits and
authorizations necessary for the lawful con-
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duct of their respective businesses under and pursuant to each, and have
complied in all material respects with and are not in default in any
material respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any Governmental Entity relating
to Mercantile or any of its Subsidiaries, except where the failure to
hold such license, franchise, permit or authorization or such
noncompliance or default will not, either individually or in the
aggregate, have a Material Adverse Effect on Mercantile.
(b) Except as will not have, either individually or in the
aggregate, a Material Adverse Effect on Mercantile, Mercantile and each
Mercantile Subsidiary have properly administered all accounts for which
it acts as a fiduciary, including accounts for which it serves as a
trustee, agent, custodian, personal representative, guardian,
conservator or investment advisor, in accordance with the terms of the
governing documents, applicable state and federal law and regulation and
common law. None of Mercantile, any Mercantile Subsidiary, or any
director, officer or employee of Mercantile or of any Mercantile
Subsidiary, has committed any breach of trust with respect to any such
fiduciary account that will have a Material Adverse Effect on
Mercantile, and the accountings for each such fiduciary account are true
and correct in all material respects and accurately reflect the assets
of such fiduciary account.
4.14 Certain Contracts. (a) Neither Mercantile nor any of its
Subsidiaries is a party to or bound by any contract, arrangement,
commitment or understanding (whether written or oral) (i) with respect
to the employment of any directors, officers or employees other than in
the ordinary course of business consistent with past practice, (ii) that
is a "material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC) to be performed after the date of this
Agreement that has not been filed or incorporated by reference in the
Mercantile Reports, (iii) that materially restricts the conduct of any
line of business by Mercantile or upon consummation of the Merger will
materially restrict the ability of the Surviving Corporation to engage
in any line of business in which a bank holding company may lawfully
engage or (iv) with or to a labor union or guild (including any
collective bargaining agreement). Mercantile has previously made
available to Firstar true and correct copies of all employment and
deferred compensation agreements that are in writing and to which
Mercantile is a party. Each contract, arrangement, commitment or
understanding of the type described in this Section 4.14(a) and in
Section 4.11(a), whether or not set forth in the Mercantile Disclosure
Schedule, is referred to herein as a "Mercantile Contract", and neither
Mercantile nor any of its Subsidiaries knows of, or has received notice
of, any violation of the above by any of the other parties thereto that
will have, individually or in the aggregate, a Material Adverse Effect
on Mercantile.
(b) (i) Each Mercantile Contract is valid and binding on
Mercantile or any of its Subsidiaries, as applicable, and in full force
and effect, (ii) Mercantile and each of its Subsidiaries has in all
material respects performed all obligations required to be performed by
it to date under each Mercantile Contract, except where such
noncompliance, either individually or in the aggregate, will not have a
Material Adverse Effect on Mercantile, and (iii) no event or condition
exists that constitutes or, after notice or lapse of time or both, will
constitute, a material default on the part of Mercantile or any of its
Subsidiaries under any such Mercantile
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Contract, except where such default, either individually or in the
aggregate, will not have a Material Adverse Effect on Mercantile.
4.15 Agreements with Regulatory Agencies. Neither Mercantile nor
any of its Subsidiaries is subject to any cease-and-desist or other
order issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any
commitment letter or similar undertaking to, or is subject to any order
or directive by, or has been since January 1, 1997, a recipient of any
supervisory letter from, or since January 1, 1997, has adopted any board
resolutions at the request of any Regulatory Agency or other
Governmental Entity that currently restricts in any material respect the
conduct of its business or that in any material manner relates to its
capital adequacy, its credit policies, its management or its business
(each, whether or not set forth in the Mercantile Disclosure Schedule, a
"Mercantile Regulatory Agreement"), nor has Mercantile or any of its
Subsidiaries been advised since January 1, 1997, by any Regulatory
Agency or other Governmental Entity that it is considering issuing or
requesting any such Regulatory Agreement.
4.16 Interest Rate Risk Management Instruments. All Derivative
Instruments to which Mercantile or any of its Subsidiaries is a party,
whether entered into for the account of Mercantile or for the account of
a customer of Mercantile or one of its Subsidiaries, were entered into
in the ordinary course of business and, to Mercantile's knowledge, in
accordance with prudent banking practice and applicable rules,
regulations and policies of any Regulatory Authority and with
counterparties believed to be financially responsible at the time and
are legal, valid and binding obligations of Mercantile or one of its
Subsidiaries enforceable in accordance with their terms (except as may
be limited by bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting the rights of creditors generally and the
availability of equitable remedies), and are in full force and effect.
Mercantile and each of its Subsidiaries have duly performed in all
material respects all of their material obligations thereunder to the
extent that such obligations to perform have accrued; and to
Mercantile's knowledge, there are no material breaches, violations or
defaults or allegations or assertions of such by any party thereunder.
4.17 Undisclosed Liabilities. Except for those liabilities that
are fully reflected or reserved against on the consolidated balance
sheet of Mercantile included in the Mercantile December 31, 1998 Form
10-K and for liabilities incurred in the ordinary course of business
consistent with past practice, since December 31, 1998, neither
Mercantile nor any of its Subsidiaries has incurred any liability of any
nature whatsoever (whether absolute, accrued, contingent or otherwise
and whether due or to become due) that, either individually or in the
aggregate, has had or will have a Material Adverse Effect on Mercantile.
4.18 Insurance. Mercantile and its Subsidiaries have in effect
insurance coverage with reputable insurers or are self-insured, that in
respect of amounts, premiums, types and risks insured, constitutes
reasonably adequate coverage against all risks customarily insured
against by bank holding companies and their subsidiaries comparable in
size and operations to Mercantile and its Subsidiaries.
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4.19 Environmental Liability. There are no legal,
administrative, arbitral or other proceedings, claims, actions, causes
of action, private environmental investigations or remediation
activities or governmental investigations of any nature seeking to
impose, or that reasonably could result in the imposition, on Mercantile
of any liability or obligation arising under common law or under any
local, state or federal environmental statute, regulation or ordinance
including, without limitation, CERCLA, pending or threatened against
Mercantile, which liability or obligation will have, either individually
or in the aggregate, a Material Adverse Effect on Mercantile. To the
knowledge of Mercantile, there is no reasonable basis for any such
proceeding, claim, action or governmental investigation that would
impose any liability or obligation that will have, either individually
or in the aggregate, a Material Adverse Effect on Mercantile. Mercantile
is not subject to any agreement, order, judgment, decree, letter or
memorandum by or with any Governmental Entity, regulatory agency or
third party imposing any liability or obligation with respect to the
foregoing that will have, either individually or in the aggregate, a
Material Adverse Effect on Mercantile.
4.20 Charter Provisions; State Takeover Laws; Mercantile Rights
Agreement. (a) The Board of Directors of Mercantile has approved the
transactions contemplated by this Agreement and the Mercantile Option
Agreement for purposes of Article 13, Section B of the Mercantile
Articles and Sections 459.2 and 459.3 of the MBCL such that the
provisions of Article 13, Section A of the Mercantile Articles or such
sections of the MBCL will not apply to this Agreement or the Mercantile
Option Agreement or any of the transactions contemplated hereby or
thereby.
(b) Mercantile has taken all action, if any, necessary or
appropriate so that the entering into of this Agreement and the
Mercantile Stock Option Agreement, and the consummation of the
transactions contemplated hereby and thereby, do not and will not result
in the ability of any person to exercise any Mercantile Shareholder
Rights under the Mercantile Rights Agreement or enable or require the
Mercantile Shareholder Rights to separate from the shares of Mercantile
Common Stock to which they are attached or to be triggered or become
exercisable. No "Distribution Date" or "Stock Acquisition Date" (as such
terms are defined in the Mercantile Rights Plan) has occurred.
4.21 Year 2000. None of Mercantile or any of the Mercantile
Subsidiaries has received, or reasonably expects to receive, a Year 2000
Deficiency Notification Letter. Mercantile has made available to Firstar
a complete and accurate copy of Mercantile's plan, including an estimate
of the anticipated associated costs, for addressing Year 2000 Issues.
Between the date of this Agreement and the Effective Time, Mercantile
shall use reasonable best efforts to implement such plan and any
revisions thereto that may be reasonably requested by Firstar.
Mercantile and its Subsidiaries has complied in all material respects
with the "Interagency Guidelines Establishing Year 2000 Standards for
Safety and Soundness" issued pursuant to section 39 of the Federal
Deposit Insurance Act and effective October 15, 1998.
4.22 Reorganization; Pooling of Interests. As of the date of this
Agreement, Mercantile has no reason to believe that the Merger will not
qualify as a "reorganization" within
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the meaning of Section 368(a) of the Code and, subject to Section 6.4,
as a "pooling of interests" for accounting purposes.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Time. During
the period from the date of this Agreement to the Effective Time, except
as expressly contemplated or permitted by this Agreement (including the
Firstar Disclosure Schedule and the Mercantile Disclosure Schedule) or
the Option Agreements, each of Mercantile and Firstar shall, and shall
cause each of their respective Subsidiaries to, (a) conduct its business
in the ordinary course, (b) use reasonable best efforts to maintain and
preserve intact its business organization, employees and advantageous
business relationships and retain the services of its key officers and
key employees and (c) take no action that would adversely affect or
delay the ability of either Mercantile or Firstar to obtain any
necessary approvals of any Regulatory Agency or other Governmental
Entity required for the transactions contemplated hereby or to perform
its covenants and agreements under this Agreement or the Option
Agreements or to consummate the transactions contemplated hereby or
thereby.
5.2 Forbearances. During the period from the date of this
Agreement to the Effective Time, except as set forth in the Mercantile
Disclosure Schedule or the Firstar Disclosure Schedule, as the case may
be, and, except as expressly contemplated or permitted by this Agreement
or the Option Agreements or as otherwise indicated in this Section 5.2,
neither Mercantile nor Firstar shall, and neither Mercantile nor Firstar
shall permit any of their respective Subsidiaries to, without the prior
written consent of the other party to this Agreement:
(a) In the case of Mercantile, other than in the ordinary
course of business, incur any indebtedness for borrowed money
(other than short-term indebtedness incurred to refinance short-
term indebtedness (it being understood that for purposes of this
Section 5.2(a) "short-term" shall mean maturities of six months or
less) and indebtedness of Mercantile or any of its Subsidiaries to
Mercantile or any of its wholly-owned Subsidiaries), assume,
guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual,
corporation or other entity, or make any loan or advance (it being
understood and agreed that incurrence of indebtedness in the
ordinary course of business shall include, without limitation, the
creation of deposit liabilities, purchases of Federal funds, sales
of certificates of deposit and entering into repurchase
agreements);
(b) (i) in the case of Mercantile, adjust, split, combine or
reclassify any capital stock;
(ii) make, declare or pay any dividend, or make any other
distribution on, or directly or indirectly redeem, purchase
or otherwise acquire, any shares of its capital stock or any
securities or obligations convertible (whether currently
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convertible or convertible only after the passage of time or
the occurrence of certain events) into or exchangeable for
any shares of its capital stock (except (A) in the case of
Firstar, for regular quarterly cash dividends at a rate not
in excess of $0.30 per share of Firstar Common Stock, (B) in
the case of Mercantile, for regular quarterly cash dividends
on Mercantile Common Stock at a rate not in excess of $0.34
per share of Mercantile Common Stock and (C) dividends paid
by any of the Subsidiaries of each of Mercantile and Firstar
to Mercantile or Firstar or any of their Subsidiaries,
respectively, and dividends paid in the ordinary course of
business consistent with past practice by any Subsidiaries
(whether or not wholly owned) of each of Mercantile and
Firstar);
(iii) in the case of Mercantile, grant any stock
appreciation rights or grant any individual, corporation or
other entity any right to acquire any shares of its capital
stock, other than pursuant to the Mercantile Rights
Agreement as in effect as of the date hereof;
(iv) in the case of Mercantile, issue any additional
shares of capital stock except pursuant to (A) the exercise
of stock options outstanding as of the date hereof, (B) the
Mercantile Option Agreement (C) the Mercantile Rights
Agreement or (D) the Mercantile DRIP in the ordinary course
of business prior to the DRIP Suspension Date; or
(c) in the case of Mercantile, sell, transfer, mortgage,
encumber or otherwise dispose of any material part of its business or
any of its material properties or assets to any individual, corporation
or other entity other than a Subsidiary, or cancel, release or assign
any indebtedness to any such person or any claims held by any such
person, except in the ordinary course of business or pursuant to
contracts or agreements in force at the date of this Agreement;
(d) in the case of Mercantile, except for transactions in the
ordinary course of business or pursuant to contracts or agreements in
force at the date of or permitted by this Agreement, make any material
investment (either by purchase of stock or securities, contributions to
capital, property transfers, or purchase of any property or assets) in
any other individual, corporation or other entity other than a
Subsidiary thereof;
(e) in the case of Mercantile, except for transactions in the
ordinary course of business, terminate, or waive any material provision
of, any Mercantile Contract or make any change in any instrument or
agreement governing the terms of any of its securities, or material
lease or contract, other than normal renewals of contracts and leases
without material adverse changes of terms;
(f) in the case of Mercantile, increase in any manner the
compensation or fringe benefits of any of its employees or pay any
pension or retirement allowance not required by any existing plan or
agreement to any such employees or become a party to, amend or commit
itself to any pension, retirement, profit-sharing or welfare benefit
plan or agreement (or any individual agreements evidencing grants or
awards thereunder) or employment agreement with
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or for the benefit of any employee other than in the ordinary course of
business, or accelerate the vesting of, or the lapsing of restrictions
with respect to, any stock options or other stock-based compensation;
(g) solicit or encourage from any third party or enter into any
negotiations, discussions or agreement in respect of, or authorize any
individual, corporation or other entity to solicit or encourage from any
third party or enter into any negotiations, discussions or agreement in
respect of, or provide or cause to be provided any confidential
information in connection with, any inquiries or proposals relating to
the disposition of all or substantially all of its business or assets,
or the acquisition of its voting securities, or the merger or
consolidation of it or any of its Subsidiaries with any corporation or
other entity, other than as provided by this Agreement (and it has
discontinued any such negotiations or discussions initiated prior to the
date hereof and shall promptly notify the other party hereto of all of
the relevant details relating to all inquiries and proposals that it may
receive from and after the date hereof through and excluding the
Effective Time relating to any of such matters);
(h) in the case of Mercantile, settle any material claim, action
or proceeding involving money damages, except in the ordinary course of
business;
(i) knowingly take any action that would prevent or impede the
Merger from qualifying (i) for "pooling of interests" accounting
treatment or (ii) as a reorganization within the meaning of Section
368(a) of the Code; provided, however, that nothing contained herein
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shall limit the ability of Mercantile or Firstar to exercise its rights
under the Firstar Option Agreement or the Mercantile Option Agreement,
as the case may be;
(j) amend its certificate of incorporation or its bylaws;
(k) in the case of Mercantile, other than in prior consultation
with Firstar, restructure or materially change its investment securities
portfolio or its gap position, through purchases, sales or otherwise, or
the manner in which the portfolio is classified or reported;
(l) take any action that is intended or expected to result in
any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time prior to
the Effective Time, or in any of the conditions to the Merger set forth
in Article VII not being satisfied or in a violation of any provision of
this Agreement, except, in every case, as may be required by applicable
law;
(m) implement or adopt any change in its accounting principles,
practices or methods, other than as may be required by GAAP or
regulatory guidelines; or
(n) agree to take, make any commitment to take, or adopt any
resolutions of its board of directors in support of, any of the actions
prohibited to it by this Section 5.2.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters. (a) Mercantile and Firstar shall
promptly prepare and file with the SEC the Joint Proxy Statement and
Firstar shall promptly prepare and file with the SEC the S-4, in which
the Joint Proxy Statement will be included as a prospectus. Each of
Mercantile and Firstar shall use their reasonable best efforts to have
the S-4 declared effective under the Securities Act as promptly as
practicable after such filing, and Mercantile and Firstar shall
thereafter mail or deliver the Joint Proxy Statement to their respective
shareholders. Firstar shall also use its reasonable best efforts to
obtain all necessary state securities law or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by this
Agreement, and Mercantile shall furnish all information concerning
Mercantile and the holders of Mercantile Common Stock as may be
reasonably requested in connection with any such action.
(b) The parties hereto shall cooperate with each other and use
their reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and
filings, to obtain as promptly as practicable all permits, consents,
approvals and authorizations of all third parties and Governmental
Entities that are necessary or advisable to consummate the transactions
contemplated by this Agreement (including, without limitation, the
Merger) and the Option Agreements, and to comply with the terms and
conditions of all such permits, consents, approvals and authorizations
of all such Governmental Entities. Mercantile and Firstar shall have the
right to review in advance, and, to the extent practicable, each will
consult the other on, in each case subject to applicable laws relating
to the exchange of information, all the information relating to Firstar
or Mercantile, as the case may be, and any of their respective
Subsidiaries, that appears in any filing made with, or written materials
submitted to, any third party or any Governmental Entity in connection
with the transactions contemplated by this Agreement. In exercising the
foregoing rights of review and consultation, each of the parties hereto
shall act reasonably and as promptly as practicable. The parties hereto
agree that they will consult with each other with respect to the
obtaining of all permits, consents, approvals and authorizations of all
third parties and Governmental Entities necessary or advisable to
consummate the transactions contemplated by this Agreement and the
Option Agreements and each party will keep the other apprised of the
status of matters relating to completion of the transactions
contemplated herein.
(c) Mercantile and Firstar shall, upon request, furnish each
other with all information concerning themselves, their Subsidiaries,
directors, officers and shareholders and such other matters as may be
reasonably necessary or advisable in connection with the Joint Proxy
Statement, the S-4 or any other statement, filing, notice or application
made by or on behalf of Mercantile, Firstar or any of their respective
Subsidiaries to any Governmental Entity in connection with the Merger
and the other transactions contemplated by this Agreement.
(d) Mercantile and Firstar shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent
or approval is required for con-
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summation of the transactions contemplated by this Agreement or the
Option Agreements that causes such party to believe that there is a
reasonable likelihood that any Requisite Regulatory Approval will not be
obtained or that the receipt of any such approval will be materially
delayed.
6.2 Access to Information. (a) Upon reasonable notice and
subject to applicable laws relating to the exchange of information, each
of Mercantile and Firstar, for the purposes of verifying the
representations and warranties of the other and preparing for the Merger
and the other matters contemplated by this Agreement, shall, and shall
cause each of their respective Subsidiaries to, afford to the officers,
employees, accountants, counsel and other representatives of the other
party, access, during normal business hours during the period prior to
the Effective Time, to all its properties, books, contracts, commitments
and records and, during such period, each of Mercantile and Firstar
shall, and shall cause their respective Subsidiaries to, make available
to the other party (i) a copy of each report, schedule, registration
statement and other document filed or received by it during such period
pursuant to the requirements of federal securities laws or federal or
state banking laws (other than reports or documents that Mercantile or
Firstar, as the case may be, is not permitted to disclose under
applicable law) and (ii) all other information concerning its business,
properties and personnel as such party may reasonably request. Neither
Mercantile nor Firstar nor any of their respective Subsidiaries shall be
required to provide such access or to disclose such information where
such access or disclosure would violate or prejudice the rights of
Mercantile's or Firstar's, as the case may be, customers, jeopardize the
attorney-client privilege of the institution in possession or control of
such information or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior
to the date of this Agreement. The parties hereto will make appropriate
substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(b) Each of Mercantile and Firstar shall hold all information
furnished by or on behalf of the other party or any of such party's
Subsidiaries or representatives pursuant to Section 6.2(a) in confidence
to the extent required by, and in accordance with, the provisions of
confidentiality agreements, dated April 21, 1999 and April 23, 1999, in
each case between Mercantile and Firstar (together, the "Confidentiality
Agreement").
(c) No investigation by either of the parties or their
respective representatives shall affect the representations and
warranties of the other set forth herein.
6.3 Shareholders' Approvals. Each of Mercantile and Firstar
shall call a meeting of its shareholders to be held as soon as
reasonably practicable for the purpose of voting upon the requisite
shareholder approvals required in connection with this Agreement and the
transactions contemplated hereby, and each shall use its reasonable best
efforts to cause such meetings to occur as soon as reasonably
practicable and on the same date. The Boards of Directors of each of
Firstar and Mercantile shall use its reasonable best efforts to obtain
from such shareholders the vote in favor of the approval of this
Agreement required by the WBCL and, as applicable, the rules of the
NYSE, in the case of Firstar, or by the MBCL, in the case of Mercantile,
to consummate the transactions contemplated hereby.
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6.4 Legal Conditions to Merger. Each of Mercantile and Firstar
shall, and shall cause its Subsidiaries to, use their reasonable best
efforts (a) to take, or cause to be taken, all actions necessary, proper
or advisable to comply promptly with all legal requirements that may be
imposed on such party or its Subsidiaries with respect to the Merger
and, subject to the conditions set forth in Article VII hereof, to
consummate the transactions contemplated by this Agreement, and (b) to
obtain (and to cooperate with the other party to obtain) any material
consent, authorization, order or approval of, or any exemption by, any
Governmental Entity and any other third party that is required to be
obtained by Firstar or Mercantile or any of their respective
Subsidiaries in connection with the Merger and the other transactions
contemplated by this Agreement. Without limiting the foregoing and
notwithstanding any other provision hereof to the contrary, Mercantile
shall promptly take (or has taken prior to the date hereof) any and all
action with respect to any Mercantile Benefit Plan (including any
Mercantile Stock Plan) and any award agreement thereunder (including, if
necessary, appropriately amending such Plan) to the extent such action
is reasonably necessary in order for the Merger to qualify for "pooling
of interests" accounting treatment.
6.5 Affiliates; Publication of Combined Financial Results. (a)
Each of Mercantile and Firstar shall use its reasonable best efforts to
cause each director, executive officer and other person who is an
"affiliate" (for purposes of Rule 145 under the Securities Act, in the
case of Mercantile only, and for purposes of qualifying the Merger for
"pooling of interests" accounting treatment) of such party to deliver to
the other party hereto, as soon as practicable after the date of this
Agreement, and prior to the date of the shareholders' meetings called by
Mercantile and Firstar to approve this Agreement, a written agreement,
in the form of Exhibit 6.5(a)(1) or (2), as applicable, hereto,
providing that such person will not sell, pledge, transfer or otherwise
dispose of any shares of Mercantile Common Stock or Firstar Common Stock
held by such "affiliate" and, in the case of the "affiliates" of
Mercantile, the shares of Firstar Common Stock to be received by such
"affiliate" in the Merger.
(b) The Surviving Corporation shall use its best efforts to
publish as promptly as reasonably practical, but in no event later than
90 days after the end of the first month after the Effective Time in
which there are at least 30 days of post-Merger combined operations
(which month may be the month in which the Effective Time occurs),
combined sales and net income figures as contemplated by and in
accordance with the terms of SEC Accounting Series Release No. 135.
6.6 Stock Exchange Listing. Firstar shall cause the shares of
Firstar Common Stock to be issued in the Merger to be approved for
listing on the NYSE, subject to official notice of issuance, prior to
the Effective Time.
6.7 Employee Benefit Plans. (a) From and after the Effective
Time, unless otherwise mutually determined, the Firstar Benefit Plans
and Mercantile Benefit Plans in effect as of the date of this Agreement
shall remain in effect with respect to employees of Firstar or
Mercantile (or their Subsidiaries), respectively, covered by such plans
at the Effective Time until such time as the Surviving Corporation
shall, subject to applicable law, the terms of this Agreement and the
terms of such plans, adopt new benefit plans with respect to employees
of
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the Surviving Corporation and its Subsidiaries (the "New Benefit
Plans"). Prior to the Closing Date, Firstar and Mercantile shall
cooperate in reviewing, evaluating and analyzing the Mercantile Benefit
Plans and Firstar Benefit Plans with a view towards developing
appropriate New Benefit Plans for the employees covered thereby. From
and after the Effective Time, Firstar will, or will cause the Surviving
Corporation to, recognize the prior service with Mercantile or its
subsidiaries of each employee of Mercantile or any of its subsidiaries
as of the Effective Time (the "Mercantile Employees") in connection with
all Firstar employee benefit plans in which such Mercantile Employees
are eligible to participate following the Effective Time, for purposes
of eligibility, vesting and levels of benefits (but not for purposes of
benefit accruals under any defined benefit pension plan). From and after
the Effective Time, Firstar will, or will cause the Surviving
Corporation to, (i) cause any pre-existing conditions or limitations and
eligibility waiting periods under any group health plans of Firstar to
be waived with respect to the Mercantile Employees and their eligible
dependents and (ii) give each Mercantile Employee credit for the plan
year in which the Effective Time occurs towards applicable deductibles
and annual out-of-pocket limits for expenses incurred prior to the
Effective Time.
(b) The foregoing notwithstanding, the Surviving Corporation
agrees to honor in accordance with their terms all benefits vested as of
the Effective Time under the Mercantile Benefit Plans provided that such
Mercantile Benefit Plans are maintained and administered after the date
hereof not in violation of Section 5.2(f) of this Agreement.
(c) Nothing in this Section 6.7 shall be interpreted as
preventing the Surviving Corporation from amending, modifying or
terminating any Mercantile Benefit Plans, Firstar Benefit Plans, or
other contracts, arrangements, commitments or understandings, in
accordance with their terms and applicable law.
6.8 Indemnification; Directors' and Officers' Insurance. (a)
In the event of any threatened or actual claim, action, suit, proceeding
or investigation, whether civil, criminal or administrative, including,
without limitation, any such claim, action, suit, proceeding or
investigation in which any individual who is now, or has been at any
time prior to the date of this Agreement, or who becomes prior to the
Effective Time, a director or officer or employee of Mercantile or any
of its Subsidiaries, including any entity specified in the Mercantile
Disclosure Schedule (the "Indemnified Parties"), is, or is threatened to
be, made a party based in whole or in part on, or arising in whole or in
part out of, or pertaining to (i) the fact that he or she is or was a
director, officer or employee of Mercantile or any of its Subsidiaries
or any entity specified in the Mercantile Disclosure Schedule or any of
their respective predecessors or (ii) this Agreement, the Option
Agreements or any of the transactions contemplated hereby or thereby,
whether in any case asserted or arising before or after the Effective
Time, the parties hereto agree to cooperate and use their best efforts
to defend against and respond thereto. It is understood and agreed that
after the Effective Time, Firstar shall indemnify and hold harmless, as
and to the fullest extent permitted by law, each such Indemnified Party
against any losses, claims, damages, liabilities, costs, expenses
(including reasonable attorney's fees and expenses in advance of the
final disposition of any claim, suit, proceeding or investigation to
each Indemnified Party to the fullest extent permitted by law upon
receipt of any undertak-
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<PAGE>
ing required by applicable law), judgments, fines and amounts paid in
settlement in connection with any such threatened or actual claim,
action, suit, proceeding or investigation.
(b) Firstar shall use its reasonable best efforts to cause the
individuals serving as officers and directors of Mercantile, its
Subsidiaries or any entity specified in the Mercantile Disclosure
Schedule immediately prior to the Effective Time to be covered for a
period of six years from the Effective Time (or the period of the
applicable statute of limitations, if longer) by the directors' and
officers' liability insurance policy maintained by Mercantile
(provided that Firstar may substitute therefor policies of at least
--------
the same coverage and amounts containing terms and conditions that are
not less advantageous than such policy) with respect to acts or
omissions occurring prior to the Effective Time that were committed by
such officers and directors in their capacity as such.
(c) In the event Firstar or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors
and assigns of Firstar assume the obligations set forth in this Section
6.8.
(d) The provisions of this Section 6.8 shall survive the
Effective Time and are intended to be for the benefit of, and shall be
enforceable by, each Indemnified Party and his or her heirs and
representatives.
6.9 Additional Agreements. In case at any time after the
Effective Time any further action is necessary or desirable to carry out
the purposes of this Agreement (including, without limitation, any
merger between a Subsidiary of Firstar, on the one hand, and a
Subsidiary of Mercantile, on the other hand) or to vest the Surviving
Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of any of the parties to the
Merger, the proper officers and directors of each party to this
Agreement and their respective Subsidiaries shall take all such
necessary action as may be reasonably requested by, and at the sole
expense of, Firstar.
6.10 Advice of Changes. Mercantile and Firstar shall each
promptly advise the other party of any change or event (i) having a
Material Adverse Effect on it or (ii) that it believes would or would be
reasonably likely to cause or constitute a material breach of any of its
representations, warranties or covenants contained herein.
6.11 Dividends. After the date of this Agreement, each of
Mercantile and Firstar shall coordinate with the other the declaration
of any dividends in respect of Mercantile Common Stock and Firstar
Common Stock and the record dates and payment dates relating thereto, it
being the intention of the parties hereto that holders of Mercantile
Common Stock shall not receive two dividends, or fail to receive one
dividend, for any quarter with respect to their shares of Mercantile
Common Stock and any shares of Firstar Common Stock any such holder
receives in exchange therefor in the Merger.
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<PAGE>
6.12 Exemption from Liability Under Section 16(b). Assuming that
Mercantile delivers to Firstar the Section 16 Information in a timely
fashion prior to the Effective Time, the Board of Directors of Firstar,
or a committee of Non-Employee Directors thereof (as such term is
defined for purposes of Rule 16b-3(d) under the Exchange Act), shall
reasonably promptly thereafter and in any event prior to the Effective
Time adopt a resolution providing that the receipt by the Mercantile
Insiders of Firstar Common Stock in exchange for shares of Mercantile
Common Stock, and of options to purchase shares of Firstar Common Stock
upon conversion of options to purchase shares of Mercantile Common
Stock, in each case pursuant to the transactions contemplated hereby and
to the extent such securities are listed in the Section 16 Information,
are intended to be exempt from liability pursuant to Section 16(b) under
the Exchange Act such that any such receipt shall be so exempt. "Section
16 Information" shall mean information accurate in all respects
regarding the Mercantile Insiders, the number of shares of Mercantile
Common Stock held by each such Mercantile Insider and expected to be
exchanged for Firstar Common Stock in the Merger, and the number and
description of the options to purchase shares of Mercantile Common Stock
held by each such Mercantile Insider and expected to be converted into
options to purchase shares of Firstar Common Stock in connection with
the Merger. "Mercantile Insiders" shall mean those officers and
directors of Mercantile who are subject to the reporting requirements of
Section 16(a) of the Exchange Act and who are listed in the Section 16
Information.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of the parties to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Shareholder Approval. This Agreement and the
transactions contemplated hereby shall have been approved by the
respective requisite affirmative votes of the holders of Firstar
Common Stock and Mercantile Common Stock entitled to vote thereon.
(b) NYSE Listing. The shares of Firstar Common Stock that
shall be issued to the shareholders of Mercantile upon
consummation of the Merger shall have been authorized for listing
on the NYSE, subject to official notice of issuance.
(c) Other Approvals. All regulatory approvals required to
consummate the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect and all
statutory waiting periods in respect thereof shall have expired
(all such approvals and the expiration of all such waiting periods
being referred to herein as the "Requisite Regulatory Approvals").
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<PAGE>
(d) S-4. The S-4 shall have become effective under the
Securities Act and no stop order suspending the effectiveness of
the S-4 shall have been issued and no proceedings for that purpose
shall have been initiated or threatened by the SEC.
(e) No Injunctions or Restraints; Illegality. No order,
injunction or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger or any of the other transactions
contemplated by this Agreement shall be in effect. No statute,
rule, regulation, order, injunction or decree shall have been
enacted, entered, promulgated or enforced by any Governmental
Entity that prohibits, materially restricts or makes illegal
consummation of the Merger.
(f) Federal Tax Opinion. The parties hereto shall each
have received the opinion of Wachtell, Lipton, Rosen & Katz, in
form and substance reasonably satisfactory to Mercantile and
Firstar, dated the Closing Date, substantially to the effect that,
on the basis of facts, representations and assumptions set forth
in each such opinion that are consistent with the state of facts
existing at the Effective Time:
(i) The Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code, and
Mercantile and Firstar will each be a party to the
reorganization within the meaning of Section 368(b) of the
Code;
(ii) No gain or loss will be recognized by Mercantile
or Firstar as a result of the Merger; and
(iii) No gain or loss will be recognized by
shareholders of Mercantile who exchange all of their
Mercantile Common Stock solely for Firstar Common Stock
pursuant to the Merger (except with respect to cash received
in lieu of a fractional share interest in Firstar Common
Stock).
In rendering such opinions, counsel may require and rely
upon representations contained in certificates of officers of
Mercantile, Firstar and others.
(g) Pooling of Interests. Mercantile and Firstar shall
each have received a letter from their respective independent
accountants addressed to Firstar or Mercantile, as the case may
be, to the effect that the Merger will qualify for "pooling of
interests" accounting treatment.
7.2 Conditions to Obligations of Mercantile. The obligation of
Mercantile to effect the Merger is also subject to the satisfaction, or
waiver by Mercantile, at or prior to the Effective Time, of the
following conditions:
(a) Representations and Warranties. The representations
and warranties of Firstar set forth in this Agreement shall be
true and correct in all material respects as of the date of this
Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as
though made on and as of the
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<PAGE>
Closing Date; provided, however, that for purposes of this
-------- -------
paragraph, such representations and warranties (other than the
representations set forth in Sections 3.2(a), 3.8(a) or 3.17)
shall be deemed to be true and correct unless the failure or
failures of such representations and warranties to be so true and
correct, either individually or in the aggregate, and without
giving effect to any qualification as to materiality or Material
Adverse Effect set forth in such representations or warranties,
has had or will have a Material Adverse Effect on Firstar or the
Surviving Corporation. Mercantile shall have received a
certificate signed on behalf of Firstar by the Chief Executive
Officer and the Chief Financial Officer of Firstar to the
foregoing effect.
(b) Performance of Obligations of Firstar. Firstar shall
have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the
Closing Date, and Mercantile shall have received a certificate
signed on behalf of Firstar by the Chief Executive Officer and the
Chief Financial Officer of Firstar to such effect.
7.3 Conditions to Obligations of Firstar. The obligation of
Firstar to effect the Merger is also subject to the satisfaction or
waiver by Firstar at or prior to the Effective Time of the following
conditions:
(a) Representations and Warranties. The representations
and warranties of Mercantile set forth in this Agreement shall be
true and correct in all material respects as of the date of this
Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as
though made on and as of the Closing Date, provided, however,
-------- -------
that for purposes of this paragraph, such representations and
warranties (other than the representations set forth in Section
4.2(a), 4.8(a) or 4.17) shall be deemed to be true and correct
unless the failure or failures of such representations and
warranties to be so true and correct, either individually or in
the aggregate, and without giving effect to any qualification as
to materiality set forth in such representations or warranties,
has had or will have a Material Adverse Effect on Mercantile.
Firstar shall have received a certificate signed on behalf of
Mercantile by the Chief Executive Officer and the Chief Financial
Officer of Mercantile to the foregoing effect.
(b) Performance of Obligations of Mercantile. Mercantile
shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to
the Closing Date, and Firstar shall have received a certificate
signed on behalf of Mercantile by the Chief Executive Officer and
the Chief Financial Officer of Mercantile to such effect.
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<PAGE>
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the
matters presented in connection with the Merger by the shareholders of
Mercantile or Firstar:
(a) by mutual consent of Mercantile and Firstar in a
written instrument, if the Board of Directors of each so
determines by a vote of a majority of the members of its entire
Board;
(b) by either the Board of Directors of Mercantile or the
Board of Directors of Firstar if (i) any Governmental Entity that
must grant a Requisite Regulatory Approval has denied approval of
the Merger and such denial has become final and nonappealable or
any Governmental Entity of competent jurisdiction shall have
issued a final nonappealable order permanently enjoining or
otherwise prohibiting the consummation of the transactions
contemplated by this Agreement or (ii) any shareholder approval
required by Section 7.1(a) is not obtained at shareholder meetings
duly convened pursuant to Section 6.3 or at any postponement or
adjournment thereof;
(c) by either the Board of Directors of Mercantile or the
Board of Directors of Firstar if the Merger shall not have been
consummated on or before the first anniversary of the date of this
Agreement, unless the failure of the Closing to occur by such date
shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe the covenants and agreements of
such party set forth herein; or
(d) by either the Board of Directors of Mercantile or the
Board of Directors of Firstar (provided that the terminating
--------
party is not then in breach of any representation, warranty,
covenant or other agreement contained herein) if there shall have
been a breach of any of the covenants or agreements or any of the
representations or warranties set forth in this Agreement on the
part of Firstar, in the case of a termination by Mercantile, or
Mercantile, in the case of a termination by Firstar, which breach,
either individually or in the aggregate, would constitute, if
occurring or continuing on the Closing Date, the failure of the
conditions set forth in Section 7.2 or 7.3, as the case may be,
and that is not cured within 45 days following written notice to
the party committing such breach or by its nature or timing cannot
be cured prior to the Closing Date.
8.2 Effect of Termination. In the event of termination of this
Agreement by either Mercantile or Firstar as provided in Section 8.1,
this Agreement shall forthwith become void and have no effect, and none
of Mercantile, Firstar, any of their respective Subsidiaries or any of
the officers or directors of any of them shall have any liability of any
nature whatsoever hereunder, or in connection with the transactions
contemplated hereby, except that (i) Sections 6.2(b), 8.2, 9.2 and 9.3
shall survive any termination of this Agreement, and (ii)
notwithstanding anything to the contrary contained in this Agreement,
neither Mercantile nor Firstar
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<PAGE>
shall be relieved or released from any liabilities or damages arising
out of its willful breach of any provision of this Agreement.
8.3 Amendment. Subject to compliance with applicable law and
Section 1.1(b), this Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at
any time before or after approval of the matters presented in connection
with Merger by the shareholders of Mercantile and Firstar; provided,
--------
however, that after any approval of the transactions contemplated by
- -------
this Agreement by the respective shareholders of Mercantile or Firstar,
there may not be, without further approval of such shareholders, any
amendment of this Agreement that changes the amount or the form of the
consideration to be delivered hereunder to the holders of Mercantile
Common Stock, other than as contemplated by this Agreement. This
Agreement may not be amended except by an instrument in writing signed
on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective
Board of Directors, may, to the extent legally allowed, (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 delivered pursuant
hereto and (c) waive compliance with any of the agreements or conditions
contained herein; provided, however, that after any approval of the
-------- -------
transactions contemplated by this Agreement by the respective
shareholders of Mercantile or Firstar, there may not be, without further
approval of such shareholders, any extension or waiver of this Agreement
or any portion thereof that reduces the amount or changes the form of
the consideration to be delivered to the holders of Mercantile Common
Stock hereunder, other than as contemplated by this Agreement. Any
agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in a written instrument signed on
behalf of such party, but such extension or waiver or failure to insist
on strict compliance with an obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") will take place at
10:00 a.m. on a date and at a place to be specified by the parties,
which shall be no later than five business days after the satisfaction
or waiver (subject to applicable law) of the latest to occur of the
conditions set forth in Article VII hereof, unless extended by mutual
agreement of the parties (the "Closing Date").
9.2 Nonsurvival of Representations, Warranties and Agreements.
None of the representations, warranties, covenants and agreements in
this Agreement or in any instrument delivered pursuant to this Agreement
(other than the Option Agreements and the Confidentiality Agreement,
which shall terminate in accordance with the terms thereof) shall survive
the Effective
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<PAGE>
Time, except for Section 6.8 and for those other covenants and
agreements contained herein and therein that by their terms apply in
whole or in part after the Effective Time.
9.3 Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expense, provided, however, that
-------- -------
the costs and expenses of printing and mailing the Joint Proxy
Statement, and all filing and other fees paid to the SEC in connection
with the Merger, shall be borne equally by Mercantile and Firstar.
9.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation), mailed by registered or certified mail
(return receipt requested) or delivered by an express courier (with
confirmation) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Mercantile, to:
Mercantile Bancorporation Inc.
P.O. Box 524
St. Louis, Missouri 63166-0524
Attention: Jon W. Bilstrom
General Counsel and Secretary
Telecopier: (314) 418-1386
and
(b) if to Firstar, to:
Firstar Corporation
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Jennie P. Carlson
Senior Vice President, General Counsel and
Secretary
Telecopier:
9.5 Interpretation. When a reference is made in this Agreement
to Sections, Exhibits or Schedules, such reference shall be to a Section
of or Exhibit or Schedule to this Agreement unless otherwise indicated.
The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". No provision of
this Agreement shall be construed to require Firstar, Mercantile or any
of their respective Subsidiaries or affiliates to take or fail to take
any action, including, without limitation, the disclosure or non-
disclosure by either party of any information to its shareholders, that
would (or its failure to take would) reasonably be expected to violate
any applicable statue, law, legal duty, rule or regulation.
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<PAGE>
9.6 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed
by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
9.7 Entire Agreement. This Agreement (including the documents
and the instruments referred to herein) constitutes the entire agreement
and supersedes all prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof other
than the Option Agreements and the Confidentiality Agreement.
9.8 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York, without
regard to any applicable conflicts of law principles.
9.9 Publicity. Except as otherwise required by applicable law
or the rules of the NYSE, neither Mercantile or Firstar shall, or shall
permit any of its Subsidiaries to, issue or cause the publication of any
press release or other public announcement with respect to, or otherwise
make any public statement concerning, the transactions contemplated by
this Agreement without the consent of Firstar, in the case of a proposed
announcement or statement by Mercantile, or Mercantile, in the case of a
proposed announcement or statement by Firstar, which consent shall not
be unreasonably withheld.
9.10 Assignment; Third Party Beneficiaries. Neither this
Agreement nor any of the rights, interests or obligations shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties.
Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their
respective successors and assigns. Except as otherwise specifically
provided in Section 6.8, this Agreement (including the documents and
instruments referred to herein) is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.
9.11 Certain Agreements of the Surviving Corporation. Pursuant
to Section 458 of the MBCL, and effective at the Effective Time, the
Surviving Corporation agrees that (i) it will promptly pay to the
holders of Dissenting Shares the amount, if any, to which they shall be
entitled under the provisions of the MBCL with respect to the rights of
dissenting shareholders, and (ii) it may be served with process in
Missouri, and hereby irrevocably appoints the Missouri Secretary as its
agent to accept service of process, in any proceeding based upon any
cause of action against Mercantile arising in Missouri prior to the
issuance of the Missouri Articles by the Missouri Secretary, and in any
proceeding for the enforcement of rights of a holder of Dissenting
Shares as such against the Surviving Corporation.
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<PAGE>
IN WITNESS WHEREOF, Mercantile and Firstar have caused this
Agreement to be executed by their respective officers thereunto duly
authorized as of the date first above written.
FIRSTAR CORPORATION
By: /s/ JERRY A. GRUNDHOFER
---------------------------------------
Jerry A. Grundhofer
President and Chief
Executive Officer
MERCANTILE BANCORPORATION INC.
By: /s/ THOMAS H. JACOBSEN
---------------------------------------
Thomas H. Jacobsen
Chairman of the Board, President and Chief
Executive Officer
[Agreement and Plan of Merger]
-44-
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<INTEREST-EXPENSE> 283,632
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<LOAN-LOSSES> 35,910
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<EXPENSE-OTHER> 300,169
<INCOME-PRETAX> 252,858
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<PERIOD-END> MAR-31-1998
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0
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<PAGE>
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated April 30, 1999, between
Firstar Corporation, a Wisconsin corporation ("Issuer"), and Mercantile
Bancorporation Inc., a Missouri corporation ("Grantee").
W I T N E S S E T H:
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WHEREAS, Grantee and Issuer have entered into an Agreement
and Plan of Merger of even date herewith (the "Merger Agreement"), which
agreement has been executed by the parties hereto immediately prior to
this Stock Option Agreement (this "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the
Merger Agreement and in consideration therefor and for Grantee's
entering into the Mercantile Option Agreement, Issuer has agreed to
grant Grantee the Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Merger
Agreement, the parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms
hereof, up to 65,460,210 fully paid and nonassessable shares of Issuer's
common stock, par value $0.01 per share ("Common Stock"), at a price of
$31.56 per share (the "Option Price"); provided, however, that in no
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event shall the number of shares of Common Stock for which this Option
is exercisable exceed 9.9% of the Issuer's issued and outstanding shares
of Common Stock without giving effect to any shares subject to or issued
pursuant to the Option. The number of shares of Common Stock that may be
received upon the exercise of the Option and the Option Price are
subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common
Stock are either (i) issued or otherwise become outstanding after the
date of this Agreement (other than pursuant to this Agreement) or (ii)
redeemed, repurchased, retired or otherwise cease to be outstanding
after the date of the Agreement, the number of shares of Common Stock
subject to the Option shall be increased or decreased, as appropriate,
so that, after such issuance, such number equals 9.9% of the number of
shares of Common Stock then issued and outstanding without giving effect
to any shares subject or issued pursuant to the Option. Nothing
contained in this
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Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise
the Option, in whole or part, and from time to time, if, but only if,
both an Initial Triggering Event (as hereinafter defined) and a
Subsequent Triggering Event (as hereinafter defined) shall have occurred
prior to the occurrence of an Exercise Termination Event (as hereinafter
defined), provided that the Holder shall have sent the written notice
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of such exercise (as provided in subsection (e) of this Section 2)
within 90 days following such Subsequent Triggering Event. Each of the
following shall be an "Exercise Termination Event": (i) the Effective
Time (as defined in the Merger Agreement) of the Merger; (ii)
termination of the Merger Agreement in accordance with the provisions
thereof if such termination occurs prior to the occurrence of an Initial
Triggering Event, except a termination by Grantee pursuant to Section
8.1(d) of the Merger Agreement (unless the breach by Issuer giving rise
to such right of termination is non-volitional); or (iii) the passage of
12 months after termination of the Merger Agreement if such termination
follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 8.1(d) of the Merger
Agreement (unless the breach by Issuer giving rise to such right of
termination is non-volitional) (provided that if an Initial Triggering
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Event continues or occurs beyond such termination and prior to the
passage of such 12-month period, the Exercise Termination Event shall be
12 months from the expiration of the Last Triggering Event but in no
event more than 18 months after such termination). The "Last Triggering
Event" shall mean the last Initial Triggering Event to expire. The term
"Holder" shall mean the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of
the following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an
"Issuer Subsidiary"), without having received Grantee's prior
written consent, shall have entered into an agreement to engage in
an Acquisition Transaction (as hereinafter defined) with any
person (the term "person" for purposes of this Agreement having
the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the rules and regulations thereunder) other than Grantee or
any of its Subsidiaries (each a "Grantee Subsidiary") or the Board
of Directors of Issuer shall have recommended that the
shareholders of Issuer approve or accept any Acquisition
Transaction. For purposes of this Agreement, "Acquisition
Transaction" shall mean (w) a merger or consolidation, or any
similar transaction, involving Issuer or any Significant
Subsidiary (as defined in Rule 1-02 of Regulation S-X promulgated
by the Securities and Exchange Commission (the "SEC")) of Issuer,
(x) a purchase, lease or other acquisition or assumption of all or
a substantial portion of the assets or deposits of Issuer or any
Significant Subsidiary of Issuer, (y) a purchase or other
acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more of
the voting power of Issuer, or (z) any substantially similar
transaction; provided, however, that in no event shall any
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merger, consolidation, purchase or similar transaction involving
only the Issuer and one or
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more of its Subsidiaries or involving only any two or more of such
Subsidiaries, provided that any such transaction is not entered
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into in violation of the terms of the Merger Agreement, be deemed
to be an Acquisition Transaction;
(ii) Issuer or any Issuer Subsidiary, without having
received Grantee's prior written consent, shall have authorized,
recommended, proposed or publicly announced its intention to
authorize, recommend or propose, to engage in an Acquisition
Transaction with any person other than Grantee or a Grantee
Subsidiary, or the Board of Directors of Issuer shall have
publicly withdrawn or modified, or publicly announced its interest
to withdraw or modify, in any manner adverse to Grantee, its
recommendation that the shareholders of Issuer approve the
transactions contemplated by the Merger Agreement in anticipation
of engaging in an Acquisition Transaction;
(iii) Any person other than Grantee, any Grantee
Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity
in the ordinary course of its business shall have acquired
beneficial ownership or the right to acquire beneficial ownership
of 10% or more of the outstanding shares of Common Stock (the term
"beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the 1934 Act, and the
rules and regulations thereunder);
(iv) Any person other than Grantee or any Grantee
Subsidiary shall have made a bona fide proposal to Issuer or its
shareholders by public announcement or written communication that
is or becomes the subject of public disclosure to engage in an
Acquisition Transaction;
(v) After an overture is made by a third party to
Issuer or its shareholders to engage in an Acquisition
Transaction, Issuer shall have breached any covenant or obligation
contained in the Merger Agreement and such breach (x) would
entitle Grantee to terminate the Merger Agreement and (y) shall
not have been cured prior to the Notice Date (as hereinafter
defined); or
(vi) Any person other than Grantee or any Grantee
Subsidiary, other than in connection with a transaction to which
Grantee has given its prior written consent, shall have filed an
application or notice with the Federal Reserve Board, or other
federal or state bank regulatory authority, which application or
notice has been accepted for processing, for approval to engage in
an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean
either of the following events or transactions occurring after the date
hereof:
(i) The acquisition by any person of beneficial
ownership of 20% or more of the then-outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event
described in paragraph (i) of subsection (b) of this Section 2,
except that the percentage referred to in clause (y) shall be 20%.
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(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering
Event of which it has notice (together, a "Triggering Event"), it being
understood that the giving of such notice by Issuer shall not be a
condition to the right of the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to
exercise the Option, it shall send to Issuer a written notice (the date
of which being herein referred to as the "Notice Date") specifying (i)
the total number of shares it will purchase pursuant to such exercise
and (ii) a place and date not earlier than three business days nor later
than 60 business days from the Notice Date for the closing of such
purchase (the "Closing Date"); provided that if prior notification to
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or approval of the Federal Reserve Board or any other regulatory agency
is required in connection with such purchase, the Holder shall promptly
file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on
which any required notification periods have expired or been terminated
or such approvals have been obtained and any requisite waiting period or
periods shall have passed. Any exercise of the Option shall be deemed to
occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price
for the shares of Common Stock purchased pursuant to the exercise of the
Option in immediately available funds by wire transfer to a bank account
designated by Issuer, provided that failure or refusal of Issuer to
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designate such a bank account shall not preclude the Holder from
exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this
Section 2, Issuer shall deliver to the Holder a certificate or
certificates representing the number of shares of Common Stock purchased
by the Holder and, if the Option should be exercised in part only, a new
Option evidencing the rights of the Holder thereof to purchase the
balance of the shares purchasable hereunder, and the Holder shall
deliver to Issuer a copy of this Agreement and a letter agreeing that
the Holder will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate
is subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale
restrictions arising under the Securities Act of 1933, as
amended. A copy of such agreement is on file at the
principal office of Issuer and will be provided to the
holder hereof without charge upon receipt by Issuer of a
written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"),
in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the Holder shall have delivered
to
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Issuer a copy of a letter from the staff of the SEC, or an opinion of
counsel, in form and substance reasonably satisfactory to Issuer, to the
effect that such legend is not required for purposes of the 1933 Act;
(ii) the reference to the provisions of this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without
such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do
not require the retention of such reference; and (iii) the legend shall
be removed in its entirety if the conditions in the preceding clauses
(i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (e) of
this Section 2 and the tender of the applicable purchase price in
immediately available funds, the Holder shall be deemed, subject to the
receipt of applicable regulatory approvals, to be the holder of record
of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be
closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the
preparation, issue and delivery of stock certificates under this Section
2 in the name of the Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but
unissued or treasury shares of Common Stock so that the Option may be
exercised without additional authorization of Common Stock after giving
effect to all other options, warrants, convertible securities and other
rights to purchase Common Stock; (ii) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution
or sale of assets, or by any other voluntary act, avoid or seek to avoid
the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by Issuer; (iii)
promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and
waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (y) in the event, under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), or the Change in
Bank Control Act of 1978, as amended, or any state banking law, prior
approval of or notice to the Federal Reserve Board or to any state
regulatory authority is necessary before the Option may be exercised,
cooperating fully with the Holder in preparing such applications or
notices and providing such information to the Federal Reserve Board or
such state regulatory authority as they may require) in order to permit
the Holder to exercise the Option and Issuer duly and effectively to
issue shares of Common Stock pursuant hereto; and (iv) promptly to take
all action provided herein to protect the rights of the Holder against
dilution.
4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of
Issuer, for other Agreements providing for Options of different
denominations entitling the holder thereof to purchase, on the same
terms and subject to the same conditions as are set forth herein, in the
aggregate the same number of shares of Com-
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mon Stock purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any Stock Option Agreements and related Options for
which this Agreement (and the Option granted hereby) may be exchanged.
Upon receipt by Issuer of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Agreement, and (in the
case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Agreement,
if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer,
whether or not the Agreement so lost, stolen, destroyed or mutilated
shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares
of Common Stock that are purchasable upon exercise of the Option
pursuant to Section 1 of this Agreement, the number of shares of Common
Stock purchasable upon the exercise of the Option and the Option Price
shall be subject to adjustment from time to time as provided in this
Section 5. In the event of any change in, or distributions in respect
of, the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of
shares, distributions on or in respect of the Common Stock, or the like,
the type and number of shares of Common Stock purchasable upon exercise
hereof and the Option Price shall be appropriately adjusted in such
manner as shall fully preserve the economic benefits provided hereunder
and proper provision shall be made in any agreement governing any such
transaction to provide for such proper adjustment and the full
satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event
that occurs prior to an Exercise Termination Event, Issuer shall, at the
request of Grantee delivered within 90 days of such Subsequent
Triggering Event (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares
of Common Stock issued pursuant hereto), promptly prepare, file and keep
current a shelf registration statement under the 1933 Act covering this
Option and any shares issued and issuable pursuant to this Option and
shall use its reasonable best efforts to cause such registration
statement to become effective and remain current in order to permit the
sale or other disposition of this Option and any shares of Common Stock
issued upon total or partial exercise of this Option ("Option Shares")
in accordance with any plan of disposition requested by Grantee. Issuer
will use its reasonable best efforts to cause such registration
statement first to become effective and then to remain effective for
such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee
shall have the right to demand two such registrations. The foregoing
notwithstanding, if, at the time of any request by Grantee for
registration of the Option or Option Shares as provided above, Issuer is
in registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith judgment of the
managing underwriter or managing underwriters, or, if none, the sole
underwriter or underwriters, of such offering the inclusion of the
Holder's Option or Option Shares would interfere with the successful
marketing of the shares of Common Stock offered by Issuer, the number of
Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; and provided, however, that
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after any such required reduction the number of Option
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Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold
by the Holder and Issuer in the aggregate; and provided further,
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however, that if such reduction occurs, then the Issuer shall file a
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registration statement for the balance as promptly as practical and no
reduction shall thereafter occur. Each such Holder shall provide all
information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If requested by any such
Holder in connection with such registration, Issuer shall become a party
to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in
secondary offering underwriting agreements for the Issuer. Upon
receiving any request under this Section 6 from any Holder, Issuer
agrees to send a copy thereof to any other person known to Issuer to be
entitled to registration rights under this Section 6, in each case by
promptly mailing the same, postage prepaid, to the address of record of
the persons entitled to receive such copies. Notwithstanding anything to
the contrary contained herein, in no event shall Issuer be obligated to
effect more than two registrations pursuant to this Section 6 by reason
of the fact that there shall be more than one Grantee as a result of any
assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a
Repurchase Event (as hereinafter defined), (i) following a request of
the Holder, delivered prior to an Exercise Termination Event, Issuer (or
any successor thereto) shall repurchase the Option from the Holder at a
price (the "Option Repurchase Price") equal to the amount by which (A)
the Market/Offer Price (as hereinafter defined) exceeds (B) the Option
Price, multiplied by the number of shares for which this Option may then
be exercised and (ii) at the request of the owner of Option Shares from
time to time (the "Owner"), delivered within 90 days of such occurrence
(or such later period as provided in Section 10), Issuer shall
repurchase such number of the Option Shares from the Owner as the Owner
shall designate at a price (the "Option Share Repurchase Price") equal
to the Market/Offer Price multiplied by the number of Option Shares so
designated. The term "Market/Offer Price" shall mean the highest of (i)
the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock
to be paid by any third party pursuant to an agreement with Issuer,
(iii) the highest closing price for shares of Common Stock within the
six-month period immediately preceding the date the Holder gives notice
of the required repurchase of this Option or the Owner gives notice of
the required repurchase of Option Shares, as the case may be, or (iv) in
the event of a sale of all or a substantial portion of Issuer's assets,
the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by the Holder or
the Owner, as the case may be, and reasonably acceptable to the Issuer,
divided by the number of shares of Common Stock of Issuer outstanding at
the time of such sale. In determining the Market/Offer Price, the value
of consideration other than cash shall be determined by a nationally
recognized investment banking firm selected by the Holder or Owner, as
the case may be, and reasonably acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise
its right to require Issuer to repurchase the Option and any Option
Shares pursuant to this Section 7 by surrendering for such purpose to
Issuer, at its principal office, a copy of this Agreement or
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certificates for Option Shares, as applicable, accompanied by a written
notice or notices stating that the Holder or the Owner, as the case may
be, elects to require Issuer to repurchase this Option and/or the Option
Shares in accordance with the provisions of this Section 7. Within the
latter to occur of (x) five business days after the surrender of the
Option and/or certificates representing Option Shares and the receipt of
such notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall
deliver or cause to be delivered to the Holder the Option Repurchase
Price and/or to the Owner the Option Share Repurchase Price therefor or
the portion thereof, if any, that Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under
applicable law or regulation from repurchasing the Option and/or the
Option Shares in full, Issuer shall immediately so notify the Holder
and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the
portion of the Option Repurchase Price and the Option Share Repurchase
Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after
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delivery of a notice of repurchase pursuant to paragraph (b) of this
Section 7 is prohibited under applicable law or regulation from
delivering to the Holder and/or the Owner, as appropriate, the Option
Repurchase Price and the Option Share Repurchase Price, respectively, in
full (and Issuer hereby undertakes to use its best efforts to obtain all
required regulatory and legal approvals and to file any required
notices, in each case as promptly as practicable in order to accomplish
such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate,
that portion of the Option Repurchase Price or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Holder, a new Stock Option
Agreement evidencing the right of the Holder to purchase that number of
shares of Common Stock obtained by multiplying the number of shares of
Common Stock for which the surrendered Stock Option Agreement was
exercisable at the time of delivery of the notice of repurchase by a
fraction, the numerator of which is the Option Repurchase Price less the
portion thereof theretofore delivered to the Holder and the denominator
of which is the Option Repurchase Price, or (B) to the Owner, a
certificate for the Option Shares it is then so prohibited from
repurchasing.
(d) For purposes of this Section 7, a Repurchase Event
shall be deemed to have occurred (i) upon the consummation of any
merger, consolidation or similar transaction involving Issuer or any
purchase, lease or other acquisition of all or a substantial portion of
the assets of Issuer, other than any such transaction which would not
constitute an Acquisition Transaction pursuant to the provisos to
Section 2(b)(i) hereof or (ii) upon the acquisition by any person of
beneficial ownership of 50% or more of the then outstanding shares of
Common Stock, provided that no such event shall constitute a
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Repurchase Event unless a Subsequent Triggering Event shall have
occurred prior to an Exercise Termination Event. The parties hereto
agree that Issuer's obligations to repurchase the Option or Option
Shares under this Section 7 shall not terminate upon the occurrence of
an Exercise Termination Event unless no
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Subsequent Triggering Event shall have occurred prior to the occurrence
of an Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination
Event, Issuer shall enter into an agreement (i) to consolidate with or
merge into any person, other than Grantee or one of its Subsidiaries,
and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee
or one of its Subsidiaries, to merge into Issuer and Issuer shall be the
continuing or surviving corporation, but, in connection with such
merger, the then outstanding shares of Common Stock shall be changed
into or exchanged for stock or other securities of any other person or
cash or any other property or the then outstanding shares of Common
Stock shall after such merger represent less than 50% of the outstanding
voting shares and voting share equivalents of the merged company, or
(iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its Subsidiaries,
then, and in each such case, the agreement governing such transaction
shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions
set forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of the Holder, of either (x) the
Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the continuing
or surviving corporation of a consolidation or merger with Issuer
(if other than Issuer), (B) Issuer in a merger in which Issuer is
the continuing or surviving person, and (C) the transferee of all
or substantially all of Issuer's assets.
(ii) "Substitute Common Stock" shall mean the common stock
issued by the issuer of the Substitute Option upon exercise of the
Substitute Option.
(iii) "Assigned Value" shall mean the Market/Offer Price, as
defined in Section 7.
(iv) "Average Price" shall mean the average closing price
of a share of the Substitute Common Stock for the one year
immediately preceding the consolidation, merger or sale in
question, but in no event higher than the closing price of the
shares of Substitute Common Stock on the day preceding such
consolidation, merger or sale; provided that if Issuer is the
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issuer of the Substitute Option, the Average Price shall be
computed with respect to a share of common stock issued by the
person merging into Issuer or by any company that controls or is
controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the
Option, provided, that if the terms of the Substitute Option cannot,
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for legal reasons, be the same as the Option, such terms shall be as
similar as possible and in no event less advantageous to the Holder. The
issuer of the Substitute Option shall also enter into an agreement with
the then Holder or
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Holders of the Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such
number of shares of Substitute Common Stock as is equal to the Assigned
Value multiplied by the number of shares of Common Stock for which the
Option is then exercisable, divided by the Average Price. The exercise
price of the Substitute Option per share of Substitute Common Stock
shall then be equal to the Option Price multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock for
which the Option is then exercisable and the denominator of which shall
be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing
paragraphs, shall the Substitute Option be exercisable for more than
9.9% of the shares of Substitute Common Stock outstanding prior to
exercise of the Substitute Option. In the event that the Substitute
Option would be exercisable for more than 9.9% of the shares of
Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of
(i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute
Option after giving effect to the limitation in this clause (e). This
difference in value shall be determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case
may be, and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described
in subsection (a) of this Section 8 unless the Acquiring Corporation and
any person that controls the Acquiring Corporation assume in writing all
the obligations of Issuer hereunder.
9. (a) At the request of the holder of the Substitute
Option (the "Substitute Option Holder"), the Substitute Option Issuer
shall repurchase the Substitute Option from the Substitute Option Holder
at a price (the "Substitute Option Repurchase Price") equal to the
amount by which (i) the Highest Closing Price (as hereinafter defined)
exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute
Option may then be exercised, and at the request of the owner (the
"Substitute Share Owner") of shares of Substitute Common Stock (the
"Substitute Shares"), the Substitute Option Issuer shall repurchase the
Substitute Shares at a price (the "Substitute Share Repurchase Price")
equal to the Highest Closing Price multiplied by the number of
Substitute Shares so designated. The term "Highest Closing Price" shall
mean the highest closing price for shares of Substitute Common Stock
within the six-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the
required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective right to require
the Substitute Option Issuer to repur-
10
<PAGE>
chase the Substitute Option and the Substitute Shares pursuant to this
Section 9 by surrendering for such purpose to the Substitute Option
Issuer, at its principal office, the agreement for such Substitute
Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a
written notice or notices stating that the Substitute Option Holder or
the Substitute Share Owner, as the case may be, elects to require the
Substitute Option Issuer to repurchase the Substitute Option and/or the
Substitute Shares in accordance with the provisions of this Section 9.
As promptly as practicable, and in any event within five business days
after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to
be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute
Share Repurchase Price therefor or, in either case, the portion thereof
which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation from repurchasing the
Substitute Option and/or the Substitute Shares in part or in full, the
Substitute Option Issuer following a request for repurchase pursuant to
this Section 9 shall immediately so notify the Substitute Option Holder
and/or the Substitute Share Owner and thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute
Share Repurchase Price, respectively, which it is no longer prohibited
from delivering, within five business days after the date on which the
Substitute Option Issuer is no longer so prohibited; provided, however,
-------- -------
that if the Substitute Option Issuer is at any time after delivery of a
notice of repurchase pursuant to subsection (b) of this Section 9
prohibited under applicable law or regulation from delivering to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate,
the Substitute Option Repurchase Price and the Substitute Share Repurchase
Price, respectively, in full (and the Substitute Option Issuer shall use
its best efforts to obtain all required regulatory and legal approvals,
in each case as promptly as practicable, in order to accomplish such
repurchase), the Substitute Option Holder or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon,
in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A)
to the Substitute Option Holder, a new Substitute Option evidencing the
right of the Substitute Option Holder to purchase that number of shares
of the Substitute Common Stock obtained by multiplying the number of shares
of the Substitute Common Stock for which the surrendered Substitute Option
was exercisable at the time of delivery of the notice of repurchase by a
fraction, the numerator of which is the Substitute Option Repurchase Price
less the portion thereof theretofore delivered to the Substitute Option
Holder and the denominator of which is the Substitute Option Repurchase
Price, or (B) to the Substitute Share Owner, a certificate for the
Substitute Common Shares it is then so prohibited from repurchasing.
11
<PAGE>
10. The 90-day, or 6-month periods for exercise of certain
rights under Sections 2, 6, 7, 13 and 15 shall be extended: (i) to the
extent necessary to obtain all regulatory approvals for the exercise of
such rights, for the expiration of all statutory waiting periods; (ii)
to the extent necessary to avoid liability under Section 16(b) of the
1934 Act by reason of such exercise; and (iii) during any period in
which Grantee is precluded from exercising such rights due to an
injunction or other legal restriction, plus in each case such additional
period as is reasonably necessary for the exercise of such rights
promptly following the obtaining of such approvals or the expiration of
such periods.
11. Issuer hereby represents and warrants to Grantee as
follows:
(a) Issuer has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
and validly authorized by the Board of Directors of Issuer and no other
corporate proceedings on the part of Issuer are necessary to authorize
this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from
the date hereof through the termination of this Agreement in accordance
with its terms will have reserved for issuance upon the exercise of the
Option, that number of shares of Common Stock equal to the maximum
number of shares of Common Stock at any time and from time to time
issuable hereunder, and all such shares, upon issuance pursuant hereto,
will be duly authorized, validly issued, fully paid, nonassessable, and
will be delivered free and clear of all claims, liens, encumbrance and
security interests and not subject to any preemptive rights.
(c) Issuer has taken all action (including if required
redeeming all of the Firstar Shareholder Rights or amending or
terminating the Firstar Rights Agreement) so that the entering into of
this Option Agreement, the acquisition of shares of Common Stock
hereunder and the other transactions contemplated hereby do not and will
not result in the grant of any rights to any person under the Firstar
Rights Agreement or enable or require the Rights to be exercised,
distributed or triggered.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or
consents referred to herein, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Grantee.
This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common
Stock or other securities acquired by Grantee upon exercise of the
Option will not be, acquired with a view to
12
<PAGE>
the public distribution thereof and will not be transferred or otherwise
disposed of except in a transaction registered or exempt from
registration under the Securities Act.
13. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of
the other party, except that in the event a Subsequent Triggering Event
shall have occurred prior to an Exercise Termination Event, Grantee,
subject to the express provisions hereof, may assign in whole or in part
its rights and obligations hereunder within 90 days following such
Subsequent Triggering Event (or such later period as provided in Section
10); provided, however, that until the date 15 days following the
-------- -------
date on which the Federal Reserve Board approves an application by
Grantee under the BHCA to acquire the shares of Common Stock subject to
the Option, Grantee may not assign its rights under the Option except in
(i) a widely dispersed public distribution, (ii) a private placement in
which no one party acquires the right to purchase in excess of 2% of the
voting shares of Issuer, (iii) an assignment to a single party (e.g.,
----
a broker or investment banker) for the purpose of conducting a widely
dispersed public distribution on Grantee's behalf, or (iv) any other
manner approved by the Federal Reserve Board.
14. Each of Grantee and Issuer will use its best efforts
to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement, including without
limitation making application to list the shares of Common Stock
issuable hereunder on the New York Stock Exchange upon official notice
of issuance and applying to the Federal Reserve Board under the BHCA for
approval to acquire the shares issuable hereunder, but Grantee shall not
be obligated to apply to state banking authorities for approval to
acquire the shares of Common Stock issuable hereunder until such time,
if ever, as it deems appropriate to do so.
15. (a) Grantee in its sole discretion may, at any time
during which Issuer would be required to repurchase the Option or any
Option Shares pursuant to Section 7, surrender the Option (together with
any Option Shares issued to and then owned by the Holder) to Issuer in
exchange for a cash payment equal to the Surrender Price (as hereinafter
defined); provided, however, that Grantee may not exercise its
-------- -------
rights pursuant to this Section 15 if Issuer has previously repurchased
the Option (or any portion thereof) or any Option Shares pursuant to
Section 7. The "Surrender Price" shall be equal to (i) $250,000,000,
plus (ii) if applicable, the aggregate purchase price previously paid
pursuant hereto by Grantee with respect to any Option Shares, minus
(iii) if applicable, the excess of (A) the net cash, if any, received by
Grantee pursuant to the arm's-length sale of Option Shares (or any other
securities into which such Option Shares were converted or exchanged) to
any party not affiliated with Grantee, over (B) the purchase price paid
by Grantee with respect to such Option Shares.
(b) Grantee may exercise its right to surrender the Option
and any Option Shares pursuant to this Section 15 by surrendering for
such purchase to Issuer, at its principal office, a copy of this
Agreement, together with certificates for Option Shares, if any,
accompanied by a written notice stating (i) that Grantee elects to
surrender the Option and Option Shares, if any, in accordance with the
provisions of this Section 15 and (ii) the Surrender
13
<PAGE>
Price. Within two business days after the surrender of the Option and
the Option Shares, if applicable, Issuer shall deliver or cause to be
delivered to Grantee the Surrender Price.
(c) To the extent that the Issuer is prohibited under
applicable law or regulation from paying the Surrender Price to Grantee
in full, Issuer shall immediately so notify Grantee and thereafter
deliver, or cause to be delivered, from time to time, to Grantee, that
portion of the Surrender Price that Issuer is not or no longer
prohibited from paying, within two business days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer
-------- -------
at any time after delivery of a notice of Surrender pursuant to Section
15(b) is prohibited under applicable law or regulation from paying to
Grantee the Surrender Price in full, (i) Issuer shall (A) use its best
efforts to obtain all required regulatory and legal approvals and to
file any required notices as promptly as practicable in order to make
such payments, (B) within two business days of the submission or receipt
of any documents relating to any such regulatory and legal approvals,
provide Grantee with copies of the same, and (C) keep Grantee advised of
both the status of any such request for regulatory and legal approvals
and any discussions with any relevant regulatory or other third party
reasonably related to the same, and (ii) Grantee may revoke such notice
of surrender by delivery of a notice of revocation, the Exercise
Termination Event shall be extended to a date six months from the date
on which the Exercise Termination Event would have occurred if not for
the provisions of this Section 15(c) (during which period Grantee may
exercise any of its rights hereunder, including any and all rights
pursuant to this Section 15).
(d) Grantee shall have rights substantially identical to
those set forth in paragraphs (a), (b) and (c) of this Section 15 with
respect to the Substitute Option and the Substitute Option Issuer during
any period in which the Substitute Option Issuer would be required to
repurchase the Substitute Option pursuant to Section 9.
16. The parties hereto acknowledge that damages would be
an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be
enforceable by either party hereto through injunctive or other equitable
relief.
17. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Agreement shall remain in full force and
effect, and shall in no way be affected, impaired or invalidated. If for
any reason such court or regulatory agency determines that the Holder is
not permitted to acquire, or Issuer or Substitute Option Issuer, as the
case may be, is not permitted to repurchase pursuant to Section 7 or
Section 9, as the case may be, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or
5 hereof), or Issuer or Substitute Option Issuer is not permitted to pay
the full Surrender Price, it is the express intention of Issuer (which
shall be binding on the Substitute Option Issuer) to allow the Holder to
acquire or to require Issuer or the Substitute Option Issuer, as the
case may be, to repurchase such lesser number of shares, or to pay such
14
<PAGE>
portion of the Surrender Price, as may be permissible, without any
amendment or modification hereof.
18. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when
delivered in person, by cable, telegram, telecopy or telex, or by
registered or certified mail (postage prepaid, return receipt requested)
at the respective addresses of the parties set forth in the Merger
Agreement.
19. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the
laws that might otherwise govern under applicable principles of
conflicts of laws thereof (except to the extent that mandatory
provisions of federal law apply).
20. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
21. Except as otherwise expressly provided herein, each of
the parties hereto shall bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
22. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement
between the parties with respect to the transactions contemplated
hereunder and supersedes all prior arrangements or understandings with
respect thereof, written or oral. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in
this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities
under or by reason of this Agreement, except as expressly provided
herein.
23. Capitalized terms used in this Agreement and not
defined herein shall have the meanings assigned thereto in the Merger
Agreement.
15
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement
to be executed on its behalf by its officers thereunto duly authorized,
all as of the date first above written.
FIRSTAR CORPORATION
By: /s/ JERRY A. GRUNDHOFER
----------------------------------------
Jerry A. Grundhofer
President and Chief
Executive Officer
MERCANTILE BANCORPORATION INC.
By: /s/ THOMAS H. JACOBSEN
----------------------------------------
Thomas H. Jacobsen
Chairman of the Board, President and
Chief Executive Officer
[Firstar Stock Option]
16
<PAGE>
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated April 30, 1999, between
Mercantile Bancorporation Inc., a Missouri corporation ("Issuer"), and
Firstar Corporation, a Wisconsin corporation ("Grantee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Grantee and Issuer have entered into an Agreement
and Plan of Merger of even date herewith (the "Merger Agreement"), which
agreement has been executed by the parties hereto immediately prior to
this Stock Option Agreement (this "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the
Merger Agreement and in consideration therefor and for Grantee's
entering into the Firstar Option Agreement, Issuer has agreed to grant
Grantee the Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Merger
Agreement, the parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms
hereof, up to 31,415,840 fully paid and nonassessable shares of Issuer's
common stock, par value $0.01 per Share ("Common Stock"), at a price of
$51.25 per share (the "Option Price"); provided, however, that in no
-------- -------
event shall the number of shares of Common Stock for which this Option
is exercisable exceed 19.9% of the Issuer's issued and outstanding
shares of Common Stock without giving effect to any shares subject to or
issued pursuant to the Option. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are
subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common
Stock are either (i) issued or otherwise become outstanding after the
date of this Agreement (other than pursuant to this Agreement) or (ii)
redeemed, repurchased, retired or otherwise cease to be outstanding
after the date of the Agreement, the number of shares of Common Stock
subject to the Option shall be increased or decreased, as appropriate,
so that, after such issuance, such number equals 19.9% of the number of
shares of Common Stock then issued and outstanding without giving effect
to any shares subject or issued pursuant to the Option. Nothing
contained in this
<PAGE>
Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise
the Option, in whole or part, and from time to time, if, but only if,
both an Initial Triggering Event (as hereinafter defined) and a
Subsequent Triggering Event (as hereinafter defined) shall have occurred
prior to the occurrence of an Exercise Termination Event (as hereinafter
defined), provided that the Holder shall have sent the written notice
--------
of such exercise (as provided in subsection (e) of this Section 2)
within 90 days following such Subsequent Triggering Event. Each of the
following shall be an "Exercise Termination Event": (i) the Effective
Time (as defined in the Merger Agreement) of the Merger; (ii)
termination of the Merger Agreement in accordance with the provisions
thereof if such termination occurs prior to the occurrence of an Initial
Triggering Event, except a termination by Grantee pursuant to Section
8.1(d) of the Merger Agreement (unless the breach by Issuer giving rise
to such right of termination is non-volitional); or (iii) the passage of
12 months after termination of the Merger Agreement if such termination
follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 8.1(d) of the Merger
Agreement (unless the breach by Issuer giving rise to such right of
termination is non-volitional) (provided that if an Initial Triggering
--------
Event continues or occurs beyond such termination and prior to the
passage of such 12-month period, the Exercise Termination Event shall be
12 months from the expiration of the Last Triggering Event but in no
event more than 18 months after such termination). The "Last Triggering
Event" shall mean the last Initial Triggering Event to expire. The term
"Holder" shall mean the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of
the following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an
"Issuer Subsidiary"), without having received Grantee's prior
written consent, shall have entered into an agreement to engage in
an Acquisition Transaction (as hereinafter defined) with any
person (the term "person" for purposes of this Agreement having
the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the rules and regulations thereunder) other than Grantee or
any of its Subsidiaries (each a "Grantee Subsidiary") or the Board
of Directors of Issuer shall have recommended that the
shareholders of Issuer approve or accept any Acquisition
Transaction. For purposes of this Agreement, "Acquisition
Transaction" shall mean (w) a merger or consolidation, or any
similar transaction, involving Issuer or any Significant
Subsidiary (as defined in Rule 1-02 of Regulation S-X promulgated
by the Securities and Exchange Commission (the "SEC")) of Issuer,
(x) a purchase, lease or other acquisition or assumption of all or
a substantial portion of the assets or deposits of Issuer or any
Significant Subsidiary of Issuer, (y) a purchase or other
acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more of
the voting power of Issuer, or (z) any substantially similar
transaction; provided, however, that in no event shall any
-------- -------
merger, consolidation, purchase or similar transaction involving
only the Issuer and one or
2
<PAGE>
more of its Subsidiaries or involving only any two or more of such
Subsidiaries, provided that any such transaction is not entered into
--------
in violation of the terms of the Merger Agreement, be deemed to be an
Acquisition Transaction;
(ii) Issuer or any Issuer Subsidiary, without having
received Grantee's prior written consent, shall have authorized,
recommended, proposed or publicly announced its intention to
authorize, recommend or propose, to engage in an Acquisition
Transaction with any person other than Grantee or a Grantee
Subsidiary, or the Board of Directors of Issuer shall have
publicly withdrawn or modified, or publicly announced its interest
to withdraw or modify, in any manner adverse to Grantee, its
recommendation that the shareholders of Issuer approve the
transactions contemplated by the Merger Agreement in anticipation
of engaging in an Acquisition Transaction;
(iii) Any person other than Grantee, any Grantee
Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity
in the ordinary course of its business shall have acquired
beneficial ownership or the right to acquire beneficial ownership
of 10% or more of the outstanding shares of Common Stock (the term
"beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the 1934 Act, and the
rules and regulations thereunder);
(iv) Any person other than Grantee or any Grantee
Subsidiary shall have made a bona fide proposal to Issuer or its
shareholders by public announcement or written communication that
is or becomes the subject of public disclosure to engage in an
Acquisition Transaction;
(v) After an overture is made by a third party to
Issuer or its shareholders to engage in an Acquisition
Transaction, Issuer shall have breached any covenant or obligation
contained in the Merger Agreement and such breach (x) would
entitle Grantee to terminate the Merger Agreement and (y) shall
not have been cured prior to the Notice Date (as hereinafter
defined); or
(vi) Any person other than Grantee or any Grantee
Subsidiary, other than in connection with a transaction to which
Grantee has given its prior written consent, shall have filed an
application or notice with the Federal Reserve Board, or other
federal or state bank regulatory authority, which application or
notice has been accepted for processing, for approval to engage in
an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean
either of the following events or transactions occurring after
the date hereof:
(i) The acquisition by any person of beneficial
ownership of 20% or more of the then-outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event
described in paragraph (i) of subsection (b) of this Section 2,
except that the percentage referred to in clause (y) shall be 20%.
3
<PAGE>
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event and/or Subsequent Triggering
Event of which it has notice (together, a "Triggering Event"), it being
understood that the giving of such notice by Issuer shall not be a
condition to the right of the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to
exercise the Option, it shall send to Issuer a written notice (the date
of which being herein referred to as the "Notice Date") specifying (i)
the total number of shares it will purchase pursuant to such exercise
and (ii) a place and date not earlier than three business days nor later
than 60 business days from the Notice Date for the closing of such
purchase (the "Closing Date"); provided that if prior notification to
--------
or approval of the Federal Reserve Board or any other regulatory agency
is required in connection with such purchase, the Holder shall promptly
file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on
which any required notification periods have expired or been terminated
or such approvals have been obtained and any requisite waiting period or
periods shall have passed. Any exercise of the Option shall be deemed to
occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price
for the shares of Common Stock purchased pursuant to the exercise of the
Option in immediately available funds by wire transfer to a bank account
designated by Issuer, provided that failure or refusal of Issuer to
--------
designate such a bank account shall not preclude the Holder from
exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this
Section 2, Issuer shall deliver to the Holder a certificate or
certificates representing the number of shares of Common Stock purchased
by the Holder and, if the Option should be exercised in part only, a new
Option evidencing the rights of the Holder thereof to purchase the
balance of the shares purchasable hereunder, and the Holder shall
deliver to Issuer a copy of this Agreement and a letter agreeing that
the Holder will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate
is subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale
restrictions arising under the Securities Act of 1933, as
amended. A copy of such agreement is on file at the
principal office of Issuer and will be provided to the
holder hereof without charge upon receipt by Issuer of a
written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"),
in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the Holder shall have delivered
to
4
<PAGE>
Issuer a copy of a letter from the staff of the SEC, or an opinion of
counsel, in form and substance reasonably satisfactory to Issuer, to the
effect that such legend is not required for purposes of the 1933 Act;
(ii) the reference to the provisions of this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without
such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do
not require the retention of such reference; and (iii) the legend shall
be removed in its entirety if the conditions in the preceding clauses
(i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (e) of
this Section 2 and the tender of the applicable purchase price in
immediately available funds, the Holder shall be deemed, subject to the
receipt of applicable regulatory approvals, to be the holder of record
of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be
closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the
preparation, issue and delivery of stock certificates under this Section
2 in the name of the Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but
unissued or treasury shares of Common Stock so that the Option may be
exercised without additional authorization of Common Stock after giving
effect to all other options, warrants, convertible securities and other
rights to purchase Common Stock; (ii) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution
or sale of assets, or by any other voluntary act, avoid or seek to avoid
the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by Issuer; (iii)
promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and
waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (y) in the event, under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), or the Change in
Bank Control Act of 1978, as amended, or any state banking law, prior
approval of or notice to the Federal Reserve Board or to any state
regulatory authority is necessary before the Option may be exercised,
cooperating fully with the Holder in preparing such applications or
notices and providing such information to the Federal Reserve Board or
such state regulatory authority as they may require) in order to permit
the Holder to exercise the Option and Issuer duly and effectively to
issue shares of Common Stock pursuant hereto; and (iv) promptly to take
all action provided herein to protect the rights of the Holder against
dilution.
4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of
Issuer, for other Agreements providing for Options of different
denominations entitling the holder thereof to purchase, on the same
terms and subject to the same conditions as are set forth herein, in the
aggregate the same number of shares of Com-
5
<PAGE>
mon Stock purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any Stock Option Agreements and related Options for
which this Agreement (and the Option granted hereby) may be exchanged.
Upon receipt by Issuer of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Agreement, and (in the
case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Agreement,
if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer,
whether or not the Agreement so lost, stolen, destroyed or mutilated
shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares
of Common Stock that are purchasable upon exercise of the Option
pursuant to Section 1 of this Agreement, the number of shares of Common
Stock purchasable upon the exercise of the Option and the Option Price
shall be subject to adjustment from time to time as provided in this
Section 5. In the event of any change in, or distributions in respect
of, the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of
shares, distributions on or in respect of the Common Stock, or the like,
the type and number of shares of Common Stock purchasable upon exercise
hereof and the Option Price shall be appropriately adjusted in such
manner as shall fully preserve the economic benefits provided hereunder
and proper provision shall be made in any agreement governing any such
transaction to provide for such proper adjustment and the full
satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event
that occurs prior to an Exercise Termination Event, Issuer shall, at the
request of Grantee delivered within 90 days of such Subsequent
Triggering Event (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares
of Common Stock issued pursuant hereto), promptly prepare, file and keep
current a shelf registration statement under the 1933 Act covering this
Option and any shares issued and issuable pursuant to this Option and
shall use its reasonable best efforts to cause such registration
statement to become effective and remain current in order to permit the
sale or other disposition of this Option and any shares of Common Stock
issued upon total or partial exercise of this Option ("Option Shares")
in accordance with any plan of disposition requested by Grantee. Issuer
will use its reasonable best efforts to cause such registration
statement first to become effective and then to remain effective for
such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee
shall have the right to demand two such registrations. The foregoing
notwithstanding, if, at the time of any request by Grantee for
registration of the Option or Option Shares as provided above, Issuer is
in registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith judgment of the
managing underwriter or managing underwriters, or, if none, the sole
underwriter or underwriters, of such offering the inclusion of the
Holder's Option or Option Shares would interfere with the successful
marketing of the shares of Common Stock offered by Issuer, the number of
Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; and provided, however, that
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after any such required reduction the number of Option
6
<PAGE>
Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold
by the Holder and Issuer in the aggregate; and provided further,
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however, that if such reduction occurs, then the Issuer shall file a
- -------
registration statement for the balance as promptly as practical and no
reduction shall thereafter occur. Each such Holder shall provide all
information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If requested by any such
Holder in connection with such registration, Issuer shall become a party
to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in
secondary offering underwriting agreements for the Issuer. Upon
receiving any request under this Section 6 from any Holder, Issuer
agrees to send a copy thereof to any other person known to Issuer to be
entitled to registration rights under this Section 6, in each case by
promptly mailing the same, postage prepaid, to the address of record of
the persons entitled to receive such copies. Notwithstanding anything to
the contrary contained herein, in no event shall Issuer be obligated to
effect more than two registrations pursuant to this Section 6 by reason
of the fact that there shall be more than one Grantee as a result of any
assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a
Repurchase Event (as hereinafter defined), (i) following a request of
the Holder, delivered prior to an Exercise Termination Event, Issuer (or
any successor thereto) shall repurchase the Option from the Holder at a
price (the "Option Repurchase Price") equal to the amount by which (A)
the Market/Offer Price (as hereinafter defined) exceeds (B) the Option
Price, multiplied by the number of shares for which this Option may then
be exercised and (ii) at the request of the owner of Option Shares from
time to time (the "Owner"), delivered within 90 days of such occurrence
(or such later period as provided in Section 10), Issuer shall
repurchase such number of the Option Shares from the Owner as the Owner
shall designate at a price (the "Option Share Repurchase Price") equal
to the Market/Offer Price multiplied by the number of Option Shares so
designated. The term "Market/Offer Price" shall mean the highest of (i)
the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock
to be paid by any third party pursuant to an agreement with Issuer,
(iii) the highest closing price for shares of Common Stock within the
six-month period immediately preceding the date the Holder gives notice
of the required repurchase of this Option or the Owner gives notice of
the required repurchase of Option Shares, as the case may be, or (iv) in
the event of a sale of all or a substantial portion of Issuer's assets,
the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by the Holder or
the Owner, as the case may be, and reasonably acceptable to the Issuer,
divided by the number of shares of Common Stock of Issuer outstanding at
the time of such sale. In determining the Market/Offer Price, the value
of consideration other than cash shall be determined by a nationally
recognized investment banking firm selected by the Holder or Owner, as
the case may be, and reasonably acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may
exercise its right to require Issuer to repurchase the Option and any
Option Shares pursuant to this Section 7 by surrendering for such
purpose to Issuer, at its principal office, a copy of this Agreement or
7
<PAGE>
certificates for Option Shares, as applicable, accompanied by a written
notice or notices stating that the Holder or the Owner, as the case may
be, elects to require Issuer to repurchase this Option and/or the Option
Shares in accordance with the provisions of this Section 7. Within the
latter to occur of (x) five business days after the surrender of the
Option and/or certificates representing Option Shares and the receipt of
such notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall
deliver or cause to be delivered to the Holder the Option Repurchase
Price and/or to the Owner the Option Share Repurchase Price therefor or
the portion thereof, if any, that Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under
applicable law or regulation from repurchasing the Option and/or the
Option Shares in full, Issuer shall immediately so notify the Holder
and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the
portion of the Option Repurchase Price and the Option Share Repurchase
Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after
-------- -------
delivery of a notice of repurchase pursuant to paragraph (b) of this
Section 7 is prohibited under applicable law or regulation from
delivering to the Holder and/or the Owner, as appropriate, the Option
Repurchase Price and the Option Share Repurchase Price, respectively, in
full (and Issuer hereby undertakes to use its best efforts to obtain all
required regulatory and legal approvals and to file any required
notices, in each case as promptly as practicable in order to accomplish
such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate,
that portion of the Option Repurchase Price or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Holder, a new Stock Option
Agreement evidencing the right of the Holder to purchase that number of
shares of Common Stock obtained by multiplying the number of shares of
Common Stock for which the surrendered Stock Option Agreement was
exercisable at the time of delivery of the notice of repurchase by a
fraction, the numerator of which is the Option Repurchase Price less the
portion thereof theretofore delivered to the Holder and the denominator
of which is the Option Repurchase Price, or (B) to the Owner, a
certificate for the Option Shares it is then so prohibited from
repurchasing.
(d) For purposes of this Section 7, a Repurchase Event
shall be deemed to have occurred (i) upon the consummation of any
merger, consolidation or similar transaction involving Issuer or any
purchase, lease or other acquisition of all or a substantial portion of
the assets of Issuer, other than any such transaction which would not
constitute an Acquisition Transaction pursuant to the provisos to
Section 2(b)(i) hereof or (ii) upon the acquisition by any person of
beneficial ownership of 50% or more of the then outstanding shares of
Common Stock, provided that no such event shall constitute a
--------
Repurchase Event unless a Subsequent Triggering Event shall have
occurred prior to an Exercise Termination Event. The parties hereto
agree that Issuer's obligations to repurchase the Option or Option
Shares under this Section 7 shall not terminate upon the occurrence of
an Exercise Termination Event unless no
8
<PAGE>
Subsequent Triggering Event shall have occurred prior to the occurrence
of an Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination
Event, Issuer shall enter into an agreement (i) to consolidate with or
merge into any person, other than Grantee or one of its Subsidiaries,
and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee
or one of its Subsidiaries, to merge into Issuer and Issuer shall be the
continuing or surviving corporation, but, in connection with such
merger, the then outstanding shares of Common Stock shall be changed
into or exchanged for stock or other securities of any other person or
cash or any other property or the then outstanding shares of Common
Stock shall after such merger represent less than 50% of the outstanding
voting shares and voting share equivalents of the merged company, or
(iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its Subsidiaries,
then, and in each such case, the agreement governing such transaction
shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions
set forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of the Holder, of either (x) the
Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (A) the
continuing or surviving corporation of a consolidation or
merger with Issuer (if other than Issuer), (B) Issuer in a
merger in which Issuer is the continuing or surviving
person, and (C) the transferee of all or substantially all
of Issuer's assets.
(ii) "Substitute Common Stock" shall mean the common
stock issued by the issuer of the Substitute Option upon
exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the Market/Offer
Price, as defined in Section 7.
(iv) "Average Price" shall mean the average closing
price of a share of the Substitute Common Stock for the one
year immediately preceding the consolidation, merger or sale
in question, but in no event higher than the closing price
of the shares of Substitute Common Stock on the day
preceding such consolidation, merger or sale; provided
--------
that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of
common stock issued by the person merging into Issuer or by
any company that controls or is controlled by such person,
as the Holder may elect.
(c) The Substitute Option shall have the same terms as the
Option, provided, that if the terms of the Substitute Option cannot,
--------
for legal reasons, be the same as the Option, such terms shall be as
similar as possible and in no event less advantageous to the Holder. The
issuer of the Substitute Option shall also enter into an agreement with
the then Holder or
9
<PAGE>
Holders of the Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such
number of shares of Substitute Common Stock as is equal to the Assigned
Value multiplied by the number of shares of Common Stock for which the
Option is then exercisable, divided by the Average Price. The exercise
price of the Substitute Option per share of Substitute Common Stock
shall then be equal to the Option Price multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock for
which the Option is then exercisable and the denominator of which shall
be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing
paragraphs, shall the Substitute Option be exercisable for more than
19.9% of the shares of Substitute Common Stock outstanding prior to
exercise of the Substitute Option. In the event that the Substitute
Option would be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of
(i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute
Option after giving effect to the limitation in this clause (e). This
difference in value shall be determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case
may be, and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described
in subsection (a) of this Section 8 unless the Acquiring Corporation and
any person that controls the Acquiring Corporation assume in writing all
the obligations of Issuer hereunder.
9. (a) At the request of the holder of the Substitute
Option (the "Substitute Option Holder"), the Substitute Option Issuer
shall repurchase the Substitute Option from the Substitute Option Holder
at a price (the "Substitute Option Repurchase Price") equal to the
amount by which (i) the Highest Closing Price (as hereinafter defined)
exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute
Option may then be exercised, and at the request of the owner (the
"Substitute Share Owner") of shares of Substitute Common Stock (the
"Substitute Shares"), the Substitute Option Issuer shall repurchase the
Substitute Shares at a price (the "Substitute Share Repurchase Price")
equal to the Highest Closing Price multiplied by the number of
Substitute Shares so designated. The term "Highest Closing Price" shall
mean the highest closing price for shares of Substitute Common Stock
within the six-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the
required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective right to require
the Substitute Option Issuer to repur-
10
<PAGE>
chase the Substitute Option and the Substitute Shares pursuant to this
Section 9 by surrendering for such purpose to the Substitute Option
Issuer, at its principal office, the agreement for such Substitute
Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a
written notice or notices stating that the Substitute Option Holder or
the Substitute Share Owner, as the case may be, elects to require the
Substitute Option Issuer to repurchase the Substitute Option and/or the
Substitute Shares in accordance with the provisions of this Section 9.
As promptly as practicable, and in any event within five business days
after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to
be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute
Share Repurchase Price therefor or, in either case, the portion thereof
which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation from repurchasing the
Substitute Option and/or the Substitute Shares in part or in full, the
Substitute Option Issuer following a request for repurchase pursuant to
this Section 9 shall immediately so notify the Substitute Option Holder
and/or the Substitute Share Owner and thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute
Share Repurchase Price, respectively, which it is no longer prohibited
from delivering, within five business days after the date on which the
Substitute Option Issuer is no longer so prohibited; provided, however,
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that if the Substitute Option Issuer is at any time after delivery of
a notice of repurchase pursuant to subsection (b) of this Section 9
prohibited under applicable law or regulation from delivering to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate,
the Substitute Option Repurchase Price and the Substitute Share Repurchase
Price, respectively, in full (and the Substitute Option Issuer shall use
its best efforts to obtain all required regulatory and legal approvals,
in each case as promptly as practicable, in order to accomplish such
repurchase), the Substitute Option Holder or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon,
in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or
the Substitute Share Repurchase Price that the Substitute Option Issuer
is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Substitute Option Holder, a new Substitute Option
evidencing the right of the Substitute Option Holder to purchase that
number of shares of the Substitute Common Stock obtained by multiplying
the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the
Substitute Option Repurchase Price less the portion thereof theretofore
delivered to the Substitute Option Holder and the denominator of which
is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so
prohibited from repurchasing.
11
<PAGE>
10. The 90-day or 6-month periods for exercise of certain
rights under Sections 2, 6, 7, 13 and 15 shall be extended: (i) to
the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and for the expiration of all statutory waiting
periods; (ii) to the extent necessary to avoid liability under Section
16(b) of the 1934 Act by reason of such exercise and (iii) during any
period in which Grantee is precluded from exercising such rights due to
an injunction or other legal restriction, plus in each case such
additional period as is reasonably necessary for the exercise of such
rights promptly following the obtaining of such approvals or the
expiration of such periods.
11. Issuer hereby represents and warrants to Grantee as
follows:
(a) Issuer has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
and validly authorized by the Board of Directors of Issuer and no other
corporate proceedings on the part of Issuer are necessary to authorize
this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from
the date hereof through the termination of this Agreement in accordance
with its terms will have reserved for issuance upon the exercise of the
Option, that number of shares of Common Stock equal to the maximum
number of shares of Common Stock at any time and from time to time
issuable hereunder, and all such shares, upon issuance pursuant hereto,
will be duly authorized, validly issued, fully paid, nonassessable, and
will be delivered free and clear of all claims, liens, encumbrance and
security interests and not subject to any preemptive rights.
(c) Issuer has taken all action (including if required
redeeming all of the Mercantile Shareholder Rights or amending or
terminating the Mercantile Rights Agreement) so that the entering into
of this Option Agreement, the acquisition of shares of Common Stock
hereunder and the other transactions contemplated hereby do not and will
not result in the grant of any rights to any person under the Mercantile
Rights Agreement or enable or require the Rights to be exercised,
distributed or triggered.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or
consents referred to herein, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Grantee.
This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common
Stock or other securities acquired by Grantee upon exercise of the
Option will not be, acquired with a view to
12
<PAGE>
the public distribution thereof and will not be transferred or otherwise
disposed of except in a transaction registered or exempt from
registration under the Securities Act.
13. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of
the other party, except that in the event a Subsequent Triggering Event
shall have occurred prior to an Exercise Termination Event, Grantee,
subject to the express provisions hereof, may assign in whole or in part
its rights and obligations hereunder within 90 days following such
Subsequent Triggering Event (or such later period as provided in Section
10); provided, however, that until the date 15 days following the
-------- -------
date on which the Federal Reserve Board approves an application by
Grantee under the BHCA to acquire the shares of Common Stock subject to
the Option, Grantee may not assign its rights under the Option except in
(i) a widely dispersed public distribution, (ii) a private placement in
which no one party acquires the right to purchase in excess of 2% of the
voting shares of Issuer, (iii) an assignment to a single party (e.g.,
----
a broker or investment banker) for the purpose of conducting a widely
dispersed public distribution on Grantee's behalf, or (iv) any other
manner approved by the Federal Reserve Board.
14. Each of Grantee and Issuer will use its best efforts
to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement, including without
limitation making application to list the shares of Common Stock
issuable hereunder on the New York Stock Exchange upon official notice
of issuance and applying to the Federal Reserve Board under the BHCA for
approval to acquire the shares issuable hereunder, but Grantee shall not
be obligated to apply to state banking authorities for approval to
acquire the shares of Common Stock issuable hereunder until such time,
if ever, as it deems appropriate to do so.
15. (a) Grantee may in its sole discretion, at any time
during which Issuer would be required to repurchase the Option or any
Option Shares pursuant to Section 7, surrender the Option (together with
any Option Shares issued to and then owned by the Holder) to Issuer in
exchange for a cash payment equal to the Surrender Price (as hereinafter
defined); provided, however, the Grantee may not exercise its rights
-------- -------
pursuant to this Section 15 if Issuer has previously repurchased the
Option (or any portion thereof) or any Option Shares pursuant to Section
7. The "Surrender Price" shall be equal to (i) $250,000,000, plus (ii)
if applicable, the aggregate purchase price previously paid pursuant
hereto by Grantee with respect to any Option Shares, minus (iii) if
applicable, the excess of (A) the net cash, if any, received by Grantee
pursuant to the arm's-length sale of Option Shares (or any other
securities into which such Option Shares were converted or exchanged) to
any party not affiliated with Grantee, over (B) the purchase price paid
by Grantee with respect to such Option Shares.
(b) Grantee may exercise its right to surrender the Option
and any Option Shares pursuant to this Section 15 by surrendering for
such purpose to Issuer, at its principal office, a copy of this
Agreement, together with certificates for Option Shares, if any,
accompanied by a written notice stating (i) that Grantee elects to
surrender the Option and Option Shares, if any, in accordance with the
provisions of this Section 15 and (ii) the Surrender
13
<PAGE>
Price. Within two business days after the surrender of the Option and
the Option Shares, if applicable, Issuer shall deliver or cause to be
delivered to Grantee the Surrender Price.
(c) To the extent that the Issuer is prohibited under
applicable law or regulation from paying the Surrender Price to Grantee
in full, Issuer shall immediately so notify Grantee and thereafter
deliver, or cause to be delivered, from time to time, to Grantee, that
portion of the Surrender Price that Issuer is not or no longer
prohibited from paying, within two business days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer
-------- -------
at any time after delivery of a notice of surrender pursuant to Section
15(b) is prohibited under applicable law or regulation from paying to
Grantee the Surrender Price in full, (i) Issuer shall (A) use its best
efforts to obtain all required regulatory and legal approvals and to
file any required notices as promptly as practicable in order to make
such payments, (B) within two business days of the submission or receipt
of any documents relating to any such regulatory and legal approvals,
provide Grantee with copies of the same, and (C) keep Grantee advised of
both the status of any such request for regulatory and legal approvals
and any discussions with any relevant regulatory or other third party
reasonably related to the same, and (ii) Grantee may revoke such notice
or surrender by delivery of a notice of revocation to Issuer and, upon
delivery of such notice of revocation, the Exercise Termination Event
shall be extended to a date six months from the date on which the
Exercise Termination Event would have occurred if not for the provisions
of this Section 15(c) (during which period Grantee may exercise any of
its rights hereunder, including any and all rights pursuant to this
Section 15).
(d) Grantee shall have rights substantially identical to
those set forth in paragraphs (a), (b) and (c) of this Section 15 with
respect to the Substitute Option and the Substitute Option Issuer during
any period in which the Substitute Option Issuer would be required to
repurchase the Substitute Option pursuant to Section 9.
16. The parties hereto acknowledge that damages would be
an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be
enforceable by either party hereto through injunctive or other equitable
relief.
17. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Agreement shall remain in full force and
effect, and shall in no way be affected, impaired or invalidated. If for
any reason such court or regulatory agency determines that the Holder is
not permitted to acquire, or Issuer or Substitute Option Issuer, as the
case may be, is not permitted to repurchase pursuant to Section 7 or
Section 9, as the case may be, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or
5 hereof), or Issuer or Substitute Option Issuer is not permitted to pay
the full amount of the Surrender Price pursuant to Section 15, it is the
express intention of Issuer (which shall be binding on the Substitute
Option Issuer) to allow the Holder to acquire or to require Issuer or
Substitute Option Issuer to repurchase such lesser number of shares, or
14
<PAGE>
to require Issuer or Substitute Option Issuer to pay such portion of the
Surrender Price, as may be permissible, without any amendment or
modification hereof.
18. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when
delivered in person, by cable, telegram, telecopy or telex, or by
registered or certified mail (postage prepaid, return receipt requested)
at the respective addresses of the parties set forth in the Merger
Agreement.
19. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the
laws that might otherwise govern under applicable principles of
conflicts of laws thereof (except to the extent that mandatory
provisions of federal law apply).
20. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
21. Except as otherwise expressly provided herein, each of
the parties hereto shall bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
22. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement
between the parties with respect to the transactions contemplated
hereunder and supersedes all prior arrangements or understandings with
respect thereof, written or oral. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in
this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities
under or by reason of this Agreement, except as expressly provided
herein.
23. Capitalized terms used in this Agreement and not
defined herein shall have the meanings assigned thereto in the Merger
Agreement.
15
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement
to be executed on its behalf by its officers thereunto duly authorized,
all as of the date first above written.
MERCANTILE BANCORPORATION INC.
By: /s/ THOMAS H. JACOBSEN
----------------------------------
Thomas H. Jacobsen
Chairman of the Board, President
and Chief Executive Officer
FIRSTAR CORPORATION
By: /s/ JERRY A. GRUNDHOFER
----------------------------------
Jerry A. Grundhofer
President and Chief
Executive Officer
[Mercantile Stock Option]
