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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NO. 1-11792
MERCANTILE BANCORPORATION INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MISSOURI 43-0951744
(STATE OF INCORPORATION) (IRS EMPLOYER
IDENTIFICATION NO.)
P.O. BOX 524
ST. LOUIS, MISSOURI 63166-0524
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 314-425-2525
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EXCHANGE ON WHICH REGISTERED:
(1) COMMON STOCK ($5.00 PAR VALUE) (1) NEW YORK STOCK EXCHANGE
(2) PREFERRED STOCK PURCHASE RIGHTS (2) NEW YORK STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS
FORM 10-K. [X]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT AS OF JANUARY 31, 1997:
COMMON STOCK, $5.00 PAR VALUE, $2,566,265,226
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF JANUARY 31, 1997:
COMMON STOCK $5.00 PAR VALUE, 60,757,050 SHARES OUTSTANDING
DOCUMENT INCORPORATED BY REFERENCE
AS PROVIDED HEREIN, PORTIONS OF THE DOCUMENT BELOW ARE
INCORPORATED BY REFERENCE:
DOCUMENT PART-FORM 10-K
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REGISTRANT'S PROXY STATEMENT FOR THE 1997 III
ANNUAL MEETING OF SHAREHOLDERS
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FORM 10-K TABLE OF CONTENTS
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PART I PAGE
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Item 1--Business................................................................................................. 1
Item 2--Properties............................................................................................... 6
Item 3--Legal Proceedings........................................................................................ 6
Item 4--Submission of Matters to a Vote of Security Holders...................................................... 6
PART II
Item 5--Market for the Registrant's Common Equity and Related Shareholder Matters................................ 6
Item 6--Selected Financial Data.................................................................................. 6
Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 7<F*>
Item 8--Financial Statements and Supplementary Data.............................................................. 31
Item 9--Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................... 58
PART III
Item 10--Directors and Executive Officers of the Registrant....................................................... 58
Item 11--Executive Compensation................................................................................... 58
Item 12--Security Ownership of Certain Beneficial Owners and Management........................................... 58
Item 13--Certain Relationships and Related Transactions........................................................... 59
PART IV
Item 14--Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................... 59
Signatures........................................................................................................ 62
<FN>
<F*>Management's discussion and analysis includes forward-looking statements. Many
factors effect Mercantile Bancorporation Inc.'s ("Corporation") financial
condition and profitability, including changes in economic conditions, the
volatility of interest rates, political events and competition from other
providers of financial services. Because these factors are unpredictable and
beyond the Corporation's control, earnings may fluctuate from period to period.
The purpose of this discussion and analysis is to provide Form 10-K readers
with information relevant to understanding and assessing the financial
condition and results of operations of the Corporation.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Mercantile Bancorporation Inc. ("Mercantile" or "Corporation") is a bank
holding company which, as of January 31, 1997, owned all of the stock (except
for directors' qualifying shares) of Mercantile Bank National Association
("Mercantile Bank") formerly known as Mercantile Bank of St. Louis National
Association, 28 commercial banks located throughout Missouri, Illinois, eastern
Kansas, Iowa and Arkansas, one federal savings bank located in Davenport, Iowa,
and other non-banking subsidiaries. At December 31, 1996, Mercantile's
consolidated assets were $18,986,959,000, consolidated loans were
$12,772,920,000, consolidated deposits were $14,819,887,000 and consolidated
shareholders' equity was $1,634,027,000. At December 31, 1996, Mercantile Bank
and its consolidated subsidiaries had assets of $7,441,073,000, loans of
$4,236,557,000, deposits of $4,808,933,000 and shareholder's equity of
$503,263,000.
Mercantile has its principal offices at One Mercantile Center, St. Louis,
Missouri 63101 (telephone number 314-425-2525).
BUSINESS
GENERAL
Mercantile was organized on March 10, 1970, as a Missouri corporation for the
purpose of becoming a multi-bank holding company. Mercantile commenced
operations as a bank holding company in March 1971. Since then Mercantile has
acquired and organized additional banks, bank holding companies and a federal
savings bank, located throughout Missouri, Illinois, eastern Kansas, Iowa and
Arkansas.
FINANCIAL SUMMARY OF MERCANTILE
A financial summary of Mercantile and its consolidated subsidiaries is
detailed below:
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DECEMBER 31
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1996 1995 1994 1993 1992
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(THOUSANDS)
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Total assets $18,986,959 $17,928,041 $16,723,887 $16,293,187 $16,032,843
Loans and leases 12,772,920 11,730,887 10,904,106 9,808,786 9,570,372
Investments in debt
and equity securities 4,038,575 4,210,756 4,280,259 4,670,382 4,631,862
Deposits 14,819,887 13,714,260 12,864,890 13,243,141 13,260,362
Shareholders' equity 1,634,027 1,639,587 1,408,690 1,295,221 1,142,891
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SUBSIDIARIES
The table setting forth the names and locations of Mercantile's subsidiary
financial institutions is included on Pages 65-67.
SERVICES AND TRANSACTIONS WITH SUBSIDIARIES
Mercantile provides it subsidiaries with advice and specialized services in
the areas of accounting and taxation, budgeting and strategic planning,
employee benefits and human resources, insurance, operations, marketing, credit
analysis and administration, loan support and participations, investments,
auditing, trust, data processing, bank security and banking and corporate law.
A fee is charged by Mercantile for these services. The responsibility for the
management of each subsidiary remains with its Board of Directors and with the
officers elected by each Board.
Intercompany transactions between Mercantile and its subsidiaries are subject
to restrictions of existing banking and savings and loan laws and accepted
principles of fair dealing.
Mercantile had 186 full-time equivalent employees at December 31, 1996.
Mercantile uses the premises of Mercantile Bank for its offices and pays
Mercantile Bank a fee for services and facilities furnished to it.
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EMPLOYEES
At December 31, 1996, Mercantile and its subsidiaries had 7,890 full-time
equivalent employees. Mercantile provides a variety of employment benefits and
believes it enjoys a good relationship with its employees.
OPERATIONS
Financial Services. Through its subsidiaries, Mercantile offers complete
banking and trust services to the consumer, institutional and agricultural
segments of the market areas which it serves. Services include commercial, real
estate, installment and credit card loans, checking, savings and time deposits,
trust and other fiduciary services, and various other customer services such as
brokerage services, direct equipment lease financing, international banking and
safe deposit services.
Most subsidiary financial institutions serve only the general area in which
they are located, predominantly in the 7th, 8th and 10th Federal Reserve
Districts. In general, the smaller subsidiary banks are engaged primarily in
retail banking, with most of the business and commercial activities centered in
the larger subsidiary banks. Membership in Mercantile's subsidiary group
provides each subsidiary institution with a means of satisfying the credit
needs of its customers beyond its own legal lending limit.
Correspondent Banking. In addition to Mercantile's services for individuals
and corporations, its largest subsidiary bank, Mercantile Bank, is a
correspondent bank for 405 commercial banks located throughout the United
States. Correspondent banking services to banks in Kansas and western Missouri
are provided through Mercantile Bank (Kansas/Kansas City) and Mercantile Bank
of Topeka. In addition, Mercantile Bank of Joplin provides correspondent
services for banks in its area. Correspondent banking services include the
processing of checks and collection items, loan assistance and assistance with
training and operations.
Trust and Investment Advisory Services. Mercantile, through its subsidiaries,
offers clients all types of fiduciary services, ranging from the management of
funds for individuals, corporate retirement plans and charitable foundations to
the administration of estates and trusts. To investors it offers portfolio
management, advisory and custodian services. Mercantile Trust Company National
Association is a nationally-chartered bank which provides individual trust
services. Mississippi Valley Advisors, Inc., a registered investment advisor
and subsidiary of Mercantile Bank, among other things, provides investment
advisory services for employee benefit funds, including pension and profit-
sharing plans, endowment funds and registered mutual funds. At December 31,
1996, Mercantile subsidiaries managed investments with a market value of
approximately $17.9 billion and administered $8.4 billion in non-managed
assets. Certain of Mercantile's subsidiary banks provide trust and investment
services to individual and corporate customers with assistance from Mercantile
Bank.
Investment Activities. Mercantile Bank offers a wide range of investment
services to individuals, corporations, correspondent banks and others. Included
in those services are foreign exchange, derivative products, money market and
bond trading operations which serve banks and corporations in the purchase and
sale of various investments and/or hedging instruments. In addition, Mercantile
Bank is registered as a municipal securities dealer.
Brokerage Services. Mercantile Investment Services, Inc. ("MISI"), a
subsidiary of Mercantile Bank, is a registered broker/dealer and a member of
both the National Association of Securities Dealers, Inc. ("NASD") and the
Securities Investors Protection Corporation ("SIPC"). MISI currently offers
brokerage services, including execution of transactions involving stocks,
bonds, options, mutual funds and other securities.
International. Mercantile Bank maintains accounts at 38 foreign banks, and 32
foreign banks maintain accounts at Mercantile Bank. In addition, Mercantile
Bank is engaged in providing its customers with international banking services.
Mercantile Bank and Mercantile Bank (Kansas/Kansas City) offer a wide range of
services to their customers involved in international business including
currency exchange and letters of credit. Mercantile Bank maintains a Hong Kong
subsidiary, Mercantile Trade Services Ltd., which enables the bank to issue,
amend and negotiate letters of credit in Hong Kong on behalf of the bank's
importing customers. Customers of other subsidiary banks with a need for
international services are referred to these banks.
Mercantile Bank also maintains a branch in the City of Georgetown in the
Grand Cayman Islands. This branch enables Mercantile Bank to participate in the
Eurodollar market for deposits and loans. At December 31, 1996, total deposits
of the foreign branch amounted to $448,906,000.
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COMPETITION
Mercantile's subsidiary financial institutions are subject to intense
competition from other banks and financial institutions in their service areas,
predominantly the 7th, 8th and 10th Federal Reserve Districts. In making loans,
substantial competition is encountered from banks and other lending
institutions such as savings and loan associations, insurance companies,
finance companies, credit unions, factors, small loan companies and pension
trusts. In addition, Mercantile subsidiaries compete for retail deposits with
savings and loan associations, credit unions and money market mutual funds. The
competition provided by other financial institutions is not limited to those
institutions with offices located in the area served by the particular
subsidiary.
Many other institutions also offer some or all of the trust and fiduciary
services performed by Mercantile's subsidiaries. Mercantile Bank competes with
all local institutions and, in the field of corporate pension trust services,
competition is nationwide.
SUPERVISION AND REGULATION
General. As a bank holding company, Mercantile is subject to regulation under
the Bank Holding Company Act of 1956, as amended ("BHCA"), and its
examination and reporting requirements. Under the BHCA, a bank holding company
may not directly or indirectly acquire the ownership or control of more than 5%
of the voting shares or substantially all of the assets of any company,
including a bank or savings and loan association, without the prior approval of
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). In addition, bank holding companies are generally prohibited under
the BHCA from engaging in nonbanking activities, subject to certain exceptions.
Mercantile and its subsidiaries are subject to supervision and examination by
applicable federal and state banking agencies. The earnings of Mercantile's
subsidiaries, and therefore the earnings of Mercantile, are affected by general
economic conditions, management policies and the legislative and governmental
actions of various regulatory authorities, including the Federal Reserve Board,
the Federal Deposit Insurance Corporation ("FDIC"), the Office of the
Comptroller of the Currency (the "Comptroller") and the Office of Thrift
Supervision (the "OTS"), and various state financial institution regulatory
agencies. In addition, there are numerous governmental requirements and
regulations that affect the activities of Mercantile and its subsidiaries.
Certain Transactions with Affiliates. There are various legal restrictions on
the extent to which a bank holding company and certain of its nonbank
subsidiaries can borrow or otherwise obtain credit from its bank subsidiaries.
In general, these restrictions require that any such extensions of credit must
be on non-preferential terms and secured by designated amounts of specified
collateral and be limited, as to the holding company or any one of such nonbank
subsidiaries, to 10% of the lending institution's capital stock and surplus,
and as to the holding company and all such nonbank subsidiaries in the
aggregate, to 20% of such capital stock and surplus.
Payment of Dividends. Mercantile is a legal entity separate and distinct from
its financial institutions and other subsidiaries. The principal
source of Mercantile's revenues is dividends from its financial institution
subsidiaries. Various federal and state statutory provisions limit the amount
of dividends an affiliate financial institution can pay to Mercantile without
regulatory approval. The approval of federal and state bank regulatory
agencies, as appropriate, is required for any dividend if the total of all
dividends declared in any calendar year would exceed the total of the
institution's net profits, as defined by regulatory agencies, for such year
combined with its retained net profits for the preceding two years. In
addition, a national bank or a state member bank may not pay a dividend in an
amount greater than its net profits then on hand. The payment of dividends by
any financial institution subsidiary may also be affected by other factors,
such as the maintenance of adequate capital.
Capital Adequacy. The Federal Reserve Board has issued standards for
measuring capital adequacy for bank holding companies. These standards are
designed to provide risk-responsive capital guidelines and to incorporate a
consistent framework for use by financial institutions operating in major
international financial markets. The banking regulators have issued standards
for banks that are similar to, but not identical with, the standards for bank
holding companies.
In general, the risk-related standards require financial institutions and
financial institution holding companies to maintain certain capital levels
based on "risk-adjusted" assets, so that categories of assets with
potentially higher credit risk will require more capital backing than
categories with lower credit risk. In addition, banks and bank holding
companies are required to maintain capital to support
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off-balance-sheet activities such as loan commitments. Mercantile and each of
its subsidiary financial institutions exceed all applicable capital adequacy
standards.
Support of Subsidiary Banks. Under Federal Reserve Board policy, Mercantile
is expected to act as a source of financial strength to each subsidiary bank
and to commit resources to support each of the subsidiaries in circumstances
where it might not choose to do so absent such a policy. This support may be
required at times when Mercantile may not find itself able to provide it. In
addition, any capital loans by Mercantile to any of its subsidiaries would also
be subordinate in right of payment to deposits and certain other indebtedness
of such subsidiary.
Consistent with this policy regarding bank holding companies serving as a
source of financial strength for their subsidiary banks, the Federal Reserve
Board has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears consistent
with the bank holding company's capital needs, asset quality and overall
financial condition.
FIRREA and FDICIA. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") contains a cross-guarantee provision which
could result in insured depository institutions owned by Mercantile being
assessed for losses incurred by the FDIC in connection with assistance provided
to, or the failure of, any other insured depository institution owned by
Mercantile. Under FIRREA, failure to meet the capital guidelines could subject
a banking institution to a variety of enforcement remedies available to federal
regulatory authorities, including the termination of deposit insurance by the
FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") made extensive changes to the federal banking laws. FDICIA
instituted certain changes to the supervisory process, including provisions
that mandate certain regulatory agency actions against undercapitalized
institutions within specified time limits. FDICIA contains various other
provisions that may affect the operations of banks and savings institutions.
The prompt corrective action provision of FDICIA requires the federal banking
regulators to assign each insured institution to one of five capital categories
("well capitalized," "adequately capitalized" or one of three
"undercapitalized" categories) and to take progressively more restrictive
actions based on the capital categorization, as specified below. Under FDICIA,
capital requirements would include a leverage limit, a risk-based capital
requirement and any other measure of capital deemed appropriate by the federal
banking regulators for measuring the capital adequacy of an insured depository
institution. All institutions, regardless of their capital levels, are
restricted from making any capital distribution or paying any management fees
that would cause the institution to fail to satisfy the minimum levels for any
relevant capital measure.
The FDIC and the Federal Reserve Board adopted capital-related regulations
under FDICIA. Under those regulations, a bank will be well capitalized if it:
(i) had a risk-based capital ratio of 10% or greater; (ii) had a ratio of Tier
I capital to risk-adjusted assets of 6% or greater; (iii) had a ratio of Tier I
capital to adjusted total assets of 5% or greater; and (iv) was not subject to
an order, written agreement, capital directive, or prompt corrective action
directive to meet and maintain a specific capital level for any capital
measure. An association will be adequately capitalized if it was not "well
capitalized" and: (i) had a risk-based capital ratio of 8% or greater; (ii)
had a ratio of Tier I capital to risk-adjusted assets of 4% or greater; and
(iii) had a ratio of Tier I capital to adjusted total assets of 4% or greater
(except that certain associations rated "Composite 1" under the federal
banking agencies' CAMEL rating system may be adequately capitalized if their
ratios of core capital to adjusted total assets were 3% or greater). All
Mercantile subsidiary financial institutions as of December 31, 1996 were
categorized as "well capitalized".
FDICIA makes extensive changes in existing rules regarding audits,
examinations and accounting. It generally requires annual on-site, full scope
examinations by each bank's primary federal regulator. It also imposes new
responsibilities on management, the independent audit committee and outside
accountants to develop or approve reports regarding the effectiveness of
internal controls, legal compliance and off-balance-sheet liabilities and
assets.
Depositor Preference Statute. Legislation enacted in August 1993 provides a
preference for deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution in the
liquidation or other resolution of such an institution by any receiver. Such
obligations would be afforded priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, as
well as any obligation to shareholders of such an institution in their capacity
as such.
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FDIC Insurance Assessments. The subsidiary depository institutions of
Mercantile are subject to FDIC deposit insurance assessments. The FDIC has
adopted a risk-based premium schedule. Each financial institution is assigned
to one of three capital groups--well capitalized, adequately capitalized or
undercapitalized--and further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution's
primary federal and, if applicable, state supervisors, and on the basis of
other information relevant to the institution's financial condition and the
risk posed to the applicable insurance fund. The actual assessment rate
applicable to a particular institution will, therefore, depend in part upon the
risk assessment classification so assigned to the institution by the FDIC. See
"--FIRREA and FDICIA."
FIRREA, adopted in August 1989 to provide for the resolution of insolvent
savings associations, required the FDIC to establish separate deposit insurance
funds--the Bank Insurance Fund ("BIF") for banks and the Savings Association
Insurance Fund ("SAIF") for savings associations. FIRREA also required the
FDIC to set deposit insurance assessments at such levels as would cause BIF and
SAIF to reach their "designated reserve ratios" of 1.25 percent of the
deposits insured by them within a reasonable period of time. Due to low costs
of resolving bank insolvencies in the last few years, BIF reached its
designated reserve ratio in May 1995. As a result, effective January 1, 1996,
the FDIC eliminated deposit insurance assessments (except for the minimum
$2,000 payment required by law) for banks that are well capitalized and well
managed and reduced the deposit insurance assessments for all other banks. As
of January 1, 1996, the SAIF had not reached the designated reserve ratio.
Mercantile, which has acquired substantial amounts of SAIF-insured deposits
during the years from 1989 to the present, is required to pay SAIF deposit
insurance premiums on these SAIF-insured deposits.
The Deposit Insurance Funds Act of 1996 (the "Funds Act"), enacted as part
of the Omnibus Appropriations Bill on September 30, 1996, required the FDIC to
take immediate steps to recapitalize the SAIF and to change the basis on which
funds are raised to make the scheduled payments on the FICO bonds issued in
1987 to replenish the Federal Savings and Loan Insurance Corporation. The new
legislation, combined with regulations issued by the FDIC immediately after
enactment of the Funds Act, provided for a special assessment in the amount of
65.7 basis points per $100 of insured deposits on SAIF-insured deposits held by
depository institutions on March 31, 1995 (the special assessment was required
by the Funds Act to recapitalize the SAIF to the designated reserve ratio of
1.25 percent of the deposits insured by SAIF). Payments of this assessment were
made in November 1996, but were accrued by financial institutions in the third
calendar quarter of 1996. Institutions such as Mercantile that have deposits
insured by both the BIF and the SAIF ("Oakar Banks") were required to pay the
special assessment on 80% of their "adjusted attributable deposit amounts"
("AADA"). In addition, for purposes of future regular deposit insurance
assessments, the AADA on which Oakar Banks pay assessments to SAIF was also
reduced by 20%. Commencing January 1, 1997, BIF insured institutions will be
responsible for a portion of the annual carrying costs of the FICO bonds. Such
institutions will be assessed at 80% of the rate applicable to SAIF-insured
institutions until December 31, 1999. Effective January 1, 1997, the Funds Act
also reduced ongoing SAIF deposit insurance assessment rates to a range from
6.4 cents to 23 cents (from previous rates of 23 cents to 31 cents) per $100 of
insured deposits and increased ongoing BIF deposit insurance assessment rates
to a range from zero to 1.3 cents per $100 of insured deposits. Additionally,
pursuant to the Funds Act, if the reserves in BIF at the end of any semiannual
assessment period exceed 1.25% of insured deposits, the FDIC is required to
refund the excess to the BIF-insured institutions.
The Funds Act contemplates the merger of the SAIF and BIF by 1999, provided
the consolidation/merger of federal bank and thrift charters under applicable
law and regulation has been achieved by that time. Until such time, however,
depository institutions will continue to be prohibited from shifting deposits
from SAIF insurance coverage to BIF insurance coverage in an attempt to avoid
the higher SAIF assessments. The FDIC is required to issue regulations to guard
against the shifting of deposits from SAIF to BIF. A report to Congress
regarding the merger of the SAIF and the BIF is required from the Treasury
Department by March 31, 1997.
As of December 31, 1996, approximately 7.78% of Mercantile's banking
subsidiaries' deposits were insured by the SAIF.
Interstate Banking and Other Recent Legislation. In September 1994,
legislation was enacted that is expected to have a significant effect in
restructuring the banking industry in the United States. The Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal")
facilitates the interstate expansion and consolidation of banking organizations
by permitting (i) bank holding companies that are adequately capitalized and
managed to acquire banks located in states outside their home states regardless
of whether such acquisitions are authorized under the law of the host state,
(ii) interstate merger of banks after June 1, 1997, subject to the right of
individual states to "opt in" or to "opt out" of this authority before that
date, (iii) banks to establish new branches on an interstate basis provided
that such action is specifically authorized by the law of the host state, (iv)
foreign banks to establish,
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with approval of the regulators in the United States, branches outside their
home states to the same extent that national or state banks located in the home
state would be authorized to do so, and (v) banks to receive deposits, renew
time deposits, close loans, service loans and receive payments on loans and
other obligations as agent for any bank or thrift affiliate, whether the
affiliate is located in the same state or a different state. One effect of
Riegle-Neal is to permit Mercantile to acquire banks located in any state and
to permit bank holding companies located in any state to acquire banks and bank
holding companies in Missouri. Overall, Riegle-Neal is likely to have the
effects of increasing competition and promoting geographic diversification in
the banking industry.
In addition, the Funds Act contains a variety of regulatory relief measures
affecting banks and thrifts, including provisions modifying some of the more
onerous requirements imposed under federal banking laws passed in the late
1980s and early 1990s. Among the measures are provisions reducing certain
regulatory burdens imposed upon bank holding companies. For example, the Funds
Act eliminates the requirement that a bank holding company seeking to acquire
control of a thrift must file an application with the OTS and for approval to
become a unitary savings and loan holding company as a result of such
acquisition. The Funds Act also provides that a bank holding company owning or
controlling a thrift will no longer be subject to the supervision and
regulation of the OTS. The OTS will continue to regulate and supervise all
thrifts acquired in such transactions.
There also have been a number of recent legislative and regulatory proposals
designed to strengthen the federal deposit insurance system and to improve the
overall financial stability of the United States banking system, and to provide
for other changes in the bank regulatory structure, including proposals to
reduce regulatory burdens on banking organizations and to expand the nature of
products and services banks and bank holding companies may offer. It is not
possible to predict whether or in what form these proposals may be adopted in
the future, and, if adopted, what their effect will be on Mercantile.
ITEM 2. PROPERTIES
Mercantile and Mercantile Bank occupy 22 stories of the Mercantile Tower, a
35-story building owned by Mercantile Bank and located at Seventh and
Washington Streets in St. Louis, Missouri. Among the other properties owned by
Mercantile Bank are a four-story, 90,008 square-foot office building located at
12443 Olive Boulevard, Creve Coeur, Missouri, which houses Mercantile's credit
card and a part of mortgage loan operations; a four-story, 222,400 square foot
data processing center located at 1005 Convention Plaza in St. Louis, Missouri;
and a four-story, 101,827 square-foot banking facility located at 721 Locust
Street, St. Louis, Missouri.
Mercantile's subsidiaries own and lease other facilities in Missouri,
Illinois, Kansas, Iowa and Arkansas. See Note G to the Consolidated Financial
Statements included on Page 42.
ITEM 3. LEGAL PROCEEDINGS
Mercantile and its subsidiaries are subject to various legal actions and
proceedings in the normal course of business, some of which involve substantial
claims for compensatory or punitive damages. Although litigation is subject to
many uncertainties and the ultimate exposure with respect to these matters
cannot be ascertained, management does not believe that the final outcome will
have a material adverse effect on the financial condition of Mercantile.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
See Part III, Item 10.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
See Exhibit 12 on Page 18 contained herein.
ITEM 6. SELECTED FINANCIAL DATA
See Exhibits 2 and 3 on Pages 9 and 10 contained herein.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PERFORMANCE SUMMARY
To allow comparison of the fundamental financial performance of Mercantile
Bancorporation Inc. ("Corporation" or "Mercantile") for 1996 with 1995, it is
helpful to exclude certain one-time charges from the 1996 results of operations.
Exhibit 1 presents 1996 results adjusted for such exclusions. After excluding
nonrecurring expense, adjusted net income for 1996 was $248,486,000, a 6.8%
increase over the $232,676,000 earned a year ago. On a per common share
basis, adjusted net income was $4.01, an improvement of 7.2% from the $3.74
earned last year. Return on assets increased to 1.37% in 1996 from 1.33% in
1995, while return on average equity for the year increased to 15.41% from
15.14% last year.
Reported net income, or earnings including certain one-time charges, for 1996
was $191,947,000 as compared with the $232,676,000 earned a year ago. On a per
common share basis, net income was $3.10 compared with the $3.74 earned last
year. In the first and fourth quarters of 1996, the Corporation recorded
nonrecurring merger-related costs which reduced net income and net income per
common share by $48,489,000 and $.78, respectively. Also, on September 30, 1996,
legislation was enacted to recapitalize the Savings Association Insurance Fund
("SAIF"), which called for a one-time assessment of 65.7 basis points per $100
in thrift deposits held as of March 31, 1995. The assessment, recorded as a
nonrecurring expense in the third quarter, totaled $12,385,000, which on an
after-tax basis reduced earnings per common share by an additional $.13.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
Exhibit 1
1996 RESULTS
<CAPTION>
EARNINGS
NET INCOME PER COMMON RETURN ON
(THOUSANDS) SHARE ASSETS
----------- ---------- ---------
<S> <C> <C> <C>
Reported $191,947 $3.10 1.06%
Nonrecurring merger-related expenses 48,489 .78 .27
SAIF assessment 8,050 .13 .04
-------- ----- ----
Total Adjustments 56,539 .91 .31
-------- ----- ----
Adjusted $248,486 $4.01 1.37%
======== ===== ====
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
All prior year figures have been restated to include the pre-acquisition
accounts and results of operations of Hawkeye Bancorporation ("Hawkeye"),
which was merged with Mercantile on January 2, 1996 in a transaction accounted
for as a pooling-of-interests. Also effective January 2, 1996, Mercantile
completed a merger with First Sterling Bancorp, Inc. ("Sterling"), based in
Sterling, Illinois. The Sterling transaction met the requirements for treatment
as a pooling-of-interests; however, due to the immateriality of Sterling's
financial condition and results of operations to that of Mercantile's, the
Consolidated Financial Statements of the Corporation were not restated.
Five acquisitions accounted for as purchases were consummated in 1996: 1)
Today's Bancorp, Inc. ("Today's"), a two-bank holding company headquartered
in Freeport, Illinois, on November 7, 1996; 2) First Financial Corporation of
America ("First Financial"), parent company of First National Bank of Salem,
located in central Missouri, on November, 1, 1996; 3) Peoples State Bank
("Peoples"), in Topeka, Kansas, on August 22, 1996; 4) Metro Savings Bank,
F.S.B. ("Metro"), headquartered in Wood River, Illinois, on March 7, 1996;
and 5) Security Bank of Conway, F.S.B. ("Conway"), located in Conway,
Arkansas, on February 9, 1996. Since the Today's, First Financial, Peoples,
Metro and Conway acquisitions were accounted for as purchases, the results of
operations were included in the Consolidated Financial Statements from their
respective acquisition dates. Total assets of these five companies at their
respective dates of acquisition were $868,083,000 or 4.57% of year-end
consolidated total assets; so while there was some impact on average balances
and changes in net interest income, other income and other expense, it was not
significant. It is not anticipated that any of these recently completed
acquisitions will have a significant impact on liquidity, capital ratios or the
results of operations of the Corporation.
Note B to the Consolidated Financial Statements details acquisitions
completed during 1994, 1995 and 1996, as well as three announced and pending
acquisitions, the largest being the announcement on December 23, 1996 of a
merger with Roosevelt Financial Group, Inc. ("Roosevelt"), headquartered in
St. Louis, Missouri. Roosevelt is a $7.8 billion-asset savings and loan holding
company with 81 locations in Missouri, Illinois and Kansas. The merger with
Roosevelt is expected to be completed in mid-1997 with branch consolidation of
the combined entities to occur the following year. Another significant St.
Louis-based merger was announced on October 28, 1996, following the execution
of a definitive merger agreement with Mark Twain Bancshares, Inc. ("Mark
Twain"), a $3.1 billion-asset commercial banking organization with 41 offices in
Missouri, Illinois and Kansas. The Mark Twain transaction is expected to close
in the second quarter of 1997. Both transactions will add significantly to the
Corporation's market share in its three largest Missouri markets. After all
announced acquisitions are closed and integrated, Mercantile will operate
approximately 486 banking offices in its five-state trade area.
When 1996 adjusted results are compared with 1995 and 1994, the notable
trends include moderate growth in net interest income, a higher provision for
loan losses, favorable growth in non-interest income and good control of
operating expenses. Two significant items impacted 1996 adjusted results. In
the first quarter of 1996, $10,000,000 was added to the provision for loan
losses in connection with a specialty retailer that declared bankruptcy in late
1995, thereby reducing first quarter 1996 earnings per common share by $.10.
The Corporation substantially eliminated its exposure to this borrower through
a write-down and a secondary market sale.
7
<PAGE> 10
In addition, the co-branded credit card launched in May 1995 by SBC
Communications Inc. ("SBC") and Mercantile reduced earnings throughout the year.
On December 5, 1996, the Corporation announced that the co-branded credit card
program with SBC was jointly terminated. The Southwestern Bell VISA(R) card was
replaced with the MercRewards VISA(R) card in January 1997, and allows
Mercantile to provide a competitive product while improving shareholder returns.
Building shareholder value through strategic deployment of capital is
increasingly critical in today's competitive environment. Two decisions in 1996
reflected such strategic deployment of capital. First, the Corporation sold its
credit card merchant processing business to First U.S.A. Paymentech, Inc. and
realized a gain of $10,000,000 or $.10 per common share in the second quarter of
1996. Second, in December 1996, Mercantile consummated the sale of its indenture
trustee and agency business to State Street Bank and Trust Company. The sale
resulted in a gain of $6,750,000, or $.07 per common share on an after-tax
basis. Additionally, banking locations continued to be evaluated for growth and
profit potential. During 1996, the Mercantile Bank of Batesville, Arkansas, as
well as several branch offices, were sold as part of this office rationalization
program.
On April 3, 1996, the Corporation announced plans to reduce its bank charters
during the following 12 months by approximately 80% through consolidations in
order to achieve greater operational efficiencies. Through December 31, 1996,
nine consolidations were completed which reduced 53 bank charters to nine. In
total, the Corporation's number of chartered banks dropped from 74 early in
1996 to 30 at December 31, 1996. The charter consolidation program will
continue throughout 1997.
Net interest income increased 4.3% to $702,389,000 during 1996. The
year-to-date net interest rate margin was 4.30% in 1996 compared with 4.28% in
1995. Average earning assets for 1996 of $16.7 billion were 3.4% higher than
last year as average loan volume was up 4.6%. Loan growth was funded through an
increase in average core deposits.
For the year ended December 31, 1996, other income was $295,968,000, an
improvement of $22,315,000 or 8.2% from last year. Excluding $3,114,000 in
nonrecurring securities losses which resulted from portfolio restructurings of
recently acquired banks, other income increased by 9.3% over 1995. Growth in
core fee businesses, especially in the trust and investment areas, as well as
gains on the sales of the merchant credit card processing and indenture trustee
and agency businesses, largely accounted for the increase.
Non-interest expenses were up 15.1% from a year ago and totaled $637,307,000
compared with $553,748,000 last year. Other expense in the first and fourth
quarters of 1996 included $51,071,000 in nonrecurring merger-related costs, and
expenses for the third quarter of 1996 reflected the one-time SAIF assessment
of $12,385,000 discussed earlier. Excluding these nonrecurring costs, operating
expenses grew by 3.6%. On an adjusted basis, the year-to-date efficiency ratio
was 56.45% compared with 57.46% last year, and the other expense to average
assets ratio of 3.17% was the same in both years.
The provision for possible loan losses in 1996 was $71,014,000 compared with
$36,530,000 the prior year; 1996 included the $13,666,000 in nonrecurring
merger-related provision, and the previously mentioned special provision for a
specialty retailer credit. Net charge-offs for the year were $83,549,000 in
1996 and $52,429,000 in 1995, and represented .69% of average loans compared
with .46% last year. Net charge-offs attributable to credit card loans in 1996
represented $60,159,000 of the total while the write-off to the specialty
retailer credit was $11,000,000. At December 31, 1996, the reserve for possible
loan losses was $196,627,000 and provided coverage of 313.02% of non-performing
loans (i.e., non-accrual and renegotiated loans) compared with 245.18% last
year. Aggressive workout management reduced non-performing assets as of
December 31, 1996 to $76,161,000, or .60% of total loans and foreclosed assets,
compared with the 1995 figures of $94,890,000 or .81%.
Consolidated assets of $19.0 billion at December 31, 1996 were up 5.9% from
last December 31. Core deposits increased by 8.4% to $13.6 billion, loans were
$12.8 billion, up 8.9% from last year, and shareholders' equity of $1.6 billion
was .3% lower than at December 31, 1995, reflecting the impact of share
repurchases. All measures of capital adequacy remained strong. Tier I capital
to risk-adjusted assets was 10.91% while Total capital to risk-adjusted assets
at December 31, 1996 was 13.87%. On a pro forma basis after all announced
acquisitions are closed, consolidated assets of Mercantile will approximate $30
billion.
At the Board of Directors meeting on February 19, 1997, the quarterly
dividend was increased by 4.9% to $.43 from $.41 per common share. The
Corporation intends to take a one-time charge to pre-tax earnings approximating
$40,000,000 to $50,000,000 in the second quarter of 1997 related to the merger
with Mark Twain. A pre-tax charge of $38,000,000 to $45,000,000 is estimated in
the second half of 1997 when it is anticipated that the Roosevelt transaction
will close. The charges to pre-tax earnings include accruals to substantially
conform the accounting and credit policies of Mark Twain and Roosevelt to those
of Mercantile as well as to account for one-time expenses associated with these
in-market transactions. The ultimate amount of one-time expenses incurred may
vary significantly from those included in these estimates above due to
substantial market overlaps and the associated final decisions affecting branch
closings and severance.
The following financial commentary presents a more thorough discussion and
analysis of the results of operations and financial condition of the
Corporation for the year ended December 31, 1996. It should be read in
conjunction with the accompanying audited Consolidated Financial Statements and
related notes. Financial highlights for the past six years are presented in
Exhibits 2 and 3.
8
<PAGE> 11
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit 2
SELECTED FINANCIAL DATA
<CAPTION>
GROWTH RATES
---------------------
1996 1995 1994 1993 1992 1991 ONE YEAR FIVE YEARS
---- ---- ---- ---- ---- ---- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER COMMON SHARE DATA
Net income $ 3.10 $ 3.74 $ 3.19 $ 2.79 $ 2.41 $ 2.34 (17.1)% 5.8%
Dividends declared 1.64 1.32 1.12 .99 .93 .93 24.2 12.0
Book value at year-end 26.52 26.04 23.32 21.59 19.44 18.12 1.8 7.9
Market price at year-end 51 3/8 46 31 1/4 30 1/8 32 1/8 25 1/8 11.7 15.4
Average shares outstanding (Thousands) 61,875 61,884 59,757 58,751 55,050 47,159 -- 5.6
OPERATING RESULTS (Thousands)
Taxable-equivalent net interest income $717,531 $689,980 $683,735 $667,185 $606,369 $502,277 4.0% 7.4%
Tax-equivalent adjustment 15,142 16,570 16,616 17,147 16,204 14,034 (8.6) 1.5
-------- -------- -------- -------- -------- --------
Net interest income 702,389 673,410 667,119 650,038 590,165 488,243 4.3 7.5
Provision for possible loan losses 71,014 36,530 43,265 64,302 79,551 64,028 94.4 2.1
Other income 295,968 273,653 236,561 245,589 224,456 195,237 8.2 8.7
Other expense 637,307 553,748 555,176 570,182 529,645 486,490 15.1 5.5
Income taxes 98,089 124,109 113,165 96,074 69,681 28,418 (21.0) 28.1
-------- -------- -------- -------- -------- --------
Net income $191,947 $232,676 $192,074 $165,069 $135,744 $104,544 (17.5) 12.9
======== ======== ======== ======== ======== ========
ENDING BALANCE SHEET (Millions)
Total assets $18,987 $17,928 $16,724 $16,293 $16,033 $14,045 5.9% 6.2%
Earning assets 17,137 16,264 15,427 14,980 14,678 12,854 5.4 5.9
Loans and leases 12,773 11,731 10,904 9,809 9,570 8,809 8.9 7.7
Investments in debt and equity securities 4,039 4,211 4,280 4,670 4,632 3,412 (4.1) 3.4
Deposits 14,820 13,714 12,865 13,243 13,260 11,685 8.1 4.9
Long-term debt 303 326 330 316 336 238 (7.0) 4.9
Shareholders' equity 1,634 1,640 1,409 1,295 1,143 939 (.3) 11.7
Reserve for possible loan losses 197 202 216 206 199 176 (2.6) 2.2
AVERAGE BALANCE SHEET (Millions)
Total assets $18,119 $17,462 $16,394 $16,098 $15,301 $13,373 3.8% 6.3%
Earning assets 16,668 16,127 15,090 14,752 13,997 12,192 3.4 6.5
Loans and leases 12,051 11,519 10,196 9,636 9,398 8,639 4.6 6.9
Investments in debt and equity securities 4,335 4,271 4,533 4,639 4,081 2,955 1.5 8.0
Deposits 14,411 13,617 13,265 13,427 12,847 11,210 5.8 5.2
Long-term debt 315 332 334 313 274 267 (5.2) 3.4
Shareholders' equity 1,612 1,537 1,366 1,226 1,064 885 4.9 12.7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 12
<TABLE>
- -----------------------------------------------------------------------------------------------------------
Exhibit 3
SELECTED RATIOS
<CAPTION>
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Return on assets 1.06% 1.33% 1.17% 1.03% .89% .78%
Return on equity 11.90 15.14 14.06 13.46 12.76 11.81
Efficiency ratio 62.88 57.46 60.33 62.47 63.75 69.75
Other expense to average assets 3.52 3.17 3.39 3.54 3.46 3.64
Dividend yield 3.19 2.87 3.58 3.29 2.89 3.70
Dividend payout 52.90 35.29 35.11 35.48 38.59 39.74
Equity to assets 8.61 9.15 8.42 7.95 7.13 6.68
Tier I capital to risk-adjusted assets 10.91 12.22 11.78 11.40 10.45 9.06
Total capital to risk-adjusted assets 13.87 15.30 15.04 14.83 13.56 10.64
Leverage 7.82 8.54 8.06 7.40 6.63 6.21
Loans to deposits (Average) 83.62 84.59 76.86 71.77 73.15 77.07
Reserve for possible loan losses to
outstanding loans 1.54 1.72 1.98 2.10 2.08 2.00
Reserve for possible loan losses to
non-performing loans 313.02 245.18 583.17 290.02 154.17 109.79
Non-performing loans to outstanding loans .49 .70 .34 .72 1.35 1.82
Non-performing assets to outstanding loans and
foreclosed assets .60 .81 .48 1.15 2.03 2.84
Net interest rate margin 4.30 4.28 4.53 4.52 4.33 4.12
- -----------------------------------------------------------------------------------------------------------
</TABLE>
NET INTEREST INCOME
Net interest income, the difference between total interest income on earning
assets and total interest expense, the cost of funds supporting those assets,
is Mercantile's primary source of earnings. Representing the Corporation's
gross profit from lending, investing, deposit gathering and borrowing
activities, net interest income is affected by three variables: the volume, the
mix and the rates earned and paid on funds. The net interest rate margin is net
interest income on a fully taxable-equivalent basis as a percentage of average
earning assets.
In 1996, net interest income was $702,389,000, an increase of 4.3% from the
$673,410,000 earned in 1995, which was up .9% over 1994 results. The volume of
average earning assets grew by 3.4% in 1996, and the net interest rate margin
was 4.30% compared with 4.28% in 1995 and 4.53% in 1994. Factors adversely
affecting the net interest rate margins during the past three years included
the May 1995 credit card securitization, introductory rates on the SBC
co-branded credit card during 1995, continued competitive pricing for both
loans and deposits and the continued movement of retail deposits from savings
and transaction accounts to either retail certificates of deposit or into
mutual funds. Positive factors included higher levels of non-interest bearing
funds in 1996 and margin improvement in newly acquired entities. A three-year
detailed rate-volume analysis, included as Exhibit 4, provides more insight
into these factors that impact net interest income. In addition, subsequent
discussions on liquidity and interest rate sensitivity, deposits, securities
and loans further detail the changes in net interest income and the net
interest rate margin for the years 1996, 1995 and 1994.
While average earning assets in 1996 grew by $540,896,000 or 3.4% when
compared with 1995, average loans grew by 4.6%. This growth was funded by an
increase of $755,783,000 or 6.1% in average core deposits. As loan demand
increased, the ratio of average loans to earning assets grew to 72.30% in 1996
compared with 71.43% in 1995 and 67.57% in 1994. Since loans are the highest
yielding earning asset, this shift in mix somewhat aided the net interest rate
margin. The average balance of funds in the investment portfolio has been
relatively stable for the past three years.
There were also changes in the mix of funding sources during 1996. Average
non-interest bearing deposits increased by $252,908,000 or 11.5%, reflecting
higher levels of balances to pay for services, while average short-term
borrowings declined by $274,729,000 or 17.7%. Core deposits represented 91.93%
of total average deposits compared with 91.74% a year ago and 93.50% in 1994.
Average retail certificates of deposit, the largest and a more costly source of
core funds, grew by 3.0% and represented 39.87% of total core deposits versus
41.06% in 1995 and 38.28% in 1994. Average shareholders' equity increased by
4.9%, due largely to the contraction of equity resulting from share repurchases.
LIQUIDITY
Mercantile's Asset/Liability Management Committee meets regularly to
formulate guidelines for and to monitor the composition of assets and
liabilities. Its objective is to meet earnings goals by producing the optimal
yield and maturity mix consistent with interest rate expectations and projected
liquidity needs within the constraints of capital levels. Key to
10
<PAGE> 13
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit 4
TAXABLE-EQUIVALENT RATE-VOLUME ANALYSIS
($ in Millions)
<CAPTION>
AVERAGE VOLUME AVERAGE RATE<F1>
---------------------------- ------------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <S>
INTEREST INCOME
Loans and leases<F3>
$ 3,104 $ 2,944 $ 2,723 8.33% 8.73% 7.48% Commercial
2,081 1,984 1,767 8.64 8.96 8.03 Real estate--commercial
331 327 292 9.20 8.90 7.26 Real estate--construction
3,976 3,835 3,204 8.16 8.02 7.73 Real estate--residential
1,712 1,653 1,448 8.84 8.66 8.18 Consumer
847 776 762 12.86 14.29 15.99 Credit card
------- ------- -------
12,051 11,519 10,196 8.74 8.90 8.38 Total Loans and Leases
Investments in debt and equity
securities
3 8 11 5.16 5.55 5.12 Trading
3,918 3,815 4,057 6.06 5.95 5.55 Taxable
414 448 465 7.96 8.21 8.18 Tax-exempt
------- ------- -------
4,335 4,271 4,533 6.24 6.19 5.82 Total
Short-term investments
Due from banks--interest
69 41 66 5.90 5.96 4.31 bearing
Federal funds sold and
213 296 295 5.75 6.16 4.51 repurchase agreements
------- ------- -------
Total Short-term
282 337 361 5.79 6.14 4.48 Investments
------- ------- -------
$16,668 $16,127 $15,090 8.04 8.13 7.52 Total Interest Income<F1>
======= ======= =======
INTEREST EXPENSE
Interest Bearing Deposits
$ 2,230 $ 2,140 $ 2,270 2.15% 2.19% 1.87% Interest bearing demand
2,043 1,800 1,906 3.87 3.94 3.01 Money market accounts
1,058 1,103 1,197 2.27 2.37 2.32 Savings
Consumer time certificates
5,283 5,130 4,748 5.51 5.42 4.39 under $100,000
184 122 40 4.18 6.33 3.26 Other time
------- ------- -------
Total Interest Bearing
10,798 10,295 10,161 4.16 4.17 3.32 Core Deposits
Time certificates $100,000
979 914 754 5.57 5.80 4.16 and over
184 211 109 5.70 6.21 4.95 Foreign
------- ------- -------
1,163 1,125 863 5.59 5.88 4.26 Total Purchased Deposits
------- ------- -------
11,961 11,420 11,024 4.30 4.34 3.39 Total Interest Bearing Deposits
1,273 1,548 1,204 5.44 5.56 4.26 Short-term borrowings
261 215 13 5.88 6.37 6.19 Bank notes
315 332 334 7.50 7.52 7.43 Long-term debt
------- ------- -------
$13,810 $13,515 $12,575 4.51 4.59 3.59 Total Interest Expense
======= ======= =======
3.53 3.54 3.93 NET INTEREST RATE SPREAD
NET INTEREST RATE MARGIN
4.30 4.28 4.53 AND NET INTEREST INCOME
<CAPTION>
INCREASE (DECREASE)
-----------------------------------------------------------
INTEREST 1995 TO 1996 1994 TO 1995
-------------------------- --------------------------- ---------------------------
1996 1995 1994 RATE<F2> VOL. TOTAL RATE<F2> VOL. TOTAL
---- ---- ---- -------- ---- ----- -------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans and leases<F3>
Commercial $ 259 $ 257 $ 205 $(12) $ 14 $ 2 $ 36 $ 16 $ 52
Real estate--commercial 180 178 142 (7) 9 2 19 17 36
Real estate--construction 31 29 21 1 1 2 5 3 8
Real estate--residential 325 308 247 6 11 17 12 49 61
Consumer 151 143 118 3 5 8 8 17 25
Credit card 109 111 122 (12) 10 (2) (13) 2 (11)
------ ------ ------ ---- ---- ---- ---- ---- ----
Total Loans and Leases 1,055 1,026 855 (21) 50 29 67 104 171
Investments in debt and equity
securities
Trading -- 1 1 -- (1) (1) -- -- --
Taxable 237 227 225 4 6 10 16 (14) 2
Tax-exempt 33 36 38 (1) (2) (3) -- (2) (2)
------ ------ ------ ---- ---- ---- ---- ---- ----
Total 270 264 264 3 3 6 16 (16) --
Short-term investments
Due from banks--interest
bearing 4 3 3 -- 1 1 1 (1) --
Federal funds sold and
repurchase agreements 12 18 13 (1) (5) (6) 5 -- 5
------ ------ ------ ---- ---- ---- ---- ---- ----
Total Short-term
Investments 16 21 16 (1) (4) (5) 6 (1) 5
------ ------ ------ ---- ---- ---- ---- ---- ----
Total Interest Income<F1> $1,341 $1,311 $1,135 $(19) $ 49 $ 30 $ 89 $ 87 $176
====== ====== ====== ==== ==== ==== ==== ==== ====
INTEREST EXPENSE
Interest Bearing Deposits
Interest bearing demand $ 48 $ 47 $ 42 $ (1) $ 2 $ 1 $ 7 $ (2) $ 5
Money market accounts 79 71 57 (1) 9 8 17 (3) 14
Savings 24 26 28 (1) (1) (2) -- (2) (2)
Consumer time certificates
under $100,000 291 278 209 5 8 13 53 16 69
Other time 8 8 1 (4) 4 -- 4 3 7
------ ------ ------ ---- ---- ---- ---- ---- ----
Total Interest Bearing
Core Deposits 450 430 337 (2) 22 20 81 12 93
Time certificates $100,000
and over 55 53 31 (2) 4 2 15 7 22
Foreign 10 13 6 (1) (2) (3) 2 5 7
------ ------ ------ ---- ---- ---- ---- ---- ----
Total Purchased Deposits 65 66 37 (3) 2 (1) 17 12 29
------ ------ ------ ---- ---- ---- ---- ---- ----
Total Interest Bearing
Deposits 515 496 374 (5) 24 19 98 24 122
Short-term borrowings 69 86 51 (2) (15) (17) 20 15 35
Bank notes 15 14 1 (1) 2 1 -- 13 13
Long-term debt 24 25 25 -- (1) (1) -- -- --
------ ------ ------ ---- ---- ---- ---- ---- ----
Total Interest Expense $ 623 $ 621 $ 451 $ (8) $ 10 $ 2 $118 $ 52 $170
====== ====== ====== ==== ==== ==== ==== ==== ====
NET INTEREST RATE SPREAD
NET INTEREST RATE MARGIN
AND NET INTEREST INCOME $ 718 $ 690 $ 684
====== ====== ======
<FN>
<F1> Taxable-equivalent basis. Includes tax-equivalent adjustments of
$15,142,000, $16,570,000 and $16,616,000 for 1996, 1995 and 1994,
respectively based on a Federal income tax rate of 35%.
<F2> The rate-volume variance is allocated entirely to rate.
<F3> Income from loans on non-accrual status is included on a cash basis,
while non-accrual loan balances are included in average volume.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
these goals is liquidity management, which ensures Mercantile has ready access
to sufficient funds at reasonable rates to meet both existing commitments and
future financial obligations. Liquidity management also is necessary to
withstand fluctuations in deposit levels and to provide for customers' credit
needs in a timely and cost-effective manner. Liquidity management is viewed
from a long-term and short-term perspective, as well as from a liability and
asset perspective.
Long-term liquidity is a function of a strong capital position and a large
core deposit base. Growth and stability of both of these components form the
foundation for Mercantile's long-term liquidity strength. Short-term liquidity
needs arise from the continuous fluctuations in the flow of funds on both sides
of the balance sheet, and to a lesser extent from seasonal and cyclical
customer demands.
The most important source of liquidity for Mercantile is liability liquidity,
which is the ability to raise new funds and renew maturing liabilities in a
variety of markets. The most critical factor in assuring liability liquidity is
the maintenance of confidence in Mercantile by suppliers of funds. The
Corporation has a current liability position in line with established strategic
objectives. Certain of these objectives emphasize significant core deposit
funding of subsidiary banks, corporate and subsidiary performance goals, and
capital positions well in excess of regulatory guidelines.
Examples of liability liquidity include: 1) Federal Home Loan Bank borrowing
availability of $1.8 billion, of which only $91,061,000 is utilized; and 2)
$100,000,000 in lines of credit available to the Parent Company. These programs
provide the Corporation with significant access to funds at a wide range of
maturities.
Asset liquidity is typically provided through the maturities of various
assets, the net cash flow of fee-based businesses, the ability to convert loans
and maturing investments into cash (such as through securitizations), the
availability of proceeds from the sale of investment securities classified as
available-for-sale, and the utilization of securities as collateral in
repurchase agreements.
A prime example of asset liquidity was a transaction structured in the second
quarter of 1995, in which $400,000,000 of Mercantile's MasterCard(R) and
VISA(R) credit card loans were securitized, thereby removing them, and the need
to fund them, from the balance sheet. Future asset securitizations are likely
in 1997, and if initiated will be accounted for as prescribed by Financial
Accounting Standard ("FAS") 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Based on presently
available estimates with regard to planned transactions, the new rules are not
expected to materially change net income. A second example of asset liquidity
was the sale of $225,000,000 of adjustable-rate mortgages in December 1995.
The reputation of Mercantile Bank N.A., as well as its financial strength and
numerous long-term customer relationships, enable it to raise funds as needed
in various markets. Historically, these funds have been purchased locally,
nationally and internationally in the federal funds market and via large
certificates of deposit and Eurodollar transactions, capitalizing on
relationships maintained with investment banks, money center banks and money
market funds.
There were seven acquisitions completed by Mercantile in 1996. All were well
capitalized and substantially funded by core deposits, which strengthened the
liquidity position of Mercantile. Regarding 1997 pending acquisitions, Mark
Twain's liquidity and funding philosophies are consistent with those of
Mercantile. Roosevelt's loan portfolio is substantially funded by core deposits
while its investment securities portfolio is largely funded with repurchase
agreements and Federal Home Loan Bank borrowings. Roosevelt is currently
downsizing its investment portfolio and the leverage to support it. When
combined with Mercantile, the remaining borrowings are not expected to have a
significant impact on the liquidity resources of the merged Corporation.
At December 31, 1996, the Parent Company held $158,680,000 in cash, liquid
money market investments and available-for-sale securities. The Parent
Company's routine cash requirements consist primarily of operating expenses,
dividends to shareholders, principal and interest payments on debt, share
repurchases and funds used in acquisitions. Operating expenses are funded by
subsidiary bank management fees, while shareholder dividends, share repurchases
and debt service are satisfied by quarterly subsidiary bank dividends. The
Parent Company also borrows funds in the commercial paper market, which are in
turn lent to subsidiaries, and it also has access to long-term capital markets.
Maintaining favorable debt ratings is critical to liquidity as these ratings
affect the availability and cost of funds to the Corporation. These public
ratings are indicated on Exhibit 13 on Page 18.
Net cash provided by operating activities for the Corporation in 1996 was
$397,666,000. Net income of $191,947,000, adjusted for non-cash charges,
largely accounted for the net cash provided by operating activities. Net cash
used by investing activities was $152,582,000 in 1996. The largest component of
cash used by investing activities was the purchase of investment securities,
which totaled $1.5 billion. Net cash used for financing activities in 1996 was
$129,587,000.
INTEREST RATE SENSITIVITY
Interest sensitivity is related to liquidity, as each is affected by maturing
assets and sources of funds. Interest sensitivity, however, also takes into
consideration those assets and liabilities with interest rates which are
subject to change prior to maturity. The objective and primary focus of
interest sensitivity management is to optimize earnings results, while
managing, within internal policy constraints, interest rate risk. Mercantile's
policy on rate sensitivity is to manage exposure to potential risks associated
with changing interest rates by maintaining a balance sheet posture in which
annual net interest income is not significantly impacted by unexpected changes
in interest rates. The total absence of risk, as well as excessive risk, will
result in less than acceptable returns; therefore,
12
<PAGE> 15
<TABLE>
- --------------------------------------------------------------------------------------------------------
Exhibit 5
INTEREST RATE SENSITIVITY
($ in Millions)
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------------------------
TOTAL
ONE OVER
VARIABLE 1-3 4-6 7-12 YEAR ONE
RATE MONTHS MONTHS MONTHS OR LESS YEAR TOTAL
-------- ------ ------ ------ ------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans and leases<F1> $ 2,107 $ 3,319 $ 1,137 $1,854 $ 8,417 $4,356 $12,773
Investments in debt and equity
securities 1 576 322 623 1,522 2,517 4,039
Short-term investments 243 80 2 -- 325 -- 325
------- ------- ------- ------ ------- ------ -------
Total Earning Assets $ 2,351 $ 3,975 $ 1,461 $2,477 $10,264 $6,873 $17,137
======= ======= ======= ====== ======= ====== =======
ACQUIRED FUNDS
Interest bearing core
deposits<F2> $ 3,099 $ 1,128 $ 1,052 $1,509 $ 6,788 $4,224 $11,012
Purchased deposits 70 540 257 184 1,051 173 1,224
Short-term borrowings 1,377 364 41 6 1,788 -- 1,788
Bank notes -- 175 -- -- 175 -- 175
Long-term debt -- 3 2 3 8 295 303
Net effect of credit card
securitization -- 176 -- -- 176 (176) --
Interest rate swaps -- 85 -- -- 85 (85) --
------- ------- ------- ------ ------- ------ -------
Total Interest Bearing
Acquired Funds 4,546 2,471 1,352 1,702 10,071 4,431 14,502
Non-interest bearing
deposits<F2> 535 -- -- -- 535 2,049 2,584
------- ------- ------- ------ ------- ------ -------
Total Acquired Funds $ 5,081 $ 2,471 $ 1,352 $1,702 $10,606 $6,480 $17,086
======= ======= ======= ====== ======= ====== =======
GAP ANALYSIS
Interest sensitivity gap $(2,730) $ 1,504 $ 109 $ 775 $ (342)
======= ======= ======= ====== =======
Cumulative interest
sensitivity gap $(2,730) $(1,226) $(1,117) $ (342)
======= ======= ======= ======
Cumulative ratio of
interest-sensitive assets to
interest-sensitive liabilities .46 .84 .87 .97
<FN>
<F1> Non-accrual loans are reported in the "Over One Year" category.
<F2> Mercantile's experience with interest bearing demand, money market
accounts, savings and non-interest bearing deposits has been that,
although these deposits are subject to immediate withdrawal or
repricing, a portion of the balances has remained relatively constant
in periods of both rising and falling rates. Therefore, a portion of
these deposits is included in the "Over One Year" category. If these
deposits were all included in the "Total One Year or Less" category,
the cumulative ratio of interest-sensitive assets to interest-sensitive
liabilities would be .68.
- --------------------------------------------------------------------------------------------------------
</TABLE>
Mercantile manages its interest sensitivity risk between those two extremes.
Interest rate risk as a given point in time can be represented by an interest
rate sensitivity position ("gap"). Exhibit 5 presents a summary balance sheet
at December 31, 1996 with an interest rate gap analysis that shows the
difference between the amount of assets and liabilities maturing or subject to
repricing in given time periods. The cumulative gap represents the net position
of assets and liabilities subject to repricing over specified time periods. A
static gap report is one measure of the risk inherent in the existing balance
sheet structure as it relates to potential changes in net interest income, and
it indicates that the Corporation maintained a relatively balanced position at
December 31, 1996. Because that portrayal does not capture many of the factors
which determine interest rate risk, Mercantile places more emphasis on the use
of sophisticated models to measure changes in net interest income which might
occur due to changes in interest rates. Using future balance sheet trends and
different patterns of rate movements, these projections enable the Corporation
to adjust its strategies to protect the net interest rate margin against
significant interest rate fluctuations. Uniform sensitivity reports and
guidelines are used by all subsidiary banks.
Current model projections indicate that annual net interest income would
change by less than one percent should rates rise or fall within 100 basis
points from their current level. The year-end 1996 gap report shows a negative
interest sensitivity gap position. A negative interest sensitivity gap position
would indicate that net interest income would generally be enhanced in a
declining rate environment and if rates rose net interest income would be
somewhat negatively impacted. However, the results of the Corporation's
simulation models show that net interest income would be unchanged in a rising
interest rate environment and slightly diminished by a further decline in
rates. In either case, the impact would be immaterial and management believes
the Corporation is appropriately positioned for subsequent rate movements in
the current economic
13
<PAGE> 16
environment. For the last eight months of 1996, the Corporation's net interest
rate margin varied by less than eight basis points.
The Corporation has been successful in meeting its interest sensitivity
objectives, primarily by adjusting the interest rate maturities of its assets
and liabilities, and not through the use of various off-balance-sheet
instruments such as derivatives. During 1996, the Corporation carefully
developed policies that allow it to build its capability to use basic
derivative products to better manage its interest rate risk. The instruments
used are disclosed in Note P to the Consolidated Financial Statements and they
are insignificant to the capital base and size of Mercantile.
Mark Twain and Roosevelt have modeled the interest sensitivity of their net
interest income. Mark Twain's latest model projections indicate that annual net
interest income would decrease by slightly over one percent should rates either
rise or fall by 100 basis points. Roosevelt's results indicate a four percent
gain from a rate decline and a six percent decrease if rates rise. The combined
results from the three institutions indicate a less than one percent increase
in net interest income if rates fall by 100 basis points and a decrease of
slightly more than one percent should rates rise. Due to differences in models
and assumptions, these results may not be directly comparable. Mercantile will
model each institution on a uniform basis shortly after the mergers are
completed, and plans to continue its conservative approach to interest rate
risk management.
DEPOSITS
Deposits are the primary funding source for the Corporation's banks and are
acquired from a broad base of local markets, including both individual and
corporate customers. Total deposits at December 31, 1996 were $14.8 billion, an
8.1% or $1.1 billion increase from the $13.7 billion of a year ago, as deposits
of $895,172,000 were added in the six acquisitions accounted for as purchases
or poolings without restatement. On average, total deposits grew by 5.8% and
most of that growth was likewise due to the deposits assumed in the six
acquisitions. Exhibit 6 details the components of the Corporation's deposit mix
for the past five years.
Core deposits remain Mercantile's largest, most reliable and most important
funding source. Core deposits include both interest bearing and non-interest
bearing demand deposits, money market and savings deposits, consumer
certificates of deposit under $100,000 and other time deposits. Average core
deposits grew by 6.1% in 1996 and improved to 79.48% of earning assets compared
with 77.46% last year.
Average non-interest bearing deposits increased by $252,908,000 or 11.5% from
1995. The United States Government is a significant cash management customer of
Mercantile Bank N.A. and pays for services rendered via compensating balances.
Increases in these compensating balances, non-interest bearing deposits assumed
in acquisitions, as well as successful efforts in managing float and minimizing
reserve requirements resulted in an increase in average net non-interest
bearing funds (non-interest bearing deposits less cash and due from banks) of
$205,770,000 for 1996.
Average interest bearing demand, money market accounts and retail
certificates of deposit increased by 4.2%, 13.5% and 3.0%, respectively, while
savings deposits declined by 4.1% from 1995. Deposit growth derived from
acquisitions was partially offset by movement of these funds to other
investment products, including those offered by Mercantile investment
representatives.
Certificates of deposit greater than $100,000 and foreign branch deposits
increased on average by 3.4% to $1.2 billion. Most of the large domestic
deposits were gathered from the local retail, commercial and institutional
customer base, which provides a natural access to purchased
<TABLE>
- -------------------------------------------------------------------------------------------------------------
Exhibit 6
DEPOSITS
(Thousands)
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-interest bearing $ 2,584,340 $ 2,075,579 $ 1,980,168 $ 2,125,052 $ 1,892,287
Interest bearing demand 2,329,973 2,185,587 2,227,039 2,249,179 2,068,515
Money market accounts 2,134,996 1,900,057 1,742,622 1,975,831 2,007,625
Savings 1,020,841 1,051,880 1,129,316 1,226,794 1,096,621
Consumer time certificates
under $100,000 5,298,120 5,289,146 4,774,568 4,879,136 5,322,112
Other time 227,496 38,742 38,717 35,438 123,669
----------- ----------- ----------- ----------- -----------
Total Core Deposits 13,595,766 12,540,991 11,892,430 12,491,430 12,510,829
Time certificates
$100,000 and over 972,234 964,099 753,325 725,626 729,883
Foreign 251,887 209,170 219,135 26,085 19,650
----------- ----------- ----------- ----------- -----------
Total Purchased
Deposits 1,224,121 1,173,269 972,460 751,711 749,533
----------- ----------- ----------- ----------- -----------
Total Deposits $14,819,887 $13,714,260 $12,864,890 $13,243,141 $13,260,362
=========== =========== =========== =========== ===========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 17
funds and, accordingly, tends to be less volatile than other categories of
purchased funds. Exhibit 7 portrays the maturities of domestic time deposits
$100,000 and over.
<TABLE>
- -------------------------------------------------------------------------------
Exhibit 7
MATURITY OF DOMESTIC TIME DEPOSITS
$100,000 AND OVER
(Thousands)
<CAPTION>
DECEMBER 31, 1996
----------------------------------------
CERTIFICATES OTHER TIME
OF DEPOSIT DEPOSITS TOTAL
------------ ---------- -----
<S> <C> <C> <C>
Three months or less $398,777 $ 13,028 $ 411,805
Over three through six months 221,949 5,455 227,404
Over six through twelve months 184,240 207,867 392,107
Over twelve months 167,268 203 167,471
-------- -------- ----------
Total $972,234 $226,553 $1,198,787
======== ======== ==========
- -------------------------------------------------------------------------------
</TABLE>
SHORT-TERM BORROWINGS AND SHORT-TERM INVESTMENTS
Short-term borrowings are an alternative to other funding sources, such as
large certificates of deposit and Eurodollar deposits, and consist primarily of
federal funds purchased, treasury tax and loan note option accounts, securities
sold under agreements to repurchase, short-term Federal Home Loan Bank advances
and commercial paper. These sources of funding are utilized primarily by
Mercantile Bank N.A. and volumes are monitored by the Asset/Liability
Management Committee. As a major bank in the Midwest with a significant
correspondent bank network and corporate account base, Mercantile Bank N.A.
purchases excess funds from correspondent banks and borrows on a short-term
basis from commercial customers. Accordingly, some of Mercantile's short-term
borrowings can be considered a stable source of funds, similar to core
deposits. Depending on funding requirements and liquidity strategies employed
by the Asset/Liability Management Committee, these funds are either used
internally or redeployed as short-term investments.
Average short-term borrowings decreased by $274,729,000, due primarily to the
securitization of $400,000,000 in credit card loans during May 1995, the growth
in core deposits, an increase in average bank note funding and the $56,071,000
decline in average short-term investments, which include due from
banks--interest bearing, federal funds sold, and securities purchased under
agreements to resell. These funding changes were in line with the liquidity
goals and balance sheet management strategies employed by Mercantile in prior
years.
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
Exhibit 8
SHORT-TERM BORROWINGS
($ in Thousands)
<CAPTION>
1996 1995 1994
------------------------- ------------------------- --------------------------
AVERAGE AVERAGE AVERAGE
AMOUNT RATE MATURITY AMOUNT RATE MATURITY AMOUNT RATE MATURITY
------ ---- -------- ------ ---- -------- ------ ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AT YEAR END
Federal funds purchased and
repurchase agreements $1,589,261 5.98% 9 DAYS $1,552,945 5.07% 16 days $1,519,156 5.42% 5 days
Treasury tax and loan notes 110,259 5.16 2 DAYS 116,416 5.23 2 days 170,045 5.23 3 days
Commercial paper 19,405 5.45 17 DAYS 16,950 5.81 17 days 26,800 5.97 20 days
Other short-term borrowings 68,748 5.70 133 DAYS 77,425 5.97 86 days 122,080 5.94 177 days
---------- ---------- ----------
Total Short-term
Borrowings $1,787,673 5.91 14 DAYS $1,763,736 5.13 18 days $1,838,081 5.44 16 days
========== ========== ==========
AVERAGE FOR THE YEAR
Federal funds purchased and
repurchase agreements $1,117,209 5.43% $1,291,351 5.49% $ 902,125 4.32%
Treasury tax and loan notes 72,186 5.22 169,062 5.68 211,962 3.75
Commercial paper 18,222 5.42 20,930 5.97 26,487 4.53
Other short-term borrowings 65,864 5.85 66,867 6.41 63,504 5.04
---------- ---------- ----------
Total Short-term
Borrowings $1,273,481 5.44 $1,548,210 5.56 $1,204,078 4.26
========== ========== ==========
MAXIMUM MONTH-END BALANCE
Federal funds purchased and
repurchase agreements $1,589,261 $1,638,089 $1,554,219
Treasury tax and loan notes 433,885 522,672 615,267
Commercial paper 21,660 31,157 37,406
Other short-term borrowings 75,673 84,456 122,080
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 18
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
Exhibit 9
REGULATORY CAPITAL
(Thousands)
<CAPTION>
DECEMBER 31
-------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Tier I capital $ 1,437,815 $ 1,509,061 $ 1,331,782 $ 1,187,956 $ 1,045,145
Tier II capital 390,101 381,301 368,469 357,513 311,811
----------- ----------- ----------- ----------- -----------
Total Risk-based Capital $ 1,827,916 $ 1,890,362 $ 1,700,251 $ 1,545,469 $ 1,356,956
=========== =========== =========== =========== ===========
Risk-adjusted assets $13,176,540 $12,352,966 $11,307,760 $10,423,938 $10,005,983
=========== =========== =========== =========== ===========
Quarterly average
tangible assets $18,378,811 $17,663,663 $16,515,293 $16,063,813 $15,773,179
=========== =========== =========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
CAPITAL RESOURCES
Consistent with the objective of operating a premier banking organization,
Mercantile maintains a strong capital base which provides a solid foundation
for anticipated future asset growth and promotes depositor and investor
confidence. Capital management is a continuous process at Mercantile, and is
focused on ensuring that adequate capital is available for both current needs
and anticipated growth. This strategy has enabled the Corporation to profitably
expand its balance sheet, while maintaining capital ratios which exceed minimum
capital requirements.
At December 31, 1996, shareholders' equity was $1.6 billion, a managed
decline of .3% from a year ago. During 1996, Mercantile repurchased 3,926,951
shares of its common stock via designated broker-dealers at an average cost of
$47.57 per share. A portion of this stock was reissued in the Today's, First
Financial, Conway, Metro and Peoples acquisitions while some was held for
reissuance in conjunction with stock incentive plans. An estimated 600,000 in
treasury shares will be reissued in the Regional Bancshares, Inc. transaction
during the first quarter of 1997. The remaining treasury shares will likely be
reissued in the Mark Twain transaction. Partially offsetting the share buyback
was net earnings retained as well as stock issued for acquisitions. While total
shareholders' equity declined, equity represented a strong 8.61% of assets at
December 31, 1996 compared with 9.15% at year-end 1995 and 8.42% at December
31, 1994. Exhibits 9 and 10 detail significant capital information for the past
five years.
Due to the strength of the capital base at the individual bank subsidiaries,
approximately $198,891,000 was available at December 31, 1996 for distribution
through dividends to the Parent Company without prior regulatory approval and
without reducing the capital of the respective subsidiary banks below present
minimum standards. An additional $150,622,000 would be available in the form of
loans to the Parent Company under current regulations. This strong capital base
allowed the Corporation to purchase the 3,926,951 shares of common stock in the
open market during 1996.
The Parent Company's double leverage ratio, which measures the extent to
which the equity capital of its subsidiaries is supported by Parent Company
debt rather than equity, improved to 104.81% at December 31, 1996 compared with
107.93% last year. Intangible assets, which consisted largely of goodwill,
totaled $175,226,000 at December 31, 1996 compared with $110,529,000 a year
ago, and $97,357,000 at December 31, 1994. Exhibit 11 details the composition
of intangible assets for the past five years. Long-term debt as a percentage of
total capitalization
<TABLE>
- --------------------------------------------------------------------------------------------------------
Exhibit 10
CAPITAL RATIOS
<CAPTION>
DECEMBER 31
------------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Tier I capital to
risk-adjusted assets 10.91% 12.22% 11.78% 11.40% 10.45%
Total capital to risk-adjusted
assets 13.87 15.30 15.04 14.83 13.56
Leverage 7.82 8.54 8.06 7.40 6.63
Equity to assets
Consolidated 8.61 9.15 8.42 7.95 7.13
Combined bank subsidiaries 7.74 8.76 8.30 8.18 7.38
Tangible equity to assets 7.75 8.58 7.89 7.36 6.56
Double leverage 104.81 107.93 108.04 110.72 112.40
Long-term debt to total
capitalization 15.63 16.57 18.99 19.59 22.72
- --------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
declined to 15.63% versus 16.57% at December 31, 1995. No significant amount of
debt is scheduled to mature before 1999.
As interest rates declined during 1995, the Corporation recorded a favorable
adjustment to equity of $47,494,000 on available-for-sale investment
securities. In 1996, the net fair value adjustment lowered equity by
$14,386,000, due largely to an increase in longer-term interest rates, thus
reducing the equity to assets ratio at December 31, 1996 in comparison with the
prior year. In conjunction with the acquisition of TCBankshares, Inc. on May 1,
1995, the Corporation assumed, through an exchange, 14,806 shares of preferred
stock with a book value of $12,153,000. These preferred shares were redeemed in
March 1996.
Book value per common share at December 31, 1996 was $26.52 compared with
$26.04 at the prior year-end, an increase of 1.8%. The equity formation rate
(defined as net income less dividends divided by average equity) decreased to
5.58% in 1996 from 9.64% in 1995. Cash dividends totaling $1.64 per common
share were declared and paid during 1996, a 24.2% increase from last year's
total of $1.32. In addition, on February 19, 1997, the quarterly dividend
payable April 1, 1997 was increased by 4.9% to $.43 per common share.
Additional data relating to Mercantile's common stock is included in Exhibit 12
of this report.
On July 11, 1996, the Board of Directors authorized the repurchase of up to
6,000,000 of the Corporation's common stock. This authorization was inclusive
of shares to be repurchased in connection with the previously announced pending
acquisitions. On October 28, 1996, the Corporation rescinded all previously
announced share repurchase programs and stated it may repurchase up to 700,000
shares in the open market that would be reissued in the Mark Twain transaction.
Two significant 1997 acquisitions were announced in the fourth quarter of
1996. On October 27, 1996, a definitive agreement was signed with Mark Twain
for which Mercantile will exchange up to 16,950,000 shares of its common stock
for the Mark Twain common stock. The transaction will be accounted for as a
pooling-of-interests. Since Mark Twain's capital ratios are greater than or
equal to those of Mercantile, the capital ratios of the combined company are
expected to be strengthened.
On December 23, 1996, the Corporation announced that it signed a definitive
agreement with Roosevelt. Up to 13,000,000 Mercantile shares plus cash are
expected to be issued in this transaction, which will be accounted for as a
purchase. Mercantile also announced that it may repurchase up to 7,000,000 of
its shares in the open market that would be reissued in the Roosevelt
transaction. Although Roosevelt has a program to dispose of low-yielding
assets, its balance sheet will still be more highly leveraged than
Mercantile's; therefore, combined capital ratios will decline, yet remain well
above regulatory minimums and at a level necessary to maintain external credit
ratings. Goodwill of approximately $550,000,000 will be recorded, and the
Corporation will access the public debt markets to meet its cash financing
needs of between $500 million and $600 million.
The first evidence of accessing the capital markets occurred on January 29,
1997, when the Mercantile Capital Trust I was formed. Through this trust,
Mercantile obtained $150,000,000 of floating-rate debt which for regulatory
purposes is part of Tier I capital. Additional funds will likely be raised in
the first half of 1997 in the form of senior and/or subordinated debt.
<TABLE>
- -----------------------------------------------------------------------------------------------------------
Exhibit 11
INTANGIBLE ASSETS
(Thousands)
<CAPTION>
DECEMBER 31
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Goodwill $147,527 $ 90,037 $77,092 $ 81,002 $75,653
Core deposit premium 9,450 12,660 13,818 17,818 17,923
Other 18,249 7,832 6,447 4,809 4,170
-------- -------- ------- -------- -------
Total $175,226 $110,529 $97,357 $103,629 $97,746
======== ======== ======= ======== =======
- -----------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 20
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
Exhibit 12
SELECTED INVESTOR INFORMATION
NEW YORK STOCK EXCHANGE: MTL
In newspaper stock tables generally MercBc or MercBcpMO
COMMON STOCK INFORMATION
<CAPTION>
1996 1995 1994
------------------------------- ------------------------------- -------------------------------
MARKET PRICE MARKET PRICE MARKET PRICE
----------------- DIVIDEND ----------------- DIVIDEND ----------------- DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED HIGH LOW DECLARED
------- ------- ------------ ------- ------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1ST QUARTER $46 1/2 $41 1/2 $ .41 $37 1/4 $31 1/4 $ .33 $34 1/8 $29 7/8 $ .28
2ND QUARTER 47 7/8 43 1/2 .41 44 7/8 36 .33 38 1/8 31 1/8 .28
3RD QUARTER 52 7/8 43 3/8 .41 47 41 5/8 .33 39 1/4 34 7/8 .28
4TH QUARTER 54 49 .41 46 1/2 41 1/2 .33 36 7/8 29 1/2 .28
----- ----- -----
$1.64 $1.32 $1.12
===== ===== =====
SELECTED DATA
<CAPTION>
DECEMBER 31
----------------------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Market Price $51 3/8 $46 $31 1/4
Dividend Yield 3.19% 2.87% 3.58%
Price Earnings Ratio 16.57X<F*> 12.30x 9.80x<F*>
Book Value per
Common Share $26.52 $26.04 $23.32
Market Price to Book
Value 193.72% 176.65% 134.01%
Average Common
Shares Outstanding 61,874,882 61,883,723 59,757,392
Year-end Common
Shares Outstanding 61,604,723 62,506,536 59,883,249
Shareholders of
Record 17,283 19,178 20,069
Average Daily Volume 116,204 89,172 52,926
<FN>
<F*>Calculated based upon net income per common share which includes
acquisition charges and the special SAIF assessment.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------
Exhibit 13
DEBT RATINGS
<CAPTION>
THOMSON STANDARD
MOODY'S FITCH BANKWATCH & POOR'S
------- ----- --------- --------
<S> <C> <C> <C> <C>
MERCANTILE BANCORPORATION INC.
Issuer Rating B
Commercial Paper F1 TBW-1
7.625% Subordinated Notes, due 2002 Baa1 BBB+ BBB
Floating Rate Capital Trust Pass-through
Securities(SM)<F*> a3 BBB-
MERCANTILE BANK N.A.
Bank Notes A1/P-1 A
6.375% Subordinated Notes, due 2004 A3 A A- BBB+
9.000% Mortgage-backed Notes, due 1999 AAA
Certificates of Deposit TBW-1 A-/A-2
Letters of Credit TBW-1 A-/A-2
<FN>
<F*>Issued on January 29, 1997.
- --------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
Management has established financial objectives designed to monitor future
capital needs. Mercantile's dividend policy is influenced by the belief that
most shareholders are interested in long-term performance as well as current
yield. The current dividend payout level is considered reasonable given the
Corporation's present cash flow position, level of earnings, capital position
and the strength of its subsidiary banks' capital. Future dividends will be
determined based on Mercantile's results of operations, growth expectations,
financial condition, regulatory constraints and other factors deemed relevant
by the Board of Directors.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Corporation's investment portfolio serves three important functions.
First, it is a vehicle for adjusting balance sheet rate sensitivity and
protecting against the impact of changes in interest rate movements by managing
the purchases and maturities of securities; second, it is a means for
investment of excess funds depending on loan demand; and, third, the
available-for-sale securities provide potential immediate liquidity. The
investment portfolio is structured to maximize the return on invested funds
within acceptable interest rate risk guidelines and to meet pledging
requirements, while giving consideration to loan demand, credit risk, future
liquidity needs, balance sheet strategies and the outlook for trends in
interest rates.
Securities are the largest category of earning assets after loans. During
1996, average securities represented 26.01% of earning assets compared with
26.48% in 1995 and 30.04% for 1994. Investment securities totaled $4.0 billion
at December 31, 1996 compared with $4.2 billion at December 31, 1995, a
decrease of 4.1%. As loan demand increased and collateral requirements
decreased, the overall size of the portfolio was reduced in the fourth quarter
of 1996.
FAS 115, "Accounting for Certain Investments in Debt and Equity
Securities," is the accounting pronouncement that prescribes the accounting
for the investment portfolio and it requires that investment securities be
classified into three categories: trading, available-for-sale and
held-to-maturity. Throughout 1994 and 1995, Mercantile classified the vast
majority of its investment securities as held-to-maturity. In November 1995,
the Financial Accounting Standards Board issued a pronouncement that allowed
for a one-time redesignation of securities between categories. In December
1995, the Corporation, with approval from its Asset/Liability Management
Committee, redesignated the entire held-to-maturity portfolio as available-for-
sale and transferred approximately $3.1 billion of securities to that category.
During the third quarter of 1996, in conjunction with the establishment of a
real estate investment trust ("REIT") and investment subsidiaries, the
Corporation redesignated selected investment securities as held-to-maturity.
Note E to the Consolidated Financial Statements details the components of the
investment portfolio for the past three years.
The year-end 1996 held-to-maturity and available-for-sale investment
portfolio was composed of 83.57% of U.S. Treasury and other government agency
securities, including 27.14% in mortgage-related issues, 12.74% in state and
municipal securities, and 3.69% of other miscellaneous securities, primarily
private-label collateralized mortgage obligations. The comparable distribution
at year-end 1995 was 83.52%, 13.31% and 3.17%, respectively.
The average maturity of the overall portfolio declined to two years and two
months at the end of 1996 versus two years and nine months at year-end 1995.
Purchased securities were generally added with maturities of two to four years
to match the expected average maturity of retail deposits, and to fit within
the projected interest sensitivity position of the Corporation. The overall
tax-equivalent yield of the portfolio increased during 1996 to 6.24% from 6.19%
in 1995, even though rates in general slightly declined during 1996.
Mercantile's commitment to its expanding region continued to be reflected by
the holdings of securities of Missouri, Arkansas, Illinois, Kansas and Iowa and
their local governmental units, although securities of many other states were
also held in the portfolio. At December 31, 1996, investments in securities of
those five states and their political subdivisions amounted to approximately
57.02% of total tax-exempt securities. However, securities of any one single
political subdivision in any of these states did not exceed .32% of
shareholders' equity at December 31, 1996. Outside of those five states,
securities of no single issuer exceeded .82% of shareholders' equity.
Approximately 65.68% of the state and municipal securities held at December
31, 1996 were rated A or higher by Moody's Investors Service. Of the remaining
securities, most were non-rated bonds due to the smaller size of the issues and
the expense associated with obtaining a rating. These bonds generally
represented local issues purchased by subsidiary banks, which are evaluated
internally for creditworthiness on an ongoing basis, similar to loans.
19
<PAGE> 22
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
Exhibit 14
INVESTMENTS IN DEBT AND EQUITY SECURITIES<F1>
($ in Thousands)
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE HELD-TO-MATURITY
----------------------------------------- ------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE YIELD<F2> COST VALUE YIELD<F2>
--------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. TREASURY
Within one year $ 578,445 $ 578,894 5.59% $ -- $ -- --%
One to five years 786,081 786,736 5.89 27,177 27,296 6.38
Five to 10 years 5,048 5,402 7.54 -- -- --
After 10 years -- -- -- -- -- --
---------- ---------- -------- --------
Total 1,369,574 1,371,032 5.77 27,177 27,296 6.38
Average Maturity 1 yr. 3 mo. 2 yr. 0 mo.
U.S. GOVERNMENT AGENCIES<F3>
Within one year 418,597 418,897 6.22 59,590 59,946 5.68
One to five years 1,120,488 1,123,534 6.35 227,263 231,444 6.73
Five to 10 years 99,265 100,478 7.00 22,586 20,506 9.56
After 10 years 17,634 17,986 7.31 6,252 6,835 9.42
---------- ---------- -------- --------
Total 1,655,984 1,660,895 6.37 315,691 318,731 6.79
Average Maturity 2 yr. 2 mo. 2 yr. 5 mo.
OBLIGATIONS OF STATE AND
POLITICAL SUBDIVISIONS
Within one year 113,323 113,914 6.91 -- -- --
One to five years 252,587 256,534 7.35 -- -- --
Five to 10 years 79,430 81,373 8.35 -- -- --
After 10 years 61,572 62,442 9.01 -- -- --
---------- ---------- -------- --------
Total 506,912 514,263 7.61 -- -- --
Average Maturity 4 yr. 1 mo. --
OTHER<F3>
Within one year 9,118 9,174 6.68 -- -- --
One to five years 33,604 33,494 6.22 -- -- --
Five to 10 years 1,037 1,176 6.65 -- -- --
After 10 years 1,539 1,553 5.84 3,698 3,711 9.50
---------- ---------- -------- --------
Total 45,298 45,397 6.31 3,698 3,711 9.50
Average Maturity 2 yr. 8 mo. 22 yr. 3 mo.
TOTAL INTEREST EARNING
INVESTMENTS<F3>
Within one year 1,119,483 1,120,879 5.97 59,590 59,946 5.68
One to five years 2,192,760 2,200,298 6.30 254,440 258,740 6.69
Five to 10 years 184,780 188,429 7.59 22,586 20,506 9.56
After 10 years 80,745 81,981 8.58 9,950 10,546 9.45
---------- ---------- -------- --------
Total 3,577,768 3,591,587 6.31 346,566 349,738 6.78
Average Maturity 2 yr. 1 mo. 2 yr. 7 mo.
FEDERAL RESERVE BANK STOCK,
FEDERAL HOME LOAN BANK
STOCK AND OTHER EQUITY
INVESTMENTS 100,728 99,922 5.47 -- --
---------- ---------- -------- --------
TOTAL PORTFOLIO $3,678,496 $3,691,509 6.29 $346,566 $349,738 6.78
========== ========== ======== ========
<FN>
<F1> This exhibit excludes trading securities, which are reported at
estimated fair value on the Consolidated Balance Sheet. Trading
securities totaled $500,000, $3,677,000 and $14,299,000 at December 31,
1996, 1995, and 1994, respectively.
<F2> Taxable-equivalent basis.
<F3> Maturities of asset-backed obligations are based on the remaining
weighted average maturities.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
LOANS
Loans are the primary earning asset of the Corporation and were $12.8 billion
at December 31, 1996, up $1.0 billion or 8.9% from year-end 1995. This growth
follows a 7.6% increase in 1995 over 1994. Affecting loan growth figures from
year-to-year is the amount of loans acquired in the six acquisitions accounted
for as purchases or poolings-of-interests without restatement. The internal
loan growth rate for 1996 was in the 3% to 5% range. The vast majority of the
Corporation's loans are extended in its natural trade areas, which now includes
five states.
Mercantile's diversified loan portfolio spreads the risk and reduces exposure
to economic downturns that may occur in different segments of the economy or in
different industries. At December 31, 1996, the portfolio was 45.17% commercial
and 54.83% consumer-related, compared with 45.87% and 54.13% at December 31,
1995. Note O provides more details on concentrations of credit and the overall
loan portfolio. The portfolio mix has undergone a favorable shift in recent
years as business development efforts have focused on expanding middle-market
commercial and consumer loans. Lower-risk residential mortgage loans are the
dominant asset, comprising one-third of the loan portfolio. The acquisition of
Mark Twain will supplement the focus on middle-market commercial loans, and the
acquisition of Roosevelt will add significantly to Mercantile's residential
real estate mortgage loan totals. These shifts have been complemented by
consumer and middle-market portfolios added in the other 1996 mergers.
The 1996 average loan to deposit ratio for the Corporation was 83.62%
compared with 84.59% and 76.86% in 1995 and 1994, respectively. Exhibit 15
portrays the composition of the loan portfolio for the past five years.
During 1996, commercial loans averaged $3.1 billion, which represented a
growth rate of 5.5% following growth of 8.2% in 1995. The growth was across the
system with more notable increases recorded in the second half of 1996.
Average commercial real estate mortgage and construction loans of $2.4
billion in 1996 increased by 4.4% following 12.2% growth in 1995. Commercial
mortgage and construction loans held by Mercantile Bank N.A. represented 18.07%
of the portfolio, with the rest relating largely to smaller owner-occupied
projects in Missouri, Illinois, Arkansas, Kansas and Iowa originated by the
Corporation's other banks. Commercial real estate loans are generally secured
by the underlying property at a 75% to 80% loan-to-appraisal value, and are
typically supported by guarantees from the project developers. Additional
collateral may be taken as deemed necessary.
For 1996, average residential real estate mortgage loan volume grew by 3.7%
following 19.7% growth in 1995, and during 1996 represented one-third of the
total loan portfolio. When the effect of the sale of $225,000,000 in mortgages
in the fourth quarter of 1995 is considered, the rate of 1996 growth was 9.5%.
Volume was impacted by a general decline in interest rates during 1996 which
allowed customers the opportunity to switch from adjustable-rate loans, which
are held in the portfolio, to fixed-rate loans, which are sold. Mercantile
currently services a residential real estate loan portfolio of $5.9 billion.
Roosevelt will add approximately $8.6 billion to servicing volume in the second
half of 1997.
Average credit card loans grew by 9.0% in 1996. Excluding the impact of the
$400,000,000 in credit card loans securitized in May 1995, total managed credit
card loans increased on average by 21.5%. The former SBC co-branded credit card
accounted for this 1996 growth while the core MasterCard(R) and VISA(R)
portfolio declined modestly as expected. Mercantile announced on December 5,
1996 that it had terminated its co-branded credit card program with SBC and
offered to replace those cards with a MercRewards VISA(R) card beginning in
1997. Mercantile expects to lose via attrition approximately 200,000 accounts
representing $100,000,000 in balances of customers who used the former
co-branded card largely for transactions rather than for credit. Other consumer
loans of $1.7 billion increased on average by 3.6%, due largely to growth in
indirect auto loans.
<TABLE>
- ------------------------------------------------------------------------------------------------------------
Exhibit 15
LOAN AND LEASE PORTFOLIO MATURITIES<F*>
(Millions)
<CAPTION>
ONE TO FIVE OVER FIVE
YEARS YEARS
UNDER --------------- --------------
ONE FIXED FLOATING FIXED FLOATING
YEAR RATE RATE RATE RATE 1996 1995 1994 1993 1992
------ ------ -------- ------ -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $1,214 $ 930 $ 570 $ 399 $ 225 $ 3,338 $ 2,980 $ 2,788 $2,535 $2,581
Real estate--commercial 536 653 401 153 299 2,042 2,120 1,779 1,670 1,695
Real estate--construction 194 85 61 31 20 391 282 324 302 278
Real estate--residential 229 383 153 583 2,959 4,307 3,823 3,531 3,252 3,193
Consumer 294 1,235 100 136 20 1,785 1,667 1,617 1,273 1,206
Credit card -- 148 762 -- -- 910 859 865 777 617
------ ------ ------ ------ ------ ------- ------- ------- ------ ------
Total Loans and
Leases $2,467 $3,434 $2,047 $1,302 $3,523 $12,773 $11,731 $10,904 $9,809 $9,570
====== ====== ====== ====== ====== ======= ======= ======= ====== ======
<FN>
<F*>Non-accrual loans are reported at contractual maturities and rates.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
The overall tax-equivalent yield of the loan portfolio decreased by 16 basis
points to 8.74% in 1996 compared with 8.90% in 1995, when interest rates were
moderately higher. As shown in Exhibit 15, which portrays the maturity and
interest sensitivity of the portfolio, 62.92% of loans were priced at floating
rates or maturing within one year.
RISK MANAGEMENT AND THE RESERVE FOR
POSSIBLE LOAN LOSSES
The underlying objectives of Mercantile's credit management are to identify
and manage credit exposure and to support the growth of a profitable and high
quality loan portfolio. At Mercantile, these functions are performed centrally
by corporate Credit Administration, which provides management with extensive
information on risk levels, trends, delinquencies, portfolio concentrations and
internal ratings. Credit Administration includes corporate Credit Policy,
approval of large credits and corporate Credit Review. At Mercantile Bank N.A.,
Credit Administration also provides special asset teams that promptly
concentrate on identified problem loans and workout situations when necessary,
as well as the management of foreclosed property. Mercantile utilizes a lender-
initiated system of rating credits which is subsequently tested by Credit
Review, external auditors and bank regulators. Adversely-rated credits are
included on a watch list, and are reviewed at the bank level and centrally at
least on a quarterly basis.
The reserve for possible loan losses represents the aggregate reserves of the
Corporation's banking subsidiaries, and at December 31, 1996 was $196,627,000
compared with $201,780,000 at the end of 1995. Loans outstanding increased by
8.9%, which resulted in a year-end 1996 ratio of the reserve for possible loan
losses to outstanding loans of 1.54% compared with 1.72% at December 31, 1995.
The reserve as a percentage of non-performing loans was 313.02% compared with
245.18% last year. The 1996 levels were reasonable considering that the risk
profile had been lessened due to growth in low-risk residential real estate
mortgage loans, for which the loss experience has averaged .06% for the past
five years. If residential mortgages are excluded from total loans, the reserve
represents 2.32% of outstanding loans at December 31, 1996.
The provision for loan losses is the annual cost of providing a reserve for
anticipated future loan losses. In any accounting period, the amount of
provision is dependent upon many factors, including loan growth, net
charge-offs, changes in the composition of the loan portfolio, delinquen-
cies, management's assessments of loan quality, general economic factors and
collateral values. The 1996 provision was $71,014,000 compared with $36,530,000
last year. The first and fourth quarters of 1996 included a nonrecurring
merger-related provision of $13,666,000 which was recorded largely to conform
the credit policies of recently acquired entities to those of Mercantile; an
additional $10,000,000 in provision was recorded during the first quarter of
1996 in connection with an $11,000,000 charge-off of a credit to a St.
Louis-based specialty retailer that declared bankruptcy in late 1995.
The ratio of net charge-offs to average loans for 1996 was .69% compared with
.46% in 1995. The corresponding net charge-off figures were $83,549,000 and
$52,429,000, respectively. The $11,000,000 charge-off mentioned above impacted
the 1996 ratio of charge-offs to average loans by nine basis points. Exhibit 16
provides charge-offs and recoveries by loan type for the past five years.
Excluding securitized credit cards, net credit card charge-offs were
$60,159,000 in 1996 versus $37,260,000 last year, and represented 7.11% of
average credit card loans compared with 4.80% in 1995. On the managed
portfolio, the ratio of net charge-offs to average loans was 7.78% in 1996. By
credit policy, losses are taken when the loan is past due for a period of time
when collection is not probable, or upon receipt of notice of personal
bankruptcy, if earlier. Approximately 36% of the 1996 credit card losses were a
result of bankruptcy claims. The Corporation believes that total credit card
losses in 1997 will approximate the amount experienced in 1996; however, the
ratio of credit card net charge-offs to average loans is expected to improve
steadily throughout the year, after peaking in the first quarter. Excluding
credit card net charge-offs and the $11,000,000 nonrecurring loss, net
charge-offs were only $12,390,000 or .10% of average loans in 1996.
The Corporation evaluates the reserves of all banks on a quarterly basis to
ensure the timely charge-off of loans and the adequacy of each bank's reserve
for possible loan losses. This review is performed by each bank preliminarily,
and is validated by both corporate Credit Review and the Chief Credit Officer.
Factors considered in determining reserve adequacy include: volumes and trends
in delinquencies and non-performing loans; specific loan ratings and
outstandings; historical and projected loss experience based on volumes and
types of loans; the results of independent internal loan ratings or external
credit reviews; industrial or geographical concentrations; national, regional
and/or specific industry economic conditions; off-balance-sheet risk; and other
subjective factors.
22
<PAGE> 25
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
Exhibit 16
RESERVE FOR POSSIBLE LOAN LOSSES
($ in Thousands)
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BEGINNING BALANCE $201,780 $215,849 $205,946 $198,742 $176,248
PROVISION 71,014 36,530 43,265 64,302 79,551
CHARGE-OFFS
Commercial 18,634 7,254 5,816 18,640 25,694
Real estate--commercial 2,771 6,546 7,690 30,987 36,033
Real estate--construction 377 258 2,191 371 1,519
Real estate--residential 1,906 1,950 4,842 2,260 2,550
Consumer 12,294 10,441 6,181 5,815 7,673
Credit card 66,111 42,650 41,363 31,021 20,753
-------- -------- -------- -------- --------
Total Charge-offs 102,093 69,099 68,083 89,094 94,222
RECOVERIES
Commercial 3,496 3,831 9,812 14,375 7,047
Real estate--commercial 4,408 3,639 16,180 4,588 3,411
Real estate--construction 326 151 248 709 174
Real estate--residential 598 736 654 546 1,385
Consumer 3,764 2,923 2,882 2,840 3,049
Credit card 5,952 5,390 4,498 3,467 2,522
-------- -------- -------- -------- --------
Total Recoveries 18,544 16,670 34,274 26,525 17,588
-------- -------- -------- -------- --------
NET CHARGE-OFFS 83,549 52,429 33,809 62,569 76,634
Acquired Reserves 7,382 13,830 447 5,471 19,577
Transfer to Mercantile Credit Card Master Trust -- (12,000) -- -- --
-------- -------- -------- -------- --------
ENDING BALANCE $196,627 $201,780 $215,849 $205,946 $198,742
======== ======== ======== ======== ========
LOANS AND LEASES
December 31 balance $12,772,920 $11,730,887 $10,904,106 $9,808,786 $9,570,372
=========== =========== =========== ========== ==========
Average balance $12,051,043 $11,519,057 $10,196,059 $9,636,276 $9,397,901
=========== =========== =========== ========== ==========
RATIOS
Reserve balance to outstanding loans 1.54% 1.72% 1.98% 2.10% 2.08%
Reserve balance to non-performing loans 313.02 245.18 583.17 290.02 154.17
Net charge-offs to average loans .69 .46 .33 .65 .82
Earnings coverage of net charge-offs 4.32X 7.50x 10.31x 5.20x 3.72x
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Every significant problem credit is reviewed initially by the respective
bank, and a secondary review is performed quarterly to confirm the risk rating,
proper accounting and adequacy of both strategy and the loan loss reserve. In
addition to specific allocations, reserve allocations are made based on
percentage guidelines for all individually-rated loans, whether criticized or
not. Additionally, allocations are made for unrated loans, such as residential
mortgage, credit card and other consumer loans, based on historical loss
experience adjusted for portfolio activity and current economic trends. These
allocated reserves are further supplemented by unallocated reserves based on
judgments regarding risk of error, local economic conditions and any other
relevant factors.
In Exhibit 17, the Corporation has estimated an allocation of the reserve for
possible loan losses to the various loan categories. Consideration for making
such allocations is consistent with the factors discussed above and all of
those factors are subject to change; thus the allocation is not necessarily
indicative of the loan categories in which future losses will occur. The total
reserve is available to absorb losses from any portion of the loan portfolio.
Management believes the December 31, 1996 consolidated reserve of 1.54% of
total loans outstanding and 313.02% of non-performing loans was adequate based
on the risks identified at such date in the loan portfolio, and is not aware of
any significant risks in the loan portfolio due to concentrations within any
particular industry.
23
<PAGE> 26
<TABLE>
- -----------------------------------------------------------------------------------------------------
Exhibit 17
ALLOCATION OF THE RESERVE FOR POSSIBLE LOAN LOSSES
($ in Thousands)
<CAPTION>
1996 1995 1994
----------------------- ----------------------- -----------------------
PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS
ALLOCATED TO TOTAL ALLOCATED TO TOTAL ALLOCATED TO TOTAL
RESERVES LOANS RESERVES LOANS RESERVES LOANS
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 20,355 26.13% $ 48,293 25.40% $ 37,805 25.58%
Real estate--
commercial 41,250 15.99 47,785 18.07 38,004 16.31
Real estate--
construction 2,386 3.06 3,982 2.41 3,325 2.97
Real estate--
residential 15,106 33.72 12,153 32.59 9,459 32.38
Consumer 11,606 13.98 11,340 14.21 13,263 14.83
Credit card 57,666 7.12 27,333 7.32 36,827 7.93
Unallocated 48,258 N/A 50,894 N/A 77,166 N/A
-------- ------ -------- ------ -------- ------
Total $196,627 100.00% $201,780 100.00% $215,849 100.00%
======== ====== ======== ====== ======== ======
<CAPTION>
1993 1992
--------------------- -----------------------
PERCENT PERCENT
OF LOANS OF LOANS
ALLOCATED TO TOTAL ALLOCATED TO TOTAL
RESERVES LOANS RESERVES LOANS
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Commercial $ 34,023 25.86% $ 42,628 26.97%
Real estate--
commercial 43,039 17.02 48,781 17.71
Real estate--
construction 2,305 3.08 4,985 2.91
Real estate--
residential 6,240 33.15 4,962 33.36
Consumer 10,180 12.97 11,768 12.60
Credit card 31,285 7.92 25,169 6.45
Unallocated 78,874 N/A 60,449 N/A
-------- ------ -------- ------
Total $205,946 100.00% $198,742 100.00%
======== ====== ======== ======
- -----------------------------------------------------------------------------------------------------
</TABLE>
Mark Twain's reserve and coverage levels are comparable to those of
Mercantile. Roosevelt maintains a lower relative reserve level as its loan
portfolio consists largely of residential real estate mortgage loans for which
losses are typically very low. After each of these mergers is completed, the
acquired organization will comply with the reserve and credit policies as
described above.
NON-PERFORMING ASSETS
Non-performing assets consist of non-accrual loans, renegotiated loans and
foreclosed property. A summary of these assets for the past five years is
presented in Exhibit 18. FAS 114, "Accounting by Creditors for Impairment of a
Loan," as amended by FAS 118, was adopted by the Corporation in the first
quarter of 1995. This standard requires an impaired loan to be measured based
upon the present value of expected future cash flows discounted at the loan's
effective interest rate. By the Corporation's definition, all non-accrual and
renegotiated commercial-related loans are considered impaired. As of December
31, 1996, impaired loans totaled $33,933,000, for which the related reserve for
possible loan losses was $6,287,000. For 1996, the average recorded investment
in impaired loans was $43,596,000. The Corporation recognized $452,000 of
interest income on these impaired loans in 1996.
At year-end 1996, non-performing loans (i.e., non-accrual and renegotiated)
were $62,816,000 and represented .49% of total loans. Foreclosed assets at
December 31, 1996 were $13,345,000; the ratio of non-performing assets to
outstanding loans plus foreclosed assets was .60% at December 31, 1996. As
noted in Exhibit 18, non-accrual loans decreased by $19,406,000 or 24.5% while
renegotiated loans and foreclosed property stayed at a relatively constant
level.
Non-accrual loans are those for which, in the opinion of management, the
timely or ultimate collection of principal and/or interest is unlikely or
problematic. Note A to the Consolidated Financial Statements further details
the Corporation's policy on accounting for non-accrual loans. Non-accrual loans
declined by $19,406,000 from the December 31, 1995 level due to the $11,000,000
charge-off previously mentioned, the sale of the unsecured balance of that same
loan and the payment in full of a $4,500,000 loan during the second quarter of
1996. At December 31, 1996, the Corporation had only four non-accrual loans
with balances exceeding $1,000,000, the largest totaling $3,600,000.
Renegotiated loans are those for which the terms have been restructured
beyond those available in the market, in order to aid the borrower by providing
a reduction or deferral of interest and/or principal. Renegotiations usually
result from a deterioration in the financial condition of the borrower.
Renegotiated loans were $3,017,000 compared with $3,094,000 at year-end 1995.
All loans classified as renegotiated were paying in accordance with the
modified terms at December 31, 1996.
Loans past due 90 days or more and still accruing interest were $33,638,000
compared with $27,242,000 last year. This classification consisted largely of
credit card loans, residential real estate mortgage loans and other consumer
loans. Credit card loans are fully charged off when the loan is past due for a
period of time in which collection is not probable based upon historical
trends, or upon receipt of notice of personal bankruptcy, if earlier. Losses on
residential mortgage loans generally are minimal.
The Corporation had $1,440,000 par value of investment securities at December
31, 1996, 1995 and 1994 on non-accrual status. The carrying value of these
securities was reduced to $1,240,000 as of December 31, 1996.
24
<PAGE> 27
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
Exhibit 18
NON-PERFORMING ASSETS
($ in Thousands)
<CAPTION>
DECEMBER 31
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NON-ACCRUAL LOANS
Commercial $17,303 $39,222 $ 6,428 $ 15,158 $ 41,230
Real estate--commercial 14,845 17,953 13,630 27,721 40,358
Real estate--construction 977 342 146 975 6,119
Real estate--residential 22,237 17,327 8,111 10,617 14,370
Consumer 4,437 4,361 2,335 2,376 3,387
------- ------- ------- -------- --------
TOTAL NON-ACCRUAL LOANS 59,799 79,205 30,650 56,847 105,464
RENEGOTIATED LOANS 3,017 3,094 6,363 14,163 23,450
------- ------- ------- -------- --------
TOTAL NON-PERFORMING LOANS $62,816 $82,299 $37,013 $ 71,010 $128,914
======= ======= ======= ======== ========
FORECLOSED ASSETS
Foreclosed real estate $10,519 $ 9,951 $12,785 $ 41,053 $ 63,809
Other foreclosed assets 2,826 2,640 2,313 1,199 3,237
------- ------- ------- -------- --------
TOTAL FORECLOSED ASSETS $13,345 $12,591 $15,098 $ 42,252 $ 67,046
======= ======= ======= ======== ========
TOTAL NON-PERFORMING ASSETS $76,161 $94,890 $52,111 $113,262 $195,960
======= ======= ======= ======== ========
PAST-DUE LOANS (90 DAYS OR MORE)<F*> $33,638 $27,242 $22,753 $ 18,095 $ 14,116
======= ======= ======= ======== ========
RATIOS<F*>
Non-performing loans to outstanding loans .49% .70% .34% .72% 1.35%
Non-performing assets to outstanding loans and
foreclosed assets .60 .81 .48 1.15 2.03
Non-performing assets to total assets .40 .53 .31 .70 1.22
<FN>
<F*>Past-due loans 90 days or more are not included in non-performing asset totals or ratios.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
Exhibit 19
INTEREST NOT RECORDED ON NON-PERFORMING LOANS
(Thousands except per common share data)
<CAPTION>
DECEMBER 31
----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest not accrued $3,586 $3,742 $3,181 $5,035 $9,795
Less cash-basis income (605) (260) (408) (359) (782)
------ ------ ------ ------ ------
Effect on income before income taxes $2,981 $3,482 $2,773 $4,676 $9,013
====== ====== ====== ====== ======
Effect on net income $1,938 $2,263 $1,802 $3,039 $5,949
====== ====== ====== ====== ======
Effect on net income per common share $ .03 $ .04 $ .03 $ .05 $ .11
====== ====== ====== ====== ======
Interest collected applied to principal $ 930 $1,242 $ 851 $2,984 $4,424
====== ====== ====== ====== ======
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
Foreclosed assets were $13,345,000 at December 31, 1996 compared with the
prior year-end level of $12,591,000. Foreclosed assets consisted primarily of
real estate and were recorded at the lower of cost or fair value less estimated
costs to sell. At year-end 1996, the carrying value of all properties were less
than appraised value and the Corporation had only one foreclosed property with
a book value exceeding $1,000,000, which is under contract for sale in the
first quarter of 1997.
"Potential problem loans" at December 31, 1996 amounted to $33,368,000.
These are defined as loans and commitments not included in any of the two basic
non-performing loan categories discussed above or 90 days past due and still
accruing interest, but which management, through normal internal credit review
procedures, has developed information regarding possible credit problems that
could cause the borrowers future difficulties in complying with present loan
repayment terms. There were no loans classified for regulatory purposes as
loss, doubtful or substandard that were not included above or which caused
management to have serious doubts as to the ability of such borrowers to comply
with repayment terms. In addition, there were no material commitments to lend
additional funds to borrowers whose loans were classified as non-performing.
OFF-BALANCE-SHEET RISK
In the normal course of business, there are various commitments and
contingent liabilities outstanding which are properly not recorded on the
balance sheet, such as letters of credit, commitments under operating leases,
commitments to extend credit and interest rate swaps. Many of these
arrangements are complementary to the loan and deposit products which are
accounted for on the balance sheet. The Corporation's activities in foreign
exchange, interest rate swaps, futures contracts and forward commitments
continue to be minimal. Mercantile offers these products as a financial
intermediary, and at present it makes very limited use of financial derivatives
to manage its own interest rate exposure. There are $62,823,000 in forward
delivery contracts outstanding as hedges to the fixed-rate production in the
residential loan pipeline. Mark Twain, like Mercantile, makes limited use of
derivative products although it does offer foreign denominated certificates of
deposit that are appropriately hedged for foreign currency risk. Roosevelt
makes significant use of derivative products in its balance sheet management
although it has been and continues to reduce derivative contracts in
conjunction with the contraction of its balance sheet.
Standby letters of credit and similar arrangements issued primarily to
support corporate obligations commit Mercantile to make payments on behalf of
customers contingent upon the occurrence of future specified events. Standbys
outstanding were primarily related to customer obligations, such as industrial
revenue financings, as well as other financial and performance-related
obligations. At December 31, 1996, the Corporation's commitments under standbys
aggregated approximately $356,287,000, with $258,667,000 expiring within one
year, $73,463,000 expiring within one to five years and $24,157,000 expiring
after five years.
At year-end 1996, Mercantile subsidiary banks had outstanding unused loan
commitments of $8.6 billion, including $5.5 billion in credit card lines and
$361,668,000 in home equity credit lines. The remaining commitments were
largely to commercial customers in Mercantile's primary service area.
Management does not anticipate any losses that would materially affect the
financial position or results of operations of the Corporation as a result of
such commitments and contingent liabilities. Note P to the Consolidated
Financial Statements provides further discussion pertaining to these
off-balance-sheet activities and provides information as to the estimated fair
values of all financial instruments, including off-balance-sheet instruments.
OTHER INCOME
Non-interest income increased 8.2% during 1996 to $295,968,000. Excluding
$3,114,000 in nonrecurring securities losses, 1996 other income was $25,429,000
or 9.3% higher than in 1995. Trust fees, service charges, investment banking
and brokerage fees, credit card and letters of credit fees were at higher
levels than last year, while securitization revenue and mortgage banking income
declined.
Service charge income of $80,660,000 was the largest source of non-interest
income in 1996 and was up 7.0% over 1995 levels. The increase in deposit
service charges was due largely to selective fee increases and enhanced pricing
of low-balance, high-transaction accounts.
In 1996, trust fees were $79,413,000 compared with $70,751,000 during 1995,
an increase of 12.2% following growth of 7.4% in 1995. Personal trust fees
earned by Mercantile Trust Company N.A. were the largest source of trust
revenue and increased 21.0% from last year. Income from Mississippi Valley
Advisors Inc., the investment management subsidiary of Mercantile, rose by
26.7%. Mississippi Valley Advisors Inc. manages 12 proprietary mutual
funds--the ARCH funds, which had assets of $2.5 billion at December 31, 1996.
Increases in the value of assets managed as well as repricing and successful
new business development efforts largely accounted for the growth in trust
fees. The net proceeds from the sale of the indenture trust and agency business
in the fourth quarter of 1996 at a gain of $6,750,000 are reflected in
miscellaneous income. Trust fee income in the future will be slightly impacted
by the Corporation's sale of its indenture trust and agency business.
At December 31, 1996, the Corporation held $17.9 billion in assets under
investment management and $8.4 billion additional assets under custodial
relationships, increases of 20.3% and 48.0%, respectively, from year-end 1995.
Investment banking and brokerage fees were $13,021,000 compared with
$11,366,000 last year, an increase of 14.6%. This income is derived
26
<PAGE> 29
from transaction fees for services performed for both individual and corporate
customers, including sales of annuities and mutual funds, profits earned on
trading positions and foreign exchange revenue. Mercantile Investment Services,
Inc., Mercantile's brokerage services subsidiary, has experienced strong growth
in fees from sales of investment products throughout 1996, reflecting favorable
market conditions and an increase in sales activity.
Mortgage banking income decreased by $501,000 or 4.6%. Excluding the one-time
gain of $1,427,000 earned in 1995 on the sale of $225,000,000 of mortgages,
this source of income grew by 9.9% in 1996. Mortgages serviced totaled $5.9
billion at December 31, 1996 compared with $5.3 billion at December 31, 1995.
The Roosevelt transaction will add approximately $8.6 billion to servicing
volume. Originated mortgage servicing rights on the balance sheet at year-end
1996 totaled $4,409,000. The associated risk for significant impairment was not
considered to be material.
For the year ended December 31, 1996, credit card income was $27,007,000 or
37.2% higher than the comparable 1995 period. The 1996 results included a
$12,000,000 start-up cost reimbursement from the Corporation's former
co-branded card partner. Excluding that reimbursement, credit card income
declined by $4,683,000 or 23.8%. Credit card income primarily represents
interchange fees received on transactions of Mercantile cardholders,
miscellaneous fees and fees charged merchants for processing credit card
transactions. Transaction-based rebates paid to SBC co-branded cardholders are
netted against credit card fee income; these rebates totaled $22,388,000 in
1996 versus $11,281,000 in 1995. Also, certain fees relating to the securitized
loans were reclassified to securitization revenue starting in the second
quarter of 1995. Credit card income related to the merchant processing
business, which was sold late in the second quarter of 1996, was only
$3,755,000 compared with $5,280,000 in 1995.
Securitization revenue in 1996 was $16,008,000 compared with $23,005,000 last
year, and represents amounts accruing to Mercantile on the $400,000,000 in
credit card loans securitized in the 1995 Mercantile Credit Card Master Trust.
For securitized loans, amounts that would otherwise have been reported as
interest income, interest expense, credit card fees and provision for loan
losses are instead netted in non-interest income as securitization revenue.
Because credit losses are absorbed against credit card servicing income over
the life of these transactions, such income may vary depending upon the credit
performance of the securitized loans. Higher levels of net charge-offs in 1996
adversely impacted securitization revenue. Mercantile acts as servicing agent
and receives loan servicing fees equal to two percent per annum of the
securitized receivables. As servicing agent, Mercantile continues to provide
customer service to collect past due accounts and to provide other services
typically performed for its customers. Accordingly, Mercantile's relationship
with its credit card customers is not affected by the securitization.
Net securities losses of $317,000 were realized in 1996 compared with gains
of $4,042,000 in 1995. Losses of $3,114,000 were realized as the result of
merger-related investment portfolio restructurings by recently acquired banks
in the first and fourth quarters of 1996. Offsetting those losses, Mercantile
Bank N.A. recorded $2,442,000 in gains on securities sold during the fourth
quarter of 1996, as it contracted its investment portfolio due largely to the
need for less collateral for U.S. government deposits. Net securities
transactions in 1995 included gains of $1,730,000 on the sale of equity
securities.
The 17.7% increase in letters of credit fees was due largely to a growth in
the average volume of standby letters of credit during 1996. Note P to the
Consolidated Financial Statements and the discussion of Off-Balance-Sheet Risk
on Page 26 summarize the Corporation's commitments under letters of credit.
For 1996, all other miscellaneous income was up $10,145,000 or 19.5% over
1995. Significant items in miscellaneous income for 1996 included the gains on
sales of merchant credit card, indenture trust and agency and portfolio leases,
which amounted to $10,000,000, $6,750,000 and
<TABLE>
- -----------------------------------------------------------------------------------------
Exhibit 20
OTHER INCOME
($ in Thousands)
<CAPTION>
1996 1995 CHANGE 1994
---- ---- ------ ----
<S> <C> <C> <C> <C>
Trust $ 79,413 $ 70,751 12.2% $ 65,888
Service charges 80,660 75,408 7.0 72,659
Credit card fees 27,007 19,690 37.2 26,588
Securitization revenue 16,008 23,005 (30.4) --
Mortgage banking 10,321 10,822 (4.6) 10,917
Investment banking and
brokerage 13,021 11,366 14.6 14,400
Letters of credit fees 7,582 6,441 17.7 6,681
Securities gains (losses) (317) 4,042 -- 2,579
Other 62,273 52,128 19.5 36,849
-------- -------- --------
Total Other Income $295,968 $273,653 8.2 $236,561
======== ======== ========
- -----------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
$3,542,000, respectively. Gains in 1995 included the $5,155,000 reported on the
sale of Mercantile's interest in an ATM joint venture and $5,917,000 in
portfolio lease gains. Excluding those one-time items from both years,
miscellaneous income was up $925,000 or 2.3% over 1995.
OTHER EXPENSE
Expenses other than interest expense and the provision for possible loan
losses for 1996 were $637,307,000, an increase of 15.1% from 1995. Included in
other expense in the first and fourth quarters of 1996 was $51,071,000 in
expenses associated with mergers, largely for transition and duplicative costs
related to systems standardization and signage, contract penalties to systems
providers, investment banking and other professional service fees, change in
control and severance payments, and obsolete equipment write-offs. The
Corporation also recorded FDIC insurance expense in the third quarter of 1996
of $12,385,000 for the nonrecurring SAIF assessment. Excluding nonrecurring
merger and SAIF insurance costs, year-to-date operating expenses increased by
3.6% over 1995. The efficiency ratio, defined as operating expenses as a
percentage of taxable-equivalent net interest income and other income, was
56.45% in 1996 compared with 57.46%, or 101 basis points better than last year,
excluding the nonrecurring items noted above.
Salary expense increased by 5.0% during 1996, largely reflecting the costs of
merit increases and the compensation for employees added in acquisitions.
Year-to-date benefit costs were up by 8.5% due to an increase in the number of
staff and higher costs of most employee benefit programs. In 1996, the
Corporation lowered the discount rate used in pension and postretirement
actuarial assumptions by one percent, which increased pension expense by 10.5%
this year in comparison with 1995.
FAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which was adopted in 1993, required the recording of the
unrecognized transition obligation for postretirement benefits other than
pensions. That liability approximated $25,308,000 at December 31, 1996 and will
be amortized over the next 16 years. FAS 112, "Employers' Accounting for
Postemployment Benefits," was effective in 1994 and it relates to accounting
for benefits provided to former or inactive employees after employment, but
before retirement. The implications of this statement remain immaterial to the
financial condition and results of operations of Mercantile.
FAS 123, "Accounting for Stock Based Compensation," was issued in October
1995; it encourages companies to adopt an optional accounting method in 1996
based on the estimated fair value of employee stock options. Mercantile has
continued to use the current accounting methodology for stock based compensation
plans. Therefore, additional pro forma footnote disclosure has been made in Note
M of the Consolidated Financial Statements.
Occupancy and equipment costs grew by 10.2% during 1996, reflecting the costs
of maintaining additional offices and a consistent program of upgrading systems
and equipment to further enhance productivity. Total capital expenditures were
$67,837,000, $59,849,000 and $47,956,000 in 1996, 1995 and 1994, respectively.
In March 1995, FAS 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," was published. Under FAS 121,
long-lived assets and certain identifiable intangible assets are reviewed
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. This statement was effective in 1996 and did not
have a material impact on Mercantile.
<TABLE>
- -----------------------------------------------------------------------------------------
Exhibit 21
OTHER EXPENSE
($ in Thousands)
<CAPTION>
1996 1995 CHANGE 1994
---- ---- ------ ----
<S> <C> <C> <C> <C>
Salaries $253,529 $241,422 5.0% $233,430
Employee benefits 62,091 57,203 8.5 55,345
-------- -------- --------
Total Personnel Expense 315,620 298,625 5.7 288,775
Net occupancy 40,431 38,044 6.3 36,475
Equipment 50,648 44,630 13.5 41,410
Marketing/business
development 11,176 14,759 (24.3) 15,974
Postage and freight 22,195 20,124 10.3 17,741
Office supplies 12,807 13,024 (1.7) 11,971
Communications 11,077 10,770 2.9 8,737
Legal and professional 10,658 13,055 (18.4) 15,900
Credit card 15,890 12,081 31.5 12,042
FDIC insurance 15,863 17,705 (10.4) 29,119
Foreclosed property
expense (727) 1,565 -- (5,077)
Intangible asset
amortization 11,318 9,492 19.2 10,802
Other 120,351 59,874 -- 71,307
-------- -------- --------
Total Other Expense $637,307 $553,748 15.1 $555,176
======== ======== ========
- -----------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 31
The major components of all other operating expenses for the past three years
are shown in Exhibit 21. Credit card, communications and postage expenses
increased mainly as the result of costs of servicing the SBC co-branded credit
card customers. Intangible asset amortization increased by $1,826,000 or 19.2%,
due primarily to the amortization of the goodwill recorded on the Today's,
First Financial, Plains Spirit Financial Corporation, Metro, Conway and Peoples
acquisitions. Excluding the special assessment, FDIC insurance expense was
insignificant in 1996 compared with $17,705,000 in 1995.
In late 1996, Mercantile began to organize a formal program to address the
systems implications of the year 2000. It is the goal of the program to have
all systems "2000 compliant" by January 1, 1999. Preliminary cost estimates
for the 1997 through 1999 time frame are not yet quantified. These costs will
be expensed as incurred.
INCOME TAXES
For the year ended December 31, 1996, the Corporation recorded income tax
expense of $98,089,000 compared with $124,109,000 in 1995 and $113,165,000 in
1994. The effective tax rate for 1996 was 33.82% compared with 34.79% last year
and 37.07% in 1994.
The higher 1994 effective tax rate was due largely to a $3,615,000 tax
provision for the statutory recapture of acquired thrift loan loss reserves for
which no deferred taxes had previously been provided. The lower 1996 rate is
due to a reduction in state and local tax effective rates reflecting the
benefits associated with the creation of special purpose subsidiaries that were
established in the third quarter of 1996, as well as the resolution of certain
tax uncertainties.
A three-year summary of significant income tax data is presented in Note K to
the Consolidated Financial Statements, which provides an analysis of deferred
income taxes as well as a reconciliation between the amount of taxes computed
using the statutory rate and the amount actually recorded. As disclosed,
Mercantile had a net deferred tax asset of $49,116,000 at December 31, 1996.
Due to the significant amount of taxes paid for the past three years and the
forecasted taxes payable for 1997, no valuation reserve for the deferred tax
asset is deemed necessary. The Corporation currently has no operating loss
carryforwards and the federal returns have been examined through 1992 by the
Internal Revenue Service.
FOURTH QUARTER RESULTS
Mercantile earned $66,630,000 in the fourth quarter of 1996, a 17.7% increase
from the $56,592,000 earned in the same period last year. On a per common share
basis, earnings increased to $1.09 from $.89 the prior year. The fourth quarter
of 1996 included nonrecurring merger-related costs which reduced net income and
net income per common share by $8,477,000 and $.14, respectively. One-time
favorable items in the fourth quarter of 1996 included the final $4,000,000
co-branded credit card start-up cost reimbursement, $2,442,000 in securities
gains and the $6,750,000 indenture trust and agency sale gain. Additionally,
the Corporation's earnings were positively impacted by a lower effective tax
rate due to the consolidation of bank charters and the creation of special
purpose subsidiaries, as well as the resolution of certain tax uncertainties.
Exhibit 22 presents condensed quarterly financial data for the last two years.
Net interest income improved by 5.9% to $180,509,000 as the volume of average
earning assets increased by 3.4% and the net interest rate margin grew from
4.25% to 4.34%. Average loan volume was up $656,956,000 or 5.5% as loan demand
improved and loans were added from the 1996 acquisitions previously discussed.
The commentary on Net Interest Income on Page 10 provides more details on the
dynamics of net interest income and the net interest rate margin.
The provision for possible loan losses for the fourth quarter was $15,099,000
compared with $7,353,000 the prior year, as higher levels of provision were
needed to absorb credit card losses. Additionally, there was nonrecurring
merger-related provision of $2,815,000 in the fourth quarter of 1996. Net
charge-offs were $25,405,000 or .81% of average loans for the quarter compared
with the year-earlier $15,001,000 or .51%. Losses on credit card loans
continued to be responsible for most of the charge-offs.
Other income grew by $10,002,000 or 13.5% from the fourth quarter of 1995.
Strong results in the trust and investment business as well as the one-time
items previously mentioned accounted for the increase. A detailed explanation
of the year over year increase in other income is included on Page 26.
Other operating expenses were up $8,509,000 or 5.8% from a year ago; this
year's expense included $9,393,000 of nonrecurring charges related to mergers.
Excluding nonrecurring expenses, the efficiency ratio was 54.31% in the current
quarter compared with 59.05% last year.
29
<PAGE> 32
<TABLE>
- ------------------------------------------------------------------------------------------
Exhibit 22
QUARTERLY FINANCIAL SUMMARY
<CAPTION>
1995
-----------------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PER COMMON SHARE DATA
Net income $ .91 $ .95 $ .99 $ .89
Dividends declared .33 .33 .33 .33
Book value at period-end 23.82 24.49 25.31 26.04
Market price at period-end 36 1/2 44 7/8 44 3/4 46
Average common shares
outstanding (Thousands) 60,774 60,670 63,025 63,028
OPERATING RESULTS (Thousands)
Taxable-equivalent net interest income $176,318 $169,627 $169,744 $174,291
Tax-equivalent adjustment 4,405 4,230 4,125 3,810
-------- -------- -------- --------
Net interest income 171,913 165,397 165,619 170,481
Provision for possible loan losses 13,990 6,683 8,504 7,353
Other income 62,701 64,910 72,005 74,037
Other expense 135,926 135,288 135,906 146,628
Income taxes 29,265 30,449 30,450 33,945
-------- -------- -------- --------
Net income $ 55,433 $ 57,887 $ 62,764 $ 56,592
======== ======== ======== ========
AVERAGE BALANCE SHEET (Millions)
Total assets $17,009 $17,215 $17,839 $17,774
Earning assets 15,740 15,863 16,495 16,400
Loans and leases 11,106 11,268 11,828 11,862
Investments in debt and equity
securities 4,325 4,277 4,287 4,194
Deposits 13,239 13,505 13,912 13,804
Long-term debt 328 322 342 338
Shareholders' equity 1,445 1,480 1,594 1,627
SELECTED RATIOS
Return on assets 1.30% 1.35% 1.41% 1.27%
Return on equity 15.35 15.64 15.75 13.91
Efficiency ratio 56.87 57.68 56.22 59.05
Other expense to average assets 3.20 3.14 3.05 3.30
Equity to assets 8.52 8.68 8.95 9.15
Tier I capital to risk-adjusted assets 11.79 12.13 12.37 12.22
Total capital to risk-adjusted assets 15.00 15.33 15.49 15.30
Leverage 8.08 8.26 8.48 8.54
Loans to deposits (Average) 83.89 83.44 85.02 85.93
Reserve for possible loan losses to
outstanding loans 1.92 1.77 1.75 1.72
Reserve for possible loan losses to
non-performing loans 548.87 431.32 366.62 245.18
Non-performing loans to outstanding
loans .35 .41 .48 .70
Non-performing assets to outstanding
loans and foreclosed assets .48 .54 .61 .81
Net interest rate margin 4.48 4.28 4.12 4.25
<CAPTION>
1996
----------------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PER COMMON SHARE DATA
Net income $ .07 $ 1.04 $ .92 $ 1.09
Dividends declared .41 .41 .41 .41
Book value at period-end 25.47 25.64 25.51 26.52
Market price at period-end 45 3/4 44 1/2 52 51 3/8
Average common shares outstanding
(Thousands) 63,052 62,780 60,665 61,024
OPERATING RESULTS (Thousands)
Taxable-equivalent net interest income $173,657 $180,490 $179,123 $184,261
Tax-equivalent adjustment 3,921 3,768 3,701 3,752
-------- -------- -------- --------
Net interest income 169,736 176,722 175,422 180,509
Provision for possible loan losses 33,168 10,638 12,109 15,099
Other income 59,284 78,157 74,488 84,039
Other expense 182,770 143,324 156,076 155,137
Income taxes 8,517 35,841 26,049 27,682
-------- -------- -------- --------
Net income $ 4,565 $ 65,076 $ 55,676 $ 66,630
======== ======== ======== ========
AVERAGE BALANCE SHEET (Millions)
Total assets $17,865 $18,202 $18,039 $18,366
Earning assets 16,411 16,640 16,656 16,964
Loans and leases 11,798 11,855 12,027 12,518
Investments in debt and equity
securities 4,296 4,475 4,380 4,192
Deposits 13,921 14,746 14,483 14,492
Long-term debt 325 322 310 303
Shareholders' equity 1,675 1,612 1,559 1,604
SELECTED RATIOS
Return on assets .10% 1.43% 1.23% 1.45%
Return on equity 1.09 16.15 14.28 16.62
Efficiency ratio 78.46 55.41 61.54 57.82
Other expense to average assets 4.09 3.15 3.46 3.38
Equity to assets 8.98 8.91 8.43 8.61
Tier I capital to risk-adjusted assets 11.90 11.88 11.15 10.91
Total capital to risk-adjusted assets 14.99 14.95 14.19 13.87
Leverage 8.28 8.18 7.73 7.82
Loans to deposits (Average) 84.75 80.39 83.05 86.38
Reserve for possible loan losses to
outstanding loans 1.79 1.72 1.66 1.54
Reserve for possible loan losses to
non-performing loans 259.41 322.71 348.56 313.02
Non-performing loans to outstanding
loans .69 .53 .48 .49
Non-performing assets to outstanding
loans and foreclosed assets .77 .60 .58 .60
Net interest rate margin 4.23 4.34 4.30 4.34
- ------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 33
MANAGEMENT REPORT ON CONSOLIDATED
FINANCIAL STATEMENTS
The management of Mercantile Bancorporation Inc. is responsible for the
preparation, and the integrity and objectivity of the accompanying financial
statements. The financial statements necessarily include amounts that are based
on management's best estimates and judgments. Future economic conditions and
events, and the economic prospects of the Corporation's borrowers, create the
possibility that such estimates and judgments may be subject to review and
revision.
The Corporation maintains an accounting system and related internal controls
that have been deemed sufficient to provide reasonable assurance that the
financial records are reliable for preparing the financial statements and
maintaining accountability for assets. The concept of reasonable assurance is
based upon the recognition that the cost of a system of internal control must
be related to the benefits derived, and that the balancing of those factors
requires estimates and judgments. The system of internal controls includes
written policies and procedures, proper delegation of authority, and
segregation of duties. In addition, written Standards of Conduct adopted by the
Corporation help to ensure the highest standards of ethical conduct by all
employees. Management continually monitors compliance with the system of
internal controls, primarily through an extensive program of internal audits.
The system of internal controls and compliance therewith are considered by
independent auditors, in accordance with generally accepted auditing standards,
to the extent necessary to render an opinion on the financial statements, and
by regulatory examiners.
The financial statements were audited by KPMG Peat Marwick LLP, independent
auditors, in accordance with generally accepted auditing standards. Their
independent professional opinion on the Corporation's financial statements is
presented herein.
/s/ Thomas H. Jacobsen
- -----------------------------
Thomas H. Jacobsen
Chairman and Chief Executive Officer
/s/ John Q. Arnold
- -----------------------------
John Q. Arnold
Senior Executive Vice President and
Chief Financial Officer
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Mercantile Bancorporation Inc.:
We have audited the accompanying consolidated balance sheets of Mercantile
Bancorporation Inc. and subsidiaries as of December 31, 1996, 1995 and 1994,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mercantile
Bancorporation Inc. and subsidiaries as of December 31, 1996, 1995 and 1994,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
- ----------------------------------
KPMG Peat Marwick LLP
St. Louis, Missouri
January 15, 1997
31
<PAGE> 34
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Thousands except per common share data)
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $1,049,439 $1,021,052 $ 850,525
Investments in debt and equity securities
Trading 173 431 527
Taxable 237,130 226,905 225,051
Tax-exempt 22,331 24,829 25,824
---------- ---------- ----------
Total 259,634 252,165 251,402
Due from banks--interest bearing 4,052 2,487 2,859
Federal funds sold and repurchase agreements 12,256 18,240 13,283
---------- ---------- ----------
Total Interest Income 1,325,381 1,293,944 1,118,069
INTEREST EXPENSE
Interest bearing deposits 504,263 482,775 368,633
Foreign deposits 10,501 13,088 5,398
Short-term borrowings 69,272 86,043 51,293
Bank notes 15,333 13,674 780
Long-term debt 23,623 24,954 24,846
---------- ---------- ----------
Total Interest Expense 622,992 620,534 450,950
---------- ---------- ----------
NET INTEREST INCOME 702,389 673,410 667,119
PROVISION FOR POSSIBLE LOAN LOSSES<F1> 71,014 36,530 43,265
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 631,375 636,880 623,854
OTHER INCOME
Trust 79,413 70,751 65,888
Service charges 80,660 75,408 72,659
Credit card fees 27,007 19,690 26,588
Securitization revenue 16,008 23,005 --
Mortgage banking 10,321 10,822 10,917
Investment banking and brokerage 13,021 11,366 14,400
Securities gains (losses)<F1> (317) 4,042 2,579
Other 69,855 58,569 43,530
---------- ---------- ----------
Total Other Income 295,968 273,653 236,561
OTHER EXPENSE
Salaries 253,529 241,422 233,430
Employee benefits 62,091 57,203 55,345
Net occupancy 40,431 38,044 36,475
Equipment 50,648 44,630 41,410
Intangible asset amortization 11,318 9,492 10,802
Other<F1> 219,290 162,957 177,714
---------- ---------- ----------
Total Other Expense 637,307 553,748 555,176
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 290,036 356,785 305,239
INCOME TAXES<F1> 98,089 124,109 113,165
---------- ---------- ----------
NET INCOME $ 191,947 $ 232,676 $ 192,074
========== ========== ==========
PER COMMON SHARE DATA
Average shares outstanding 61,874,882 61,883,723 59,757,392
Net income<F2> $3.10 $3.74 $3.19
Dividends declared 1.64 1.32 1.12
<FN>
<F1> Includes the following acquisition charges and special SAIF assessment:
Provision for possible loan losses $13,666 $-- $ 7,775
Other income (securities losses) (3,114) -- --
Other expense 63,456 -- 12,664
Income tax benefit (23,697) -- (3,739)
-------- --- --------
Impact on Net Income $(56,539) $-- $(16,700)
======== === ========
<F2> Earnings per common share is calculated by dividing net income,
less dividends on preferred stock, by weighted average
common shares outstanding.
</TABLE>
32
<PAGE> 35
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Thousands)
<CAPTION>
DECEMBER 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,223,911 $ 1,112,088 $ 863,986
Due from banks--interest bearing 91,616 51,056 29,366
Federal funds sold and repurchase agreements 234,212 271,098 213,581
Investments in debt and equity securities
Trading 500 3,677 14,299
Available-for-sale (Amortized cost of $3,678,496, $4,167,560 and
$720,843, respectively) 3,691,509 4,207,079 700,741
Held-to-maturity (Estimated fair value of $349,738 in 1996 and
$3,451,258 in 1994) 346,566 -- 3,565,219
----------- ----------- -----------
Total Investments in Debt and Equity Securities 4,038,575 4,210,756 4,280,259
Loans held-for-sale 66,373 94,877 21,383
Loans and leases, net of unearned income 12,706,547 11,636,010 10,882,723
----------- ----------- -----------
Total Loans and Leases 12,772,920 11,730,887 10,904,106
Reserve for possible loan losses (196,627) (201,780) (215,849)
----------- ----------- -----------
Net Loans and Leases 12,576,293 11,529,107 10,688,257
Bank premises and equipment 341,060 309,070 284,565
Due from customers on acceptances 4,946 2,622 6,609
Intangible assets 175,226 110,529 97,357
Other assets 301,120 331,715 259,907
----------- ----------- -----------
Total Assets $18,986,959 $17,928,041 $16,723,887
=========== =========== ===========
LIABILITIES
Deposits
Non-interest bearing $ 2,584,340 $ 2,075,579 $ 1,980,168
Interest bearing 11,983,660 11,429,511 10,665,587
Foreign 251,887 209,170 219,135
----------- ----------- -----------
Total Deposits 14,819,887 13,714,260 12,864,890
Federal funds purchased and repurchase agreements 1,589,261 1,552,945 1,519,156
Other short-term borrowings 198,412 210,791 318,925
Bank notes 175,000 250,000 100,000
Long-term debt 302,795 325,607 330,200
Bank acceptances outstanding 4,946 2,622 6,609
Other liabilities 262,631 232,229 175,417
----------- ----------- -----------
Total Liabilities 17,352,932 16,288,454 15,315,197
Commitments and contingent liabilities -- -- --
<CAPTION>
SHAREHOLDERS' EQUITY
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Preferred stock--
no par value
Shares authorized 5,000 5,000 5,000
Shares issued and outstanding -- 15 15 -- 12,153 12,153
Common stock--
$5.00 par value
Shares authorized 100,000 100,000 100,000
Shares issued 63,332 63,887 59,977 316,663 319,434 299,885
Capital surplus 228,151 283,288 230,940
Retained earnings 1,163,069 1,060,960 889,115
Valuation on available-
for-sale securities 10,345 24,309 (20,449)
Treasury stock, at cost 1,728 1,380 94 (84,201) (60,557) (2,954)
----------- ----------- -----------
Total Shareholders' Equity 1,634,027 1,639,587 1,408,690
----------- ----------- -----------
Total Liabilities and Shareholders'
Equity $18,986,959 $17,928,041 $16,723,887
=========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
33
<PAGE> 36
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
($ in Thousands)
<CAPTION>
COMMON STOCK
--------------------- TOTAL
OUTSTANDING PREFERRED CAPITAL RETAINED TREASURY SHAREHOLDERS'
SHARES DOLLARS STOCK SURPLUS EARNINGS<F*> STOCK EQUITY
----------- ------- --------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 59,432,238 $297,162 $ 12,153 $224,634 $ 761,272 $ -- $1,295,221
Net income 192,074 192,074
Common dividends declared:
Mercantile Bancorporation Inc.--$1.12 per
share (48,329) (48,329)
Pooled companies prior to acquisition (10,947) (10,947)
Preferred dividends declared (1,219) (1,219)
Issuance of common stock for:
Employee incentive plans 308,112 1,541 1,683 3,224
Convertible notes 181,092 905 3,793 4,698
Net fair value adjustment on
available-for-sale securities (24,291) (24,291)
Purchase of treasury stock (93,500) (2,954) (2,954)
Pre-merger transactions of pooled companies
and other 55,307 277 830 106 1,213
----------- -------- -------- -------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1994 59,883,249 299,885 12,153 230,940 868,666 (2,954) 1,408,690
Net income 232,676 232,676
Common dividends declared:
Mercantile Bancorporation Inc.--$1.32 per
share (68,542) (68,542)
Pooled companies prior to acquisition (14,897) (14,897)
Preferred dividends declared (1,020) (1,020)
Issuance of common stock in acquisitions of:
Southwest Bancshares, Inc. 674,975 3,375 625 9,797 13,797
AmeriFirst Bancorporation, Inc. 661,356 3,307 5,367 3,781 12,455
Plains Spirit Financial Corporation 1,301,180 2,639 22,930 27,701 53,270
Wedge Bank 969,954 4,850 1,649 7,314 13,813
Issuance of common stock for:
Employee incentive plans 664,748 3,300 10,932 170 14,402
Convertible notes 331,075 1,655 6,935 8,590
Net fair value adjustment on
available-for-sale securities 47,494 47,494
Purchase of treasury stock (2,064,600) (85,474) (85,474)
Pre-merger transactions of pooled companies
and other 84,599 423 3,910 4,333
----------- -------- -------- -------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1995 62,506,536 319,434 12,153 283,288 1,085,269 (60,557) 1,639,587
NET INCOME 191,947 191,947
COMMON DIVIDENDS DECLARED--$1.64 PER SHARE (101,499) (101,499)
PREFERRED DIVIDENDS DECLARED (408) (408)
REDEMPTION OF PREFERRED STOCK (12,153) (531) (12,684)
ISSUANCE OF COMMON STOCK IN ACQUISITIONS OF:
TODAY'S BANCORP, INC. 1,127,058 (2,195) 52,321 50,126
FIRST FINANCIAL CORPORATION OF AMERICA 258,742 (1,226) 12,954 11,728
PEOPLES STATE BANK 325,837 849 14,791 15,640
METRO SAVINGS BANK, F.S.B. 197,902 57 14 8,983 9,054
SECURITY BANK OF CONWAY, F.S.B. 321,964 75 14,614 14,689
FIRST STERLING BANCORP, INC. 521,417 2,607 1,876 13,772 18,255
ISSUANCE OF COMMON STOCK FOR EMPLOYEE
INCENTIVE PLANS 274,517 1,091 (3,771) 2,397 (283)
NET FAIR VALUE ADJUSTMENT ON
AVAILABLE-FOR-SALE SECURITIES (14,386) (14,386)
PURCHASE OF TREASURY STOCK (3,926,951) (186,811) (186,811)
REISSUANCE AND RETIREMENT OF TREASURY STOCK (6,458) (50,708) 57,166 --
OTHER (2,299) (11) (94) (764) (59) (928)
----------- -------- -------- -------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1996 61,604,723 $316,663 $ -- $228,151 $1,173,414 $(84,201) $1,634,027
=========== ======== ======== ======== ========== ======== ==========
<FN>
<F*>Includes valuation on available-for-sale securities.
</TABLE>
34
<PAGE> 37
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands)
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 191,947 $ 232,676 $ 192,074
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for possible loan losses 71,014 36,530 43,265
Depreciation and amortization 42,539 39,255 35,388
Provision for deferred income tax credits (23,049) (13,159) (8,026)
Net change in loans held-for-sale 28,504 (73,494) 120,085
Net change in accrued interest receivable 10,427 (9,429) (15,380)
Net change in accrued interest payable (12,521) 28,502 6,343
Other, net 88,805 11,887 (3,163)
---------- ---------- ----------
Net Cash Provided by Operating Activities 397,666 252,768 370,586
INVESTING ACTIVITIES
Investments in debt and equity securities, other than
trading securities
Purchases (1,545,342) (1,123,682) (1,486,183)
Proceeds from maturities 1,672,969 1,302,913 1,398,857
Proceeds from sales of:
Held-to-maturity securities -- -- 1,985
Available-for-sale securities 269,463 207,901 427,204
Net change in loans and leases (668,686) (895,993) (1,511,428)
Purchases of loans and leases (141,600) (128,361) (78,730)
Proceeds from sales of loans and leases 255,043 759,626 302,580
Purchases of premises and equipment (67,837) (59,849) (47,956)
Proceeds from sales of premises and equipment 9,163 5,146 5,908
Proceeds from sales of foreclosed property 26,450 20,792 45,978
Cash and cash equivalents from acquisitions, net of
cash paid 32,014 47,126 48,196
Other, net 5,781 4,648 32,026
---------- ---------- ----------
Net Cash Provided (Used) by Investing Activities (152,582) 140,267 (861,563)
FINANCING ACTIVITIES
Net change in time certificates of deposit under $100,000 (419,087) 147,550 (112,901)
Net change in time certificates of deposit $100,000 and
over (37,898) 156,683 27,699
Net change in other time deposits 188,754 446 (10,745)
Net change in foreign deposits 42,717 (9,965) 193,050
Net change in other deposits 509,672 (157,160) (529,742)
Net change in short-term borrowings (25,744) (171,697) 613,409
Issuance of bank notes 25,000 150,000 100,000
Principal payments on bank notes (100,000) -- --
Issuance of long-term debt 2,607 14,676 82,151
Principal payments on long-term debt (25,758) (31,288) (61,910)
Cash dividends paid (101,907) (84,459) (59,952)
Net proceeds from issuance of common stock from
employee incentive plans (59) 2,778 2,729
Purchase of treasury stock (175,036) (85,474) (2,954)
Redemption of preferred stock (12,684) -- --
Other, net (164) 2,184 (4,572)
---------- ---------- ----------
Net Cash Provided (Used) by Financing Activities (129,587) (65,726) 236,262
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 115,497 327,309 (254,715)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,434,242 1,106,933 1,361,648
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $1,549,739 $1,434,242 $1,106,933
========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
35
<PAGE> 38
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
ACCOUNTING POLICIES
Mercantile Bancorporation Inc. ("Corporation" or "Mercantile") and its
subsidiaries follow generally accepted accounting principles and reporting
practices applicable to the banking industry. The significant accounting
policies are summarized below.
Basis of Presentation:
Consolidation: The Consolidated Financial Statements include the accounts of
Mercantile Bancorporation Inc. and its subsidiaries. Material intercompany
transactions are eliminated.
Restatement: Effective January 2, 1996, the Corporation acquired Hawkeye
Bancorporation ("Hawkeye"), in a transaction accounted for as a
pooling-of-interests. Accordingly, prior period financial statements have been
restated as if the combining entities had been consolidated for all periods
presented.
Reclassification: Certain reclassifications have been made to the 1995 and
1994 historical financial statements to conform with the 1996 presentation.
New Accounting Standards:
Financial Accounting Standard ("FAS") 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective
for fiscal years ending after December 15, 1995, provides separate guidelines
for establishing carrying values of long-lived assets and certain identifiable
intangible assets based on intent to either hold and use an asset or dispose of
an asset. The adoption of FAS 121 had no material effect on Mercantile's
financial condition or results of operations.
FAS 123, "Accounting for Stock Based Compensation," encourages an optional
accounting method for stock based compensation based on the estimated fair
value of employee stock options. The Corporation continues to use the current
accounting methodology for stock based compensation plans. The Corporation has
complied with the expanded footnote disclosures as set forth in FAS 123 which
is included in Note M to the Consolidated Financial Statements.
The FASB issued Statement 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which requires an entity
to recognize the financial and servicing assets it controls and the liabilities
it has incurred and to derecognize financial assets when control has been
surrendered in accordance with the criteria provided in the Statement. The
Corporation will apply the new rules prospectively to transactions beginning in
the first quarter of 1997. Based on current circumstances, the Corporation
believes the application of the new rules will not have a material impact on
the financial statements.
Use of Estimates:
Management of the Corporation has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare the Consolidated Financial
Statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Earnings per Common Share:
Earnings per common share data is calculated by dividing net income, after
deducting dividends on preferred stock, by the weighted average number of
common shares outstanding during the period.
Investments in Debt and Equity Securities:
Trading securities, which include any security held primarily for near-term
sale, are valued at fair value. Gains and losses on trading securities, both
realized and unrealized, are recorded in investment banking and brokerage
income.
Available-for-sale securities, which include any security for which the
Corporation has no immediate plan to sell but which may be sold in the future,
are valued at fair value. Realized gains and losses, based on the amortized
cost of the specific security, are included in other income as securities gains
(losses). Unrealized gains and losses are recorded, net of related income tax
effects, in retained earnings.
Held-to-maturity securities, which include any security for which the
Corporation has the positive intent and ability to hold until maturity, are
valued at historical cost adjusted for amortization of premiums and accretion
of discounts computed by the level-yield method. Realized gains and losses,
based on the amortized cost of the specific security, are included in other
income as securities gains (losses).
Loans Held-for-Sale:
In its lending activities, the Corporation originates residential and student
loans with the intent to be sold in the secondary market. Loans held-for-sale
are carried at the lower of cost or fair value, which is determined on an
aggregate basis. Gains or losses on the sale of loans held-for-sale are
determined on a specific identification method.
Loans and Leases:
Interest income on loans is generally accrued on a simple interest basis.
Loan fees and direct costs of loan originations are deferred and amortized over
the life of the loans under methods approximating the interest method.
The finance method is used to account for direct and leveraged equipment
lease contracts. Income is recorded over the lease periods in proportion to the
unrecovered investment in the leases after consideration of investment tax
credits and other related income tax effects.
36
<PAGE> 39
When, in management's opinion, the collection of interest on a loan is
unlikely, or when either principal or interest is past due over 90 days, that
loan is generally placed on non-accrual status. When a loan is placed on
non-accrual status, accrued interest for the current year is reversed and
charged against current earnings, and accrued interest from prior years is
charged against the reserve for possible loan losses. Interest payments
received on non-accrual loans are applied to principal if there is doubt as to
the collectibility of such principal; otherwise, these receipts are recorded as
interest income. A loan remains on non-accrual status until the loan is current
as to payment of both principal and interest, and/or the borrower demonstrates
the ability to pay and remain current.
All non-accrual and renegotiated commercial-related loans are considered
impaired. Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate.
Mortgage servicing rights associated with loans originated and sold, where
servicing is retained, are capitalized and amortized using the level-yield
method over the estimated lives of the loans. The carrying value of such rights
is subject to periodic adjustment based upon changing market conditions.
Reserve for Possible Loan Losses:
The reserve for possible loan losses is increased by provisions charged to
expense and reduced by loans charged off, net of recoveries. The reserve is
maintained at a level considered adequate to provide for potential loan losses
based on management's evaluation of current economic conditions, changes in the
character and size of the portfolio, past experience, expected future losses
and other pertinent factors.
Mercantile charges off credit card loans when the loan is past due for a
period of time in which collection is not probable based upon historical
trends. In addition, a credit card loan is charged off immediately following
notice of bankruptcy of the borrower.
Foreclosed Assets:
Foreclosed assets include real estate and other assets acquired through
foreclosure or other proceedings, and are included in other assets in the
Consolidated Balance Sheet.
Foreclosed assets are valued at the lower of cost or fair value less
estimated costs to sell. Losses arising at the time of transfer from loans are
charged to the reserve for possible loan losses. Subsequent reductions in
valuation based upon periodic appraisals are charged against current earnings.
Bank Premises and Equipment:
Bank premises and equipment are stated at cost less accumulated depreciation.
Provisions for depreciation are computed principally by the straight-line
method and are based on estimated useful lives of the assets. The carrying
values of assets sold or retired and the related accumulated depreciation are
eliminated from the accounts, and the resulting gains or losses are reflected
in income.
Expenditures for maintenance and repairs are charged to expense, while
expenditures for major renewals are capitalized.
Intangible Assets:
Intangible assets consist primarily of goodwill and core deposit premium.
Goodwill, the excess of cost over the net assets acquired in business
combinations accounted for as purchases, is amortized using the straight-line
method over the estimated period to be benefited, most recently 15 years, but
not exceeding 40 years.
Core deposit premium represents the premiums paid, net of any rebate on
assets acquired, plus the insurance funds' entrance and exit fees, for deposits
acquired from failed thrift institutions in Resolution Trust
Corporation-assisted transactions. This intangible asset is amortized, on an
accelerated basis, over the estimated life of the core deposit base acquired,
but not exceeding 10 years.
Income Taxes:
Deferred income taxes, computed using the liability method, are provided on
temporary differences between the financial reporting basis and the tax basis
of the assets and liabilities of the Corporation.
Treasury Stock:
The purchase of the Corporation's common stock is recorded at cost. Upon
subsequent reissuance, the treasury stock account is reduced by the average cost
basis of such stock.
Cash Equivalents:
Cash and due from banks, due from banks--interest bearing, and federal funds
sold and repurchase agreements are considered cash equivalents for purposes of
the Consolidated Statement of Cash Flows.
Financial Instruments:
Financial instruments include cash, evidence of an ownership interest in an
entity or a contract that both (a) imposes on the Corporation a contractual
obligation, (1) to deliver a financial instrument to another party, or (2) to
exchange other financial instruments on potentially unfavorable terms with
another party; and (b) conveys to another party a contractual right, (1) to
receive a financial instrument from the Corporation, or (2) to exchange other
financial instruments on potentially favorable terms with the Corporation.
37
<PAGE> 40
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE B
SUBSIDIARIES
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
Listed below are the acquisitions completed during the years ended December 31, 1996, 1995 and 1994:
($ in Thousands)
<CAPTION>
ORIGINAL CONSIDERATION
INTANGIBLE --------------------- ACCOUNTING
DATE ASSETS ASSET CASH SHARES METHOD
---- ------ ---------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
ACQUISITIONS COMPLETED
Today's Bancorp, Inc. Nov. 7, 1996 $ 501,418 $46,854 $34,912 1,127,058 Purchase
First Financial Corporation of
America Nov. 1, 1996 87,649 5,137 3,253 258,742 Purchase
Peoples State Bank
("Peoples") Aug. 22, 1996 95,657 7,552 -- 325,837 Purchase
Metro Savings Bank, F.S.B.
("Metro") Mar. 7, 1996 80,857 3,016 5 197,902 Purchase
Security Bank of Conway,
F.S.B. ("Conway") Feb. 9, 1996 102,502 6,000 1 321,964 Purchase
Hawkeye Bancorporation Jan. 2, 1996 1,978,540 N/A 80 7,892,196 Pooling
First Sterling Bancorp, Inc. Jan. 2, 1996 167,610 N/A 1 521,417 Pooling<F1>
Southwest Bancshares, Inc. Aug. 1, 1995 187,701 N/A 1 674,975 Pooling<F1>
AmeriFirst Bancorporation, Inc. Aug. 1, 1995 155,521 N/A 1 661,356 Pooling<F1>
Plains Spirit Financial
Corporation July 7, 1995 400,754 17,820 6,697 1,301,180 Purchase
TCBankshares, Inc. ("TCB") May 1, 1995 1,422,798 N/A -- 4,749,999<F2> Pooling
Central Mortgage Bancshares,
Inc. ("Central") May 1, 1995 654,584 N/A 8 2,537,723 Pooling
UNSL Financial Corp ("UNSL") Jan. 3, 1995 508,346 N/A 11 1,578,107 Pooling
Wedge Bank Jan. 3, 1995 195,716 N/A 1 969,954 Pooling<F1>
United Postal Bancorp, Inc. Feb. 1, 1994 1,260,765 N/A 39 5,631,953 Pooling
Metro Bancorporation Jan. 3, 1994 370,175 N/A 6 1,638,278 Pooling
<FN>
<F1> The historical financial statements of the Corporation were not
restated for the acquisition due to the immateriality of the acquiree's
financial condition and results of operations to that of Mercantile's.
<F2> In addition to Mercantile common stock issued, the Corporation assumed,
through an exchange, the outstanding, non-convertible preferred stock
of TCB. The preferred stock was redeemed in the first quarter of 1996.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the first and fourth quarters of 1996, certain adjustments were
recorded by the Corporation to conform accounting and credit policies regarding
loan, other real estate and other asset valuations of recently acquired
companies to those of the Corporation. These adjustments consisted of a
$13,666,000 increase in provision for loan losses, $3,114,000 in losses on
securities sold in portfolio restructurings, a $51,071,000 charge to other
expense and a related tax benefit of $19,362,000, resulting in an after-tax
reduction to net income of $48,489,000.
During the fourth quarter of 1994, certain adjustments were recorded by UNSL,
Central and TCB to conform their accounting and credit policies regarding loan,
other real estate and other asset valuations to those of the Corporation. These
adjustments consisted of an increase in the provision of $7,775,000, an
increase in other expense of $12,664,000 and a related tax benefit of
$3,739,000, for a total of $16,700,000 on an after-tax basis.
For all acquisitions accounted for as purchases, the unamortized excess of
cost over the fair value of assets acquired was $147,527,000, $90,037,000 and
$77,092,000 at December 31, 1996, 1995 and 1994, respectively.
The Hawkeye, Central, TCB, and UNSL acquisitions were accounted for as
poolings-of-interests. Net income and net income per common
share for the Corporation, Central, TCB, UNSL and Hawkeye prior to restatement
was as follows:
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
(Thousands
except per
common share data)
<S> <C> <C>
Corporation prior to restatement
Net income $216,835 $161,029
Net income per common share 4.00 3.74
Central
Net income 2,851
Net income per common share .69
TCB
Net income 8,729
Net income per common share 3,616.30
UNSL
Net loss (4,280)
Net loss per common share (2.71)
Hawkeye
Net income 15,841 23,745
Net income per common share 1.18 1.78
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 41
Pending Acquisitions:
The Corporation entered into an agreement dated October 27, 1996 to acquire
the $3.1 billion-asset Mark Twain Bancshares, Inc. ("Mark Twain"). The
acquisition, to be accounted for as a pooling-of-interests, is expected to be
consummated during the second quarter of 1997. On December 22, 1996, Mercantile
and Roosevelt Financial Group, Inc. ("Roosevelt") signed a definitive merger
agreement. Roosevelt is a $7.8 billion-asset thrift holding company
headquartered in St. Louis, Missouri. The Roosevelt acquisition is expected to
be consummated in the second half of 1997, and will be accounted for as a
purchase. The Corporation expects to record a one-time pre-tax expense
approximating $40,000,000 to $50,000,000 in the second quarter of 1997 related
to the merger with Mark Twain. A pre-tax charge of $38,000,000 to $45,000,000
is estimated relative to the Roosevelt transaction. These charges include
accruals to substantially conform the accounting and credit policies of Mark
Twain and Roosevelt as well as to account for one-time expenses associated with
the transactions. The ultimate amount of one-time expenses may vary
significantly from those included in the estimates above due to the substantial
market overlaps and the associated final decisions affecting branch closings
and severance.
Unaudited pro forma combined consolidated financial data including the
Corporation, Mark Twain and Roosevelt for 1996 and 1995 is listed below.
The unaudited pro forma combined consolidated financial data provided includes
the impact of goodwill amortization and the reduction in net interest income
due to: 1) interest lost on cash paid for share repurchases or paid directly
to Roosevelt shareholders as purchase consideration; and 2) interest on debt
which may be issued to finance the Roosevelt acquisition. There is no estimate
of potential cost savings included in the following table.
<TABLE>
- ---------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
(Thousands except per
common share data)
<S> <C> <C>
Total assets $30,210,572 $30,438,906
Net interest income 955,137 930,453
Other income 299,808 255,299
Net income 182,933 235,543
Net income per common share 2.21 2.84
- ---------------------------------------------------------------------------------
</TABLE>
Mercantile entered into an agreement dated August 23, 1996 to acquire the
capital stock of Regional Bancshares, Inc., a $181 million-asset bank holding
company based in Alton, Illinois. The acquisition, to be accounted for as a
purchase transaction, is expected to be consummated in the first quarter of
1997.
NOTE C
CASH FLOWS
The Corporation paid interest on deposits, short-term borrowings, bank notes
and long-term debt of $635,513,000, $588,398,000 and $444,607,000 in 1996, 1995
and 1994, respectively. The Corporation paid Federal income taxes of
$111,180,000, $104,977,000 and $113,203,000 in 1996, 1995 and 1994,
respectively.
The following details cash and cash equivalents from acquisitions accounted
for as purchases, net of cash paid:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Fair value of assets purchased $(1,098,630) $(952,585) $(52,979)
Fair value of liabilities assumed 946,057 851,875 58,561
Issuance of common stock 119,492 95,490 835
----------- --------- --------
Net Cash Received (Paid)
for Acquisitions (33,081) (5,220) 6,417
Cash and cash equivalents
acquired 65,095 52,346 41,779
----------- --------- --------
Cash and Cash Equivalents from Acquisitions, Net of Cash Paid $ 32,014 $ 47,126 $ 48,196
=========== ========= ========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE D
CASH AND DUE FROM BANKS RESTRICTIONS
The Corporation's subsidiary banks are required to maintain average reserve
balances which place withdrawal and/or usage restrictions on cash and due from
banks balances. The average amount of these restricted balances for the year
ended December 31, 1996 was $176,399,000.
39
<PAGE> 42
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE E
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Available-for-Sale:
The amortized cost, estimated fair values, and unrealized gains and losses of
available-for-sale securities were as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. government $3,025,558 $18,419 $12,050 $3,031,927
State and political subdivisions
Tax-exempt 394,754 8,226 896 402,084
Taxable 112,158 490 469 112,179
---------- ------- ------- ----------
Total State and Political Subdivisions 506,912 8,716 1,365 514,263
Other 146,026 410 1,117 145,319
---------- ------- ------- ----------
Total $3,678,496 $27,545 $14,532 $3,691,509
========== ======= ======= ==========
DECEMBER 31, 1995
U.S. government $3,483,593 $44,864 $14,839 $3,513,618
State and political subdivisions
Tax-exempt 415,021 11,472 1,032 425,461
Taxable 134,400 1,034 714 134,720
---------- ------- ------- ----------
Total State and Political Subdivisions 549,421 12,506 1,746 560,181
Other 134,546 211 1,477 133,280
---------- ------- ------- ----------
Total $4,167,560 $57,581 $18,062 $4,207,079
========== ======= ======= ==========
DECEMBER 31, 1994
U.S. government $641,587 $ 345 $19,867 $622,065
State and political subdivisions--tax-exempt 12,582 156 24 12,714
Other 66,674 1,468 2,180 65,962
-------- ------ ------- --------
Total $720,843 $1,969 $22,071 $700,741
======== ====== ======= ========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Held-to-Maturity:
The amortized cost, estimated fair values, and unrealized gains and losses of
held-to-maturity securities were as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. government $342,868 $8,785 $5,626 $346,027
Other 3,698 188 175 3,711
-------- ------ ------ --------
Total $346,566 $8,973 $5,801 $349,738
======== ====== ====== ========
DECEMBER 31, 1994
U.S. government $2,896,654 $ 8,027 $105,496 $2,799,185
State and political subdivisions
Tax-exempt 436,413 4,391 10,617 430,187
Taxable 165,551 164 9,102 156,613
---------- ------- -------- ----------
Total State and Political Subdivisions 601,964 4,555 19,719 586,800
Other 66,601 13 1,341 65,273
---------- ------- -------- ----------
Total $3,565,219 $12,595 $126,556 $3,451,258
========== ======= ======== ==========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 43
In December 1995, the Corporation reclassified approximately $3.1 billion in
held-to-maturity securities to the available-for-sale category. The unrealized
gain on the securities transferred was approximately $31 million. The Financial
Accounting Standards Board issued a Special Report titled, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities, Questions and Answers," which stated that
reclassifications made no later than December 31, 1995 from the
held-to-maturity category will not call into question the intent to hold other
securities to maturity in the future.
During the third quarter of 1996, the Corporation transferred securities from
the available-for-sale classification to the held-to-maturity classification.
The securities transferred had an amortized cost basis of $370,014,000 and an
estimated fair value of $373,557,000 on the transfer date. The unrealized gain
on the date of the transfer remained in shareholders' equity and is being
amortized over the remaining life of the transferred securities. The
unamortized balance as of December 31, 1996 was $3,475,000.
Securities with a carrying value of $2,644,989,000 at December 31, 1996,
$2,233,972,000 at December 31, 1995 and $2,405,905,000 at December 31, 1994
were pledged to secure public and trust deposits, securities sold under
agreements to repurchase, and for other purposes required by law.
The following table presents proceeds from sales of securities and the
components of net securities gains. There were no securities classified as
held-to-maturity during 1994 that were transferred to available-for-sale
securities or sold; the only transfer of securities from the held-to-maturity
category to available-for-sale during 1995 and 1996 was the December 1995
reclassification discussed above. Held-to-maturity securities gains and losses
resulted from portfolio restructurings in connection with subsidiary bank
acquisitions or calls by the security issuer prior to maturity.
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Proceeds from sales of:
Held-to-maturity securities $ -- $ -- $ 1,985
Available-for-sale securities 269,463 207,901 427,204
Securities gains on:
Held-to-maturity securities $ 14 $ 111 $ 471
Available-for-sale securities 2,813 4,217 5,558
-------- -------- --------
Total Securities Gains 2,827 4,328 6,029
Securities losses on:
Held-to-maturity securities -- 1 262
Available-for-sale securities 3,144 285 3,188
-------- -------- --------
Total Securities Losses 3,144 286 3,450
-------- -------- --------
Net Securities Gains (Losses) Before Income
Taxes (Benefit) (317) 4,042 2,579
Applicable income taxes (benefit) 111 (1,415) (903)
-------- -------- --------
Net Securities Gains (Losses) $ (206) $ 2,627 $ 1,676
======== ======== ========
- --------------------------------------------------------------------------------------------------
</TABLE>
NOTE F
LOANS AND LEASES
Loans and leases consisted of the following:
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Commercial $ 3,336,846 $ 2,979,437 $ 2,789,062
Real estate--commercial 2,042,072 2,119,714 1,778,884
Real estate--construction 391,167 282,215 323,603
Real estate--residential 4,307,451 3,823,327 3,530,596
Consumer 1,785,467 1,667,348 1,616,786
Credit card 909,917 858,846 865,175
------------ ------------ ------------
Total Loans and Leases $ 12,772,920 $ 11,730,887 $ 10,904,106
============ ============ ============
- ------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 44
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Changes in the reserve for possible loan losses were as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Beginning Balance $201,780 $215,849 $205,946
Provision 71,014 36,530 43,265
Charge-offs (102,093) (69,099) (68,083)
Recoveries 18,544 16,670 34,274
-------- -------- --------
Net Charge-offs (83,549) (52,429) (33,809)
Acquired Reserves 7,382 13,830 447
Transfer to Mercantile Credit Card
Master Trust -- (12,000) --
-------- -------- --------
Ending Balance $196,627 $201,780 $215,849
======== ======== ========
- --------------------------------------------------------------------------------------------------
</TABLE>
Non-performing loans consisted of the following:
<TABLE>
- ------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Non-accrual $ 59,799 $ 79,205 $ 30,650
Renegotiated 3,017 3,094 6,363
-------- -------- --------
Non-performing Loans $ 62,816 $ 82,299 $ 37,013
======== ======== ========
- ------------------------------------------------------------------------------------------------
</TABLE>
Certain directors and executive officers of the Corporation were loan
customers of the Corporation's banks during 1996, 1995 and 1994. Such loans were
made in the ordinary course of business at normal terms, including interest rate
and collateralization, and did not represent more than a normal risk. Loans to
those persons, their immediate families and companies in which they were
principal owners were $4,064,000, $20,693,000 and $19,425,000, at December 31,
1994, 1995 and 1996, respectively. During 1996, $24,755,000 of new loans were
made to these persons, repayments totaled $26,023,000.
NOTE G
BANK PREMISES AND EQUIPMENT
Bank premises and equipment were as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Land $ 54,956 $ 54,297 $ 49,968
Bank premises 311,019 285,402 272,560
Leasehold improvements 30,669 29,062 25,421
Furniture and equipment 290,001 258,497 224,475
-------- -------- --------
Total Cost 686,645 627,258 572,424
Accumulated depreciation (345,585) (318,188) (287,859)
-------- -------- --------
Net Carrying Value $341,060 $309,070 $284,565
======== ======== ========
- --------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, the Corporation had certain long-term leases, none of
which were considered to be capital leases, which were principally related to
the use of land, buildings and equipment. The following table summarizes the
future minimum rental commitments for all noncancelable operating leases which
had initial or remaining noncancelable lease terms in excess of one year:
<TABLE>
- --------------------------------------------------------------------------
<CAPTION>
PERIOD MINIMUM RENTAL
(Thousands)
<S> <C>
1997 $ 7,583
1998 6,240
1999 4,947
2000 4,001
2001 3,262
2002 and later 12,151
-------
Total $38,184
=======
- --------------------------------------------------------------------------
</TABLE>
Net rental expense for all operating leases was $8,979,000 in 1996,
$8,752,000 in 1995 and $8,435,000 in 1994.
NOTE H
DEPOSITS
Deposits consisted of the following:
<TABLE>
- -------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Non-interest bearing $ 2,584,340 $ 2,075,579 $ 1,980,168
Interest bearing demand 2,329,973 2,185,587 2,227,039
Money market accounts 2,134,996 1,900,057 1,742,622
Savings 1,020,841 1,051,880 1,129,316
Consumer time certificates under $100,000 5,298,120 5,289,146 4,774,568
Other time 227,496 38,742 38,717
----------- ----------- -----------
Total Core Deposits 13,595,766 12,540,991 11,892,430
Time certificates $100,000 and over 972,234 964,099 753,325
Foreign 251,887 209,170 219,135
----------- ----------- -----------
Total Purchased Deposits 1,224,121 1,173,269 972,460
----------- ----------- -----------
Total Deposits $14,819,887 $13,714,260 $12,864,890
=========== =========== ===========
- -------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 45
The scheduled maturities of Mercantile's consumer time certificates under
$100,000, time certificates $100,000 and over and other time deposits were as
follows:
<TABLE>
- --------------------------------------------------------------------------
<CAPTION>
PERIOD SCHEDULED MATURITY
AMOUNT
(Thousands)
<S> <C>
1997 $4,493,549
1998 1,222,432
1999 451,231
2000 189,575
2001 112,553
2002 and later 28,510
----------
Total $6,497,850
==========
- ------------------------------------------------------------------------
</TABLE>
NOTE I
SHORT-TERM BORROWINGS
Short-term borrowings were as follows:
<TABLE>
- -----------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Federal funds purchased and
repurchase agreements $ 1,589,261 $ 1,552,945 $ 1,519,156
Treasury tax and loan notes 110,259 116,416 170,045
Commercial paper 19,405 16,950 26,800
Other short-term borrowings 68,748 77,425 122,080
----------- ----------- -----------
Total Short-term Borrowings $ 1,787,673 $ 1,763,736 $ 1,838,081
=========== =========== ===========
- -----------------------------------------------------------------------------------------------
</TABLE>
The average balance of total short-term borrowings was $1,273,481,000,
$1,548,210,000 and $1,204,078,000 during 1996, 1995 and 1994, respectively. The
average rate on total short-term borrowings was 5.44% in 1996, 5.56% in 1995
and 4.26% in 1994.
The maximum balances at month-end are listed below:
<TABLE>
- -----------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Federal funds purchased and
repurchase agreements $ 1,589,261 $ 1,638,089 $1,554,219
Treasury tax and loan notes 433,885 522,672 615,267
Commercial paper 21,660 31,157 37,406
Other short-term borrowings 75,673 84,456 122,080
- -----------------------------------------------------------------------------------------------
</TABLE>
The Corporation had unused lines of credit arrangements with unaffiliated
banks in support of commercial paper outstanding of $100,000,000 at December
31, 1996.
NOTE J
LONG-TERM DEBT AND BANK NOTES
Long-term Debt:
Long-term debt consisted of the following:
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
MERCANTILE BANCORPORATION INC.
(PARENT COMPANY ONLY)
7.625% subordinated notes,
due 2002 $ 150,000 $ 150,000 $ 150,000
8.000% convertible subordinated
capital notes, due 1995 -- -- 8,822
--------- --------- ---------
Total 150,000 150,000 158,822
SECOND-TIER HOLDING COMPANIES -- -- 27,354
BANKS AND OTHER SUBSIDIARIES
6.375% subordinated debt, due 2004 75,000 75,000 75,000
9.000% mortgage-backed notes,
due 1999 53,450 53,450 53,450
Federal Home Loan Bank
advances 24,267 47,021 15,501
Other 78 136 73
--------- --------- ---------
Total 152,795 175,607 144,024
--------- --------- ---------
Total Long-term Debt $ 302,795 $ 325,607 $ 330,200
========= ========= =========
- ---------------------------------------------------------------------------------------------------
</TABLE>
On October 15, 1992, the Corporation issued $150,000,000 of non-callable
subordinated notes with a 10-year maturity and a coupon rate of 7.625% to yield
7.741%. These notes qualify as Tier II capital under current regulatory
guidelines. As of December 31, 1994, $16,035,000 of the debt issued by
second-tier holding companies was a term loan of Hawkeye, which was paid in
full on December 26, 1995.
On January 25, 1994, Mercantile Bank N.A. issued $75,000,000 of 6.375%
10-year, non-callable subordinated debt, due January 15, 2004. This debt
qualifies as Tier II capital. The Corporation used the proceeds of this
subordinated debt issue to: (1) prepay in full on February 23, 1994 the
$30,550,000 8.500% unsecured debentures of the Corporation; and (2) prepay in
full on February 1, 1994 the $23,653,000 8.250% mortgage secured by the
Corporation's headquarters building.
The 9.000% mortgage-backed notes were collateralized by U.S. government
securities at December 31, 1996, and mature in July 1999.
Federal Home Loan Bank advances at December 31, 1996 consisted of various
debt instruments with rates varying from 5.000% to 7.070%. This debt was
collateralized by certain loans and securities, with maturities through June
2010.
43
<PAGE> 46
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
A summary of annual principal reductions of long-term debt is presented
below:
<TABLE>
- -------------------------------------------------------------------------
<CAPTION>
ANNUAL
PRINCIPAL REDUCTIONS
PERIOD (Thousands)
<S> <C>
1997 $ 8,002
1998 5,876
1999 55,190
2000 1,359
2001 1,239
2002 and later 231,129
--------
Total $302,795
========
- -------------------------------------------------------------------------
</TABLE>
Bank Notes:
Beginning in 1994, certain subsidiary banks could offer unsecured bank notes.
Note maturities can range from 30 days to 15 years from the date of issue and
may be issued with fixed or floating interest rates. Each bank note issued will
be an obligation solely of that issuing bank and will not be an obligation of,
or otherwise guaranteed by, the other issuing banks or the Corporation. The
bank notes are being offered and sold only to institutional investors, and are
not insured by the Federal Deposit Insurance Corporation or any other
governmental agency. It is anticipated that the bank note program will be
restructured in 1997.
Bank notes are presented below with December 31, 1996 coupon rates:
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
MERCANTILE BANK N.A.
5.693% floating-rate bank notes, due 1998 $ 150,000 $ 150,000 $ --
6.000% floating-rate bank notes, due 1996 -- 100,000 100,000
5.650% floating-rate bank notes, due 1999 25,000 -- --
--------- --------- ---------
Total Bank Notes $ 175,000 $ 250,000 $ 100,000
========= ========= =========
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTE K
INCOME TAXES
The Corporation's results include income tax expense as follows:
<TABLE>
- ------------------------------------------------------------------------------------------------
<CAPTION>
CURRENT DEFERRED TOTAL
(Thousands)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
U.S. FEDERAL $108,475 $(22,102) $ 86,373
STATE AND LOCAL 12,663 (947) 11,716
-------- -------- --------
TOTAL $121,138 $(23,049) $ 98,089
======== ======== ========
Year ended December 31, 1995
U.S. Federal $122,262 $(12,420) $109,842
State and local 15,006 (739) 14,267
-------- -------- --------
Total $137,268 $(13,159) $124,109
======== ======== ========
Year ended December 31, 1994
U.S. Federal $108,112 $ (7,701) $100,411
State and local 13,079 (325) 12,754
-------- -------- --------
Total $121,191 $ (8,026) $113,165
======== ======== ========
- ------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 47
The tax effects of temporary differences that gave rise to the deferred tax
assets and deferred tax liabilities are presented below.
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Deferred tax assets
Reserve for possible loan losses $ 60,165 $ 66,342 $ 70,210
Foreclosed property 1,448 720 2,560
Deferred compensation 5,869 5,451 3,240
Net operating losses from pooled
subsidiary -- -- 1,494
Expenses not currently allowable
for tax purposes 22,327 12,732 11,079
State tax liabilities 1,595 2,554 2,239
Investments in debt and equity
securities--FAS 115 -- -- 11,417
Retirement expenses in excess of
tax deduction 8,794 6,737 5,274
Other 6,484 2,512 5,978
-------- -------- --------
Total Gross Deferred Tax
Assets 106,682 97,048 113,491
Deferred tax liabilities
Leasing (28,315) (37,616) (56,776)
Pension settlement gain (6,005) (6,079) (6,005)
Intangible assets (5,637) (6,466) (9,865)
Depreciation (3,119) (4,167) (3,935)
Investments in debt and equity
securities--FAS 115 (4,323) (13,946) --
Other (10,167) (12,330) (8,262)
-------- -------- --------
Total Gross Deferred Tax Liabilities (57,566) (80,604) (84,843)
-------- -------- --------
Net Deferred Tax Assets $ 49,116 $ 16,444 $ 28,648
======== ======== ========
- --------------------------------------------------------------------------------------------------
</TABLE>
Income tax expense as reported differs from the amounts computed by applying
the statutory U.S. Federal income tax rate to pretax income as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Computed "expected" tax expense $101,513 $124,874 $106,834
Increase (reduction) in income taxes resulting from
Tax-exempt income (9,025) (9,958) (10,006)
State and local income taxes, net of federal income
tax benefit 7,615 9,274 8,290
Thrift bad debt recapture -- -- 3,615
Other, net (2,014) (81) 4,432
-------- -------- --------
Total Tax Expense $ 98,089 $124,109 $113,165
======== ======== ========
- --------------------------------------------------------------------------------------------------
</TABLE>
NOTE L
RETIREMENT PLANS
Pension Plans:
The Corporation maintains both qualified and nonqualified noncontributory
pension plans that cover all employees meeting certain age and service
requirements.
The qualified plan provides pension benefits based on the employee's length
of service and the five highest consecutive years of compensation. The
Corporation's funding policy is to contribute annually at least the minimum
amount required by government funding standards but not more than is tax
deductible. No contribution was required during 1996, 1995 or 1994.
The net periodic pension expense related to the qualified plan included in
the Consolidated Statement of Income is summarized as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Service cost--benefits earned during
the period $ 8,787 $ 6,025 $ 6,665
Interest cost on projected benefit
obligation 10,352 9,220 8,382
Actual (return) loss on plan assets (15,021) (26,535) 1,863
Net amortization and deferral 851 13,585 (14,254)
-------- -------- --------
Net Periodic Pension Expense $ 4,969 $ 2,295 $ 2,656
======== ======== ========
- --------------------------------------------------------------------------------------------------
</TABLE>
The table below sets forth the funded status and amounts recognized in the
Consolidated Balance Sheet for the qualified plan:
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Actuarial present value of
Vested benefit obligation $111,048 $ 98,597 $ 78,380
======== ======== ========
Accumulated benefit obligation $123,606 $109,819 $ 87,122
======== ======== ========
Projected benefit obligation $149,426 $134,987 $104,949
Plan assets at fair value 159,469 144,825 121,799
-------- -------- --------
Plan assets in excess of
projected benefit obligation (10,043) (9,838) (16,850)
Unrecognized net loss (8,650) (13,226) (8,964)
Unrecognized prior service cost 2,318 2,603 2,922
Unrecognized net asset at December 31 3,295 4,357 5,664
-------- -------- --------
Prepaid Pension $(13,080) $(16,104) $(17,228)
======== ======== ========
- --------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 48
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Assumptions used were as follows:
<TABLE>
- -----------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Discount rate in determining benefit
obligations 7.50% 7.50% 8.50%
Rate of increase in compensation levels 5.00 5.00 5.00
Expected long-term rate on assets 9.50 9.50 9.00
- -----------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, approximately 59% of the plan's assets was invested in
listed common stocks, 38% was invested in government and corporate bonds rated
A or better, and the remaining 3% was invested in short-term cash equivalents.
A nominal amount of common stock of the Corporation was held by the plan.
The nonqualified plans provide pension benefits which would have been
provided under the qualified plan in the absence of limits placed on qualified
plan benefits by the Internal Revenue Service. The Corporation's funding policy
is to fund benefits as they are paid. Contributions under the nonqualified
plans were not material for the years ended December 31, 1996, 1995 and 1994.
The expense related to these plans was $1,914,000 in 1996, $1,685,000 in 1995
and $1,612,000 in 1994.
Other Postretirement Benefits:
In addition to the pension plans described above, the Corporation provides
other postretirement benefits, largely medical benefits and life insurance, to
its retirees.
FAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," requires the recording of the unrecognized transition obligation
for postretirement benefits other than pensions. That liability is being
amortized over a 20-year period. The net periodic postretirement benefit
expense included in the Consolidated Statement of Income is summarized as
follows:
<TABLE>
- ---------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Service cost--benefits earned during the period $ 820 $ 610 $ 734
Interest cost on accumulated postretirement benefit
obligation 2,748 2,716 2,539
Net amortization and deferral 1,713 1,475 1,633
------- ------- -------
Net Periodic Postretirement Benefit Cost $ 5,281 $ 4,801 $ 4,906
======= ======= =======
- ---------------------------------------------------------------------------------------------
</TABLE>
The table below sets forth the funded status and the amount recognized in the
Consolidated Balance Sheet regarding other postretirement benefits:
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Accumulated postretirement benefit
obligation ("APBO")
Retirees $ 26,736 $ 27,041 $ 24,493
Active employees fully eligible for benefits 1,446 1,301 1,085
Other active employees 10,028 7,862 6,609
-------- -------- --------
Total 38,210 36,204 32,187
Assets at fair value -- -- --
-------- -------- --------
APBO in excess of assets 38,210 36,204 32,187
Unrecognized net gain (loss) (1,988) (1,241) 2,436
Unrecognized prior service cost (140) (147) (155)
Unrecognized transition obligation at
December 31 (25,308) (26,889) (28,470)
-------- -------- --------
Accrued Postretirement Benefit Obligation $ 10,774 $ 7,927 $ 5,998
======== ======== ========
- --------------------------------------------------------------------------------------------------
</TABLE>
Assumptions used were as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Discount rate in determining benefit obligations 7.50% 7.50% 8.50%
Health care cost trend
First year 9.50 10.50 11.00
Ultimate (2001 and after) 5.50 5.50 6.00
- --------------------------------------------------------------------------------------------------
</TABLE>
An increase in the health care cost trend of one percent would increase the
aggregate of service and interest cost components of net periodic
postretirement benefit costs by $112,000 in 1996, and $120,000 in 1995 and
1994. The APBO would increase by $1,542,000 as of December 31, 1996, $1,448,000
as of December 31, 1995 and $1,443,000 as of December 31, 1994.
NOTE M
SHAREHOLDERS' EQUITY
Common Stock:
The authorized common stock of the Corporation consists of 100,000,000
shares, $5.00 par value, of which 61,604,723, 62,506,536 and 59,883,249 shares
were outstanding at December 31, 1996, 1995 and 1994, respectively.
The Corporation's Dividend Reinvestment Plan ("Plan") allows shareholders
of record to reinvest dividends and/or make voluntary cash contributions to
purchase additional shares of the Corporation's common
46
<PAGE> 49
stock. Under the Plan, stock is purchased in the open market by the Plan
Trustee with no service charge to the shareholder.
Preferred Stock:
The authorized preferred stock of the Corporation consists of 5,000,000
shares, no par value, of which 14,806 shares were issued and outstanding at
December 31, 1995 and 1994. As of December 31, 1995 and 1994, there were two
series of non-voting preferred stock issued. Series B-1 consisted of 5,306
shares which had non-cumulative dividends as declared by Mercantile's Board of
Directors. Series B-2 represented 9,500 shares with a cumulative annual
dividend at the rate of $85 per share. The Series B-1 and B-2 preferred shares
were redeemed by the Corporation in March 1996. At December 31, 1996, 1,000,000
shares were reserved for issuance pursuant to the Preferred Share Purchase
Rights Plan.
Preferred Share Purchase Rights Plan:
One Preferred Share Purchase Right ("Right") is attached to each share of
common stock and trades automatically with such shares. The Rights, which can
be redeemed by the Board of Directors in certain circumstances and expire by
their terms on June 3, 1998, have no voting rights.
The Rights become exercisable and will trade separately from the common stock
10 days after a person or a group either becomes the beneficial owner or
announces an intention to commence a tender offer for 20% or more of the
Corporation's outstanding common stock. When exercisable, each Right entitles
the registered holder to purchase from the Corporation 1/100 of a share of
Series A Junior Participating Preferred Stock for $100 per 1/100 of a preferred
share.
In the event a person acquires beneficial ownership of 20% or more of the
Corporation's common stock, holders of Rights (other than the acquiring person
or group) may purchase, at the Rights' then current exercise price, common
stock of the Corporation having a value at that time equal to twice the
exercise price. In the event the Corporation merges into or otherwise transfers
50% or more of its assets or earnings power to any person after the Rights
become exercisable, holders of Rights may purchase, at the then current
exercise price, common stock of the acquiring entity having a value at that
time equal to twice the exercise price.
Stock Options:
The Corporation had stock options outstanding under various plans at December
31, 1996, including plans assumed in acquisitions. The original Mercantile
plans provide for the granting to employees of the Corporation and its
subsidiaries of options to purchase shares of common stock of the Corporation
over periods of up to 10 years at a price not less than the market value of the
shares at the date the options are granted. The plans provide for the granting
of options which either qualify or do not qualify as Incentive Stock Options as
defined by Section 422 of the Internal Revenue Code of 1986, as amended. As of
December 31, 1996, there were 960,349 options available for grant. The per share
price range for options exercisable was $5.41 to $45.25 as of December 31, 1996.
The following table summarizes stock options outstanding as of December 31,
1996:
<TABLE>
- -----------------------------------------------------------------------
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------------
WEIGHTED AVERAGE
RANGE OF REMAINING WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
- -------------- ----------- ---------------- ----------------
<S> <C> <C> <C>
$ 5.41-14.61 218,661 4.30 $ 8.14
14.62-32.42 803,560 3.78 20.63
32.43-32.50 1,046,161 6.62 32.50
32.51-45.63 377,161 7.76 36.86
45.64-53.38 322,674 9.11 46.14
---------
5.41-53.38 2,768,217 6.06 29.31
=========
- -----------------------------------------------------------------------
</TABLE>
Changes in options outstanding were as follows:
<TABLE>
- -----------------------------------------------------------------------------------------------------
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1993 2,560,118 $18.39
Granted 746,045 32.46
Exercised (319,080) 11.32
Canceled (55,227) 28.65
---------
BALANCE AT DECEMBER 31, 1994 2,931,856 22.55
Granted 415,555 36.51
Exercised (518,155) 14.05
Canceled (71,995) 31.32
Assumed 98,358 15.80
---------
BALANCE AT DECEMBER 31, 1995 2,855,619 25.55
GRANTED 353,274 46.11
EXERCISED (405,440) 14.85
CANCELED (86,228) 37.83
ASSUMED 50,992 22.91
---------
BALANCE AT DECEMBER 31, 1996 2,768,217 29.31
=========
- -----------------------------------------------------------------------------------------------------
</TABLE>
Stock options exercisable as of December 31, 1996, 1995 and 1994 were
1,641,560, 1,575,729 and 1,493,243, respectively, with a weighted average
exercise price of $23.72, $19.19 and $16.00, respectively.
The fair value of the option grants is estimated on the date of grant using
an option-pricing model based upon the following assumptions: dividend yield of
3.30%; expected volatility of 31.7%; average risk-free
47
<PAGE> 50
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
interest rate of 5.15% and 7.28% for the 1996 and 1995 grants, respectively;
and expected option life of 1.26 years from the vesting date. The weighted
average fair value of stock options granted in 1995 and 1996 was $9.48 and
$10.72, respectively.
The Corporation applies Accounting Principles Board Opinion 25 in accounting
for its stock option plans. The compensation cost that has been charged against
income for stock based compensation plans was $1,438,000, $3,628,000 and
$4,081,000 for 1994, 1995 and 1996, respectively. Had the Corporation adopted
FAS 123's optional accounting method, the Corporation's net income and earnings
per common share would have been reduced to the pro forma amounts noted
below:
<TABLE>
- --------------------------------------------------------------------------------------------------------
<CAPTION>
EARNINGS
NET PER COMMON
INCOME SHARE
<S> <C> <C>
For the Year Ended December 31, 1996:
As Reported $191,947 $ 3.10
Pro Forma 189,578 3.06
For the Year Ended December 31, 1995:
As Reported $232,676 $ 3.74
Pro Forma 230,974 3.72
- --------------------------------------------------------------------------------------------------------
</TABLE>
Debt and Dividend Restrictions:
Consolidated retained earnings at December 31, 1996 were not restricted under
any agreement as to payment of dividends or reacquisition of common stock.
The primary source of funds for dividends paid by the Corporation to its
shareholders is dividends received from bank subsidiaries. At December 31,
1996, approximately $198,891,000 of the equity of bank subsidiaries was
available for distribution as dividends to the Parent Company without prior
regulatory approval or without reducing the capital of the respective
subsidiary banks below present minimum standards. An additional $150,622,000
would be available for loans to the Parent Company under Federal Reserve
regulations. The remaining equity of bank subsidiaries approximating
$1,158,969,000 was restricted as to transfers to the Parent Company.
NOTE N
REGULATORY MATTERS
The Corporation and its subsidiary banks are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Corporation's Consolidated Financial
Statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, Mercantile and its subsidiary banks must meet
specific capital guidelines that involve quantitative measures of the
Corporation and its subsidiary banks' assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Mercantile and subsidiary banks' capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulations to ensure capital adequacy
require the Corporation and its subsidiary banks to maintain minimum amounts
and ratios, as set forth in the table below, of Tier I and Total capital to
risk-weighted assets, and of Tier I capital to average assets, the leverage
ratio. Management believes, as of December 31, 1996, the Corporation and its
subsidiary banks meet all capital adequacy requirements to which it is subject.
As of December 11, 1996, the date of the most recent notification from
regulatory agencies, the subsidiary banks were categorized as well capitalized
under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have
changed the subsidiary banks' category.
The actual and required capital amounts and ratios as of December 31, 1996
for the Corporation and Mercantile Bank N.A. are listed in the following table:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MINIMUM
CAPITAL
ACTUAL REQUIREMENTS
AMOUNT RATIO AMOUNT RATIO
($ in Thousands)
<S> <C> <C> <C> <C>
Tier I capital (to risk-weighted assets):
Corporation $1,437,815 10.91% $527,062 4.00%
Mercantile Bank N.A. 499,602 9.51 210,225 4.00
Total capital (to risk-weighted assets):
Corporation 1,827,916 13.87 1,054,123 8.00
Mercantile Bank N.A. 620,308 11.80 420,450 8.00
Leverage (to average assets):
Corporation 1,437,815 7.82 735,152 4.00
Mercantile Bank N.A. 499,602 6.97 286,873 4.00
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE O
CONCENTRATIONS OF CREDIT
The Corporation's primary market area is the state of Missouri and the lower
Midwest. At December 31, 1996, approximately 93% of the total loan portfolio,
and 90% of the commercial and commercial real estate loan portfolio, were to
borrowers within this region. The diversity of the region's economic base tends
to provide a stable lending environment.
48
<PAGE> 51
Real estate and credit card lending constituted the two other areas of
significant concentration of credit risk. Real estate-related financial
instruments (loans, commitments and standby letters of credit) comprised 35% of
all such instruments of the Corporation. However, of this total, approximately
63% was consumer-related in the form of residential real estate mortgages and
home equity lines of credit. Credit card-related financial instruments
comprised approximately 29% of all such instruments of the Corporation.
The Corporation is, in general, a secured lender. At December 31, 1996,
approximately 87% of the loan portfolio was secured. Collateral is required in
accordance with the normal credit evaluation process based upon the
creditworthiness of the customer and the credit risk associated with the
particular transaction.
NOTE P
FINANCIAL INSTRUMENTS
Fair Values:
Fair values for financial instruments are management's estimates of the
values at which the instruments could be exchanged in a transaction between
willing parties. These estimates are subjective and may vary significantly from
amounts that would be realized in actual transactions. In addition, certain
financial instruments and all non-financial instruments are excluded from the
fair value disclosure requirements of FAS 107, "Disclosures about Fair Value
of Financial Instruments." Therefore, the fair values presented below should
not be construed as the underlying value of the Corporation.
The following methods and assumptions were used in estimating fair values for
financial instruments.
Cash and Due from Banks, Short-term Investments and Short-term Borrowings: The
carrying values reported in the Consolidated Balance Sheet approximated fair
values.
Investments in Debt and Equity Securities: Fair values for held-to-maturity
securities were based upon quoted market prices where available. Fair values
for trading and available-for-sale securities, which also were the amounts
reported in the Consolidated Balance Sheet, were based on quoted market prices
where available. If quoted market prices were not available, fair values were
based upon quoted market prices of comparable instruments.
Loans and Leases: The fair values for most fixed-rate loans were estimated by
utilizing discounted cash flow analysis, applying interest rates currently
being offered for similar loans to borrowers with similar risk profiles. The
discount rates used, therefore, include a credit risk premium. The fair values
of variable-rate loans and all residential mortgages were estimated by
utilizing the same type of discounted cash flows, but over a range of interest
rate scenarios, in order to incorporate the value of the options imbedded in
these assets. Loans with similar characteristics were aggregated for purposes
of these calculations. The fair value of credit card loans was assumed to be
the same as the par value.
Deposits: The fair values disclosed for deposits generally payable on demand
(i.e., interest bearing and non-interest bearing demand, savings, and money
market accounts) were considered equal to their respective carrying amounts as
reported in the Consolidated Balance Sheet. Fair values for certificates of
deposit and foreign deposits were estimated using a discounted cash flow
calculation that applied interest rates generally offered on similar
certificates to a schedule of aggregated expected monthly maturities of time
deposits. The fair value estimate of the deposit portfolio has not been
adjusted for any value derived from the retention of those deposits for an
expected future period of time. That component, commonly referred to as core
deposit premium, was estimated to be approximately $208,000,000 to
$436,000,000 at December 31, 1996, and was neither considered in the fair
value amounts below nor recorded as an intangible asset on the Consolidated
Balance Sheet.
Bank Notes and Long-term Debt: The fair value of publicly traded debt was
based upon quoted market prices, where available, or upon quoted market prices
of comparable instruments. The fair values of bank notes and long-term debt
were estimated using discounted cash flow analysis, based on the Corporation's
current incremental borrowing rates for similar types of borrowing
arrangements.
Off-Balance-Sheet Instruments: Fair values of foreign exchange contracts and
interest rate contracts were determined from quoted market prices. Fair values
of commitments to extend credit, standby letters of credit and commercial
letters of credit were based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standings.
49
<PAGE> 52
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
The estimated fair values of the Corporation's financial instruments were as
follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
------------------------- ------------------------- -------------------------
(Thousands)
CARRYING FAIR CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS VALUE VALUE VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks and
short-term investments $ 1,549,739 $ 1,549,739 $ 1,434,242 $ 1,434,242 $ 1,106,933 $ 1,106,933
Trading securities 500 500 3,677 3,677 14,299 14,299
Held-to-maturity securities 346,566 349,738 -- -- 3,565,219 3,451,258
Available-for-sale securities 3,691,509 3,691,509 4,207,079 4,207,079 700,741 700,741
Net loans and leases 12,576,293 12,973,557 11,529,107 11,995,484 10,688,257 10,738,843
FINANCIAL LIABILITIES
Deposits 14,819,887 15,010,880 13,714,260 13,932,902 12,864,890 12,847,481
Short-term borrowings 1,787,673 1,787,673 1,763,736 1,763,736 1,838,081 1,838,081
Bank notes and long-term debt 477,795 482,259 575,607 594,405 430,200 409,096
OFF-BALANCE-SHEET
Foreign exchange contracts purchased $ 823 $ 3,071 $ 6,641
Foreign exchange contracts sold (439) (2,597) (6,199)
Interest rate contracts 866 75 (184)
Commitments to extend credit (16,012) (12,035) (10,833)
Standby letters of credit (2,425) (2,551) (2,179)
Commercial letters of credit (5,098) (4,265) (4,104)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Off-Balance-Sheet Risk:
The Corporation is, in the normal course of business, a party to certain
off-balance-sheet financial instruments with inherent credit and/or market
risk. These instruments, which include commitments to extend credit, standby
letters of credit, interest options written, interest futures contracts and
foreign exchange contracts, are used by the Corporation to meet the financing
needs of its customers and, to a lesser degree, to reduce its own exposure to
interest rate fluctuations. These instruments involve, to varying degrees,
credit and market risk in excess of the amount recognized in the Consolidated
Balance Sheet.
Financial instruments with off-balance-sheet credit risk for which the
contract amounts represent potential credit risk were as follows:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Commitments to extend credit
Commercial $ 2,541,753 $ 1,998,786 $ 1,835,082
Consumer 6,015,905 5,504,932 4,431,671
----------- ----------- -----------
Total $ 8,557,658 $ 7,503,718 $ 6,266,753
=========== =========== ===========
Standby letters of credit $ 356,287 $ 327,027 $ 230,250
=========== =========== ===========
Interest rate contracts $ 141,000 $ 27,000 $ 21,000
=========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation's maximum exposure to credit loss under commitments to extend
credit and standby letters of credit is the equivalent of the contractual
amount of those instruments. The same credit policies are used by the
Corporation in granting commitments and conditional obligations as are used in
the extension of credit.
Commitments to extend credit are legally binding agreements to lend to a
borrower as long as the borrower performs in accordance with the terms of the
contract. Commitments generally have fixed expiration dates or other
termination clauses, and may require payment of a fee. As many of the
commitments are expected to expire without being drawn upon, the total
commitment amount does not necessarily represent future cash requirements.
Included in consumer commitments are the unused portions of lines of credit for
credit card and home equity credit line loans.
Standby letters of credit are commitments issued by the Corporation to
guarantee specific performance of a customer to a third party.
Collateral is required for both commitments and standby letters of credit in
accordance with the normal credit evaluation process based upon the
creditworthiness of the customer and the credit risk associated with the
particular transaction. Collateral held varies, but may include commercial real
estate, accounts receivable, inventory or equipment.
Included in interest rate contracts are interest rate exchange agreements
with major investment banking firms to convert long-term, fixed-rate
liabilities into short-term, variable-rate liabilities, to secure interest
margins and to hedge against interest rate movements.
50
<PAGE> 53
Derivative Financial Instruments:
Held or Issued for Trading Purposes:
In the normal course of business, the Corporation maintains minimal trading
positions in a variety of derivative financial instruments. Most of the
Corporation's trading activities are customer oriented, with trading positions
established to meet the financing and foreign exchange transaction needs of
customers. This activity complements the Corporation's traditional money and
capital markets trading business, which also exists to meet customers' demands.
Net revenue recognized on interest rate contracts and foreign exchange
contracts totaled $2,958,000, $2,839,000 and $2,558,000 in 1996, 1995 and 1994,
respectively. The notional amounts of interest options written, foreign
exchange contracts purchased and foreign exchange contracts sold were as
follows:
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
Interest options written $ 16,456 $ 25,225 $ 62,725
Foreign exchange contracts
purchased 199,456 125,725 184,079
Foreign exchange contracts sold 201,999 130,394 173,378
- -------------------------------------------------------------------------------------------------------------
</TABLE>
These transactions are generally entered into on behalf of customers and are
subsequently matched off by the Corporation. As a consequence, these matched
transactions do not represent exposure to market risk. The Corporation manages
the potential credit exposure through established credit approvals, risk
control limits and other monitoring procedures. Credit risk to the Corporation
could result from non-performance by a counterparty to a contract; however,
currently that credit risk is minimal.
Held or Issued for Purposes Other Than Trading:
Of the commitments to extend credit discussed in the preceding paragraphs,
$250,019,000, $108,267,000 and $74,966,000 were entered into with fixed rates
for commercial loan customers at December 31, 1996, 1995 and 1994,
respectively. Fixed-rate commitments for consumer (residential mortgage) loan
customers totaled $64,692,000 at December 31, 1996, $57,883,000 at December 31,
1995 and $35,289,000 at December 31, 1994. Fixed-rate commitments to extend
credit are defined as fixed-rate commercial loan commitments with remaining
maturities greater than one year, fixed-rate residential mortgage loan
commitments, and adjustable-rate residential mortgage loan commitments for loans
with adjustment periods greater than one year.
Fixed-rate mortgage loans held for resale are partially hedged with contracts
for forward delivery in the secondary mortgage market. This hedging activity is
designed to protect the Corporation from changes in interest rates. Gains and
losses from the hedging transactions on mortgage loans held for resale are
deferred and included in the cost of the loans for determining the gain or loss
when the loans are sold. Forward delivery contracts outstanding totaled
$62,823,000 as of December 31, 1996 and $68,000,000 as of December 31, 1995.
NOTE Q
CONTINGENT LIABILITIES
In the ordinary course of business, there are various legal proceedings
pending against the Corporation and its subsidiaries. Management, after
consultation with legal counsel, is of the opinion that the ultimate resolution
of these proceedings will have no material adverse effect on the consolidated
financial condition or results of operations of the Corporation.
51
<PAGE> 54
NOTE R
PARENT COMPANY FINANCIAL INFORMATION
Following are the condensed financial statements of Mercantile Bancorporation
Inc. (Parent Company Only) for the periods indicated.
For the Statement of Cash Flows (Parent Company Only), cash and short-term
investments were considered cash equivalents. Interest paid on commercial paper
and long-term debt was $12,420,000, $12,828,000 and $14,856,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
<TABLE>
STATEMENT OF INCOME
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $ 444,136 $ 215,580 $ 104,950
Other interest and dividends 4,359 4,355 4,644
Management fees 16,987 13,637 13,879
Other 5,159 11,702 3,546
--------- --------- ---------
Total Income 470,641 245,274 127,019
EXPENSE
Interest on commercial paper 987 1,249 1,199
Interest on long-term debt 11,681 11,697 12,607
Personnel expense 18,503 16,869 14,463
Other operating expenses 46,372 12,410 16,019
--------- --------- ---------
Total Expense 77,543 42,225 44,288
INCOME BEFORE INCOME TAX BENEFIT
AND EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 393,098 203,049 82,731
Income tax benefit 16,514 2,926 6,482
--------- --------- ---------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED INCOME OF
SUBSIDIARIES 409,612 205,975 89,213
Equity in undistributed income of
subsidiaries (217,665) 26,701 102,861
--------- --------- ---------
NET INCOME $ 191,947 $ 232,676 $ 192,074
========= ========= =========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
BALANCE SHEET
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
ASSETS
Cash $ 33 $ 21 $ --
Short-term investments 128,480 40,358 82,405
Available-for-sale securities 30,167 22,669 12,539
Investment in subsidiaries 1,565,058 1,679,526 1,444,810
Goodwill 123,913 64,812 48,557
Loans and advances to
subsidiaries 19,405 16,950 26,849
Other assets 11,642 14,871 3,849
----------- ----------- -----------
Total Assets $ 1,878,698 $ 1,839,207 $ 1,619,009
=========== =========== ===========
LIABILITIES
Commercial paper $ 19,405 $ 16,950 $ 26,800
Long-term debt 150,000 150,000 158,822
Other liabilities 75,266 32,670 24,697
----------- ----------- -----------
Total Liabilities 244,671 199,620 210,319
SHAREHOLDERS' EQUITY 1,634,027 1,639,587 1,408,690
----------- ----------- -----------
Total Liabilities and Shareholders' Equity $ 1,878,698 $ 1,839,207 $ 1,619,009
=========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 55
<TABLE>
STATEMENT OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
(Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 191,947 $ 232,676 $ 192,074
Adjustments to reconcile net income to net cash
provided by operating activities
Net income of subsidiaries (226,471) (242,281) (207,811)
Dividends from subsidiaries 421,299 211,485 98,666
Other, net 33,386 363 14,263
--------- --------- ---------
Net Cash Provided by Operating Activities 420,161 202,243 97,192
INVESTING ACTIVITIES
Investments in debt and equity securities
Purchases (8,339) (9,914) (948)
Proceeds from maturities -- 4,501 5,417
Contributions of capital to subsidiaries -- (70,352) (21,505)
Acquisitions (33,082) (6,700) --
Other, net (2,943) (3,601) 25,143
--------- --------- ---------
Net Cash Provided (Used) by Investing
Activities (44,364) (86,066) 8,107
FINANCING ACTIVITIES
Cash dividends paid (101,907) (69,562) (48,329)
Net issuance of common stock for employee
incentive plans (327) 6,839 2,923
Purchase of treasury stock (175,036) (85,474) (2,954)
Redemption of preferred stock (12,684) -- --
Principal payments on long-term debt -- (156) (30,552)
Net change in commercial paper 2,455 (9,850) 8,410
Other, net (164) -- (777)
--------- --------- ---------
Net Cash Used by Financing Activities (287,663) (158,203) (71,279)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 88,134 (42,026) 34,020
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 40,379 82,405 48,385
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 128,513 $ 40,379 $ 82,405
========= ========= =========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE S
SUBSEQUENT EVENT
On January 29, 1997, the Corporation formed Mercantile Capital Trust I.
Through this trust, the Corporation obtained $150,000,000 of floating-rate debt
which for regulatory purposes is part of Tier I capital. Proceeds are expected
to be utilized for share repurchases relating to the Roosevelt transaction as
well as for general corporate purposes.
53
<PAGE> 56
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SIX YEAR CONSOLIDATED STATEMENT OF INCOME
($ in Thousands except per common share data)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $1,049,439 $1,021,052
Investments in debt and equity securities
Trading 173 431
Taxable 237,130 226,905
Tax-exempt 22,331 24,829
---------- ----------
Total Investments in Debt and Equity
Securities 259,634 252,165
Due from banks--interest bearing 4,052 2,487
Federal funds sold and repurchase
agreements 12,256 18,240
---------- ----------
Total Interest Income 1,325,381 1,293,944
Tax-equivalent adjustment<F*> 15,142 16,570
---------- ----------
Taxable-equivalent Interest Income 1,340,523 1,310,514
INTEREST EXPENSE
Deposits 514,764 495,863
Borrowed funds 108,228 124,671
---------- ----------
Total Interest Expense 622,992 620,534
---------- ----------
TAXABLE-EQUIVALENT NET INTEREST INCOME 717,531 689,980
PROVISION FOR POSSIBLE LOAN LOSSES 71,014 36,530
OTHER INCOME
Trust 79,413 70,751
Service charges 80,660 75,408
Credit card fees 27,007 19,690
Securitization revenue 16,008 23,005
Investment banking and brokerage 13,021 11,366
Securities gains (losses) (317) 4,042
Other 80,176 69,391
---------- ----------
Total Other Income 295,968 273,653
OTHER EXPENSE
Salaries 253,529 241,422
Employee benefits 62,091 57,203
Net occupancy 40,431 38,044
Equipment 50,648 44,630
Other 230,608 172,449
---------- ----------
Total Other Expense 637,307 553,748
---------- ----------
TAXABLE-EQUIVALENT INCOME
BEFORE INCOME TAXES 305,178 373,355
INCOME TAXES
Income taxes 98,089 124,109
Tax-equivalent adjustment<F*> 15,142 16,570
---------- ----------
Adjusted Income Taxes 113,231 140,679
---------- ----------
NET INCOME $191,947 $ 232,676
========== ==========
PER COMMON SHARE DATA
Net income $ 3.10 $ 3.74
Dividends declared 1.64 1.32
Book value 26.52 26.04
<F*>TAX-EQUIVALENT ADJUSTMENT
Loans $ 4,298 $ 4,440
Investments in debt and equity
securities 10,844 12,130
------- -------
Total Tax-equivalent Adjustment $15,142 $16,570
======= =======
<FN>
<F*>Taxable-equivalent basis.
</TABLE>
54
<PAGE> 57
<TABLE>
<CAPTION>
1994 1993 1992 1991
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $ 850,525 $ 803,793 $ 830,602 $ 871,713
Investments in debt and equity securities
Trading 527 678 593 1,288
Taxable 225,051 248,601 262,276 228,486
Tax-exempt 25,824 25,235 24,298 18,155
---------- ----------- ----------- -----------
Total Investments in Debt and Equity
Securities 251,402 274,514 287,167 247,929
Due from banks--interest bearing 2,859 3,491 8,674 15,624
Federal funds sold and repurchase
agreements 13,283 12,813 13,364 21,555
---------- ----------- ----------- -----------
Total Interest Income 1,118,069 1,094,611 1,139,807 1,156,821
Tax-equivalent adjustment<F*> 16,616 17,147 16,204 14,034
---------- ----------- ----------- -----------
Taxable-equivalent Interest Income 1,134,685 1,111,758 1,156,011 1,170,855
INTEREST EXPENSE
Deposits 374,031 393,842 495,307 600,348
Borrowed funds 76,919 50,731 54,335 68,230
---------- ----------- ----------- -----------
Total Interest Expense 450,950 444,573 549,642 668,578
---------- ----------- ----------- -----------
TAXABLE-EQUIVALENT NET INTEREST INCOME 683,735 667,185 606,369 502,277
PROVISION FOR POSSIBLE LOAN LOSSES 43,265 64,302 79,551 64,028
OTHER INCOME
Trust 65,888 66,782 62,396 53,256
Service charges 72,659 71,045 66,463 57,653
Credit card fees 26,588 25,689 22,205 20,861
Securitization revenue -- -- -- --
Investment banking and brokerage 14,400 14,936 13,227 10,926
Securities gains (losses) 2,579 5,301 6,207 5,400
Other 54,447 61,836 53,958 47,141
---------- ----------- ----------- -----------
Total Other Income 236,561 245,589 224,456 195,237
OTHER EXPENSE
Salaries 233,430 222,139 203,026 180,017
Employee benefits 55,345 53,410 42,459 39,345
Net occupancy 36,475 37,429 32,657 27,907
Equipment 41,410 41,245 36,723 34,893
Other 188,516 215,959 214,780 204,328
---------- ----------- ----------- -----------
Total Other Expense 555,176 570,182 529,645 486,490
---------- ----------- ----------- -----------
TAXABLE-EQUIVALENT INCOME BEFORE
INCOME TAXES 321,855 278,290 221,629 146,996
INCOME TAXES
Income taxes 113,165 96,074 69,681 28,418
Tax-equivalent adjustment<F*> 16,616 17,147 16,204 14,034
---------- ----------- ----------- -----------
Adjusted Income Taxes 129,781 113,221 85,885 42,452
---------- ----------- ----------- -----------
NET INCOME $ 192,074 $ 165,069 $ 135,744 $ 104,544
========== =========== =========== ===========
PER COMMON SHARE DATA
Net income $ 3.19 $ 2.79 $ 2.41 $ 2.34
Dividends declared 1.12 .99 .93 .93
Book value 23.32 21.59 19.44 18.12
<F*>TAX-EQUIVALENT ADJUSTMENT
Loans $ 4,170 $ 4,689 $ 5,183 $ 5,782
Investment in debt and equity securities 12,446 12,458 11,021 8,252
------- ------- ------- -------
Total Tax-equivalent Adjustment $16,616 $17,147 $16,204 $14,034
======= ======= ======= =======
<FN>
<F*>Taxable-equivalent basis.
</TABLE>
<TABLE>
<CAPTION>
GROWTH RATE
--------------------------------
ONE YEAR FIVE YEARS
-------- ----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases
Investments in debt and equity securities
Trading
Taxable
Tax-exempt
Total Investments in Debt and Equity Securities
Due from banks--interest bearing
Federal funds sold and repurchase agreements
Total Interest Income
Tax-equivalent adjustment<F*>
Taxable-equivalent Interest Income
INTEREST EXPENSE
Deposits
Borrowed funds
Total Interest Expense
TAXABLE-EQUIVALENT NET INTEREST INCOME 4.0% 7.4%
PROVISION FOR POSSIBLE LOAN LOSSES 94.4 2.1
OTHER INCOME
Trust 12.2 8.3
Service charges 7.0 6.9
Credit card fees 37.2 5.3
Securitization revenue (30.4) --
Investment banking and brokerage 14.6 3.6
Securities gains (losses) -- --
Other 15.5 11.2
Total Other Income 8.2 8.7
OTHER EXPENSE
Salaries 5.0 7.1
Employee benefits 8.5 9.6
Net occupancy 6.3 7.7
Equipment 13.5 7.7
Other 33.7 2.4
Total Other Expense 15.1 5.5
TAXABLE-EQUIVALENT INCOME BEFORE INCOME TAXES (18.3) 15.7
INCOME TAXES
Income taxes (21.0) 28.1
Tax-equivalent adjustment<F*> (8.6) 1.5
Adjusted Income Taxes (19.5) 21.7
NET INCOME (17.5) 12.9
PER COMMON SHARE DATA
Net income (17.1) 5.8
Dividends declared 24.2 12.0
Book value 1.8 7.9
<F*>TAX-EQUIVALENT ADJUSTMENT
Loans (3.2) (5.8)
Investment in debt and equity securities (10.6) 5.6
Total Tax-equivalent Adjustment (8.6) 1.5
<FN>
<F*>Taxable-equivalent basis.
</TABLE>
55
<PAGE> 58
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
SIX YEAR CONSOLIDATED AVERAGE BALANCE SHEET
($ in Thousands)
<CAPTION>
1996 1995
----------------------- -----------------------
VOLUME RATE<F*> VOLUME RATE<F*>
------ -------- ------ --------
<S> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases
Commercial $ 3,105,296 8.33% $ 2,944,525 8.73%
Real estate--commercial 2,080,972 8.64 1,983,621 8.96
Real estate--construction 330,556 9.20 326,875 8.90
Real estate--residential 3,975,520 8.16 3,834,980 8.02
Consumer 1,712,198 8.84 1,652,761 8.66
Credit card 846,501 12.86 776,295 14.29
----------- -----------
Total Loans and Leases 12,051,043 8.74 11,519,057 8.90
Investments in debt and equity
securities
Trading 3,350 5.16 7,760 5.55
Taxable 3,918,208 6.06 3,814,691 5.95
Tax-exempt 414,013 7.96 448,139 8.21
----------- -----------
Total Investments in Debt and
Equity Securities 4,335,571 6.24 4,270,590 6.19
Short-term investments
Due from banks--interest bearing 68,653 5.90 41,751 5.96
Federal funds sold and repurchase
agreements 213,073 5.75 296,046 6.16
----------- -----------
Total Short-term Investments 281,726 5.79 337,797 6.14
----------- -----------
Total Earning Assets 16,668,340 8.04 16,127,444 8.13
Non-earning Assets
Cash and due from banks 926,565 879,427
Bank premises and equipment 322,197 300,123
Other assets 401,662 365,710
Reserve for possible loan losses (200,207) (210,250)
----------- -----------
Total Assets $18,118,557 $17,462,454
=========== ===========
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 2,449,759 $ 2,196,851
Interest bearing demand 2,230,054 2.15 2,140,415 2.19
Money market accounts 2,043,224 3.87 1,799,973 3.94
Savings 1,058,191 2.27 1,103,034 2.37
Consumer time certificates under
$100,000 5,282,478 5.51 5,129,797 5.42
Other time 184,334 4.18 122,187 6.33
----------- -----------
Total Core Deposits 13,248,040 4.16 12,492,257 4.17
Time certificates $100,000 and
over 978,902 5.57 914,225 5.80
Foreign 184,182 5.70 210,873 6.21
----------- -----------
Total Purchased Deposits 1,163,084 5.59 1,125,098 5.88
----------- -----------
Total Deposits 14,411,124 4.30 13,617,355 4.34
Short-term borrowings 1,273,481 5.44 1,548,210 5.56
Bank notes 260,587 5.88 214,658 6.37
Long-term debt 314,885 7.50 332,042 7.52
----------- -----------
Total Acquired Funds 16,260,077 4.51 15,712,265 4.59
Other liabilities 246,150 212,935
----------- -----------
Total Liabilities 16,506,227 15,925,200
SHAREHOLDERS' EQUITY 1,612,330 1,537,254
----------- -----------
Total Liabilities and
Shareholders' Equity $18,118,557 $17,462,454
=========== ===========
<FN>
<F*>Taxable-equivalent basis.
</TABLE>
56
<PAGE> 59
<TABLE>
<CAPTION>
1994 1993 1992
----------------------- ----------------------- -----------------------
VOLUME RATE<F*> VOLUME RATE<F*> VOLUME RATE<F*>
------ -------- ------ -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases
Commercial $ 2,722,197 7.48% $ 2,561,385 7.01% $ 2,562,719 7.48%
Real estate--commercial 1,767,244 8.03 1,682,352 7.99 1,649,169 8.42
Real estate--construction 291,705 7.26 284,717 7.62 279,952 8.21
Real estate--residential 3,204,356 7.73 3,204,482 7.88 3,207,985 8.78
Consumer 1,448,310 8.18 1,228,669 9.00 1,169,905 9.81
Credit card 762,247 15.99 674,671 16.24 528,171 16.23
----------- ----------- -----------
Total Loans and Leases 10,196,059 8.38 9,636,276 8.39 9,397,901 8.89
Investments in debt and equity
securities
Trading 10,947 5.12 14,008 5.32 11,510 5.75
Taxable 4,056,958 5.55 4,185,721 5.95 3,718,143 7.06
Tax-exempt 465,192 8.18 438,919 8.50 351,801 9.91
----------- ----------- -----------
Total Investments in Debt and
Equity Securities 4,533,097 5.82 4,638,648 6.19 4,081,454 7.31
Short-term investments
Due from banks--interest bearing 66,340 4.31 101,182 3.45 201,462 4.31
Federal funds sold and repurchase
agreements 294,364 4.51 376,134 3.41 316,492 4.22
----------- ----------- -----------
Total Short-term Investments 360,704 4.48 477,316 3.42 517,954 4.25
----------- ----------- -----------
Total Earning Assets 15,089,860 7.52 14,752,240 7.54 13,997,309 8.26
Non-earning Assets
Cash and due from banks 865,361 855,986 781,117
Bank premises and equipment 280,683 271,127 249,086
Other assets 369,885 415,486 463,872
Reserve for possible loan losses (211,452) (196,835) (190,646)
----------- ----------- -----------
Total Assets $16,394,337 $16,098,004 $15,300,738
=========== =========== ===========
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 2,240,713 $ 2,289,104 $ 1,947,869
Interest bearing demand 2,270,852 1.87 2,095,793 2.12 1,771,774 2.94
Money market accounts 1,906,229 3.01 1,967,339 2.74 1,834,830 3.35
Savings 1,196,964 2.32 1,168,855 2.56 991,306 3.75
Consumer time certificates
under $100,000 4,747,573 4.39 5,053,439 4.63 5,379,754 5.68
Other time 39,822 3.26 83,373 2.73 108,937 3.86
----------- ----------- -----------
Total Core Deposits 12,402,153 3.32 12,657,903 3.51 12,034,470 4.57
Time certificates $100,000 and over 753,883 4.16 737,990 3.80 788,975 4.29
Foreign 108,986 4.95 31,093 4.38 23,433 3.71
----------- ----------- -----------
Total Purchased Deposits 862,869 4.26 769,083 3.83 812,408 4.27
----------- ----------- -----------
Total Deposits 13,265,022 3.39 13,426,986 3.54 12,846,878 4.54
Short-term borrowings 1,204,078 4.26 895,154 2.96 872,148 3.69
Bank notes 12,603 6.19 -- -- -- --
Long-term debt 334,277 7.43 312,670 7.75 274,432 8.08
----------- ----------- -----------
Total Acquired Funds 14,815,980 3.59 14,634,810 3.60 13,993,458 4.56
Other liabilities 212,490 237,164 243,329
----------- ----------- -----------
Total Liabilities 15,028,470 14,871,974 14,236,787
SHAREHOLDERS' EQUITY 1,365,867 1,226,030 1,063,951
----------- ----------- -----------
Total Liabilities and
Shareholders' Equity $16,394,337 $16,098,004 $15,300,738
=========== =========== ===========
<CAPTION>
GROWTH RATE
1991 ---------------
----------------------- ONE FIVE
VOLUME RATE<F*> YEAR YEARS
------ -------- ---- -----
<S> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases
Commercial $ 2,466,730 9.09% 5.5% 4.7%
Real estate--commercial 1,474,735 9.77 4.9 7.1
Real estate--construction 261,655 9.79 1.1 4.8
Real estate--residential 2,879,247 10.12 3.7 6.7
Consumer 1,126,859 10.96 3.6 8.7
Credit card 429,511 16.05 9.0 14.5
-----------
Total Loans and Leases 8,638,737 10.16 4.6 6.9
Investments in debt and equity securities
Trading 19,041 6.95 (56.8) (29.4)
Taxable 2,677,460 8.55 2.7 7.9
Tax-exempt 258,388 10.06 (7.6) 9.9
-----------
Total Investments in Debt and Equity
Securities 2,954,889 8.67 1.5 8.0
Short-term investments
Due from banks--interest bearing 236,358 6.61 64.4 (21.9)
Federal funds sold and repurchase
agreements 361,677 5.96 (28.0) (10.0)
-----------
Total Short-term Investments 598,035 6.22 (16.6) (14.0)
-----------
Total Earning Assets 12,191,661 9.60 3.4 6.5
Non-earning Assets
Cash and due from banks 669,490 5.4 6.7
Bank premises and equipment 217,613 7.4 8.2
Other assets 471,989 9.8 (3.2)
Reserve for possible loan losses (177,822) (4.8) 2.4
-----------
Total Assets $13,372,931 3.8 6.3
===========
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 1,571,144 11.5 9.3
Interest bearing demand 1,355,146 4.46 4.2 10.5
Money market accounts 1,393,581 4.92 13.5 8.0
Savings 727,721 5.40 (4.1) 7.8
Consumer time certificates under $100,000 5,197,157 7.36 3.0 .3
Other time 87,247 4.94 50.9 16.1
-----------
Total Core Deposits 10,331,996 6.34 6.1 5.1
Time certificates $100,000 and over 846,620 5.12 7.1 2.9
Foreign 30,986 6.14 (12.7) 42.8
-----------
Total Purchased Deposits 877,606 5.16 3.4 5.8
-----------
Total Deposits 11,209,602 6.23 5.8 5.2
Short-term borrowings 805,046 5.49 (17.7) 9.6
Bank notes -- -- 21.4 --
Long-term debt 266,925 9.01 (5.2) 3.4
-----------
Total Acquired Funds 12,281,573 6.24 3.5 5.8
Other liabilities 206,171 15.6 3.6
-----------
Total Liabilities 12,487,744 3.6 5.7
SHAREHOLDERS' EQUITY 885,187 4.9 12.7
-----------
Total Liabilities and Shareholders'
Equity $13,372,931 3.8 6.3
===========
<FN>
<F*>Taxable-equivalent basis.
</TABLE>
57
<PAGE> 60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is contained in "Election of Directors" and
"Beneficial Ownership of Stock by Management," included in the Registrant's
Proxy Statement for the 1997 Annual Meeting of Shareholders, which information
is incorporated herein by reference.
The following is a list, as of January 31, 1997, of the names and ages of the
executive officers of Mercantile and all positions and offices with Mercantile
presently held by the person named. There is no family relationship between any
of the named persons.
<TABLE>
<CAPTION>
ALL POSITIONS AND OFFICES
NAME AGE HELD WITH MERCANTILE
---- --- -------------------------
<S> <C> <C>
Thomas H. Jacobsen 57 Chairman of the Board, President and Chief Executive Officer
W. Randolph Adams 52 Chairman and Chief Executive Officer of Mercantile Bank
National Association and Mercantile Trust Company National
Association
John Q. Arnold 52 Senior Executive Vice President and Chief Financial Officer
Dennis O. Battles 49 Executive Vice President
John H. Beirise 51 Group President--Investment Banking
Richard C. King 52 President and Chief Executive Officer, Mercantile Bank
(Kansas/Kansas City)
John W. McClure 50 Group President--Community Banking
Jon W. Bilstrom 50 General Counsel and Secretary
Jon P. Pierce 56 Executive Vice President, Human Resources
Arthur G. Heise 48 Senior Vice President and Auditor
Michael T. Normile 47 Senior Vice President, Finance and Control
</TABLE>
The executive officers were appointed by and serve at the pleasure of the
Board of Directors of Mercantile. Messrs. Jacobsen, Adams, Arnold, Beirise,
McClure, Bilstrom, Pierce, Heise and Normile have served as executive officers
of either Mercantile or Mercantile Bank for at least the last five years. Mr.
Battles was Senior Vice President and Division Manager at NatWest Bank N.A.
prior to joining Mercantile in July of 1993. Mr. King served as Chairman of the
Board, Chief Executive Officer and President of MidAmerican Corporation from
1989 until January 1993.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is contained in "Compensation
of Executive Officers," included in the Registrant's Proxy Statement for the
1997 Annual Meeting of Shareholders, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is contained in "Voting Securities and Principal Holders Thereof"
and "Beneficial Ownership of Stock by Management," included in the
Registrant's Proxy Statement for the 1997 Annual Meeting of Shareholders, which
is incorporated herein by reference.
58
<PAGE> 61
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
contained in "Interest of Management and Others in Certain Transactions,"
included in the Registrant's Proxy Statement for the 1997 Annual Meeting of
Shareholders, which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements: Listed in Item 8 hereof.
(2) Financial Statement Schedules:
None.
(3) Exhibits: See Exhibit Index at page 64 hereof.
(b) Reports on Form 8-K
Registrant filed one (1) Current Report on Form 8-K on December 30,
1996. In that Report, under Item 5, Registrant disclosed that on
December 22, 1996, it had entered into, and briefly described certain of
the terms of, an Agreement and Plan of Reorganization (the "Merger
Agreement") with Roosevelt Financial Group, Inc. ("Roosevelt").
Pursuant to that Merger Agreement, Roosevelt is to be merged with and
into a wholly-owned subsidiary of Registrant, with the shareholders of
Roosevelt to receive, at the election of the holder thereof as provided
in the Merger Agreement, either (i) 0.4211 of a share (the "Exchange
Ratio") of Mercantile common stock, par value $5.00 per share
("Mercantile Common Stock"), and the associated preferred share
purchase rights under Mercantile's Rights Agreement, dated May 23, 1988,
or (ii) $22.00 in cash, for each share of Roosevelt common stock, par
value $0.01 per share, provided that the aggregate number of shares of
Mercantile Common Stock that shall be issued in the Merger (the "Stock
Amount") shall, subject to allocation procedures set forth in the
Merger Agreement, not exceed 13,042,110 shares less the number of shares
of Mercantile Common Stock issuable upon exercise of Roosevelt stock
options or restricted stock outstanding as of the Effective Time. The
Current Report also briefly described the terms of a Stock Option
Agreement between Registrant as grantee and Roosevelt as issuer, and
agreements between Registrant and certain directors of Roosevelt, who in
the aggregate have voting power over approximately 2.3% of the
outstanding shares of Roosevelt common stock, to vote their shares in
favor of the Merger, all entered into simultaneously with execution of
the Merger Agreement.
59
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
MERCANTILE BANCORPORATION INC.
(Registrant)
Date: February 19, 1997 By: /s/ THOMAS H. JACOBSEN
------------------------------------
Thomas H. Jacobsen
Chairman of the Board, President,
Chief Executive Officer and Director
POWER OF ATTORNEY
We, the undersigned officers and directors of Mercantile Bancorporation Inc.,
hereby severally and individually constitute and appoint Thomas H. Jacobsen and
John Q. Arnold, and each of them, the true and lawful attorneys and agents of
each of us to execute in the name, place and stead of each of us (individually
and in any capacity stated below) any and all amendments to this Annual Report
on Form 10-K and all instruments necessary or advisable in connection therewith
and to file the same with the Securities and Exchange Commission, each of said
attorneys and agents to have the power to act with or without the others and to
have full power and authority to do and perform in the name and on behalf of
each of the undersigned every act whatsoever necessary or advisable to be done
in the premises as fully and to all intents and purposes as any of the
undersigned might or could do in person, and we hereby ratify and confirm our
signatures as they may be signed by our said attorneys and agents or each of
them to any and all such amendments and instruments.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
s/THOMAS H. JACOBSEN Chairman of the Board, President, Chief Executive February 19, 1997
- ------------------------------ Officer and Director
(Thomas H. Jacobsen)
Principal Executive Officer
s/JOHN Q. ARNOLD Senior Executive Vice President and Chief February 19, 1997
- ------------------------------ Financial Officer
(John Q. Arnold)
Principal Financial Officer
s/MICHAEL T. NORMILE Senior Vice President, Finance and Control February 19, 1997
- ------------------------------
(Michael T. Normile)
Principal Accounting Officer
Director
- ------------------------------
(Harry M. Cornell, Jr.)
s/WILLIAM A. HALL Director February 19, 1997
- ------------------------------
(William A. Hall)
60
<PAGE> 63
<C> <S> <C>
s/THOMAS A. HAYS Director February 19, 1997
- ------------------------------
(Thomas A. Hays)
s/FRANK LYON, JR. Director February 19, 1997
- ------------------------------
(Frank Lyon, Jr.)
s/EDWARD A. MUELLER Director February 19, 1997
- ------------------------------
(Edward A. Mueller)
s/ROBERT W. MURRAY Director February 19, 1997
- ------------------------------
(Robert W. Murray)
s/HARVEY SALIGMAN Director February 19, 1997
- ------------------------------
(Harvey Saligman)
s/CRAIG D. SCHNUCK Director February 19, 1997
- ------------------------------
(Craig D. Schnuck)
s/ROBERT L. STARK Director February 19, 1997
- ------------------------------
(Robert L. Stark)
s/PATRICK T. STOKES Director February 19, 1997
- ------------------------------
(Patrick T. Stokes)
s/JOHN A. WRIGHT Director February 19, 1997
- ------------------------------
(John A. Wright)
</TABLE>
61
<PAGE> 64
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
No. 3-1 Restated Articles of Incorporation of the Registrant, as
amended and currently in effect, filed as Exhibit 3(i) to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, are incorporated herein by reference.
No. 3-2 By-Laws of the Registrant, as amended and currently in
effect, filed as Exhibit 3.2 to Amendment No. 2 to
Registrant's Registration Statement No. 333-17757, are
incorporated herein by reference.
No. 4-1 Form of Indenture Regarding Subordinated Securities
between the Registrant and The First National Bank of
Chicago as Trustee, filed on March 31, 1992 as Exhibit 4.1
to Registrant's Report on Form 8-K dated September 24,
1992, is incorporated herein by reference.
No. 4-2 Form of Indenture Regarding Floating Rate Junior
Subordinated Definable Interest Debentures due 2027
between the Registrant and the Chase Manhattan Bank, as
Trustee.
No. 4-3 Form of First Supplemental Indenture Regarding Floating
Rate Junior Subordinated Definable Interest Debentures
Due 2027 between the Registrant and the Chase Manhattan
Bank, as Trustee.
No. 4-4 Rights Agreement dated as of May 23, 1988, between
Registrant and Mercantile Bank National Association, as
Rights Agent (including as exhibits thereto the form of
Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock and the form
of Rights Certificate) filed as Exhibits 1 and 2 to
Registrant's Registration Statement on Form 8-A, dated May
24, 1988, is incorporated herein by reference.
No. 10-1 The Mercantile Bancorporation Inc. 1987 Stock Option Plan,
as amended, filed as Exhibit 10-3 to Registrant's Report
on Form 10-K for the year ended December 31, 1989
(Commission File No. 1-11792), is incorporated herein by
reference.
No. 10-2 The Mercantile Bancorporation Inc. Executive Incentive
Compensation Plan, filed as Appendix C to Registrant's
definitive Proxy Statement for the 1994 Annual Meeting of
Shareholders, is incorporated herein by reference.
No. 10-3 The Mercantile Bancorporation Inc. Employee Stock Purchase
Plan, filed as Exhibit 10-7 to Registrant's Report on Form
10-K for the year ended December 31, 1989 (Commission File
No. 1-11792), is incorporated herein by reference.
No. 10-4 The Mercantile Bancorporation Inc. 1991 Employee Incentive
Plan, filed as Exhibit 10-7 to Registrant's Report on Form
10-K for the year ended December 31, 1990 (Commission File
No. 1-11792), is incorporated herein by reference.
62
<PAGE> 65
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
No. 10-5 Amendment Number One to the Mercantile Bancorporation Inc.
1991 Employee Incentive Plan, filed as Exhibit 10-6 to
Registrant's report on Form 10-K for the year ended
December 31, 1994, is incorporated herein by reference.
No. 10-6 The Mercantile Bancorporation Inc. 1994 Stock Incentive
Plan, filed as Appendix B to Registrant's definitive Proxy
Statement for the 1994 Annual Meeting of Shareholders, is
incorporated herein by reference.
No. 10-7 The Mercantile Bancorporation Inc. 1994 Stock Incentive
Plan for Non-Employee Directors, filed as Appendix E to
Registrant's definitive Proxy Statement for the 1994
Annual Meeting of Shareholders, is incorporated herein by
reference.
No. 10-8 The Mercantile Bancorporation Inc. Voluntary Deferred
Compensation Plan, filed as Appendix D to Registrant's
definitive Proxy Statement for the 1994 Annual Meeting of
Shareholders, is incorporated herein by reference.
No. 10-9 Form of Employment Agreement for Thomas H. Jacobsen, as
amended, filed as Exhibit 10-8 to Registrant's Report on
Form 10-K for the year ended December 31, 1989 (Commission
File No. 1-11792), is incorporated herein by reference.
No. 10-10 Form of Change of Control Employment Agreement for John W.
McClure, W. Randolph Adams, John Q. Arnold and Certain
Other Executive Officers, filed as Exhibit 10-10 to
Registrant's Report on Form 10-K for the year ended
December 31, 1989 (Commission File No. 1-11792), is
incorporated herein by reference.
No. 10-11 Agreement and Plan of Reorganization dated August 4, 1995,
by and between Mercantile Bancorporation Inc. and Hawkeye
Bancorporation, filed as Exhibit 2.1 to Registrant's
Registration Statement No. 33-63609, is incorporated
herein by reference.
No. 10-12 Mercantile Bancorporation Inc. Supplemental Retirement
Plan, filed as Exhibit 10-12 to Registrant's Report on
Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
No. 10-13 Agreement and Plan of Reorganization dated October 27,
1996, and between Mercantile Bancorporation Inc.,
Ameribanc, Inc. and Mark Twain Bancshares, Inc., filed as
Exhibit 2.1 to Registrant's Report on Form 8-K filed on
November 6, 1996, is incorporated herein by reference.
No. 10-14 Amendment to Agreement and Plan of Reorganization, dated
January 24, 1997, by and among Registrant, Ameribanc, Inc.
and Mark Twain Bancshares, Inc., filed as Exhibit 10-16 to
Amendment No. 2 to Registrant's Registration Statement No.
333-17757, is incorporated herein by reference.
No. 10-15 Stock Option Agreement, dated October 27, 1996, by and
between Mercantile Bancorporation Inc., as grantee, and
Mark Twain Bancshares, Inc., as issuer, filed as Exhibit
2.2 to Registrant's Report on Form 8-K filed on November
6, 1996, is incorporated herein by reference.
No. 10-16 Agreement and Plan of Reorganization, dated December 22,
1996, by and between Mercantile Bancorporation Inc. and
Roosevelt Financial Group, Inc., filed as Exhibit 2.1 to
Registrant's Report on Form 8-K filed on December 30,
1996, is incorporated herein by reference.
No. 10-17 Stock Option Agreement, dated December 22, 1996, by and
between Mercantile Bancorporation Inc., as grantee, and
Roosevelt Financial Group, Inc., as issuer, filed as
Exhibit 2.1 to Registrant's Report on Form 8-K filed on
December 30, 1996, is incorporated herein by reference.
No. 21 Subsidiaries of the Registrant as of January 31, 1997.
No. 23 Consent of KPMG Peat Marwick LLP.
No. 24 Power of Attorney (on signature page).
No. 27 Financial Data Schedule.
</TABLE>
63
<PAGE> 1
===============================================================================
MERCANTILE BANCORPORATION INC.
as Issuer
INDENTURE
Dated as of February 4, 1997
THE CHASE MANHATTAN BANK
as Trustee
SUBORDINATED DEBT SECURITIES
===============================================================================
<PAGE> 2
TIE-SHEET
---------
of provisions of Trust Indenture Act of 1939 with Indenture dated
as of February 4, 1997 between Mercantile Bancorporation Inc., as
Issuer, and The Chase Manhattan Bank, as Trustee:
<TABLE>
<CAPTION>
ACT SECTION INDENTURE SECTION
<S> <C>
310(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
310(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
310(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
310(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
310(a)(5). . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
310(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08; 6.10(a)(b) and (d)
310(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) and (b) . . . . . . . . . . . . . . . . . . . . . . . 6.13
311(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.01; 4.02(a)
312(b) and (c) . . . . . . . . . . . . . . . . . . . . . . . 4.02(b) and (c)
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04(a)
313(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
313(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . . 4.04(a)
313(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04(a)
313(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04(b)
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03
314(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
314(c)(1) and (2). . . . . . . . . . . . . . . . . . . . . . 13.06
314(c)(3). . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
314(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
314(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.06
314(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a)(c) and (d). . . . . . . . . . . . . . . . . . . . . . 6.01
315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.08
315(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.09
316(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . 5.01; 5.07
316(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
316(a) last sentence . . . . . . . . . . . . . . . . . . . . 7.04
316(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.04
317(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.02
317(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.04(a)
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.08
</TABLE>
THIS TIE-SHEET IS NOT PART OF THE INDENTURE AS EXECUTED.
<PAGE> 3
TABLE OF CONTENTS
-----------------
Page
----
Parties 1
Recitals 1
Authorization of Indenture 1
Compliance with Legal Requirements 1
Purpose of and Consideration for Indenture 1
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions 1
Affiliate 2
Authenticating Agent 2
Bankruptcy Law 2
Board of Directors 2
Board Resolution 2
Business Day 2
Capital Securities 2
Capital Securities Guarantee 2
Certificate 3
Common Securities 3
Common Securities Guarantee 3
Company 3
Custodian 3
Debt Security or Debt Securities 3
Debt Security Register 3
Declaration 3
Default 3
Depositary 3
Event of Default 4
Exchange Act 4
Global Security 4
Indenture 4
Institutional Trustee 4
Interest 4
Interest Payment Date 4
Mercantile Trust 4
Mortgage 4
Officers' Certificate 4
Opinion of Counsel 5
Original Issue Date 5
Original Issue Discount Security 5
<PAGE> 4
outstanding 5
Person 6
Predecessor Security 6
Principal Office of the Trustee 6
Responsible Officer 6
Securityholder, holder of Debt Securities 6
Senior Indebtedness 6
Subsidiary 7
Trust Indenture Act 7
Trust Securities 7
Trustee 7
Yield to Maturity 7
ARTICLE II
DEBT SECURITIES
SECTION 2.01. Forms Generally 8
SECTION 2.02. Form of Trustee's Certificate of
Authentication 8
SECTION 2.03. Amount Unlimited; Issuable in Series 8
SECTION 2.04. Authentication and Dating 10
SECTION 2.05. Date and Denomination of Debt Securities 11
SECTION 2.06. Execution of Debt Securities 13
SECTION 2.07. Exchange and Registration of Transfer of Debt
Securities 14
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Debt
Securities 16
SECTION 2.09. Temporary Debt Securities 17
SECTION 2.10. Cancellation of Debt Securities Paid, etc. 17
SECTION 2.11. Global Securities 18
SECTION 2.12. CUSIP Numbers 19
ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY
SECTION 3.01. Payment of Principal, Premium and Interest 19
SECTION 3.02. Offices for Notices and Payments, etc. 19
SECTION 3.03. Appointments to Fill Vacancies in Trustee's
Office 20
SECTION 3.04. Provision as to Paying Agent 20
SECTION 3.05. Certificate to Trustee 21
SECTION 3.06. Compliance with Consolidation Provisions 21
SECTION 3.07. Limitation on Dividends 21
SECTION 3.08. Covenants as to Mercantile Trusts 22
SECTION 3.09. Calculation of Original Issue Discount 22
ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE
TRUSTEE
SECTION 4.01. Securityholders' Lists 23
ii
<PAGE> 5
SECTION 4.02. Preservation and Disclosure of Lists 23
SECTION 4.03. [Reserved] 24
SECTION 4.04. Reports by the Trustee 24
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS UPON AN EVENT OF
DEFAULT
SECTION 5.01. Events of Default 25
SECTION 5.02. Payment of Debt Securities on Default; Suit
Therefor 27
SECTION 5.03. Application of Moneys Collected by Trustee 29
SECTION 5.04. Proceedings by Securityholders 29
SECTION 5.05. Proceedings by Trustee 30
SECTION 5.06. Remedies Cumulative and Continuing 30
SECTION 5.07. Direction of Proceedings and Waiver of
Defaults by Majority of Securityholders 30
SECTION 5.08. Notice of Defaults 31
SECTION 5.09. Undertaking to Pay Costs 32
ARTICLE VI
CONCERNING THE TRUSTEE
SECTION 6.01. Duties and Responsibilities of Trustee 32
SECTION 6.02. Reliance on Documents, Opinions, etc. 33
SECTION 6.03. No Responsibility for Recitals, etc. 34
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents,
Transfer Agents or Registrar May Own Debt
Securities 35
SECTION 6.05. Moneys to be Held in Trust 35
SECTION 6.06. Compensation and Expenses of Trustee 35
SECTION 6.07. Officers' Certificate as Evidence 36
SECTION 6.08. Conflicting Interest of Trustee 36
SECTION 6.09. Eligibility of Trustee 36
SECTION 6.10. Resignation or Removal of Trustee 37
SECTION 6.11. Acceptance by Successor Trustee 38
SECTION 6.12. Succession by Merger, etc. 39
SECTION 6.13. Limitation on Rights of Trustee as a
Creditor 39
SECTION 6.14. Authenticating Agents 40
ARTICLE VII
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Action by Securityholders 41
SECTION 7.02. Proof of Execution by Securityholders 41
SECTION 7.03. Who Are Deemed Absolute Owners 42
SECTION 7.04. Debt Securities Owned by Company Deemed Not
Outstanding 42
SECTION 7.05. Revocation of Consents; Future Holders
Bound 42
iii
<PAGE> 6
ARTICLE VIII
SECURITYHOLDERS' MEETINGS
SECTION 8.01. Purposes of Meetings 43
SECTION 8.02. Call of Meetings by Trustee 43
SECTION 8.03. Call of Meetings by Company or
Securityholders 44
SECTION 8.04. Qualifications for Voting 44
SECTION 8.05. Regulations 44
SECTION 8.06. Voting 45
SECTION 8.07. Quorum; Actions 45
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures without Consent of
Securityholders 46
SECTION 9.02. Supplemental Indentures with Consent of
Securityholders 48
SECTION 9.03. Compliance with Trust Indenture Act; Effect
of Supplemental Indentures 49
SECTION 9.04. Notation on Debt Securities 49
SECTION 9.05. Evidence of Compliance of Supplemental
Indenture to be Furnished to Trustee 49
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 10.01. Company May Consolidate, etc., on Certain
Terms 50
SECTION 10.02. Successor Entity to be Substituted 50
SECTION 10.03. Opinion of Counsel to be Given to Trustee 51
ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 11.01. Discharge of Indenture 51
SECTION 11.02. Deposited Moneys to be Held in Trust by
Trustee 52
SECTION 11.03. Paying Agent to Repay Moneys Held 52
SECTION 11.04. Return of Unclaimed Moneys 52
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 12.01. Indenture and Debt Securities Solely
Corporate Obligations 52
iv
<PAGE> 7
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors 53
SECTION 13.02. Official Acts by Successor Entity 53
SECTION 13.03. Surrender of Company Powers 53
SECTION 13.04. Addresses for Notices, etc. 53
SECTION 13.05. Governing Law 53
SECTION 13.06. Evidence of Compliance with Conditions
Precedent 54
SECTION 13.07. Non-Business Days 54
SECTION 13.08. Trust Indenture Act to Control 54
SECTION 13.09. Table of Contents, Headings, etc. 54
SECTION 13.10. Execution in Counterparts 55
SECTION 13.11. Separability 55
SECTION 13.12. Assignment 55
SECTION 13.13. Acknowledgment of Rights 55
ARTICLE XIV
REDEMPTION OF SECURITIES -- MANDATORY AND OPTIONAL
SINKING FUND
SECTION 14.01. Applicability of Article 56
SECTION 14.02. Notice of Redemption; Selection of Debt
Securities 56
SECTION 14.03. Payment of Debt Securities Called for
Redemption 57
SECTION 14.04. Mandatory and Optional Sinking Fund 57
ARTICLE XV
SUBORDINATION OF DEBT SECURITIES
SECTION 15.01. Agreement to Subordinate 59
SECTION 15.02. Default on Senior Indebtedness 60
SECTION 15.03. Liquidation; Dissolution; Bankruptcy 60
SECTION 15.04. Subrogation 61
SECTION 15.05. Trustee to Effectuate Subordination 62
SECTION 15.06. Notice by the Company 62
SECTION 15.07. Rights of the Trustee; Holders of Senior
Indebtedness 63
SECTION 15.08. Subordination May Not Be Impaired 64
v
<PAGE> 8
THIS INDENTURE, dated as of February 4, 1997, between
Mercantile Bancorporation Inc., a Missouri corporation
(hereinafter sometimes called the "Company"), and The Chase
Manhattan Bank, a New York banking corporation, as trustee
(hereinafter sometimes called the "Trustee"),
W I T N E S S E T H :
WHEREAS, for its lawful corporate purposes, the Company
has duly authorized the issue from time to time of its
subordinated unsecured debentures, notes or other evidence of
indebtedness to be issued in one or more series (the "Debt
Securities") up to such principal amount or amounts as may from
time to time be authorized in accordance with the terms of this
Indenture and, to provide the terms and conditions upon which the
Debt Securities are to be authenticated, issued and delivered,
the Company has duly authorized the execution of this Indenture;
and
WHEREAS, all acts and things necessary to make this
Indenture a valid agreement according to its terms, have been
done and performed;
NOW, THEREFORE, This Indenture Witnesseth:
In consideration of the premises, and the purchase of
the Debt Securities by the holders thereof, the Company covenants
and agrees with the Trustee for the equal and proportionate
benefit of the respective holders from time to time of the Debt
Securities or of a series thereof, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.
-----------
The terms defined in this Section 1.01 (except as
herein otherwise expressly provided or unless the context
otherwise requires) for all purposes of this Indenture and of any
indenture supplemental hereto shall have the respective meanings
specified in this Section 1.01. All other terms used in this
Indenture which are defined in the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act"), or which are by reference
therein defined in the Securities Act of 1933, as amended (the
"Securities Act"), shall (except as herein otherwise expressly
provided or unless the context otherwise requires) have the
meanings assigned to such terms in said Trust Indenture Act and
in said Securities Act as in force at the date of this Indenture
as originally executed. All accounting terms used herein and not
expressly defined shall have the meanings assigned to such terms
in accordance with generally accepted accounting principles and
the term "generally accepted accounting principles" means such
accounting principles as are generally accepted at the time of
any computation. The words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Indenture as a
whole and not to any particular Article, Section or other
subdivision.
<PAGE> 9
"Affiliate" means, with respect to a specified Person,
(a) any Person directly or indirectly owning, controlling or
holding with power to vote 10% or more of the outstanding voting
securities or other ownership interests of the specified Person,
(b) any Person 10% or more of whose outstanding voting securities
or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person,
(c) any Person directly or indirectly controlling, controlled by,
or under common control with the specified Person, (d) a
partnership in which the specified Person is a general partner,
(e) any executive officer or director of the specified Person,
and (f) if the specified Person is an individual, any entity of
which the specified Person is an executive officer, director or
general partner.
"Authenticating Agent" shall mean any agent or agents
of the Trustee which at the time shall be appointed and acting
pursuant to Section 6.14.
"Bankruptcy Law" shall mean Title 11, U.S. Code, or
any similar federal or state law for the relief of debtors.
"Board of Directors" shall mean the board of directors
or the executive committee or any other duly authorized
designated officers of the Company.
"Board Resolution" shall mean a copy of a resolution
certified by the Secretary or an Assistant Secretary of the
Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification
and delivered to the Trustee.
"Business Day" shall mean, with respect to any series
of Debt Securities, any day other than a Saturday, Sunday or any
other day on which banking institutions in New York City (in the
State of New York) and St. Louis (in the State of Missouri) are
permitted or required by any applicable law to close.
"Capital Securities" shall mean undivided beneficial
interests in the assets of a Mercantile Trust which rank pari passu
---- -----
with Common Securities issued by such Mercantile Trust;
provided, however, that upon the occurrence of an Event
- -------- -------
of Default (as defined in the Declaration with respect to such
Mercantile Trust), the rights of holders of such Common
Securities to payment in respect of distributions and payments
upon liquidation, redemption and otherwise are subordinated to
the rights of holders of such Capital Securities.
"Capital Securities Guarantee" shall mean, in respect
of any Mercantile Trust, any guarantee that the Company may enter
into with The Chase Manhattan Bank or other Persons that operates
directly or indirectly for the benefit of holders of Capital
Securities of such Mercantile Trust.
"Certificate" shall mean a certificate signed by any
one of the principal executive officer, the principal financial
officer or the principal accounting officer of the Company.
"Common Securities" shall mean undivided beneficial
interests in the assets of a Mercantile Trust which rank pari
----
passu with Capital Securities issued by such Mercantile
- -----
Trust; provided, however, that upon the occurrence of an
-------- -------
Event of Default (as defined in the
2
<PAGE> 10
Declaration with respect to such Mercantile Trust), the rights of
holders of such Common Securities to payment in respect of
distributions and payments upon liquidation, redemption and otherwise
are subordinated to the rights of holders of such Capital Securities.
"Common Securities Guarantee" shall mean, in respect of
any Mercantile Trust, any guarantee that the Company may enter
into with any Person or Persons and that operates directly or
indirectly for the benefit of holders of Common Securities of
such Mercantile Trust.
"Company" shall mean Mercantile Bancorporation Inc., a
Missouri corporation, and, subject to the provisions of
Article X, shall include its successors and assigns.
"Custodian" shall mean any receiver, trustee, assignee,
liquidator, or similar official under any Bankruptcy Law.
"Debt Security" or "Debt Securities" shall have the
meaning stated in the first recital of this Indenture and more
particularly means any debt security or debt securities, as the
case may be, authenticated and delivered under this Indenture.
"Debt Security Register" shall have the meaning
specified in Section 2.07.
"Declaration," with respect to a Mercantile Trust,
shall mean the Amended and Restated Declaration of Trust of such
Mercantile Trust, as amended or supplemented from time to time.
"Default" means any event, act or condition that with
notice or lapse of time, or both, would constitute an Event of
Default.
"Depositary" shall mean, with respect to Debt
Securities of any series for which the Company shall determine
that such Debt Securities will be issued as a Global Security,
The Depository Trust Company, New York, New York, another
clearing agency, or any successor registered as a clearing agency
under the Exchange Act, or other applicable statute or
regulation, which, in each case, shall be designated by the
Company pursuant to either Section 2.03 or 2.11.
"Event of Default" shall mean any event specified in
Section 5.01, continued for the period of time, if any, and after
the giving of the notice, if any, therein designated.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
"Global Security" shall mean, with respect to any
series of Debt Securities, a Debt Security executed by the
Company and delivered by the Trustee to the Depositary or
pursuant to the Depositarys instruction, all in accordance with
this Indenture, which shall be registered in the name of the
Depositary or its nominee.
"Indenture" shall mean this instrument as originally
executed or, if amended or supplemented as herein provided, as so
amended or supplemented, or both, and shall include the form and
terms of particular series of Debt Securities established as
contemplated hereunder.
3
<PAGE> 11
"Institutional Trustee" has the meaning set forth in
the Declaration of the applicable Mercantile Trust.
"Interest" shall mean, when used with respect to
noninterest bearing Debt Securities, interest payable after
maturity.
"Interest Payment Date," when used with respect to any
installment of interest on a Debt Security of a particular
series, shall mean the date specified in such Debt Security or in
a Board Resolution or in an indenture supplemental hereto with
respect to such series as the fixed date on which an installment
of interest with respect to Debt Securities of that series is due
and payable.
"Mercantile Trust" shall mean a Delaware business
trust, or any other similar trust created for the purpose of
issuing Capital Securities in connection with the issuance of
Debt Securities under this Indenture, of which the Company is the
sponsor.
"Mortgage" shall mean and include any mortgage, pledge,
lien, security interest, conditional sale or other title
retention agreement or other similar encumbrance.
"Officers' Certificate" shall mean a certificate signed
by the Chairman of the Board, the Vice Chairman, the President,
any Managing Director or any Vice President, and by the
Treasurer, an Assistant Treasurer, the Comptroller, an Assistant
Comptroller, the Secretary or an Assistant Secretary of the
Company, and delivered to the Trustee. Each such certificate
shall include the statements provided for in Section 13.06 if and
to the extent required by the provisions of such Section.
"Opinion of Counsel" shall mean an opinion in writing
signed by legal counsel, who may be an employee of or counsel to
the Company, or may be other counsel satisfactory to the Trustee.
Each such opinion shall include the statements provided for in
Section 13.06 if and to the extent required by the provisions of
such Section.
"Original Issue Date" of any Debt Security (or any
portion thereof) shall mean the earlier of (a) the date of such
Debt Security or (b) the date of any Debt Security (or portion
thereof) for which such Debt Security was issued (directly or
indirectly) on registration of transfer, exchange or
substitution.
"Original Issue Discount Security" shall mean any Debt
Security which provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof pursuant to Section 5.01.
The term "outstanding," when used with reference to
Debt Securities, shall, subject to the provisions of
Section 7.04, mean, as of any particular time, all Debt
Securities authenticated and delivered by the Trustee or the
Authenticating Agent under this Indenture, except
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<PAGE> 12
(a) Debt Securities theretofore canceled by the
Trustee or the Authenticating Agent or delivered to the
Trustee for cancellation;
(b) Debt Securities, or portions thereof, for the
payment or redemption of which moneys in the necessary
amount shall have been deposited in trust with the Trustee
or with any paying agent (other than the Company) or shall
have been set aside and segregated in trust by the Company
(if the Company shall act as its own paying agent); provided
that, if such Debt Securities, or portions thereof, are to
be redeemed prior to maturity thereof, notice of such
redemption shall have been given as provided in Article
Fourteen or provision satisfactory to the Trustee shall have
been made for giving such notice; and
(c) Debt Securities paid pursuant to Section 2.08 or
in lieu of or in substitution for which other Debt
Securities shall have been authenticated and delivered
pursuant to the terms of Section 2.08 unless proof
satisfactory to the Company and the Trustee is presented
that any such Debt Securities are held by bona fide holders
in due course.
In determining whether the holders of the requisite
principal amount of outstanding Debt Securities have given any
request, demand, authorization, direction, notice, consent or
waiver hereunder, the principal amount of an Original Issue
Discount Security that shall be deemed to be outstanding for such
purposes shall be the amount of the principal thereof that would
be due and payable as of the date of such determination upon a
declaration of acceleration of the maturity thereof pursuant to
Section 5.01.
"Person" shall mean any individual, corporation,
limited liability company, partnership, joint venture,
association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision
thereof.
"Predecessor Security" of any particular Debt Security
means every previous Debt Security evidencing all or a portion of
the same debt as that evidenced by such particular Debt Security;
and, for the purposes of this definition, any Debt Security
authenticated and delivered under Section 2.08 in lieu of a lost,
destroyed or stolen Debt Security shall be deemed to evidence the
same debt as the lost, destroyed or stolen Debt Security.
"Principal Office of the Trustee," or other similar
term, shall mean the office of the Trustee, at which at any
particular time its corporate trust business shall be principally
administered, which at the time of the execution of this
Indenture shall be 450 West 33rd Street -- 15th Floor, New York,
New York 10004.
"Responsible Officer" shall mean, with respect to the
Trustee, any officer within the Principal Office of the Trustee,
including any vice-president, any assistant vice-president, any
secretary, any assistant secretary, the treasurer, any assistant
treasurer, any trust officer or other officer of the Principal
Trust Office of the Trustee customarily performing functions
similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred
because of that officers knowledge of and familiarity with the
particular subject.
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<PAGE> 13
"Securityholder," "holder of Debt Securities," or other
similar terms, shall mean any Person in whose name at the time a
particular Debt Security is registered on the register kept by
the Company or the Trustee for that purpose in accordance with
the terms hereof.
"Senior Indebtedness" means, with respect to the
Company (except any other obligations which rank pari
----
passu with the Debt Securities of a series), (i) the
- -----
principal, premium, if any, and interest in respect of
(A) indebtedness of the Company for money borrowed and
(B) indebtedness evidenced by securities, debentures, notes,
bonds or other similar instruments issued by the Company,
including, without limitation, any current or future indebtedness
under any indenture (other than this Indenture) to which the
Company is a party; (ii) all capital lease obligations of the
Company; (iii) all obligations of the Company issued or assumed
as the deferred purchase price of property, all conditional sale
obligations of the Company and all obligations of the Company
under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business); (iv) all
obligations of the Company for the reimbursement of any letter of
credit, any bankers acceptance, any security purchase facility,
any repurchase agreement or similar arrangement, any interest
rate swap, any other hedging arrangement, any obligation under
options or any similar credit or other transaction; (v) all
obligations of the type referred to in clauses (i) through (iv)
above of other Persons for the payment of which the Company is
responsible or liable as obligor, guarantor or otherwise; and
(vi) all obligations of the type referred to in clauses (i)
through (v) above of other Persons secured by any lien on any
property or asset of the Company (whether or not such obligation
is assumed by the Company), except for (1) any indebtedness
between or among the Company or any Affiliate of the Company and
(2) any series of Debt Securities issued pursuant to this
Indenture and guarantees in respect of any such series of Debt
Securities. Senior Indebtedness does not include the Debt
Securities of any series or any junior subordinated debt
securities issued in the future with subordination terms
substantially similar to the Debt Securities of any series.
Senior Indebtedness shall continue to be Senior Indebtedness and
be entitled to the subordination provisions irrespective of any
amendment, modification or waiver of any term of such Senior
Indebtedness.
"Subsidiary" shall mean with respect to any Person,
(i) any corporation at least a majority of the outstanding voting
stock of which is owned, directly or indirectly, by such Person
or by one or more of its Subsidiaries, or by such Person and one
or more of its Subsidiaries, (ii) any general partnership, joint
venture or similar entity, at least a majority of the outstanding
partnership or similar interests of which shall at the time be
owned by such Person, or by one or more of its Subsidiaries, or
by such Person and one or more of its Subsidiaries and (iii) any
limited partnership of which such Person or any of its
Subsidiaries is a general partner. For the purposes of this
definition, "voting stock" means shares, interests,
participations or other equivalents in the equity interest
(however designated) in such Person having ordinary voting power
for the election of a majority of the directors (or the
equivalent) of such Person, other than shares, interests,
participations or other equivalents having such power only by
reason of the occurrence of a contingency.
"Trust Indenture Act" shall mean the Trust Indenture
Act of 1939 as in force at the date of execution of this
Indenture, except as provided in Section 9.03; provided, however,
-------- -------
6
<PAGE> 14
that, in the event the Trust Indenture Act of 1939 is amended after
such date, "Trust Indenture Act" shall mean, to the extent required by
any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Securities" shall mean Common Securities and
Capital Securities of a Mercantile Trust.
"Trustee" shall mean the Person identified as "Trustee"
in the first paragraph hereof, and, subject to the provisions of
Article VI hereof, shall also include its successors and assigns
as Trustee hereunder. The term "Trustee" as used with respect to
a particular series of Debt Securities shall mean the trustee
with respect to that series.
"Yield to Maturity" shall mean the yield to maturity on
a series of Debt Securities, calculated at the time of issuance
of such series of Debt Securities, or if applicable, at the most
recent predetermination of interest on such series and calculated
in accordance with accepted financial practice.
ARTICLE II
DEBT SECURITIES
SECTION 2.01. Forms Generally.
---------------
The Debt Securities of each series shall be in
substantially the form as shall be established by or pursuant to
a Board Resolution and as set forth in an Officers' Certificate
of the Company or in one or more indentures supplemental hereto,
in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted
by this Indenture, and may have such letters, numbers or other
marks of identification and such legends or endorsements placed
thereon as may be required to comply with any law or with any
rules made pursuant thereto or with any rules of any securities
exchange or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their
execution of the Debt Securities.
In the event the Debt Securities are issued in
definitive form pursuant to this Indenture, such Debt Securities
shall be typed, printed, lithographed or engraved on steel
engraved borders or may be produced in any other manner, all as
determined by the officers executing such Debt Securities, as
evidenced by their execution of such Debt Securities.
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<PAGE> 15
SECTION 2.02. Form of Trustee's Certificate of
--------------------------------
Authentication.
- --------------
The Trustee's certificate of authentication on all Debt
Securities shall be in substantially the following form:
This is one of the Debt Securities of the series
designated therein referred to in the within-mentioned Indenture.
The Chase Manhattan Bank, as Trustee
By
-------------------------
Authorized Officer
SECTION 2.03. Amount Unlimited; Issuable in Series.
------------------------------------
The aggregate principal amount of Debt Securities which
may be authenticated and delivered under this Indenture is
unlimited.
The Debt Securities may be issued in one or more series
up to the aggregate principal amount of Debt Securities of that
series from time to time authorized by or pursuant to a Board
Resolution of the Company or pursuant to one or more indentures
supplemental hereto. Prior to the initial issuance of Debt
Securities of any series, there shall be established in or
pursuant to a Board Resolution of the Company and set forth in an
Officers' Certificate of the Company or established in one or
more indentures supplemental hereto:
(1) the title of the Debt Securities of the
series (which shall distinguish Debt Securities of the
series from all other Debt Securities);
(2) any limit upon the aggregate principal amount
of the Debt Securities of the series which may be
authenticated and delivered under this Indenture (except for
Debt Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu
of, other Debt Securities of the series pursuant to
Section 2.07, 2.08, 2.09, 9.04 or 14.03);
(3) the date or dates on which the principal of and
premium, if any, on the Debt Securities of the series is
payable;
(4) the rate or rates at which the Debt Securities
of the series shall bear interest, if any, or the method by
which such interest may be determined, the date or dates
from which such interest shall accrue, the Interest Payment
Dates on which such interest shall be payable or the manner
of determination of such Interest Payment Dates and the
record dates for the determination of holders to whom
interest is payable on any such Interest Payment Dates;
(5) the place or places where the principal of, and
premium, if any, and any interest on Debt Securities of the
series shall be payable;
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<PAGE> 16
(6) the right, if any, to extend the interest
payment periods and the duration of such extension;
(7) the price or prices at which, the period or
periods within which and the terms and conditions upon which
Debt Securities of the series may be redeemed, in whole or
in part, at the option of the Company, pursuant to any
sinking fund or otherwise:
(8) the obligation, if any, of the Company to
redeem, purchase or repay Debt Securities of the series
pursuant to any sinking fund or analogous provisions or at
the option of a Securityholder thereof and the price or
prices at which and the period or periods within which, and
the terms and conditions upon which Debt Securities of the
series shall be redeemed, purchased or repaid, in whole or
in part, pursuant to such obligation;
(9) if other than denominations of $1,000 and any
integral multiple thereof, the denominations in which Debt
Securities of the series shall be issuable;
(10) if other than the principal amount thereof,
the portion of the principal amount of Debt Securities of
the series which shall be payable upon declaration of
acceleration of the maturity thereof pursuant to
Section 5.01 or provable in bankruptcy pursuant to
Section 5.02;
(11) any Events of Default with respect to the Debt
Securities of a particular series, if not set forth herein;
(12) the form of the Debt Securities of the series
including the form of the certificate of authentication of
such series;
(13) any trustee, authenticating or paying agents,
warrant agents, transfer agents or registrars with respect
to the Debt Securities of such series;
(14) whether the Debt Securities of the series
shall be issued in whole or in part in the form of one or
more Global Securities and, in such case, the Depositary for
such Global Security or Securities, and whether beneficial
owners of interests in any such Global Securities may
exchange such interests for other Debt Securities of such
series in the manner provided in Section 2.07, and the
manner and the circumstances under which and the place or
places where any such exchanges may occur if other than in
the manner provided in Section 2.07, and any other terms of
the series relating to the global nature of the Global
Securities of such series and the exchange, registration or
transfer thereof and the payment of any principal thereof,
or interest or premium, if any, thereon;
(15) if the Debt Securities of the series are
issued pursuant to an exemption from registration under the
Securities Act; and
(16) any other terms of the series (which terms
shall not be inconsistent with the provisions of this
Indenture).
9
<PAGE> 17
All Debt Securities of any one series shall be
substantially identical except as to denomination and except as
may otherwise be provided in or pursuant to such resolution of
the Board of Directors or in any such indenture supplemental
hereto.
If any of the terms of the series are established by
action taken pursuant to a Board Resolution of the Company, a
copy of an appropriate record of such action shall be certified
by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the
Officers' Certificate of the Company setting forth the terms of
the series.
SECTION 2.04. Authentication and Dating.
-------------------------
At any time and from time to time after the execution
and delivery of this Indenture, the Company may deliver Debt
Securities of any series executed by the Company to the Trustee
for authentication, and the Trustee shall thereupon authenticate
and make available for delivery said Debt Securities to or upon
the written order of the Company, signed by its Chairman of the
Board of Directors, Vice Chairman, the President, one of its
Managing Directors or one of its Vice Presidents and by its
Secretary, any Assistant Secretary, Treasurer or any Assistant
Treasurer, without any further action by the Company hereunder.
In authenticating such Debt Securities, and accepting the
additional responsibilities under this Indenture in relation to
such Debt Securities, the Trustee shall be entitled to receive,
and (subject to Section 6.01) shall be fully protected in relying
upon:
(1) a copy of any Board Resolution or Board
Resolutions relating thereto and, if applicable, an
appropriate record of any action taken pursuant to such
resolution, in each case certified by the Secretary or an
Assistant Secretary of the Company as the case may be;
(2) an executed supplemental indenture, if any;
(3) an Officers' Certificate prepared in accordance
with Section 13.06 setting forth the form and terms of the
Debt Securities if and as required pursuant to Sections 2.01
and 2.03, respectively; and
(4) an Opinion of Counsel prepared in accordance
with Section 13.06 which shall also state:
(a) that the form of such Debt Securities has been
established by or pursuant to a Board Resolution or by a
supplemental indenture as permitted by Section 2.01 in
conformity with the provisions of this Indenture;
(b) that the terms of such Debt Securities have been
established by or pursuant to a resolution of the Board of
Directors or by a supplemental indenture as permitted by
Section 2.03 in conformity with the provisions of this
Indenture;
10
<PAGE> 18
(c) that such Debt Securities, when authenticated and
delivered by the Trustee and issued by the Company in each
case in the manner and subject to any conditions specified
in such Opinion of Counsel, will constitute valid and
legally binding obligations of the Company; and
(d) that all laws and requirements in respect of the
execution and delivery by the Company of the Debt
Securities, have been complied with and that authentication
and delivery of the Debt Securities by the Trustee will not
violate the terms of this Indenture.
The Trustee shall have the right to decline to
authenticate and deliver any Debt Securities under this Section
if the Trustee, being advised by counsel, determines that such
action may not lawfully be taken or if a Responsible Officer of
the Trustee in good faith shall determine that such action would
expose the Trustee to personal liability to existing holders.
SECTION 2.05. Date and Denomination of Debt Securities.
----------------------------------------
The Debt Securities shall be issuable as registered
Debt Securities without coupons and in such denominations as
shall be specified as contemplated by Section 2.03. In the
absence of any such specification with respect to the Debt
Securities of any series, the Debt Securities of such series
shall be issuable in the denominations of $1,000 and any multiple
thereof. The Debt Securities shall be numbered, lettered, or
otherwise distinguished in such manner or in accordance with such
plans as the officers executing the same may determine with the
approval of the Trustee as evidenced by the execution and
authentication thereof.
Every Debt Security shall be dated the date of its
authentication, shall bear interest, if any, from such date and
shall be payable on such dates, in each case, as contemplated by
Section 2.03. The interest installment on any Security that is
payable, and is punctually paid or duly provided for, on any
Interest Payment Date for Debt Securities of that series shall be
paid to the Person in whose name said Debt Security (or one or
more Predecessor Securities) is registered at the close of
business on the regular record date for such interest
installment. In the event that any Debt Security of a particular
series or portion thereof is called for redemption and the
redemption date is subsequent to a regular record date with
respect to any Interest Payment Date and prior to such Interest
Payment Date, interest on such Debt Security will be paid upon
presentation and surrender of such Debt Security as provided in
Section 14.03.
Any interest on any Debt Security that is payable, but
is not punctually paid or duly provided for, on any Interest
Payment Date for a Debt Security of the same series (herein
called "Defaulted Interest") shall forthwith cease to be payable
to the registered holder on the relevant regular record date by
virtue of having been such holder; and such Defaulted Interest
shall be paid by the Company, at its election, as provided in
clause (1) or clause (2) below:
(1) The Company may make payment of any Defaulted
Interest on Debt Securities to the Persons in whose names
such Debt Securities (or their respective Predecessor
Securities) are registered at the close of business on a
special record date for the payment of such Defaulted
Interest, which shall be fixed in the following manner:
the Company shall notify the Trustee in writing of the
amount of Defaulted Interest
11
<PAGE> 19
proposed to be paid on each such Debt Security and the date of
the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix a special record
date for the payment of such Defaulted Interest which shall
not be more than 15 nor less than ten days prior to the date
of the proposed payment and not less than ten days after the
receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of
such special record date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment
of such Defaulted Interest and the special record date
therefor to be mailed, first class postage prepaid, to each
Securityholder at his or her address as it appears in the
Debt Security Register, not less than ten days prior to such
special record date. Notice of the proposed payment of such
Defaulted Interest and the special record date therefor
having been mailed as aforesaid, such Defaulted Interest
shall be paid to the Persons in whose names such Debt
Securities (or their respective Predecessor Securities) are
registered on such special record date and shall be no
longer payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted
Interest on any Debt Securities in any other lawful manner
not inconsistent with the requirements of any securities
exchange on which such Securities may be listed, and upon
such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed
payment pursuant to this clause, such manner of payment
shall be deemed practicable by the Trustee.
In respect of any series of Debt Securities in which the right to
extend the interest payment periods has been provided pursuant to
Section 2.03(6), any interest scheduled to become payable on an
Interest Payment Date occurring during a valid extension of an
interest payment period shall not be Defaulted Interest and shall
be payable on such other date as may be specified in the terms of
such Debt Securities.
Unless otherwise set forth in a Board Resolution of the
Company or one or more indentures supplemental hereto
establishing the terms of any series of Debt Securities pursuant
to Section 2.01 hereof, the term "regular record date" as used in
this Section with respect to a series of Debt Securities with
respect to any Interest Payment Date for such series shall mean
either the fifteenth day of the month immediately preceding the
month in which an Interest Payment Date established for such
series pursuant to Section 2.01 hereof shall occur, if such
Interest Payment Date is the first day of a month, or the last
day of the month immediately preceding the month in which an
Interest Payment Date established for such series pursuant to
Section 2.01 hereof shall occur, if such Interest Payment Date is
the fifteenth day of a month, whether or not such date is a
Business Day.
12
<PAGE> 20
Subject to the foregoing provisions of this Section,
each Debt Security of a series delivered under this Indenture
upon registration of transfer of or in exchange for or in lieu of
any other Debt Security of such series shall carry the rights to
interest accrued and unpaid, and to accrue, that were carried by
such other Debt Security.
SECTION 2.06. Execution of Debt Securities.
----------------------------
The Debt Securities shall be signed in the name and on
behalf of the Company by the manual or facsimile signature of its
Chairman of the Board of Directors, Vice Chairman, President, one
of its Managing Directors or one of its Executive Vice
Presidents, Senior Vice Presidents or Vice Presidents and by the
manual or facsimile signature of its Secretary, one of its
Assistant Secretaries, its Treasurer or one of its Assistant
Treasurers, under its corporate seal which may be affixed thereto
or printed, engraved or otherwise reproduced thereon, by
facsimile or otherwise, and which need not be attested. Only
such Debt Securities as shall bear thereon a certificate of
authentication substantially in the form herein before recited,
executed by the Trustee or the Authenticating Agent by the manual
signature of an authorized officer, shall be entitled to the
benefits of this Indenture or be valid or obligatory for any
purpose. Such certificate by the Trustee or the Authenticating
Agent upon any Debt Security executed by the Company shall be
conclusive evidence that the Debt Security so authenticated has
been duly authenticated and delivered hereunder and that the
holder is entitled to the benefits of this Indenture.
In case any officer of the Company who shall have
signed any of the Debt Securities shall cease to be such officer
before the Debt Securities so signed shall have been
authenticated and delivered by the Trustee or the Authenticating
Agent, or disposed of by the Company, such Debt Securities
nevertheless may be authenticated and delivered or disposed of as
though the Person who signed such Debt Securities had not ceased
to be such officer of the Company; and any Debt Security may be
signed on behalf of the Company by such Persons as, at the actual
date of the execution of such Debt Security, shall be the proper
officers of the Company, although at the date of the execution of
this Indenture any such person was not such an officer.
SECTION 2.07. Exchange and Registration of Transfer
-------------------------------------
of Debt Securities.
- ------------------
Subject to Section 2.03(14), Debt Securities of any
series may be exchanged for a like aggregate principal amount of
Debt Securities of the same series of other authorized
denominations. Debt Securities to be exchanged may be
surrendered at the principal corporate trust office of the
Trustee or at any office or agency to be maintained by the
Company for such purpose as provided in Section 3.02, and the
Company shall execute, the Company or the Trustee shall register
and the Trustee or the Authenticating Agent shall authenticate
and make available for delivery in exchange therefor the Debt
Security or Debt Securities which the Securityholder making the
exchange shall be entitled to receive. Subject to
Section 2.03(14), upon due presentment for registration of
transfer of any Debt Security of any series at the principal
corporate trust office of the Trustee or at any office or agency
of the Company maintained for such purpose as provided in
Section 3.02, the Company shall execute, the Company or the
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<PAGE> 21
Trustee shall register and the Trustee or the Authenticating
Agent shall authenticate and make available for delivery in the
name of the transferee or transferees a new Debt Security or Debt
Securities of the same series for a like aggregate principal
amount. Registration or registration of transfer of any Debt
Security by the Trustee or by any agent of the Company appointed
pursuant to Section 3.02, and delivery of such Debt Security,
shall be deemed to complete the registration or registration of
transfer of such Debt Security.
The Company shall cause to be kept, at the office or
agency maintained for the purpose of registration of transfer and
for exchange as provided in Section 3.02, a register (the "Debt
Security Register") for each series of Debt Securities issued
hereunder in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration and
transfer of all Debt Securities as in this Article Two provided.
Such register shall be in written form or in any other form
capable of being converted into written form within a reasonable
time.
All Debt Securities presented for registration of
transfer or for exchange or payment shall (if so required by the
Company or the Trustee or the Authenticating Agent) be duly
endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company and
the Trustee or the Authenticating Agent duly executed by, the
holder or his attorney duly authorized in writing.
No service charge shall be made for any exchange or
registration of transfer of Debt Securities, but the Company or
the Trustee may require payment of a sum sufficient to cover any
tax, fee or other governmental charge that may be imposed in
connection therewith.
The Company or the Trustee shall not be required to
exchange or register a transfer of (a) any Debt Security for a
period of 15 days next preceding the date of selection of Debt
Securities of such series for redemption, or (b) any Debt
Securities of any series selected, called or being called for
redemption in whole or in part, except in the case of any Debt
Securities of any series to be redeemed in part, the portion
thereof not so to be redeemed.
Notwithstanding the foregoing, if pursuant to
Section 2.03, a series of Debt Securities are issued pursuant to
an exemption from registration under the Securities Act, such
Debt Securities may not be transferred except in compliance with
the restricted securities legend set forth below (the
"Restrictive Securities Legend"), unless otherwise determined by
the Company pursuant to Section 2.03 and in accordance with
applicable law:
THE DEBT SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
ANY STATE SECURITIES LAWS. NEITHER THIS DEBT SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT. THE HOLDER OF THIS DEBT SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER
SUCH DEBT SECURITY PRIOR TO THE DATE WHICH IS
14
<PAGE> 22
THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE
LAST DATE ON WHICH MERCANTILE BANCORPORATION INC. (THE "COMPANY") OR
ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS DEBT SECURITY OR
ANY PREDECESSOR OF THIS DEBT SECURITY (THE "RESALE RESTRICTIONS
TERMINATION DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
(C) FOR SO LONG AS THE DEBT SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO
A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN
THE MEANING OF SUBPARAGRAPH (a) (1), (2), (3) OR (7) OF RULE 501
UNDER THE SECURITIES ACT THAT IS ACQUIRING THE DEBT SECURITY FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (E) PURSUANT
TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT, SUBJECT TO THE COMPANYS RIGHT PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D) OR (E)
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO IT IN ACCORDANCE WITH
THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY.
THE HOLDER OF THIS DEBT SECURITY AGREES THAT IT WILL COMPLY WITH
THE FOREGOING RESTRICTIONS. DEBT SECURITIES OWNED BY A PURCHASER
THAT IS NOT A QUALIFIED INSTITUTIONAL BUYER MAY NOT BE HELD IN
BOOK-ENTRY FORM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF
A HOLDER AFTER THE RESALE RESTRICTIONS TERMINATION DATE.
Prior to any distribution of the Debt Securities to the
holders of Capital Securities in accordance with the related
Declaration, the Company and the Trustee shall enter into a
supplemental indenture pursuant to Article IX to provide for
transfer procedures and restrictions with respect to the Debt
Securities substantially similar to those contained in the
Declaration with respect to Capital Securities of the
corresponding series to the extent applicable in the
circumstances existing at the time of such distribution for
purposes of assuring, if applicable, that no registration of such
Debt Securities is required under the Securities Act of 1933, as
amended.
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen
------------------------------------
Debt Securities.
- ---------------
In case any temporary or definitive Debt Security shall
become mutilated or be destroyed, lost or stolen, the Company
shall execute, and upon its written request the Trustee shall
authenticate and deliver, a new Debt Security of the same series
bearing a number not contemporaneously outstanding, in exchange
and substitution for the mutilated Debt Security, or in lieu of
and in substitution for the Debt Security so destroyed, lost or
stolen. In every case the
15
<PAGE> 23
applicant for a substituted Debt Security shall furnish to the Company
and the Trustee such security or indemnity as may be required by them
to save each of them harmless, and, in every case of destruction, loss
or theft, the applicant shall also furnish to the Company and the
Trustee evidence to their satisfaction of the destruction, loss or
theft of such Debt Security and of the ownership thereof.
The Trustee may authenticate any such substituted Debt
Security and deliver the same upon the written request or
authorization of any officer of the Company. Upon the issuance
of any substituted Debt Security, the Company may require the
payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and
any other expenses connected therewith. In case any Debt
Security which has matured or is about to mature or has been
called for redemption in full shall become mutilated or be
destroyed, lost or stolen, the Company may, instead of issuing a
substitute Debt Security, pay or authorize the payment of the
same (without surrender thereof except in the case of a mutilated
Debt Security) if the applicant for such payment shall furnish to
the Company and the Trustee such security or indemnity as may be
required by them to save each of them harmless and, in case of
destruction, loss or theft, evidence satisfactory to the Company
and to the Trustee of the destruction, loss or theft of such
Security and of the ownership thereof.
Every substituted Debt Security of any series issued
pursuant to the provisions of this Section 2.08 by virtue of the
fact that any such Debt Security is destroyed, lost or stolen
shall constitute an additional contractual obligation of the
Company, whether or not the destroyed, lost or stolen Debt
Security shall be found at any time, and shall be entitled to all
the benefits of this Indenture equally and proportionately with
any and all other Debt Securities of the same series duly issued
hereunder. All Debt Securities shall be held and owned upon the
express condition that, to the extent permitted by applicable
law, the foregoing provisions are exclusive with respect to the
replacement or payment of mutilated, destroyed, lost or stolen
Debt Securities and shall preclude any and all other rights or
remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement or
payment of negotiable instruments or other securities without
their surrender.
SECTION 2.09. Temporary Debt Securities.
-------------------------
Pending the preparation of definitive Debt Securities
of any series, the Company may execute and the Trustee shall
authenticate and make available for delivery temporary Debt
Securities that are typed, printed or lithographed. Temporary
Debt Securities shall be issuable in any authorized denomination,
and substantially in the form of the definitive Debt Securities
but with such omissions, insertions and variations as may be
appropriate for temporary Debt Securities, all as may be
determined by the Company. Every such temporary Debt Security
shall be executed by the Company and be authenticated by the
Trustee upon the same conditions and in substantially the same
manner, and with the same effect, as the definitive Debt
Securities. Without unreasonable delay the Company will execute
and deliver to the Trustee or the Authenticating Agent definitive
Debt Securities and thereupon any or all temporary Debt
Securities of such series may be surrendered in exchange
therefor, at the principal corporate trust office of the Trustee
or at any office or agency maintained by the Company for such
purpose as
16
<PAGE> 24
provided in Section 3.02, and the Trustee or the Authenticating Agent
shall authenticate and make available for delivery in exchange for
such temporary Debt Securities a like aggregate principal amount of
such definitive Debt Securities. Such exchange shall be made by the
Company at its own expense and without any charge therefor except that
in case of any such exchange involving a registration of transfer the
Company may require payment of a sum sufficient to cover any tax, fee
or other governmental charge that may be imposed in relation
thereto. Until so exchanged, the temporary Debt Securities of
any series shall in all respects be entitled to the same benefits
under this Indenture as definitive Debt Securities of the same
series authenticated and delivered hereunder.
SECTION 2.10. Cancellation of Debt Securities Paid, etc.
-----------------------------------------
All Debt Securities surrendered for the purpose of
payment, redemption, exchange or registration of transfer, shall,
if surrendered to the Company or any paying agent, be surrendered
to the Trustee and promptly canceled by it, or, if surrendered to
the Trustee or any Authenticating Agent, shall be promptly
canceled by it, and no Debt Securities shall be issued in lieu
thereof except as expressly permitted by any of the provisions of
this Indenture. All Debt Securities canceled by any
Authenticating Agent shall be delivered to the Trustee. The
Trustee shall destroy all canceled Debt Securities unless the
Company otherwise directs the Trustee in writing. If the Company
shall acquire any of the Debt Securities, however, such
acquisition shall not operate as a redemption or satisfaction of
the indebtedness represented by such Debt Securities unless and
until the same are surrendered to the Trustee for cancellation.
SECTION 2.11. Global Securities.
-----------------
(a) If the Company shall establish pursuant to Section
2.03 that the Debt Securities of a particular series are to be
issued as a Global Security, then the Company shall execute and
the Trustee shall, in accordance with Section 2.04, authenticate
and deliver, a Global Security that (i) shall represent, and
shall be denominated in an amount equal to the aggregate
principal amount of, all or a specified portion of the
outstanding Debt Securities of such series, (ii) shall be
registered in the name of the Depositary or its nominee, (iii)
shall be delivered by the Trustee to the Depositary or pursuant
to the Depositarys instruction and (iv) shall bear a legend
substantially to the following effect: "Except as otherwise
provided in Section 2.11 of the Indenture, this Debt Security may
be transferred, in whole but not in part, only to another nominee
of the Depositary or to a successor Depositary or to a nominee of
such successor Depositary."
(b) Notwithstanding the provisions of Section 2.07, the
Global Security of a series may be transferred, in whole but not
in part and only in the manner provided in Section 2.07, only to
another nominee of the Depositary for such series, or to a
successor Depositary for such series selected or approved by the
Company or to a nominee of such successor Depositary.
(c) If at any time the Depositary for a series of the
Debt Securities notifies the Company that it is unwilling or
unable to continue as Depositary for such series or if at any
time the Depositary for such series shall no longer be registered
or in good standing under the Exchange Act, or other applicable
statute or regulation, and a successor Depositary for such
17
<PAGE> 25
series is not appointed by the Company within 90 days after the
Company receives such notice or becomes aware of such condition, as
the case may be, this Section 2.11 shall no longer be applicable to
the Debt Securities of such series and the Company will execute,
and subject to Section 2.07, the Trustee, upon written request of
the Company, will authenticate and make available for delivery
the Debt Securities of such series in definitive registered form
without coupons, in authorized denominations, and in an aggregate
principal amount equal to the principal amount of the Global
Security of such series in exchange for such Global Security. In
addition, the Company may at any time determine that the Debt
Securities of any series shall no longer be represented by a
Global Security and that the provisions of this Section 2.11
shall no longer apply to the Debt Securities of such series. In
such event the Company will execute and subject to Section 2.07,
the Trustee, upon receipt of an Officers' Certificate evidencing
such determination by the Company, will authenticate and make
available for delivery the Debt Securities of such series in
definitive registered form without coupons, in authorized
denominations, and in an aggregate principal amount equal to the
principal amount of the Global Security of such series in
exchange for such Global Security. Upon the exchange of the
Global Security for such Debt Securities in definitive registered
form without coupons, in authorized denominations, the Global
Security shall be canceled by the Trustee. Such Debt Securities
in definitive registered form issued in exchange for the Global
Security pursuant to this Section 2.11(c) shall be registered in
such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The
Trustee shall deliver such Debt Securities to the Depositary for
delivery to the Persons in whose names such Debt Securities are
so registered.
SECTION 2.12. CUSIP Numbers.
-------------
The Company in issuing the Debt Securities may use
"CUSIP" numbers (if then generally in use), and, if so, the
Trustee shall use "CUSIP" numbers in notices of redemption as a
convenience to Securityholders; provided that any such notice may
state that no representation is made as to the correctness of
such numbers either as printed on the Debt Securities or as
contained in any notice of a redemption and that reliance may be
placed only on the other identification numbers printed on the
Debt Securities, and any such redemption shall not be affected by
any defect in or omission of such numbers. The Company will
promptly notify the Trustee in writing of any change in the CUSIP
numbers.
ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY
SECTION 3.01. Payment of Principal, Premium and Interest.
------------------------------------------
The Company covenants and agrees for the benefit of
each series of Debt Securities that it will duly and punctually
pay or cause to be paid the principal of and premium, if any, and
interest on each of the Debt Securities of that series at the
place, at the respective times and in the manner provided in such
Debt Securities. At the option of the Company, each installment
of interest on the Debt Securities of any series may be paid (i)
by mailing checks for such interest payable to the order of the
holders of Debt Securities entitled thereto as they appear
18
<PAGE> 26
on the registry books of the Company or (ii) if so specified with
respect to the Debt Securities of such series as contemplated by
Section 2.03, by wire transfer to any account with a banking
institution located in the United States designated by such
Person to the paying agent no later than the related record date.
SECTION 3.02. Offices for Notices and Payments, etc.
-------------------------------------
So long as any of the Debt Securities remain
outstanding, the Company will maintain in the Borough of
Manhattan, The City of New York, an office or agency where the
Debt Securities of each series may be presented for payment, an
office or agency where the Debt Securities of that series may be
presented for registration of transfer and for exchange as in
this Indenture provided and an office or agency where notices and
demands to or upon the Company in respect of the Debt Securities
of that series or of this Indenture may be served. The Company
will give to the Trustee written notice of the location of any
such office or agency and of any change of location thereof.
Until otherwise designated from time to time by the Company in a
notice to the Trustee, or specified as contemplated by Section
2.03, such office or agency for all of the above purposes shall
be the office or agency of the Trustee. In case the Company
shall fail to maintain any such office or agency in the Borough
of Manhattan, The City of New York, or shall fail to give such
notice of the location or of any change in the location thereof,
presentations and demands may be made and notices may be served
at the principal corporate trust office of the Trustee.
In addition to any such office or agency, the Company
may from time to time designate one or more offices or agencies
outside the Borough of Manhattan, The City of New York, where the
Debt Securities may be presented for registration of transfer and
for exchange in the manner provided in this Indenture, and the
Company may from time to time rescind such designation, as the
Company may deem desirable or expedient; provided, however,
-------- -------
that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain any such
office or agency in the Borough of Manhattan, The City of New
York, for the purposes above mentioned. The Company will give to
the Trustee prompt written notice of any such designation or
rescission thereof.
SECTION 3.03. Appointments to Fill Vacancies in
---------------------------------
Trustee's Office.
- ----------------
The Company, whenever necessary to avoid or fill a
vacancy in the office of Trustee, will appoint, in the manner
provided in Section 6.10, a Trustee, so that there shall at all
times be a Trustee hereunder.
SECTION 3.04. Provision as to Paying Agent.
----------------------------
(a) If the Company shall appoint a paying agent other
than the Trustee with respect to the Debt Securities of any
series, it will cause such paying agent to execute and deliver to
the Trustee an instrument in which such agent shall agree with
the Trustee, subject to the provision of this Section 3.04,
19
<PAGE> 27
(1) that it will hold all sums held by it as such
agent for the payment of the principal of and premium, if any, or
interest, if any, on the Debt Securities of such series (whether
such sums have been paid to it by the Company or by any other
obligor on the Debt Securities of such series) in trust for the
benefit of the holders of the Debt Securities of such series;
(2) that it will give the Trustee prompt written
notice of any failure by the Company (or by any other obligor on
the Debt Securities of such series) to make any payment of the
principal of and premium, if any, or interest, if any, on the
Debt Securities of such series when the same shall be due and
payable; and
(3) that it will, at any time during the continuance
of any Event of Default, upon the written request of the Trustee,
forthwith pay to the Trustee all sums so held in trust by such
paying agent.
(b) If the Company shall act as its own paying agent, it
will, on or before each due date of the principal of and premium,
if any, or interest, if any, on the Debt Securities of any
series, set aside, segregate and hold in trust for the benefit of
the holders of the Debt Securities of such series a sum
sufficient to pay such principal, premium or interest so becoming
due and will notify the Trustee in writing of any failure to take
such action and of any failure by the Company (or by any other
obligor under the Debt Securities of such series) to make any
payment of the principal of and premium, if any, or interest, if
any, on the Debt Securities of such series when the same shall
become due and payable.
Whenever the Company shall have one or more paying agents
for any series of Debt Securities, it will, on or prior to each
due date of the principal of and premium, if any, or interest, if
any, on any Debt Securities of such series, deposit with a paying
agent a sum sufficient to pay the principal, premium or interest
so becoming due, such sum to be held in trust for the benefit of
the Persons entitled thereto and (unless such paying agent is the
Trustee) the Company shall promptly notify the Trustee in writing
of its action or failure to act.
(c) Anything in this Section 3.04 to the contrary
notwithstanding, the Company may, at any time, for the purpose of
obtaining a satisfaction and discharge with respect to one or
more or all series of Debt Securities hereunder, or for any other
reason, pay, or direct any paying agent to pay to the Trustee all
sums held in trust for any such series by the Company or any such
paying agent, such sums to be held by the Trustee upon the trusts
herein contained.
(d) Anything in this Section 3.04 to the contrary
notwithstanding, the agreement to hold sums in trust as provided
in this Section 3.04 is subject to Sections 11.03 and 11.04.
SECTION 3.05. Certificate to Trustee.
----------------------
The Company will deliver to the Trustee on or before
120 days after the end of each fiscal year in each year, so long
as Debt Securities of any series are outstanding hereunder, a
Certificate stating that in the course of the performance by the
signers of their duties as officers
20
<PAGE> 28
of the Company they would normally have knowledge of any default by
the Company in the performance of any covenants contained herein,
stating whether or not they have knowledge of any such default and, if
so, specifying each such default of which the signers have knowledge
and the nature thereof.
SECTION 3.06. Compliance with Consolidation Provisions.
----------------------------------------
The Company will not, while any of the Debt Securities
remain outstanding, consolidate with, or merge into, or merge
into itself, or sell or convey all or substantially all of its
property to any other Person unless the provisions of Article X
hereof are complied with.
SECTION 3.07. Limitation on Dividends.
-----------------------
If Debt Securities of a series are initially issued to
a Mercantile Trust or a trustee of such trust in connection with
the issuance of Trust Securities by such Mercantile Trust
(regardless of whether Debt Securities continue to be held by
such trust) and (i) there shall have occurred and be continuing
any event that would constitute an Event of Default, (ii) the
Company shall be in default with respect to its payment of any
obligations under a Capital Securities Guarantee or a Common
Securities Guarantee with respect to securities issued by such
trust, or (iii) the Company shall have given notice of its
election to defer payments of interest on the Debt Securities of
such series by extending the interest payment period as provided
herein and such period, or any extension thereof, shall be
continuing, then (a) the Company shall not declare or pay any
dividend on, make a distribution with respect to, or redeem,
purchase, acquire, or make a liquidation payment with respect to,
any of its capital stock or rights to acquire such capital stock
(other than (i) purchases or acquisitions of shares of any such
capital stock or rights to acquire such capital stock in
connection with the satisfaction by the Company of its
obligations under any employee benefit plans, (ii) as a result of
a reclassification of the Company's capital stock or rights to
acquire such capital stock or the exchange or conversion of one
class or series of the Company's capital stock or rights to
acquire such capital stock for another class or series of the
Company's capital stock or rights to acquire such capital stock,
(iii) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted
or exchanged, (iv) dividends and distributions made on the
Company's capital stock or rights to acquire such capital stock
with the Company's capital stock or rights to acquire such
capital stock, or (v) any declaration of a dividend in connection
with the implementation of a shareholder rights plan, or the
issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto), or
make any guarantee payments (other than payments under a Capital
Securities Guarantee or a Common Securities Guarantee) with
respect to the foregoing and (b) the Company shall not make any
payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Company
that rank pari passu with or junior to the Debt
---- -----
Securities of such series.
SECTION 3.08. Covenants as to Mercantile Trusts.
---------------------------------
In the event Debt Securities of a series are initially
issued to a Mercantile Trust or the Institutional Trustee of such
Mercantile Trust in connection with the issuance of Trust
21
<PAGE> 29
Securities by such Mercantile Trust, for so long as such Trust
Securities remain outstanding, the Company shall maintain 100%
ownership of the Common Securities of such Mercantile Trust;
provided, however, that any permitted successor of the
- -------- -------
Company under this Indenture may succeed to the Company's
ownership of such Common Securities. The Company, as owner of a
majority of the Common Securities of such Mercantile Trust, shall
use its reasonable efforts to cause such Mercantile Trust (a) to
remain a statutory business trust, except in connection with a
distribution of Debt Securities of such series to the holders of
such Trust Securities in liquidation of such Mercantile Trust,
the redemption of all of the Trust Securities of such Mercantile
Trust or certain mergers, consolidations or amalgamations, each
as permitted by the Declaration of such Mercantile Trust, and
(b) to otherwise continue to be classified as a grantor trust for
United States federal income tax purposes and (c) to use its
reasonable efforts to cause each holder of Trust Securities
issued by such Mercantile Trust to be treated as owning an
undivided beneficial interest in the Debt Securities of such
series issued to such Mercantile Trust.
SECTION 3.09. Calculation of Original Issue
-----------------------------
Discount.
- --------
The Company shall file with the Trustee promptly at the
end of each calendar year a written notice specifying the amount
of original issue discount (including daily rates and accrual
periods), if any, accrued on outstanding Debt Securities as of
the end of such year.
ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE
SECTION 4.01. Securityholders' Lists.
----------------------
The Company covenants and agrees that it will furnish
or caused to be furnished to the Trustee:
(a) on each regular record date for each series of Debt
Securities, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Securityholders of
such series of Debt Securities as of such record date (and on
dates to be determined pursuant to Section 2.03 for non-interest
bearing securities in each year); and
(b) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Company of any
such request, a list of similar form and content as of a date not
more than 15 days prior to the time such list is furnished;
except that no such lists need be furnished under this Section
4.01 so long as the Trustee is in possession thereof by reason of
its acting as Debt Security registrar for such series.
SECTION 4.02. Preservation and Disclosure of Lists.
------------------------------------
(a) The Trustee shall preserve, in as current a form as
is reasonably practicable, all information as to the names and
addresses of the holders of each series of Debt Securities (1)
22
<PAGE> 30
contained in the most recent list furnished to it as provided in
Section 4.01 or (2) received by it in the capacity of Debt
Securities registrar (if so acting) hereunder. The Trustee may
destroy any list furnished to it as provided in Section 4.01 upon
receipt of a new list so furnished.
(b) In case three or more holders of Debt Securities of
any series (hereinafter referred to as "applicants") apply in
writing to the Trustee and furnish to the Trustee reasonable
proof that each such applicant has owned a Debt Security of such
series for a period of at least six months preceding the date of
such application, and such application states that the applicants
desire to communicate with other holders of Debt Securities of
such series or with holders of all Debt Securities with respect
to their rights under this Indenture or under such Debt
Securities and is accompanied by a copy of the form of proxy or
other communication which such applicants propose to transmit,
then the Trustee shall within five Business Days after the
receipt of such application, at its election, either:
(1) afford such applicants access to the
information preserved at the time by the Trustee in
accordance with the provisions of subsection (a) of this
Section 4.02, or
(2) inform such applicants as to the approximate
number of holders of such series or all Debt Securities, as
the case may be, whose names and addresses appear in the
information preserved at the time by the Trustee in
accordance with the provisions of subsection (a) of this
Section 4.02, and as to the approximate cost of mailing to
such Securityholders the form of proxy or other
communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants
access to such information, the Trustee shall, upon the written
request of such applicants, mail to each Securityholder of such
series or all Debt Securities, as the case may be, whose name and
address appear in the information preserved at the time by the
Trustee in accordance with the provisions of subsection (a) of
this Section 4.02 a copy of the form of proxy or other
communication which is specified in such request with reasonable
promptness after a tender to the Trustee of the material to be
mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless within five days after
such tender, the Trustee shall mail to such applicants and file
with the Securities and Exchange Commission, if permitted or
required by applicable law, together with a copy of the material
to be mailed, a written statement to the effect that, in the
opinion of the Trustee, such mailing would be contrary to the
best interests of the holders of Debt Securities of such series
or all Debt Securities, as the case may be, or would be in
violation of applicable law. Such written statement shall
specify the basis of such opinion. If said Commission, as
permitted or required by applicable law, after opportunity for a
hearing upon the objections specified in the written statement so
filed, shall enter an order refusing to sustain any of such
objections or if, after the entry of an order sustaining one or
more of such objections, said Commission shall find, after notice
and opportunity for hearing, that all the objections so sustained
have been met and shall enter an order so declaring, the Trustee
shall mail copies of such material to all such Securityholders
with reasonable promptness after the entry of such order and the
renewal of such
23
<PAGE> 31
tender; otherwise the Trustee shall be relieved of any obligation or
duty to such applicants respecting their application.
(c) Each and every holder of Debt Securities, by
receiving and holding the same, agrees with Company and the
Trustee that neither the Company nor the Trustee nor any paying
agent shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the holders
of Debt Securities in accordance with the provisions of
subsection (b) of this Section 4.02, regardless of the source
from which such information was derived, and that the Trustee
shall not be held accountable by reason of mailing any material
pursuant to a request made under said subsection (b).
SECTION 4.03. [Reserved]
SECTION 4.04. Reports by the Trustee.
----------------------
(a) The Trustee shall transmit to Securityholders such
reports concerning the Trustee and its actions under this
Indenture as may be required pursuant to the Trust Indenture Act
at the times and in the manner provided pursuant thereto. If
required by Section 313(a) of the Trust Indenture Act, the
Trustee shall, within 60 days after each May 15 following the
date of this Indenture deliver to Securityholders a brief report,
dated as of such May 15, which complies with the provisions of
such Section 313(a).
(b) A copy of each such report shall, at the time of
such transmission to Securityholders, be filed by the Trustee
with each stock exchange, if any, upon which the Securities are
listed, with the Commission, if required by applicable law, and
with the Company. The Company will promptly notify the Trustee
when the Debt Securities are listed on any stock exchange.
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
UPON AN EVENT OF DEFAULT
SECTION 5.01. Events of Default.
-----------------
The following Events of Default with respect to Debt
Securities of any series or such other events as may be
established with respect to the Debt Securities of that series as
contemplated by Section 2.03 hereof shall be "Events of Default"
with respect to Debt Securities of that series:
(a) the Company defaults in the payment of any
interest upon any Debt Securities of that series when it becomes
due and payable, and continuance of such default for a period of
30 days; provided, however, that a valid extension of an
-------- -------
interest payment period by the
24
<PAGE> 32
Company in accordance with the terms of such Debt Securities shall not
constitute a default in the payment of interest for this purpose; or
(b) the Company defaults in the payment of all or any
part of the principal of (or premium, if any, on) any Debt
Securities of that series as and when the same shall become due
and payable either at maturity, upon redemption (including
redemption for any sinking fund), by declaration of acceleration
or otherwise; provided, however, that a valid extension
-------- -------
of the maturity of such Debt Securities shall not constitute a
default for this purpose; or
(c) the Company defaults with respect to indebtedness
for money borrowed resulting in acceleration of such indebtedness
having an aggregate principal amount in excess of $25 million and
such acceleration is not rescinded or annulled within 30 days
after there has been given, by registered or certified mail, to
the Company by the Trustee or to the Company and the Trustee by
the holders of at least 25% in aggregate principal amount of the
outstanding Debt Securities of that series, a written notice
specifying such acceleration and stating that such Notice is a
"Notice of Default" hereunder; or
(d) the Company defaults in the performance of, or
breaches, any of its covenants or agreements in this Indenture or
in the terms of that series of Debt Securities established as
contemplated in this Indenture (other than a covenant or
agreement a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 90 days
after there has been given, by registered or certified mail, to
the Company by the Trustee or to the Company and the Trustee by
the holders of at least 25% in aggregate principal amount of the
outstanding Debt Securities of that series, a written notice
specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder;
or
(e) a court having jurisdiction in the premises shall
enter a decree or order for relief in respect of the Company in
an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of the Company or for any substantial part
of its property, or ordering the winding-up or liquidation of its
affairs and such decree or order shall remain unstayed and in
effect for a period of 90 consecutive days; or
(f) the Company shall commence a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, shall consent to the entry of an order for
relief in an involuntary case under any such law, or shall
consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Company or of any substantial part of
its property, or shall make any general assignment for the
benefit of creditors, or shall fail generally to pay its debts as
they become due; or
(g) as to Debt Securities of any series issued to a
Mercantile Trust, such Mercantile Trust shall have voluntarily or
involuntarily liquidated, dissolved, wound-up its business or
otherwise terminated its existence except in connection with
(i) the distribution of the Debt Securities of such series to
holders of such Trust Securities in liquidation of their
interests
25
<PAGE> 33
in such Mercantile Trust, (ii) the redemption of all of
the outstanding Trust Securities of such Mercantile Trust or
(iii) certain mergers, consolidations or amalgamations, each as
permitted by the Declaration of such Mercantile Trust.
If an Event of Default occurs and is continuing with
respect to any series of Debt Securities, then, and in each and
every such case, unless the principal of all of the Debt
Securities of that series shall have already become due and
payable, either the Trustee or the holders of not less than 25%
in aggregate principal amount of the Debt Securities of that
series then outstanding hereunder, by notice in writing to the
Company (and to the Trustee if given by Securityholders), may
declare the entire principal (or, if the Debt Securities of that
series are Original Issue Discount Securities, such portion of
the principal amount as may be specified in the terms of that
series) of all Debt Securities of that series and the interest
accrued thereon, if any, to be due and payable immediately, and
upon any such declaration the same shall become immediately due
and payable.
The foregoing provisions, however, are subject to the
condition that if, at any time after the principal (or, if the
Debt Securities are Original Issue Discount Securities, such
portion of the principal as may be specified in the terms
thereof) of the Debt Securities of any series (or of all the Debt
Securities, as the case may be) shall have been so declared due
and payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter
provided, the Company shall pay or shall deposit with the Trustee
a sum sufficient to pay all matured installments of interest upon
all the Debt Securities of such series (or of all the Debt
Securities, as the case may be) and the principal of and premium,
if any, on any and all Debt Securities of such series (or of all
the Debt Securities, as the case may be) which shall have become
due otherwise than by acceleration (with interest upon such
principal and premium, if any, and, to the extent that payment of
such interest is enforceable under applicable law, on overdue
installments of interest, at the same rate as the rate of
interest or Yield to Maturity (in the case of Original Issue
Discount Securities) specified in the Debt Securities of such
series (or at the respective rates of interest or Yields to
Maturity of all the Debt Securities, as the case may be) to the
date of such payment or deposit) and such amount as shall be
sufficient to cover reasonable compensation to the Trustee and
each predecessor Trustee, their respective agents, attorneys' and
counsel, and all other amounts due to the Trustee pursuant to
Section 6.06, and if any and all Events of Default under this
Indenture, other than the non-payment of the principal of or
premium, if any, on Debt Securities which shall have become due
by acceleration, shall have been cured, waived or otherwise
remedied as provided herein -- then and in every such case the
holders of a majority in aggregate principal amount of the Debt
Securities of such series (or of all the Debt Securities, as the
case may be) then outstanding, by written notice to the Company
and to the Trustee, may waive all defaults with respect to that
series (or with respect to all Debt Securities, as the case may
be, in such case, treated as a single class) and rescind and
annul such declaration and its consequences, but no such waiver
or rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent thereon.
In case the Trustee shall have proceeded to enforce any
right under this Indenture and such proceedings shall have been
discontinued or abandoned because of such rescission or
26
<PAGE> 34
annulment or for any other reason or shall have been determined
adversely to the Trustee, then and in every such case the Company, the
Trustee and the holders of the Debt Securities shall be restored
respectively to their several positions and rights hereunder, and
all rights, remedies and powers of the Company, the Trustee and
the holders of the Debt Securities shall continue as though no
such proceeding had been taken.
SECTION 5.02. Payment of Debt Securities on Default;
--------------------------------------
Suit Therefor.
- -------------
The Company covenants that (a) in case default shall be
made in the payment of any installment of interest upon any of
the Debt Securities of any series as and when the same shall
become due and payable, and such default shall have continued for
a period of 30 days, or (b) in case default shall be made in the
payment of the principal of or premium, if any, on any of the
Debt Securities of any series as and when the same shall have
become due and payable, whether at maturity of the Debt
Securities of that series or upon redemption or by declaration of
acceleration or otherwise -- then, upon demand of the Trustee,
the Company will pay to the Trustee, for the benefit of the
holders of the Debt Securities of that series the whole amount
that then shall have become due and payable on all such Debt
Securities of that series for principal and premium, if any, or
interest, or both, as the case may be, with interest upon the
overdue principal and premium, if any, and (to the extent that
payment of such interest is enforceable under applicable law)
upon the overdue installments of interest at the rate or Yield to
Maturity (in the case of Original Issue Discount Securities)
borne by the Debt Securities of that series; and, in addition
thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including a reasonable
compensation to the Trustee, its agents, attorneys and counsel,
and any other amounts due to the Trustee under Section 6.06. In
case the Company shall fail forthwith to pay such amounts upon
such demand, the Trustee, in its own name and as trustee of an
express trust, shall be entitled and empowered to institute any
actions or proceedings at law or in equity for the collection of
the sums so due and unpaid, and may prosecute any such action or
proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor
on such Debt Securities and collect in the manner provided by law
out of the property of the Company or any other obligor on such
Debt Securities wherever situated the moneys adjudged or decreed
to be payable.
In case there shall be pending proceedings for the
bankruptcy or for the reorganization of the Company or any other
obligor on the Debt Securities of any series under Title 11,
United States Code, or any other applicable law, or in case a
receiver or trustee shall have been appointed for the property of
the Company or such other obligor, or in the case of any other
similar judicial proceedings relative to the Company or other
obligor upon the Debt Securities of any series, or to the
creditors or property of the Company or such other obligor, the
Trustee, irrespective of whether the principal of the Debt
Securities of any series shall then be due and payable as therein
expressed or by declaration of acceleration or otherwise and
irrespective of whether the Trustee shall have made any demand
pursuant to the provisions of this Section 5.02, shall be
entitled and empowered, by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole
amount of principal and interest (or, if the Debt Securities of
that series are Original Issue Discount Securities such portion
of the principal amount as may be specified in the terms of that
series) owing and unpaid in respect of
27
<PAGE> 35
the Debt Securities of such series and, in case of any judicial
proceedings, to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for reasonable compensation to the
Trustee and each predecessor Trustee, and their respective agents,
attorneys and counsel, and for reimbursement of all other amounts
due to the Trustee under Section 6.06 and of the Securityholders
allowed in such judicial proceedings relative to the Company or
any other obligor on the Debt Securities of any series, or to the
creditors or property of the Company or such other obligor,
unless prohibited by applicable law and regulations, to vote on
behalf of the holders of the Debt Securities or any series in any
election of a trustee or a standby trustee in arrangement,
reorganization, liquidation or other bankruptcy or insolvency
proceedings or Person performing similar functions in comparable
proceedings, and to collect and receive any moneys or other
property payable or deliverable on any such claims, and to
distribute the same after the deduction of its charges and
expenses; and any receiver, assignee or trustee in bankruptcy or
reorganization is hereby authorized by each of the
Securityholders to make such payments to the Trustee, and, in the
event that the Trustee shall consent to the making of such
payments directly to the Securityholders, to pay to the Trustee
such amounts as shall be sufficient to cover reasonable
compensation to the Trustee, each predecessor Trustee and their
respective agents, attorneys and counsel, and all other amounts
due to the Trustee under Section 6.06.
Nothing herein contained shall be construed to
authorize the Trustee to authorize or consent to or accept or
adopt on behalf of any Securityholder any plan of reorganization,
arrangement, adjustment or composition affecting the Debt
Securities of any series or the rights of any holder thereof or
to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding.
All rights of action and of asserting claims under this
Indenture, or under any of the Debt Securities, may be enforced
by the Trustee without the possession of any of the Debt
Securities, or the production thereof at any trial or other
proceeding relative thereto, and any such suit or proceeding
instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall
be for the ratable benefit of the holders of the Debt Securities.
In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this
Indenture to which the Trustee shall be a party) the Trustee
shall be held to represent all the holders of the Debt
Securities, and it shall not be necessary to make any holders of
the Debt Securities parties to any such proceedings.
SECTION 5.03. Application of Moneys Collected by
----------------------------------
Trustee.
- -------
Any moneys collected by the Trustee shall be applied in
the following order, at the date or dates fixed by the Trustee
for the distribution of such moneys, upon presentation of the
several Debt Securities in respect of which moneys have been
collected, and stamping thereon the payment, if only partially
paid, and upon surrender thereof if fully paid:
28
<PAGE> 36
First: To the payment of costs and expenses of
collection applicable to such series and reasonable compensation
to the Trustee, its agents, attorneys and counsel, and of all
other amounts due to the Trustee under Section 6.06;
Second: To the payment of all Senior Indebtedness of
the Company if and to the extent required by Article XV;
Third: To the payment of the amounts then due and
unpaid upon Debt Securities of such series for principal (and
premium, if any), and interest on the Debt Securities of such
series, in respect of which or for the benefit of which money has
been collected, ratably, without preference or priority of any
kind, according to the amounts due on such Debt Securities for
principal (and premium, if any) and interest, respectively; and
Fourth: The balance, if any, to the Company.
SECTION 5.04. Proceedings by Securityholders.
------------------------------
No holder of any Debt Security of any series shall have
any right to institute any suit, action or proceeding for any
remedy hereunder, unless such holder previously shall have given
to the Trustee written notice of an Event of Default with respect
to the Debt Securities of such series and unless the holders of
not less than 25% in aggregate principal amount of the Debt
Securities of that series then outstanding shall have given the
Trustee a written request to institute such action, suit or
proceeding and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and
liabilities to be incurred thereby, and the Trustee for 60 days
after its receipt of such notice, request and offer of indemnity
shall have failed to institute any such action, suit or
proceeding; provided that no holder of Debt Securities of
-------- ----
any series shall have any right to prejudice the rights of any
other holder of Debt Securities of such series, obtain priority
or preference over any other such holder or enforce any right
under this Indenture except in the manner herein provided and for
the equal, ratable and common benefit of all holders of Debt
Securities of the applicable series.
Notwithstanding any other provisions in this Indenture,
however, the right of any holder of any Debt Security to receive
payment of the principal of, premium, if any, and interest, on
such Debt Security when due, or to institute suit for the
enforcement of any such payment, shall not be impaired or
affected without the consent of such holder. For the protection
and enforcement of the provisions of this Section, each and every
Securityholder and the Trustee shall be entitled to such relief
as can be given either at law or in equity.
SECTION 5.05. Proceedings by Trustee.
----------------------
In case of an Event of Default hereunder the Trustee
may in its discretion proceed to protect and enforce the rights
vested in it by this Indenture by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect
and enforce any of such rights, either by suit in equity or by
action at law or by proceeding in bankruptcy or otherwise,
whether for the specific enforcement of any covenant or agreement
contained in this Indenture or in aid of
29
<PAGE> 37
the exercise of any power granted in this Indenture, or to enforce any
other legal or equitable right vested in the Trustee by this Indenture
or by law.
SECTION 5.06. Remedies Cumulative and Continuing.
----------------------------------
Except as otherwise provided in Section 2.08, all
powers and remedies given by this Article V to the Trustee or to
the Securityholders shall, to the extent permitted by law, be
deemed cumulative and not exclusive of any other powers and
remedies available to the Trustee or the holders of the Debt
Securities, by judicial proceedings or otherwise, to enforce the
performance or observance of the covenants and agreements
contained in this Indenture or otherwise established with respect
to such series, and no delay or omission of the Trustee or of any
holder of any of the Debt Securities to exercise any right or
power accruing upon any Event of Default occurring and continuing
as aforesaid shall impair any such right or power, or shall be
construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section 5.04, every
power and remedy given by this Article V or by law to the Trustee
or to the Securityholders may be exercised from time to time, and
as often as shall be deemed expedient, by the Trustee or by the
Securityholders.
SECTION 5.07. Direction of Proceedings and Waiver of
--------------------------------------
Defaults by Majority of Securityholders.
- ---------------------------------------
The holders of a majority in aggregate principal amount
of the Debt Securities of any or all series affected (voting as
one class) at the time outstanding shall have the right to direct
the time, method, and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee with respect to such series;
provided, however, that (subject to the provisions of
- -------- -------
Section 6.01) the Trustee shall have the right to decline to
follow any such direction if the Trustee shall determine that the
action so directed would be unjustly prejudicial to the holders
not taking part in such direction or if the Trustee being advised
by counsel determines that the action or proceeding so directed
may not lawfully be taken or if a Responsible Officer of the
Trustee shall determine that the action or proceedings so
directed would involve the Trustee in personal liability. Prior
to any declaration accelerating the maturity of any series of the
Debt Securities, or of all the Debt Securities, as the case may
be, the holders of a majority in aggregate principal amount of
the Debt Securities of that series at the time outstanding may on
behalf of the holders of all of the Debt Securities of such
series waive (or modify any previously granted waiver of) any
past default or Event of Default, including any default or Event
of Default the conditions for the occurrence of which are
established pursuant to Section 2.03, and its consequences,
except a default (a) in the payment of principal of, premium, if
any, or interest on any of the Debt Securities, (b) in respect of
covenants or provisions hereof which cannot be modified or
amended without the consent of the holder of each Debt Security
affected, or (c) in respect of the covenants contained in
Section 3.08; provided, however, that if the Debt
-------- -------
Securities of such series are held by a Mercantile Trust or a
trustee of such trust, such waiver or modification to such waiver
shall not
30
<PAGE> 38
be effective until the holders of a majority in liquidation preference
of Trust Securities of the applicable Mercantile Trust shall have
consented to such waiver or modification to such waiver; provided,
further, that if the consent of the holder of each outstanding Debt
Security is required, such waiver shall not be effective until each
holder of the Trust Securities of the applicable Mercantile Trust
shall have consented to such waiver. Upon any such waiver, the
default covered thereby shall be deemed to be cured for all purposes
of this Indenture and the Company, the Trustee and the holders of
the Debt Securities of such series shall be restored to their
former positions and rights hereunder, respectively; but no such
waiver shall extend to any subsequent or other default or Event
of Default or impair any right consequent thereon. Whenever any
default or Event of Default hereunder shall have been waived as
permitted by this Section 5.07, said default or Event of Default
shall for all purposes of the Debt Securities of that series (or
of all Securities, as the case may be) and this Indenture be
deemed to have been cured and to be not continuing.
SECTION 5.08. Notice of Defaults.
------------------
The Trustee shall, within 90 days after the occurrence
of a default with respect to the Debt Securities of any series,
mail to all Securityholders of that series, as the names and
addresses of such holders appear upon the Debt Security Register,
notice of all defaults with respect to that series known to the
Trustee, unless such defaults shall have been cured before the
giving of such notice (the term "defaults" for the purpose of
this Section 5.08 being hereby defined to be the events specified
in clauses (a), (b), (c), (d), (e) and (f) of Section 5.01, not
including periods of grace, if any, provided for therein, and
irrespective of the giving of written notice specified in clause
(c) of Section 5.01); and provided that, except in the case of
default in the payment of the principal of, premium, if any, or
interest on any of the Debt Securities of such series, the
Trustee shall be protected in withholding such notice if and so
long as a Responsible Officer of the Trustee in good faith
determines that the withholding of such notice is in the
interests of the Securityholders of such series; and provided
further, that in the case of any default of the character
specified in Section 5.01(c) no such notice to Securityholders of
such series shall be given until at least 60 days after the
occurrence thereof but shall be given within 90 days after such
occurrence.
SECTION 5.09. Undertaking to Pay Costs.
------------------------
All parties to this Indenture agree, and each holder of
any Debt Security by his acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any
suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action
taken or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable
costs, including reasonable attorneys' fees and expenses, against
any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section 5.09 shall not apply
to any suit instituted by the Trustee, to any suit instituted by
any Securityholder, or group of Securityholders of any series,
holding in the aggregate more than 10% in principal amount of the
Debt Securities of that series outstanding, or to any suit
instituted by any Securityholder for the enforcement of the
payment of the principal of (or premium, if any) or interest on
any Debt Security against the Company on or after the same shall
have become due and payable.
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<PAGE> 39
ARTICLE VI
CONCERNING THE TRUSTEE
SECTION 6.01. Duties and Responsibilities of
------------------------------
Trustee.
- -------
With respect to the holders of any series of Debt
Securities issued hereunder, the Trustee, prior to the occurrence
of an Event of Default with respect to Debt Securities of that
series and after the curing or waiving of all Events of Default
which may have occurred, with respect to Debt Securities of that
series, undertakes to perform such duties and only such duties as
are specifically set forth in this Indenture. In case an Event
of Default with respect to the Debt Securities of a series has
occurred (which has not been cured or waived) the Trustee shall
exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action,
its own negligent failure to act or its own willful misconduct,
except that:
(a) prior to the occurrence of an Event of Default with
respect to Debt Securities of a series and after the curing or
waiving of all Events of Default with respect to that series
which may have occurred
(1) the duties and obligations of the Trustee with
respect to Debt Securities of such series shall be
determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable except for
the performance of such duties and obligations with respect
to such series as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be
read into this Indenture against the Trustee, and
(2) in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions
furnished to the Trustee and conforming to the requirements
of this Indenture; but, in the case of any such certificates
or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture;
(b) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or Officers
of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith, in
accordance with the direction of the Securityholders pursuant to
Section 5.07, relating to the time, method and place of
conducting any proceeding for any
32
<PAGE> 40
remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture.
None of the provisions contained in this Indenture
shall require the Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the performance
of any of its duties or in the exercise of any of its rights or
powers, if there is ground for believing that the repayment of
such funds or liability is not assured to it under the terms of
this Indenture or indemnity satisfactory to the Trustee against
such risk is not reasonably assured to it.
SECTION 6.02. Reliance on Documents, Opinions, etc.
-------------------------------------
Except as otherwise provided in Section 6.01:
(a) the Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, note, debenture or other
paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the
Company mentioned herein shall be sufficiently evidenced by an
Officers' Certificate (unless other evidence in respect thereof
be herein specifically prescribed); and any Board Resolution may
be evidenced to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company;
(c) the Trustee may consult with counsel of its
selection and any advice or Opinion of Counsel shall be full and
complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request, order or direction of any of the Securityholders,
pursuant to the provisions of this Indenture, unless such
Securityholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken
or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred
upon it by this Indenture; nothing contained herein shall,
however, relieve the Trustee of the obligation, upon the
occurrence of an Event of Default with respect to a series of the
Debt Securities (that has not been cured or waived) to exercise
with respect to Debt Securities of that series such of the rights
and powers vested in it by this Indenture, and to use the same
degree of care and skill in their exercise, as a prudent man
would exercise or use under the circumstances in the conduct of
his own affairs;
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond, debenture, coupon or
other paper or document, unless
33
<PAGE> 41
requested in writing to do so by the holders of not less than a
majority in principal amount of the outstanding Debt Securities of the
series affected thereby; provided, however, that if the payment within
-------- -------
a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the
terms of this Indenture, the Trustee may require reasonable
indemnity against such expense or liability as a condition to so
proceeding;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by
or through agents (including any Authenticating Agent) or
attorneys, and the Trustee shall not be responsible for any
misconduct or negligence on the part of any such agent or
attorney appointed by it with due care; and
(h) the Trustee shall not be charged with knowledge of
any Default or Event of Default with respect to the Debt
Securities unless either (1) a Responsible Officer shall have
actual knowledge of such Default or Event of Default or (2)
written notice of such Default or Event of Default shall have
been given to the Trustee by the Company or any other obligor on
the Debt Securities or by any holder of the Debt Securities.
SECTION 6.03. No Responsibility for Recitals, etc.
-----------------------------------
The recitals contained herein and in the Debt
Securities (except in the certificate of authentication of the
Trustee or the Authenticating Agent) shall be taken as the
statements of the Company and the Trustee and the Authenticating
Agent assume no responsibility for the correctness of the same.
The Trustee and the Authenticating Agent make no representations
as to the validity or sufficiency of this Indenture or of the
Debt Securities. The Trustee and the Authenticating Agent shall
not be accountable for the use or application by the Company of
any Debt Securities or the proceeds of any Debt Securities
authenticated and delivered by the Trustee or the Authenticating
Agent in conformity with the provisions of this Indenture.
SECTION 6.04. Trustee, Authenticating Agent, Paying
-------------------------------------
Agents, Transfer Agents or Registrar May Own Debt Securities.
- ------------------------------------------------------------
The Trustee or any Authenticating Agent or any paying
agent or any transfer agent or any Debt Security registrar, in
its individual or any other capacity, may become the owner or
pledgee of Debt Securities with the same rights it would have if
it were not Trustee, Authenticating Agent, paying agent, transfer
agent or Debt Security registrar.
SECTION 6.05. Moneys to be Held in Trust.
--------------------------
Subject to the provisions of Section 11.04, all moneys
received by the Trustee or any paying agent shall, until used or
applied as herein provided, be held in trust for the purpose for
which they were received, but need not be segregated from other
funds except to the extent required by law. The Trustee and any
paying agent shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed in
writing with the Company . So long as no Event of Default shall
have occurred and be continuing, all interest allowed on any such
moneys shall be paid from time to time upon the written order of
the Company, signed by
34
<PAGE> 42
the Chairman of the Board of Directors, the President, a Managing
Director, a Vice President, the Treasurer or an Assistant Treasurer of
the Company.
SECTION 6.06. Compensation and Expenses of Trustee.
------------------------------------
The Company covenants and agrees to pay to the Trustee
from time to time, and the Trustee shall be entitled to, such
reasonable compensation as shall be agreed to in writing between
the Company and the Trustee (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an
express trust), and the Company will pay or reimburse the Trustee
upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any
of the provisions of this Indenture (including the reasonable
compensation and the expenses and disbursements of its counsel
and of all Persons not regularly in its employ) except any such
expense, disbursement or advance as may arise from its negligence
or bad faith. The Company also covenants to indemnify each of
the Trustee or any predecessor Trustee (and its officers, agents,
directors and employees) for, and to hold it harmless against,
any and all loss, damage, claim, liability or expense including
taxes (other than taxes based on the income of the Trustee)
incurred without negligence or bad faith on the part of the
Trustee and arising out of or in connection with the acceptance
or administration of this trust, including the costs and expenses
of defending itself against any claim of liability in the
premises. The obligations of the Company under this Section 6.06
to compensate and indemnify the Trustee and to pay or reimburse
the Trustee for expenses, disbursements and advances shall
constitute additional indebtedness hereunder. Such additional
indebtedness shall be secured by a lien prior to that of the Debt
Securities upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of
the holders of particular Debt Securities.
Without prejudice to any other rights available to the
Trustee under applicable law, when the Trustee incurs expenses or
renders services in connection with an Event of Default specified
in Section 5.01(d), Section 5.01(e) or Section 5.01(f), the
expenses (including the reasonable charges and expenses of its
counsel) and the compensation for the services are intended to
constitute expenses of administration under any applicable
federal or state bankruptcy, insolvency or other similar law.
The provisions of this Section shall survive the
resignation or removal of the Trustee and the defeasance or other
termination of this Indenture.
SECTION 6.07. Officers' Certificate as Evidence.
---------------------------------
Except as otherwise provided in Sections 6.01 and 6.02,
whenever in the administration of the provisions of this
Indenture the Trustee shall deem it necessary or desirable that a
matter be proved or established prior to taking or omitting any
action hereunder, such matter (unless other evidence in respect
thereof be herein specifically prescribed) may, in the absence of
negligence or bad faith on the part of the Trustee, be deemed to
be conclusively proved and established by an Officers'
Certificate delivered to the Trustee, and such certificate, in
the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the
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<PAGE> 43
Trustee for any action taken or omitted by it under the
provisions of this Indenture upon the faith thereof.
SECTION 6.08. Conflicting Interest of Trustee.
-------------------------------
If the Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Trustee and the Company shall in all respects
comply with the provisions of Section 310(b) of the Trust
Indenture Act, subject to the penultimate paragraph of such
section.
SECTION 6.09. Eligibility of Trustee.
----------------------
The Trustee hereunder shall at all times be a
corporation organized and doing business under the laws of the
United States of America or any state or territory thereof or of
the District of Columbia or a corporation or other Person
permitted to act as trustee by the Securities and Exchange
Commission authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least 50
million U.S. dollars ($50,000,000) and subject to supervision or
examination by federal, state, territorial, or District of
Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section 6.09 the combined capital
and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent
records of condition so published.
The Company may not, nor may any Person directly or
indirectly controlling, controlled by, or under common control
with the Company, serve as Trustee; provided such corporation
--------
shall be otherwise eligible and qualified under this Article.
In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 6.09,
the Trustee shall resign immediately in the manner and with the
effect specified in Section 6.10.
SECTION 6.10. Resignation or Removal of Trustee.
---------------------------------
(a) The Trustee, or any trustee or trustees hereafter
appointed, may at any time resign with respect to one or more or
all series of Debt Securities by giving written notice of such
resignation to the Company and by mailing notice thereof, at the
Company's expense, to the holders of the applicable series of
Debt Securities at their addresses as they shall appear on the
Debt Security Register. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor
trustee or trustees with respect to the applicable series by
written instrument, in duplicate, executed by order of its Board
of Directors, one copy of which instrument shall be delivered to
the resigning Trustee and one copy to the successor Trustee. If
no successor Trustee shall have been so appointed with respect to
any series of Debt Securities and have accepted appointment
within 30 days after the mailing of such notice of resignation to
the affected Securityholders, the resigning Trustee may petition
any court of competent jurisdiction for the appointment of a
successor Trustee, or any Securityholder who has been a bona fide
holder of a Debt Security or Debt Securities of the applicable
series for at least six months may, subject to
36
<PAGE> 44
the provisions of Section 5.09, on behalf of himself and all others
similarly situated, petition any such court for the appointment of a
successor Trustee. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, appoint a successor
Trustee.
(b) In case at any time any of the following shall occur--
(1) the Trustee shall fail to comply with the
provisions of Section 6.08 after written request therefor by
the Company or by any Securityholder who has been a bona
fide holder of a Debt Security or Debt Securities for at
least six months, or
(2) the Trustee shall cease to be eligible in
accordance with the provisions of Section 6.09 and shall
fail to resign after written request therefor by the Company
or by any such Securityholder, or
(3) the Trustee shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee
or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any
such case, the Company may remove the Trustee and appoint a
successor Trustee by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of
which instrument shall be delivered to the Trustee so
removed and one copy to the successor Trustee, or, subject
to the provisions of Section 5.09, any Securityholder who
has been a bona fide holder of a Debt Security or Debt
Securities of the applicable series for at least six months
may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, remove the Trustee and
appoint successor Trustee.
(c) Upon prior written notice to the Company and the
Trustee, the holders of a majority in aggregate principal amount
of the Debt Securities of any series at the time outstanding may
at any time remove the Trustee with respect to such series and
nominate a successor Trustee with respect to the applicable
series of Debt Securities, which shall be deemed appointed as
successor Trustee with respect to the applicable series unless
within ten Business Days after such nomination the Company
objects thereto, in which case the Trustee so removed or any
Securityholder of the applicable series, upon the terms and
conditions and otherwise as in subsection (a) of this Section
6.10 provided, may petition any court of competent jurisdiction
for an appointment of a successor Trustee with respect to such
series.
(d) Any resignation or removal of the Trustee and
appointment of a successor Trustee pursuant to any of the
provisions of this Section 6.10 shall become effective upon
acceptance of appointment by the successor Trustee as provided in
Section 6.11.
SECTION 6.11. Acceptance by Successor Trustee.
-------------------------------
Any successor Trustee appointed as provided in Section
6.10 shall execute, acknowledge and deliver to the Company and to
its predecessor Trustee an instrument accepting
37
<PAGE> 45
such appointment hereunder, and thereupon the resignation or removal
of the retiring Trustee with respect to all or any applicable series
shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the
rights, powers, duties and obligations with respect to such
series of its predecessor hereunder, with like effect as if
originally named as Trustee herein; but, nevertheless, on the
written request of the Company or of the successor Trustee, the
Trustee ceasing to act shall, upon payment of any amounts then
due it pursuant to the provisions of Section 6.06, execute and
deliver an instrument transferring to such successor Trustee all
the rights and powers of the Trustee so ceasing to act and shall
duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee thereunder.
Upon request of any such successor Trustee, the Company shall
execute any and all instruments in writing for more fully and
certainly vesting in and confirming to such successor Trustee all
such rights and powers. Any Trustee ceasing to act shall,
nevertheless, retain a lien upon all property or funds held or
collected by such Trustee to secure any amounts then due it
pursuant to the provisions of Section 6.06.
If a successor Trustee is appointed with respect to the
Debt Securities of one or more (but not all) series, the Company,
the retiring Trustee and each successor Trustee with respect to
the Debt Securities of any applicable series shall execute and
deliver an indenture supplemental hereto which shall contain such
provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring
Trustee with respect to the Debt Securities of any series as to
which the predecessor Trustee is not retiring shall continue to
be vested in the predecessor Trustee, and shall add to or change
any of the provisions of this Indenture as shall be necessary to
provide for or facilitate the administration of the Trust
hereunder by more than one Trustee, it being understood that
nothing herein or in such supplemental indenture shall constitute
such Trustees co-trustees of the same trust and that each such
Trustee shall be Trustee of a trust or trusts hereunder separate
and apart from any trust or trusts hereunder administered by any
other such Trustee.
No successor Trustee shall accept appointment as
provided in this Section 6.11 unless at the time of such
acceptance such successor Trustee shall be qualified under the
provisions of Section 6.08 and eligible under the provisions of
Section 6.09.
In no event shall a retiring Trustee be liable for the
acts or omissions of any successor Trustee hereunder.
Upon acceptance of appointment by a successor Trustee
as provided in this Section 6.11, the Company shall mail notice
of the succession of such Trustee hereunder to the holders of
Debt Securities of any applicable series at their addresses as
they shall appear on the Debt Security Register. If the Company
fails to mail such notice within ten Business Days after the
acceptance of appointment by the successor Trustee, the successor
Trustee shall cause such notice to be mailed at the expense of
the Company.
SECTION 6.12. Succession by Merger, etc.
-------------------------
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or
38
<PAGE> 46
consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor
of the Trustee hereunder without the execution or filing of any
paper or any further act on the part of any of the parties
hereto; provided such corporation shall be otherwise eligible
--------
and qualified under this Article.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the Debt
Securities of any series shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor Trustee, and
deliver such Debt Securities so authenticated; and in case at
that time any of the Debt Securities of any series shall not have
been authenticated, any successor to the Trustee may authenticate
such Debt Securities either in the name of any predecessor
hereunder or in the name of the successor Trustee; and in all
such cases such certificates shall have the full force which it
is anywhere in the Debt Securities of such series or in this
Indenture provided that the certificate of the Trustee shall
have; provided, however, that the right to adopt the
-------- -------
certificate of authentication of any predecessor Trustee or
authenticate Debt Securities of any series in the name of any
predecessor Trustee shall apply only to its successor or
successors by merger, conversion or consolidation.
SECTION 6.13. Limitation on Rights of Trustee as a
------------------------------------
Creditor.
- --------
The Trustee shall comply with Section 311(a) of the
Trust Indenture Act, excluding any creditor relationship
described in Section 311(b) of the Trust Indenture Act. A
Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent included
therein.
SECTION 6.14. Authenticating Agents.
---------------------
There may be one or more Authenticating Agents
appointed by the Trustee upon the request of the Company with
power to act on its behalf and subject to its direction in the
authentication and delivery of Debt Securities of any series
issued upon exchange or registration of transfer thereof as fully
to all intents and purposes as though any such Authenticating
Agent had been expressly authorized to authenticate and deliver
Debt Securities of such series; provided that the Trustee shall
have no liability to the Company for any acts or omissions of the
Authenticating Agent with respect to the authentication and
delivery of Debt Securities of any series. Any such
Authenticating Agent shall at all times be a corporation
organized and doing business under the laws of the United States
or of any state or territory thereof or of the District of
Columbia authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of at least
$5,000,000 and being subject to supervision or examination by
federal, state, territorial or District of Columbia authority.
If such corporation publishes reports of condition at least
annually pursuant to law or the requirements of such authority,
then for the purposes of this Section 6.14 the combined capital
and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent
report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with
39
<PAGE> 47
the provisions of this Section, it shall resign immediately
in the manner and with the effect herein specified in this
Section.
Any corporation into which any Authenticating Agent may
be merged or converted or with which it may be consolidated, or
any corporation resulting from any merger, consolidation or
conversion to which any Authenticating Agent shall be a party, or
any corporation succeeding to all or substantially all of the
corporate trust business of any Authenticating Agent, shall be
the successor of such Authenticating Agent hereunder, if such
successor corporation is otherwise eligible under this Section
6.14 without the execution or filing of any paper or any further
act on the part of the parties hereto or such Authenticating
Agent.
Any Authenticating Agent may at any time resign with
respect to one or more or all series of Debt Securities by giving
written notice of resignation to the Trustee and to the Company.
The Trustee may at any time terminate the agency of any
Authenticating Agent with respect to one or more or all series of
Debt Securities by giving written notice of termination to such
Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at
any time any Authenticating Agent shall cease to be eligible
under this Section 6.14, the Trustee may, and upon the request of
the Company shall, promptly appoint a successor Authenticating
Agent with respect to the applicable series eligible under this
Section 6.14, shall give written notice of such appointment to
the Company and shall mail notice of such appointment to all
holders of the applicable series of Debt Securities as the names
and addresses of such holders appear on the Debt Security
Register. Any successor Authenticating Agent with respect to all
or any series upon acceptance of its appointment hereunder shall
become vested with all rights, powers, duties and
responsibilities with respect to such series of its predecessor
hereunder, with like effect as if originally named as
Authenticating Agent herein.
The Company agrees to pay to any Authenticating Agent
from time to time reasonable compensation for its services. Any
Authenticating Agent shall have no responsibility or liability
for any action taken by it as such in accordance with the
directions of the Trustee.
ARTICLE VII
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Action by Securityholders.
-------------------------
Whenever in this Indenture it is provided that the
holders of a specified percentage in aggregate principal amount
of the Debt Securities of any or all series may take any action
(including the making of any demand or request, the giving of any
notice, consent or waiver or the taking of any other action) the
fact that at the time of taking any such action the holders of
such specified percentage have joined therein may be evidenced
(a) by any instrument or any number of instruments of similar
tenor executed by such Securityholders in person or by agent or
proxy appointed in writing, or (b) by the record of such holders
of Debt Securities voting in favor thereof at any meeting of such
Securityholders duly called and held in accordance with the
provisions of Article Eight, or (c) by a combination of such
instrument or instruments
40
<PAGE> 48
and any such record of such a meeting of such Securityholders or
(d) by any other method the Trustee deems satisfactory.
If the Company shall solicit from the Securityholders
of any series any request, demand, authorization, direction,
notice, consent, waiver or other action or revocation of the
same, the Company may, at its option, as evidenced by an
Officers' Certificate, fix in advance a record date for such
series for the determination of Securityholders entitled to give
such request, demand, authorization, direction, notice, consent,
waiver or other action or revocation of the same, but the Company
shall have no obligation to do so. If such a record date is
fixed, such request, demand, authorization, direction, notice,
consent, waiver or other action or revocation of the same may be
given before or after the record date, but only the
Securityholders of record at the close of business on the record
date shall be deemed to be Securityholders for the purposes of
determining whether Securityholders of the requisite proportion
of outstanding Debt Securities of that series have authorized or
agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other action or revocation
of the same, and for that purpose the outstanding Debt Securities
of that series shall be computed as of the record date;
provided, however, that no such authorization, agreement
- -------- -------
or consent by such Securityholders on the record date shall be
deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than six months after the
record date.
SECTION 7.02. Proof of Execution by Securityholders.
-------------------------------------
Subject to the provisions of Section 6.01, 6.02 and
8.05, proof of the execution of any instrument by a
Securityholder or his agent or proxy shall be sufficient if made
in accordance with such reasonable rules and regulations as may
be prescribed by the Trustee or in such manner as shall be
satisfactory to the Trustee. The ownership of Debt Securities
shall be proved by the Debt Security Register or by a certificate
of the Debt Security registrar. The Trustee may require such
additional proof of any matter referred to in this Section as it
shall deem necessary.
The record of any Securityholders' meeting shall be
proved in the manner provided in Section 8.06.
SECTION 7.03. Who Are Deemed Absolute Owners.
------------------------------
Prior to due presentment for registration of transfer
of any Debt Security, the Company, the Trustee, any
Authenticating Agent, any paying agent, any transfer agent and
any Debt Security registrar may deem the Person in whose name
such Debt Security shall be registered upon the Debt Security
Register to be, and may treat him as, the absolute owner of such
Debt Security (whether or not such Debt Security shall be
overdue) for the purpose of receiving payment of or on account of
the principal of, premium, if any, and (subject to Section 2.05)
interest on such Debt Security and for all other purposes; and
neither the Company nor the Trustee nor any Authenticating Agent
nor any paying agent nor any transfer agent nor any Debt Security
registrar shall be affected by any notice to the contrary. All
such payments so made to any holder for the time being or upon
his order shall be valid, and, to the extent of the sum or sums
so paid, effectual to satisfy and discharge the liability for
moneys payable upon any such Debt Security.
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<PAGE> 49
SECTION 7.04. Debt Securities Owned by Company
--------------------------------
Deemed Not Outstanding.
- ----------------------
In determining whether the holders of the requisite
aggregate principal amount of Debt Securities have concurred in
any direction, consent or waiver under this Indenture, Debt
Securities which are owned by the Company or any other obligor on
the Debt Securities or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common
control with the Company or any other obligor on the Debt
Securities shall be disregarded and deemed not to be outstanding
for the purpose of any such determination; provided that for the
purposes of determining whether the Trustee shall be protected in
relying on any such direction, consent or waiver, only Debt
Securities which a Responsible Officer of the Trustee actually
knows are so owned shall be so disregarded. Debt Securities so
owned which have been pledged in good faith may be regarded as
outstanding for the purposes of this Section 7.04 if the pledgee
shall establish to the satisfaction of the Trustee the pledgees
right to vote such Debt Securities and that the pledgee is not
the Company or any such other obligor or Person directly or
indirectly controlling or controlled by or under direct or
indirect common control with the Company or any such other
obligor. In the case of a dispute as to such right, any decision
by the Trustee taken upon the advice of counsel shall be full
protection to the Trustee.
SECTION 7.05. Revocation of Consents; Future Holders
--------------------------------------
Bound.
- -----
At any time prior to (but not after) the evidencing to
the Trustee, as provided in Section 7.01, of the taking of any
action by the holders of the percentage in aggregate principal
amount of the Debt Securities specified in this Indenture in
connection with such action, any holder (in cases where no record
date has been set pursuant to Section 7.01) or any holder as of
an applicable record date (in cases where a record date has been
set pursuant to Section 7.01) of a Debt Security (or any Debt
Security issued in whole or in part in exchange or substitution
therefor) the serial number of which is shown by the evidence to
be included in the Debt Securities the holders of which have
consented to such action may, by filing written notice with the
Trustee at the Principal Office of the Trustee and upon proof of
holding as provided in Section 7.02, revoke such action so far as
concerns such Debt Security (or so far as concerns the principal
amount represented by any exchanged or substituted Debt
Security). Except as aforesaid any such action taken by the
holder of any Debt Security shall be conclusive and binding upon
such holder and upon all future holders and owners of such Debt
Security, and of any Debt Security issued in exchange or
substitution therefor or on registration of transfer thereof,
irrespective of whether or not any notation in regard thereto is
made upon such Debt Security or any Debt Security issued in
exchange or substitution therefor.
ARTICLE VIII
SECURITYHOLDERS' MEETINGS
SECTION 8.01. Purposes of Meetings.
--------------------
A meeting of Securityholders of any or all series may
be called at any time and from time to time pursuant to the
provisions of this Article Eight for any of the following
purposes:
42
<PAGE> 50
(a) to give any notice to the Company or to the Trustee,
or to give any directions to the Trustee, or to consent to the
waiving of any default hereunder and its consequences, or to take
any other action authorized to be taken by Securityholders
pursuant to any of the provisions of Article V;
(b) to remove the Trustee and nominate a successor
trustee pursuant to the provisions of Article VI;
(c) to consent to the execution of an indenture or
indentures supplemental hereto pursuant to the provisions of
Section 9.02; or
(d) to take any other action authorized to be taken by
or on behalf of the holders of any specified aggregate principal
amount of such Debt Securities under any other provision of this
Indenture or under applicable law.
SECTION 8.02. Call of Meetings by Trustee.
---------------------------
The Trustee may at any time call a meeting of
Securityholders of any or all series to take any action specified
in Section 8.01, to be held at such time and at such place in the
Borough of Manhattan, The City of New York, as the Trustee shall
determine. Notice of every meeting of the Securityholders of any
or all series, setting forth the time and the place of such
meeting and in general terms the action proposed to be taken at
such meeting, shall be mailed to holders of Debt Securities of
each series affected at their addresses as they shall appear on
the Debt Securities Register for each series affected. Such
notice shall be mailed not less than 20 nor more than 180 days
prior to the date fixed for the meeting.
SECTION 8.03. Call of Meetings by Company or
------------------------------
Securityholders.
- ---------------
In case at any time the Company pursuant to a Board
Resolution, or the holders of at least 10% in aggregate principal
amount of the Debt Securities of any or all series, as the case
may be, then outstanding, shall have requested the Trustee to
call a meeting of Securityholders of any or all series, as the
case may be, by written request setting forth in reasonable
detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed the notice of such meeting within
20 days after receipt of such request, then the Company or such
Securityholders may determine the time and the place in said
Borough of Manhattan for such meeting and may call such meeting
to take any action authorized in Section 8.01, by mailing notice
thereof as provided in Section 8.02.
SECTION 8.04. Qualifications for Voting.
-------------------------
To be entitled to vote at any meeting of
Securityholders a Person shall (a) be a holder of one or more
Debt Securities with respect to which the meeting is being held
or (b) a Person appointed by an instrument in writing as proxy by
a holder of one or more such Debt Securities. The only Persons
who shall be entitled to be present or to speak at any meeting of
Securityholders shall be the Persons entitled to vote at such
meeting and their counsel and any
43
<PAGE> 51
representatives of the Trustee and its counsel and any representatives of
the Company and its counsel.
SECTION 8.05. Regulations.
-----------
Notwithstanding any other provisions of this Indenture,
the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Securityholders, in regard to proof
of the holding of Debt Securities and of the appointment of
proxies, and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such
other matters concerning the conduct of the meeting as it shall
think fit.
The Trustee shall, by an instrument in writing, appoint
a temporary chairman of the meeting, unless the meeting shall
have been called by the Company or by Securityholders as provided
in Section 8.03, in which case the Company or the Securityholders
calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by majority
vote of the meeting.
Subject to the provisions of Section 7.04, at any
meeting each holder of Debt Securities with respect to which such
meeting is being held or proxy therefor shall be entitled to one
vote for each $1,000 principal amount (in the case of Original
Issue Discount Securities, such principal amount to be determined
as provided in the definition "outstanding") of Debt Securities
held or represented by him; provided, however, that no
-------- -------
vote shall be cast or counted at any meeting in respect of any
Debt Security challenged as not outstanding and ruled by the
chairman of the meeting to be not outstanding. The chairman of
the meeting shall have no right to vote other than by virtue of
Debt Securities held by him or instruments in writing as
aforesaid duly designating him as the Person to vote on behalf of
other Securityholders. Any meeting of Securityholders duly
called pursuant to the provisions of Section 8.02 or 8.03 may be
adjourned from time to time by a majority of those present,
whether or not constituting a quorum, and the meeting may be held
as so adjourned without further notice.
SECTION 8.06. Voting.
------
The vote upon any resolution submitted to any meeting
of holders of Debt Securities with respect to which such meeting
is being held shall be by written ballots on which shall be
subscribed the signatures of such holders or of their
representatives by proxy and the serial number or numbers of the
Debt Securities held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any
resolution and who shall make and file with the secretary of the
meeting their verified written reports in triplicate of all votes
cast at the meeting. A record in duplicate of the proceedings of
each meeting of Securityholders shall be prepared by the
secretary of the meeting and there shall be attached to said
record the original reports of the inspectors of votes on any
vote by ballot taken thereat and affidavits by one or more
Persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was mailed as
provided in Section 8.02. The record shall show the serial
numbers of the Debt Securities voting in favor of or against any
resolution. The record shall be signed and
44
<PAGE> 52
verified by the affidavits of the permanent chairman and secretary of
the meeting and one of the duplicates shall be delivered to the Company
and the other to the Trustee to be preserved by the Trustee, the
latter to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive
evidence of the matters therein stated.
SECTION 8.07. Quorum; Actions.
---------------
The Persons entitled to vote a majority in principal
amount of the Debt Securities of a series shall constitute a
quorum for a meeting of Securityholders of such series;
provided, however, that if any action is to be taken at
- -------- -------
such meeting with respect to a consent, waiver, request, demand,
notice, authorization, direction or other action which may be
given by the holders of not less than a specified percentage in
principal amount of the Debt Securities of a series, the Persons
holding or representing such specified percentage in principal
amount of the Debt Securities of such series will constitute a
quorum. In the absence of a quorum within 30 minutes of the time
appointed for any such meeting, the meeting shall, if convened at
the request of Securityholders of such series, be dissolved. In
any other case the meeting may be adjourned for a period of not
less than 10 days as determined by the permanent chairman of the
meeting prior to the adjournment of such meeting. In the absence
of a quorum at any such adjourned meeting, such adjourned meeting
may be further adjourned for a period of not less than 10 days as
determined by the permanent chairman of the meeting prior to the
adjournment of such adjourned meeting. Notice of the reconvening
of any adjourned meeting shall be given as provided in Section
8.02, except that such notice need be given only once not less
than five days prior to the date on which the meeting is
scheduled to be reconvened. Notice of the reconvening of an
adjourned meeting shall state expressly the percentage, as
provided above, of the principal amount of the Debt Securities of
such series which shall constitute a quorum.
Except as limited by the proviso in the first paragraph
of Section 9.02, any resolution presented to a meeting or
adjourned meeting duly reconvened at which a quorum is present as
aforesaid may be adopted by the affirmative vote of the Holders
of a majority in principal amount of the Debt Securities of that
series; provided, however, that, except as limited by the
-------- -------
proviso in the first paragraph of Section 9.02, any resolution
with respect to any consent, waiver, request, demand, notice,
authorization, direction or other action which this Indenture
expressly provides may be given by the holders of not less than a
specified percentage in principal amount of the Debt Securities
of a series may be adopted at a meeting or an adjourned meeting
duly reconvened and at which a quorum is present as aforesaid
only by the affirmative vote of the holders of a not less than
such specified percentage in principal amount of the Debt
Securities of that series.
Any resolution passed or decision taken at any meeting
of holders of Debt Securities of any series duly held in
accordance with this Section shall be binding on all the
Securityholders of such series, whether or not present or
represented at the meeting.
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<PAGE> 53
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures without
-------------------------------
Consent of Securityholders.
- --------------------------
The Company, when authorized by a Board Resolution, and
the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act as then in effect),
without the consent of the Securityholders, for one or more of
the following purposes:
(a) to evidence the succession of another corporation to
the Company, or successive successions, and the assumption by the
successor corporation of the covenants, agreements and
obligations of the Company, pursuant to Article X hereof;
(b) to add to the covenants of the Company such further
covenants, restrictions or conditions for the protection of the
holders of all or any series of Debt Securities (and if such
covenants are to be for the benefit of less than all series of
Debt Securities stating that such covenants are expressly being
included for the benefit of such series) as the Board of
Directors shall consider to be for the protection of the holders
of such Debt Securities, and to make the occurrence, or the
occurrence and continuance, of a default in any of such
additional covenants, restrictions or conditions a default or an
Event of Default permitting the enforcement of all or any of the
several remedies provided in this Indenture as herein set forth;
provided, however, that in respect of any such additional
- -------- -------
covenant, restriction or condition such supplemental indenture
may provide for a particular period of grace after default (which
period may be shorter or longer than that allowed in the case of
other defaults) or may provide for an immediate enforcement upon
such default or may limit the remedies available to the Trustee
upon such default;
(c) to cure any ambiguity or to correct or supplement
any provision contained herein or in any supplemental indenture
which may be defective or inconsistent with any other provision
contained herein or in any supplemental indenture, or to make
such other provisions in regard to matters or questions arising
under this Indenture; provided that any such action shall not
adversely affect the interests of the holders of the Debt
Securities of any series;
(d) to add to, delete from, or revise the terms of Debt
Securities of any series, including, without limitation, any
terms relating to the issuance, exchange, registration or
transfer of Debt Securities, including to provide for transfer
procedures and restrictions substantially similar to those
applicable to the Capital Securities relating to such series as
required by Section 2.07 (for purposes of assuring that no
registration of Debt Securities of a series subject to transfer
restrictions is required under the Securities Act of 1933, as
amended); provided that any such action shall not adversely
affect the interests of the holders of the Debt Securities of any
series then outstanding (it being understood, for purposes of
this proviso, that transfer restrictions on Debt Securities of a
series substantially similar to those that were applicable to
Capital Securities of the related series shall not be deemed to
adversely affect the holders of the Debt Securities);
46
<PAGE> 54
(e) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with respect to the
Debt Securities of one or more series and to add to or change any
of the provisions of this Indenture as shall be necessary to
provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements
of Section 6.11;
(f) to make any change (other than as elsewhere provided
in this paragraph) that does not adversely affect the rights of
any Securityholder in any material respect; or
(g) to provide for the issuance of and establish the
form and terms and conditions of the Debt Securities of any
series, to establish the form of any certifications required to
be furnished pursuant to the terms of this Indenture or any
series of Debt Securities, or to add to the rights of the holders
of any series of Debt Securities.
The Trustee is hereby authorized to join with the
Company in the execution of any such supplemental indenture, to
make any further appropriate agreements and stipulations which
may be therein contained and to accept the conveyance, transfer
and assignment of any property thereunder, but the Trustee shall
not be obligated to, but may in its discretion, enter into any
such supplemental indenture which affects the Trustees own
rights, duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions
of this Section 9.01 may be executed by the Company and the
Trustee without the consent of the holders of any of the Debt
Securities at the time outstanding, notwithstanding any of the
provisions of Section 9.02.
SECTION 9.02. Supplemental Indentures with Consent
------------------------------------
of Securityholders.
- ------------------
With the consent (evidenced as provided in Section
7.01) of the holders of not less than a majority in aggregate
principal amount of the Debt Securities at the time outstanding
of all series affected by such supplemental indenture (voting as
a class), the Company, when authorized by a Board Resolution, and
the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act, then in effect,
applicable to indentures qualified thereunder) for the purpose of
adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of any supplemental
indenture or of modifying in any manner the rights of the holders
of the Debt Securities of each series so affected; provided,
--------
however, that no such supplemental indenture shall without
- -------
the consent of the holders of each Debt Security then outstanding
and affected thereby (i) extend the fixed maturity of any Debt
Security of any series, or reduce the principal amount thereof or
any premium thereon, or reduce the rate or extend the time of
payment of interest thereon, or reduce any amount payable on
redemption thereof or make the principal thereof or any interest
or premium thereon payable in any coin or currency other than
that provided in the Debt Securities, or reduce the amount of the
principal of an Original Issue Discount Security that would be
due and payable upon an acceleration of the maturity thereof
pursuant to Section 5.01 or the amount thereof provable in
bankruptcy pursuant to Section 5.02, or impair or affect the
right of any Securityholder to institute suit for payment thereof
or impair the right of repayment, if any, at the option of the
holder, or (ii) reduce the
47
<PAGE> 55
aforesaid percentage of Debt Securities the holders of which are
required to consent to any such supplemental indenture; provided,
--------
further, that if the Debt Securities of such series are held by a
- -------
Mercantile Trust or a trustee of such trust, such supplemental indenture
shall not be effective until the holders of a majority in liquidation
preference of Trust Securities of the applicable Trust shall have
consented to such supplemental indenture; provided further, that if the
consent of the Securityholder of each outstanding Debt Security is
required, such supplemental indenture shall not be effective until each
holder of the Trust Securities of the applicable Mercantile Trust shall
have consented to such supplemental indenture.
A supplemental indenture which changes or eliminates
any covenant or other provision of this Indenture which has
expressly been included solely for the benefit of one or more
particular series of Debt Securities, or which modifies the
rights of Securityholders of such series with respect to such
covenant or provision, shall be deemed not to affect the rights
under this Indenture or the Securityholders of any other series.
Upon the request of the Company accompanied by a Board
Resolution authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of
the consent of Securityholders as aforesaid, the Trustee shall
join with the Company in the execution of such supplemental
indenture unless such supplemental indenture affects the
Trustees own rights, duties or immunities under this Indenture
or otherwise, in which case the Trustee may in its discretion,
but shall not be obligated to, enter into such supplemental
indenture.
Promptly after the execution by the Company and the
Trustee of any supplemental indenture pursuant to the provisions
of this Section, the Trustee shall transmit by mail, first class
postage prepaid, a notice, prepared by the Company, setting forth
in general terms the substance of such supplemental indenture, to
the Securityholders of all series affected thereby as their names
and addresses appear upon the Debt Security Register. Any
failure of the Trustee to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
It shall not be necessary for the consent of the
Securityholders under this Section 9.02 to approve the particular
form of any proposed supplemental indenture, but it shall be
sufficient if such consent shall approve the substance thereof.
SECTION 9.03. Compliance with Trust Indenture Act;
------------------------------------
Effect of Supplemental Indentures.
- ---------------------------------
Any supplemental indenture executed pursuant to the
provisions of this Article IX shall comply with the Trust
Indenture Act, as then in effect to the extent applicable to
indentures qualified under the Trust Indenture Act. Upon the
execution of any supplemental indenture pursuant to the
provisions of this Article IX, this Indenture shall be and be
deemed to be modified and amended in accordance therewith and the
respective rights, limitations of rights, obligations, duties and
immunities under this Indenture of the Trustee, the Company and
the holders of Debt Securities of each series affected thereby
shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments
48
<PAGE> 56
and all the terms and conditions of any such supplemental indenture
shall be and be deemed to be part of the terms and conditions of
this Indenture for any and all purposes.
SECTION 9.04. Notation on Debt Securities.
---------------------------
Debt Securities of any series authenticated and
delivered after the execution of any supplemental indenture
affecting such series pursuant to the provisions of this Article
IX may bear a notation as to any matter provided for in such
supplemental indenture. If the Company or the Trustee shall so
determine, new Debt Securities of any series so modified as to
conform, in the opinion of the Board of Directors of the Company,
to any modification of this Indenture contained in any such
supplemental indenture may be prepared and executed by the
Company, authenticated by the Trustee or the Authenticating Agent
and delivered in exchange for the Debt Securities of any series
then outstanding.
SECTION 9.05. Evidence of Compliance of Supplemental
--------------------------------------
Indenture to be Furnished to Trustee.
- ------------------------------------
The Trustee, subject to the provisions of Sections 6.01
and 6.02, shall, in addition to the documents required by
Section 13.06, receive an Officers' Certificate and an Opinion of
Counsel as conclusive evidence that any supplemental indenture
executed pursuant hereto complies with the requirements of this
Article IX. The Trustee shall receive an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed
pursuant to this Article IX is authorized or permitted by, and
conforms to, the terms of this Article IX and that it is proper
for the Trustee under the provisions of this Article IX to join
in the execution thereof.
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 10.01. Company May Consolidate, etc., on
---------------------------------
Certain Terms.
- -------------
Nothing contained in this Indenture or in the Debt
Securities of any series shall prevent any consolidation or
merger of the Company with or into any other corporation or
corporations (whether or not affiliated with the Company) or
successive consolidations or mergers in which the Company or its
successor or successors shall be a party or parties, or shall
prevent any sale, conveyance, transfer or other disposition of
the property of the Company or its successor or successors as an
entirety, or substantially as an entirety, to any other
corporation (whether or not affiliated with the Company, or its
successor or successors) authorized to acquire and operate the
same; provided, however, that the Company hereby
-------- -------
covenants and agrees that, upon any such consolidation, merger
(where the Company is not the surviving corporation), sale,
conveyance, transfer or other disposition, the due and punctual
payment of the principal of (and premium, if any) and interest on
all of the Debt Securities of all series in accordance with the
terms of each series, according to their tenor, and the due and
punctual performance and observance of all the covenants and
conditions of this Indenture with respect to each series or
established with respect to such series to be kept or performed
by the Company, shall be expressly assumed by supplemental
indenture (which shall conform to the provisions of the Trust
49
<PAGE> 57
Indenture Act, as then in effect, applicable to indentures
qualified thereunder) satisfactory in form to the Trustee
executed and delivered to the Trustee by the entity formed by
such consolidation, or into which the Company shall have been
merged, or by the entity which shall have acquired such property.
SECTION 10.02. Successor Entity to be Substituted.
----------------------------------
In case of any such consolidation, merger, sale,
conveyance, transfer or other disposition and upon the assumption
by the successor entity, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee,
of the due and punctual payment of the principal of and premium,
if any, and interest on all of the Debt Securities and the due
and punctual performance and observance of all of the covenants
and conditions of this Indenture to be performed or observed by
the Company, such successor entity shall succeed to and be
substituted for the Company, with the same effect as if it had
been named herein as the Company, and thereupon the predecessor
entity shall be relieved of any further liability or obligation
hereunder or upon the Debt Securities. Such successor entity
thereupon may cause to be signed, and may issue either in its own
name or in the name of Mercantile Bancorporation Inc., any or all
of the Debt Securities issuable hereunder which theretofore shall
not have been signed by the Company and delivered to the Trustee
or the Authenticating Agent; and, upon the order of such
successor entity instead of the Company and subject to all the
terms, conditions and limitations in this Indenture prescribed,
the Trustee or the Authenticating Agent shall authenticate and
deliver any Debt Securities which previously shall have been
signed and delivered by the officers of the Company, to the
Trustee or the Authenticating Agent for authentication, and any
Debt Securities which such successor entity thereafter shall
cause to be signed and delivered to the Trustee or the
Authenticating Agent for that purpose. All the Debt Securities
so issued shall in all respects have the same legal rank and
benefit under this Indenture as the Debt Securities theretofore
or thereafter issued in accordance with the terms of this
Indenture as though all of such Debt Securities had been issued
at the date of the execution hereof.
SECTION 10.03. Opinion of Counsel to be Given to
---------------------------------
Trustee.
- -------
The Trustee, subject to the provisions of Sections 6.01
and 6.02, shall receive, in addition to the Opinion of Counsel
required by Section 9.05, an Opinion of Counsel as conclusive
evidence that any consolidation, merger, sale, conveyance,
transfer or other disposition, and any assumption, permitted or
required by the terms of this Article X complies with the
provisions of this Article X.
ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 11.01. Discharge of Indenture.
----------------------
When (a) the Company shall deliver to the Trustee for
cancellation all Debt Securities theretofore authenticated (other
than any Debt Securities which shall have been
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<PAGE> 58
destroyed, lost or stolen and which shall have been replaced or paid as
provided in Section 2.08) and not theretofore canceled, or (b) all the
Debt Securities not theretofore canceled or delivered to the Trustee
for cancellation shall have become due and payable, or are by
their terms to become due and payable within one year or are to
be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of
redemption, and the Company shall deposit with the Trustee, in
trust, funds, which shall be immediately due and payable,
sufficient to pay at maturity or upon redemption all of the Debt
Securities (other than any Debt Securities which shall have been
destroyed, lost or stolen and which shall have been replaced or
paid as provided in Section 2.08) not theretofore canceled or
delivered to the Trustee for cancellation, including principal
and premium, if any, and interest due or to become due to such
date of maturity or redemption date, as the case may be, but
excluding, however, the amount of any moneys for the payment of
principal of, and premium, if any, or interest on the Debt
Securities (1) theretofore repaid to the Company in accordance
with the provisions of Section 11.04, or (2) paid to any state or
to the District of Columbia pursuant to its unclaimed property or
similar laws, and if in the case of either clause (a) or clause
(b) the Company shall also pay or cause to be paid all other sums
payable hereunder by the Company, then this Indenture shall cease
to be of further effect except for the provisions of Sections
2.05, 2.07, 2.08, 3.01, 3.02, 3.04, 6.06, 6.10 and 11.04 hereof
shall survive until such Debt Securities shall mature and be
paid. Thereafter, Sections 6.10 and 11.04 shall survive, and the
Trustee, on demand of the Company accompanied by an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied
with, and at the cost and expense of the Company, shall execute
proper instruments acknowledging satisfaction of and discharging
this Indenture, the Company, however, hereby agreeing to
reimburse the Trustee for any costs or expenses thereafter
reasonably and properly incurred by the Trustee in connection
with this Indenture or the Debt Securities.
SECTION 11.02. Deposited Moneys to be Held in Trust
------------------------------------
by Trustee.
- ----------
Subject to the provisions of Section 11.04, all moneys
deposited with the Trustee pursuant to Section 11.01 shall be
held in trust and applied by it to the payment, either directly
or through any paying agent (including the Company if acting as
its own paying agent), to the holders of the particular Debt
Securities for the payment of which such moneys have been
deposited with the Trustee, of all sums due and to become due
thereon for principal, and premium, if any, and interest.
SECTION 11.03. Paying Agent to Repay Moneys Held.
---------------------------------
Upon the satisfaction and discharge of this Indenture
all moneys then held by any paying agent of the Debt Securities
(other than the Trustee) shall, upon demand of the Company, be
repaid to it or paid to the Trustee, and thereupon such paying
agent shall be released from all further liability with respect
to such moneys.
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<PAGE> 59
SECTION 11.04. Return of Unclaimed Moneys.
--------------------------
Any moneys deposited with or paid to the Trustee or any
paying agent for payment of the principal of, and premium, if
any, or interest on Debt Securities and not applied but remaining
unclaimed by the holders of Debt Securities for two years after
the date upon which the principal of, and premium, if any, or
interest on such Debt Securities, as the case may be, shall have
become due and payable, shall be repaid to the Company by the
Trustee or such paying agent on written demand; and the holder of
any of the Debt Securities shall thereafter look only to the
Company for any payment which such holder may be entitled to
collect and all liability of the Trustee or such paying agent
with respect to such moneys shall thereupon cease.
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 12.01. Indenture and Debt Securities Solely
------------------------------------
Corporate Obligations.
- ---------------------
No recourse for the payment of the principal of or
premium, if any, or interest on any Debt Security, or for any
claim based thereon or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of
the Company in this Indenture or in any supplemental indenture,
or in any such Debt Security, or because of the creation of any
indebtedness represented thereby, shall be had against any
incorporator, stockholder, officer or director, as such, past,
present or future, of the Company or of any successor corporation
of the Company, either directly or through the Company or any
successor corporation of the Company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and
released as a condition of, and as a consideration for, the
execution of this Indenture and the issue of the Debt Securities.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors.
----------
All the covenants, stipulations, promises and
agreements in this Indenture contained by the Company shall bind
its successors and assigns whether so expressed or not.
SECTION 13.02. Official Acts by Successor Entity.
---------------------------------
Any act or proceeding by any provision of this
Indenture authorized or required to be done or performed by any
board, committee or officer of the Company shall and may be done
and performed with like force and effect by the like board,
committee, officer or other authorized Person of any entity that
shall at the time be the lawful successor of the Company.
52
<PAGE> 60
SECTION 13.03. Surrender of Company Powers.
---------------------------
The Company by instrument in writing executed by
authority of 2/3 (two-thirds) of its Board of Directors and
delivered to the Trustee may surrender any of the powers reserved
to the Company and thereupon such power so surrendered shall
terminate both as to the Company, and as to any permitted
successor.
SECTION 13.04. Addresses for Notices, etc.
--------------------------
Any notice or demand which by any provision of this
Indenture is required or permitted to be given or served by the
Trustee or by the holders of Debt Securities on the Company may
be given or served in writing by being deposited postage prepaid
by registered or certified mail in a post office letter box
addressed (until another address is filed by the Company, with
the Trustee for the purpose) to the Company, One Mercantile
Center, P.O. Box 524, St. Louis, Missouri 63166-0524, Attention:
Jon W. Bilstrom, General Counsel. Any notice, direction, request
or demand by any Securityholder or the Company to or upon the
Trustee shall be deemed to have been sufficiently given or made,
for all purposes, if given or made in writing at the office of
the Trustee, addressed to the Trustee, 450 West 33rd Street, New
York, New York 10001, Attention: Global Trust Services.
SECTION 13.05. Governing Law.
-------------
This Indenture and each Debt Security shall be deemed
to be a contract made under the laws of the State of New York,
and for all purposes shall be governed by and construed in
accordance with the laws of said State, without regard to
conflict of laws principles thereof.
SECTION 13.06. Evidence of Compliance with
---------------------------
Conditions Precedent.
- --------------------
Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this
Indenture, the Company shall furnish to the Trustee an Officers'
Certificate stating that in the opinion of the signers all
conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with and an
Opinion of Counsel stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
Each certificate or opinion provided for in this
Indenture and delivered to the Trustee with respect to compliance
with a condition or covenant provided for in this Indenture shall
include (1) a statement that the person making such certificate
or opinion has read such covenant or condition; (2) a brief
statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in
such certificate or opinion are based; (3) a statement that, in
the opinion of such person, he has made such examination or
investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition
has been complied with; and (4) a statement as to whether or not,
in the opinion of such person, such condition or covenant has
been complied with.
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<PAGE> 61
SECTION 13.07. Non-Business Days.
-----------------
Subject to Section 2.03, in any case where the date of
payment of interest on or principal of the Debt Securities will
be a Saturday, Sunday or a day on which banking institutions in
New York City (in the State of New York) and St. Louis (in the
State of Missouri) are permitted or required by any applicable
law to close, the payment of such interest on or principal of the
Debt Securities need not be made on such date but may be made on
the next succeeding day not a Saturday, Sunday or a day on which
banking institutions in such cities are permitted or required by
any applicable law to close, with the same force and effect as if
made on the date of payment and no interest shall accrue for the
period from and after such date.
SECTION 13.08. Trust Indenture Act to Control.
------------------------------
If and to the extent that any provision of this
Indenture limits, qualifies or conflicts with the duties imposed
by Sections 310 to 317, inclusive, of the Trust Indenture Act,
such imposed duties shall control.
SECTION 13.09. Table of Contents, Headings, etc.
--------------------------------
The table of contents and the titles and headings of
the articles and sections of this Indenture have been inserted
for convenience of reference only, are not to be considered a
part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof.
SECTION 13.10. Execution in Counterparts.
-------------------------
This Indenture may be executed in any number of
counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same
instrument.
SECTION 13.11. Separability.
------------
In case any one or more of the provisions contained in
this Indenture or in the Debt Securities of any series shall for
any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall
not affect any other provisions of this Indenture or of such Debt
Securities, but this Indenture and such Debt Securities shall be
construed as if such invalid or illegal or unenforceable
provision had never been contained herein or therein.
SECTION 13.12. Assignment.
----------
The Company will have the right at all times to assign
any of its rights or obligations under this Indenture to a direct
or indirect wholly owned Subsidiary of the Company, provided
that, in the event of any such assignment, the Company will
remain liable for all such obligations. Subject to the foregoing,
this Indenture is binding upon and inures to the benefit of the
parties hereto and their respective successors and assigns. This
Indenture may not otherwise be assigned by the parties thereto.
54
<PAGE> 62
SECTION 13.13. Acknowledgment of Rights.
------------------------
The Company acknowledges that, with respect to any Debt
Securities held by any Mercantile Trust or the Institutional
Trustee of such Mercantile Trust, if the Institutional Trustee of
such Mercantile Trust fails to enforce its rights under this
Indenture as the holder of the series of Debt Securities held as
the assets of such Mercantile Trust after the holders of a
majority in liquidation amount of the Capital Securities of such
Mercantile Trust have so directed such Institutional Trustee, a
holder of record of such Capital Securities may to the fullest
extent permitted by law institute legal proceedings directly
against the Company to enforce such Institutional Trustees
rights under this Indenture without first instituting any legal
proceedings against such Institutional Trustee or any other
Person. Notwithstanding the foregoing, if an Event of Default
has occurred and is continuing and such event is attributable to
the failure of the Company to pay interest (or premium, if any)
or principal on the applicable series of Debt Securities on the
date such interest (or premium, if any) or principal is otherwise
payable (or in the case of redemption, on the redemption date),
the Company acknowledges that a holder of record of Capital
Securities of the Mercantile Trust that purchased the applicable
series of Debt Securities may directly institute a proceeding
against the Company for enforcement of payment to such holder
directly of the principal of (or premium, if any) or interest on
the applicable series of Debt Securities having an aggregate
principal amount equal to the aggregate liquidation amount of the
Capital Securities of such holder on or after the respective due
date specified in the applicable series of Debt Securities.
ARTICLE XIV
REDEMPTION OF SECURITIES -- MANDATORY AND
OPTIONAL SINKING FUND
SECTION 14.01. Applicability of Article.
------------------------
The provisions of this Article shall be applicable to
the Debt Securities of any series which are redeemable before
their maturity or to any sinking fund for the retirement of Debt
Securities of a series except as otherwise specified as
contemplated by Section 2.03 for Debt Securities of such series.
SECTION 14.02. Notice of Redemption; Selection of
----------------------------------
Debt Securities.
- ---------------
In case the Company shall desire to exercise the right
to redeem all, or, as the case may be, any part of the Debt
Securities of any series in accordance with their terms, it shall
fix a date for redemption and shall mail a notice of such
redemption at least 30 and not more than 60 days prior to the
date fixed for redemption to the holders of Debt Securities of
such series so to be redeemed as a whole or in part at their last
addresses as the same appear on the Debt Security Register. Such
mailing shall be by first class mail. The notice if mailed in
the manner herein provided shall be conclusively presumed to have
been duly given, whether or not the holder receives such notice.
In any case, failure to give such notice by mail or any defect in
the notice to the holder of any Debt Security of a series
designated for redemption as a whole or in part
55
<PAGE> 63
shall not affect the validity of the proceedings for the
redemption of any other Debt Security of such series.
Each such notice of redemption shall specify the CUSIP
number of the Debt Securities to be redeemed, the date fixed for
redemption, the redemption price at which Debt Securities of such
series are to be redeemed, the place or places of payment, that
payment will be made upon presentation and surrender of such Debt
Securities, that interest accrued to the date fixed for
redemption will be paid as specified in said notice, and that on
and after said date interest thereon or on the portions thereof
to be redeemed will cease to accrue. If less than all the Debt
Securities of such series are to be redeemed the notice of
redemption shall specify the numbers of the Debt Securities of
that series to be redeemed. In case any Debt Security of a
series is to be redeemed in part only, the notice of redemption
shall state the portion of the principal amount thereof to be
redeemed and shall state that on and after the date fixed for
redemption, upon surrender of such Debt Security, a new Debt
Security or Debt Securities of that series in principal amount
equal to the unredeemed portion thereof will be issued.
On or prior to the redemption date specified in the
notice of redemption given as provided in this Section, the
Company will deposit with the Trustee or with one or more paying
agents an amount of money sufficient to redeem on the redemption
date all the Debt Securities so called for redemption at the
appropriate redemption price, together with accrued interest to
the date fixed for redemption.
If all, or less than all, the Debt Securities of a
series are to be redeemed, the Company will give the Trustee
notice not less than 45 nor more than 60 days, respectively,
prior to the redemption date as to the aggregate principal amount
of Debt Securities of that series to be redeemed and the Trustee
shall select, in such manner as in its sole discretion it shall
deem appropriate and fair, the Debt Securities of that series or
portions thereof (in integral multiples of $1,000, except as
otherwise set forth in the applicable form of Debt Security) to
be redeemed.
SECTION 14.03. Payment of Debt Securities Called for
-------------------------------------
Redemption.
- ----------
If notice of redemption has been given as provided in
Section 14.02 or Section 14.04, the Debt Securities or portions
of Debt Securities of the series with respect to which such
notice has been given shall become due and payable on the date
and at the place or places stated in such notice at the
applicable redemption price, together with interest accrued to
the date fixed for redemption, and on and after said date (unless
the Company shall default in the payment of such Debt Securities
at the redemption price, together with interest accrued to said
date) interest on the Debt Securities or portions of Debt
Securities of any series so called for redemption shall cease to
accrue. On presentation and surrender of such Debt Securities at
a place of payment specified in said notice, the said Debt
Securities or the specified portions thereof shall be paid and
redeemed by the Company at the applicable redemption price,
together with interest accrued thereon to the date fixed for
redemption.
Upon presentation of any Debt Security of any series
redeemed in part only, the Company shall execute and the Trustee
shall authenticate and make available for delivery to the holder
thereof, at the expense of the Company, a new Debt Security or
Debt Securities of such
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series of authorized denominations, in principal amount equal to the
unredeemed portion of the Debt Security so presented.
SECTION 14.04. Mandatory and Optional Sinking Fund.
-----------------------------------
The minimum amount of any sinking fund payment provided
for by the terms of Debt Securities of any series is herein
referred to as a "mandatory sinking fund payment," and any
payment in excess of such minimum amount provided for by the
terms of Debt Securities of any series is herein referred to as
an "optional sinking fund payment." The last date on which any
such payment may be made is herein referred to as a "sinking fund
payment date."
In lieu of making all or any part of any mandatory
sinking fund payment with respect to any Debt Securities of a
series in cash, the Company may at its option (a) deliver to the
Trustee Debt Securities of that series theretofore purchased by
the Company and (b) may apply as a credit Debt Securities of that
series which have been redeemed either at the election of the
Company pursuant to the terms of such Debt Securities or through
the application of optional sinking fund payments pursuant to the
next succeeding paragraph, in each case in satisfaction of all or
any part of any mandatory sinking fund payment, provided that
such Debt Securities have not been previously so credited. Each
such Debt Security so delivered or applied as a credit shall be
credited at the sinking fund redemption price for such Debt
Securities and the amount of any mandatory sinking fund shall be
reduced accordingly. If the Company intends so to deliver or
credit such Debt Securities with respect to any mandatory sinking
fund payment it shall deliver to the Trustee at least 60 days
prior to the next succeeding sinking fund payment date for such
series (a) a certificate signed by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer of the Company
specifying the portion of such sinking fund payment, if any, to
be satisfied by payment of cash and the portion of such sinking
fund payment, if any, which is to be satisfied by delivering and
crediting such Debt Securities and the basis for such credit and
stating that such Debt Securities have not been previously so
credited and (b) any Debt Securities to be so delivered. All
Debt Securities so delivered to the Trustee shall be canceled by
the Trustee and no Debt Securities shall be authenticated in lieu
thereof. If the Company fails to deliver such certificate and
Debt Securities at or before the time provided above, the Company
shall not be permitted to satisfy any portion of such mandatory
sinking fund payment by delivery or credit of Debt Securities.
At its option the Company may pay into the sinking fund
for the retirement of Debt Securities of any particular series,
on or before each sinking fund payment date for such series, any
additional sum in cash as specified by the terms of such series
of Debt Securities. If the Company intends to exercise its right
to make any such optional sinking fund payment, it shall deliver
to the Trustee at least 60 days prior to the next succeeding
sinking fund payment date for such series a certificate signed by
the Secretary, an Assistant Secretary, the Treasurer or an
Assistant Treasurer of the Company stating that the Company
intends to exercise such optional right and specifying the amount
which the Company intends to pay on such sinking fund payment
date. If the Company fails to deliver such certificate at or
before the time provided above, the Company shall not be
permitted to make any optional sinking fund payment with
57
<PAGE> 65
respect to such sinking fund payment date. To the extent that such
right is not exercised in any year it shall not be cumulative or
carried forward to any subsequent year.
If the sinking fund payment or payments (mandatory or
optional) made in cash plus any unused balance of any preceding
sinking fund payments made in cash shall exceed $50,000 (or a
lesser sum if the Company shall so request) with respect to the
Debt Securities of any particular series, it shall be applied by
the Trustee or one or more paying agents on the next succeeding
sinking fund payment date to the redemption of Debt Securities of
such series at the sinking fund redemption price together with
accrued interest to the date fixed for redemption. The Trustee
shall select, in the manner provided in Section 14.02, for
redemption on such sinking fund payment date a sufficient
principal amount of Debt Securities of such series to absorb said
cash, as nearly as may be, and the Trustee shall, at the expense
and in the name of the Company, thereupon cause notice of
redemption of Debt Securities of such series to be given in
substantially the manner and with the effect provided in Sections
14.02 and 14.03 for the redemption of Debt Securities of that
series in part at the option of the Company, except that the
notice of redemption shall also state that the Debt Securities of
such series are being redeemed for the sinking fund. Any sinking
fund moneys not so applied or allocated by the Trustee or any
paying agent to the redemption of Debt Securities of that series
shall be added to the next cash sinking fund payment received by
the Trustee or such paying agent and, together with such payment,
shall be applied in accordance with the provisions of this
Section 14.04. Any and all sinking fund moneys held by the
Trustee or any paying agent on the maturity date of the Debt
Securities of any particular series, and not held for the payment
or redemption of particular Debt Securities of such series, shall
be applied by the Trustee or such paying agent, together with
other moneys, if necessary, to be deposited sufficient for the
purpose, to the payment of the principal of the Debt Securities
of that series at maturity.
On or before 10:00 a.m. on each sinking fund payment
date, the Company shall pay to the Trustee or to one or more
paying agents in cash a sum equal to all interest accrued to the
date fixed for redemption on Debt Securities to be redeemed on
the next following sinking fund payment date pursuant to this
Section.
Neither the Trustee nor any paying agent shall redeem
any Debt Securities of a series with sinking fund moneys, and the
Trustee shall not mail any notice of redemption of Debt
Securities for such series by operation of the sinking fund,
during the continuance of a default in payment of interest on
such Debt Securities or of any Event of Default (other than an
Event of Default occurring as a consequence of this paragraph),
except that if the notice of redemption of any Debt Securities
shall theretofore have been mailed in accordance with the
provisions hereof, the Trustee or any paying agent shall redeem
such Debt Securities if cash sufficient for that purpose shall be
deposited with the Trustee or such paying agent for that purpose
in accordance with the terms of this Article XIV. Except as
aforesaid, any moneys in the sinking fund for such series at the
time when any such default or Event of Default shall occur and
any moneys thereafter paid into the sinking fund shall, during
the continuance of such default or Event of Default, be held as
security for the payment of all such Debt Securities;
provided, however, that in case such Event of Default or
- -------- -------
default, shall have been cured or waived as provided herein,
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such moneys shall thereafter be applied on the next succeeding sinking
fund payment date on which such moneys may be applied pursuant to
the provisions of this Section 14.04.
ARTICLE XV
SUBORDINATION OF DEBT SECURITIES
SECTION 15.01. Agreement to Subordinate.
------------------------
The Company covenants and agrees, and each holder of
Debt Securities issued hereunder and under any supplemental
indenture or by any Board Resolution ("Additional Provisions") by
such Securityholders acceptance thereof likewise covenants and
agrees, that all Debt Securities shall be issued subject to the
provisions of this Article XV; and each holder of a Debt
Security, whether upon original issue or upon transfer or
assignment thereof, accepts and agrees to be bound by such
provisions.
The payment by the Company of the principal of, and
premium, if any, and interest on all Debt Securities issued
hereunder and under any Additional Provisions shall, to the
extent and in the manner hereinafter set forth, be subordinated
and junior in right of payment to the prior payment in full of
all Senior Indebtedness of the Company, whether outstanding at
the date of this Indenture or thereafter incurred.
No provision of this Article XV shall prevent the
occurrence of any default or Event of Default hereunder.
SECTION 15.02. Default on Senior Indebtedness.
------------------------------
In the event and during the continuation of any default
by the Company in the payment of principal, premium, interest or
any other payment due on any Senior Indebtedness of the Company
following any grace period, or in the event that the maturity of
any Senior Indebtedness of the Company has been accelerated
because of a default, then, in either case, no payment shall be
made by the Company with respect to the principal (including
redemption and sinking fund payments) of, or premium, if any, or
interest on the Debt Securities.
In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee when such payment is
prohibited by the preceding paragraph of this Section 15.02, such
payment shall, subject to Section 15.06, be held in trust for the
benefit of, and shall be paid over or delivered to, the holders
of Senior Indebtedness or their respective representatives, or to
the trustee or trustees under any indenture pursuant to which any
of such Senior Indebtedness may have been issued, as their
respective interests may appear, but only to the extent that the
holders of the Senior Indebtedness (or their representative or
representatives or a trustee) notify the Trustee in writing
within 90 days of such payment of the amounts then due and owing
on the Senior Indebtedness and only the amounts specified in such
notice to the Trustee shall be paid to the holders of Senior
Indebtedness.
59
<PAGE> 67
SECTION 15.03. Liquidation; Dissolution;
-------------------------
Bankruptcy.
- ----------
Upon any payment by the Company or distribution of
assets of the Company of any kind or character, whether in cash,
property or securities, to creditors upon any dissolution or
winding-up or liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due upon all
Senior Indebtedness of the Company shall first be paid in full,
or payment thereof provided for in money in accordance with its
terms, before any payment is made by the Company, on account of
the principal (and premium, if any) or interest on the Debt
Securities; and upon any such dissolution or winding-up or
liquidation or reorganization, any payment by the Company, or
distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the
Securityholders or the Trustee would be entitled to receive from
the Company, except for the provisions of this Article XV, shall
be paid by the Company, or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making
such payment or distribution, or by the Securityholders or by the
Trustee under this Indenture if received by them or it, directly
to the holders of Senior Indebtedness of the Company (pro rata to
such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders, as calculated by the Company)
or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments
evidencing such Senior Indebtedness may have been issued, as
their respective interests may appear, to the extent necessary to
pay such Senior Indebtedness in full, in money or moneys worth,
after giving effect to any concurrent payment or distribution to
or for the holders of such Senior Indebtedness, before any
payment or distribution is made to the Securityholders or to the
Trustee.
In the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, prohibited by
the foregoing, shall be received by the Trustee before all Senior
Indebtedness of the Company is paid in full, or provision is made
for such payment in money in accordance with its terms, such
payment or distribution shall be held in trust for the benefit of
and shall be paid over or delivered to the holders of such Senior
Indebtedness or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any
instruments evidencing such Senior Indebtedness may have been
issued, as their respective interests may appear, as calculated
by the Company, for application to the payment of all Senior
Indebtedness of the Company, remaining unpaid to the extent
necessary to pay such Senior Indebtedness in full in money in
accordance with its terms, after giving effect to any concurrent
payment or distribution to or for the benefit of the holders of
such Senior Indebtedness.
For purposes of this Article XV, the words "cash,
property or securities" shall not be deemed to include shares of
stock of the Company as reorganized or readjusted, or securities
of the Company or any other corporation provided for by a plan of
reorganization or readjustment, the payment of which is
subordinated at least to the extent provided in this Article XV
with respect to the Debt Securities to the payment of all Senior
Indebtedness of the Company, that may at the time be outstanding,
provided that (i) such Senior Indebtedness is assumed by the new
corporation, if any, resulting from any such reorganization or
readjustment, and (ii) the rights of the holders of such Senior
Indebtedness are not, without the consent of such
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<PAGE> 68
holders, altered by such reorganization or readjustment. The
consolidation of the Company with, or the merger of the Company
into, another corporation or the liquidation or dissolution of
the Company following the conveyance or transfer of its property
as an entirety, or substantially as an entirety, to another
corporation upon the terms and conditions provided for in
Article X of this Indenture shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of
this Section 15.03 if such other corporation shall, as a part of
such consolidation, merger, conveyance or transfer, comply with
the conditions stated in Article X of this Indenture. Nothing in
Section 15.02 or in this Section 15.03 shall apply to claims of,
or payments to, the Trustee under or pursuant to Section 6.06 of
this Indenture.
SECTION 15.04. Subrogation.
-----------
Subject to the payment in full of all Senior
Indebtedness of the Company, the Securityholders shall be
subrogated to the rights of the holders of such Senior
Indebtedness to receive payments or distributions of cash,
property or securities of the Company, applicable to such Senior
Indebtedness until the principal of (and premium, if any) and
interest on the Debt Securities shall be paid in full; and, for
the purposes of such subrogation, no payments or distributions to
the holders of such Senior Indebtedness of any cash, property or
securities to which the Securityholders or the Trustee would be
entitled except for the provisions of this Article XV, and no
payment over pursuant to the provisions of this Article XV to or
for the benefit of the holders of such Senior Indebtedness by
Securityholders or the Trustee, shall, as between the Company,
its creditors other than holders of Senior Indebtedness of the
Company, and the holders of the Debt Securities be deemed to be a
payment or distribution by the Company to or on account of such
Senior Indebtedness. It is understood that the provisions of
this Article XV are and are intended solely for the purposes of
defining the relative rights of the holders of the Securities, on
the one hand, and the holders of such Senior Indebtedness, on the
other hand.
Nothing contained in this Article XV or elsewhere in
this Indenture, any Additional Provisions or in the Debt
Securities is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior
Indebtedness of the Company, and the holders of the Debt
Securities, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Debt Securities the
principal of (and premium, if any) and interest on the Debt
Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect
the relative rights of the holders of the Debt Securities and
creditors of the Company, other than the holders of Senior
Indebtedness of the Company, nor shall anything herein or therein
prevent the Trustee or the holder of any Debt Security from
exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any,
under this Article XV of the holders of such Senior Indebtedness
in respect of cash, property or securities of the Company,
received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the
Company referred to in this Article XV, the Trustee, subject to
the provisions of Article VI of this Indenture, and the
Securityholders shall be entitled to conclusively rely upon any
order or decree made by any court
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<PAGE> 69
of competent jurisdiction in which such dissolution, winding-up,
liquidation or reorganization proceedings are pending, or a certificate
of the receiver, trustee in bankruptcy, liquidation trustee, agent or
other Person making such payment or distribution, delivered to the
Trustee or to the Securityholders, for the purposes of ascertaining the
Persons entitled to participate in such distribution, the holders
of Senior Indebtedness and other indebtedness of the Company, the
amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to
this Article XV.
SECTION 15.05. Trustee to Effectuate Subordination.
-----------------------------------
Each Securityholder by such Securityholder's acceptance
thereof authorizes and directs the Trustee on such
Securityholder's behalf to take such action as may be necessary
or appropriate to effectuate the subordination provided in this
Article XV and appoints the Trustee such Securityholder's
attorney-in-fact for any and all such purposes.
SECTION 15.06. Notice by the Company.
---------------------
The Company shall give prompt written notice to a
Responsible Officer of the Trustee at the Principal Office of the
Trustee of any fact known to the Company that would prohibit the
making of any payment of monies to or by the Trustee in respect
of the Debt Securities pursuant to the provisions of this Article
XV. Notwithstanding the provisions of this Article XV or any
other provision of this Indenture or any Additional Provisions,
the Trustee shall not be charged with knowledge of the existence
of any facts that would prohibit the making of any payment of
monies to or by the Trustee in respect of the Debt Securities
pursuant to the provisions of this Article XV, unless and until a
Responsible Officer of the Trustee at the Principal Office of the
Trustee shall have received written notice thereof from the
Company or a holder or holders of Senior Indebtedness or from any
trustee therefor; and before the receipt of any such written
notice, the Trustee, subject to the provisions of Article VI of
this Indenture, shall be entitled in all respects to assume that
no such facts exist; provided, however, that if the
-------- -------
Trustee shall not have received the notice provided for in this
Section 15.06 at least two Business Days prior to the date upon
which by the terms hereof any money may become payable for any
purpose (including, without limitation, the payment of the
principal of (or premium, if any) or interest on any Debt
Security), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority
to receive such money and to apply the same to the purposes for
which they were received, and shall not be affected by any notice
to the contrary that may be received by it within two Business
Days prior to such date.
The Trustee, subject to the provisions of Article VI of
this Indenture, shall be entitled to conclusively rely on the
delivery to it of a written notice by a Person representing
himself to be a holder of Senior Indebtedness of the Company (or
a trustee or representative on behalf of such holder), to
establish that such notice has been given by a holder of such
Senior Indebtedness or a trustee or representative on behalf of
any such holder or holders. In the event that the Trustee
determines in good faith that further evidence is required with
respect to the right of any Person as a holder of such Senior
Indebtedness to participate in any payment or distribution
pursuant to this Article XV, the Trustee may request such Person
to furnish evidence
62
<PAGE> 70
to the reasonable satisfaction of the Trustee as to the amount of such
Senior Indebtedness held by such Person, the extent to which such Person
is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article XV, and,
if such evidence is not furnished, the Trustee may defer any payment to
such Person pending judicial determination as to the right of such
Person to receive such payment.
SECTION 15.07. Rights of the Trustee; Holders of
---------------------------------
Senior Indebtedness.
- -------------------
The Trustee in its individual capacity shall be
entitled to all the rights set forth in this Article XV in
respect of any Senior Indebtedness at any time held by it, to the
same extent as any other holder of Senior Indebtedness, and
nothing in this Indenture or any Additional Provisions shall
deprive the Trustee of any of its rights as such holder.
With respect to the holders of Senior Indebtedness of
the Company, the Trustee undertakes to perform or to observe only
such of its covenants and obligations as are specifically set
forth in this Article XV, and no implied covenants or obligations
with respect to the holders of such Senior Indebtedness shall be
read into this Indenture or any Additional Provisions against the
Trustee. The Trustee shall not be deemed to owe any fiduciary
duty to the holders of such Senior Indebtedness and, subject to
the provisions of Article VI of this Indenture, the Trustee shall
not be liable to any holder of such Senior Indebtedness if it
shall pay over or deliver to Securityholders, the Company or any
other Person money or assets to which any holder of such Senior
Indebtedness shall be entitled by virtue of this Article XV or
otherwise.
Nothing in this Article XV shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.06.
SECTION 15.08. Subordination May Not Be Impaired.
---------------------------------
No right of any present or future holder of any Senior
Indebtedness of the Company to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired
by any act or failure to act on the part of the Company, or by
any act or failure to act, in good faith, by any such holder, or
by any noncompliance by the Company, with the terms, provisions
and covenants of this Indenture, regardless of any knowledge
thereof that any such holder may have or otherwise be charged
with.
Without in any way limiting the generality of the
foregoing paragraph, the holders of Senior Indebtedness of the
Company may, at any time and from time to time, without the
consent of or notice to the Trustee or the Securityholders,
without incurring responsibility to the Securityholders and
without impairing or releasing the subordination provided in this
Article XV or the obligations hereunder of the holders of the
Debt Securities to the holders of such Senior Indebtedness, do
any one or more of the following: (i) change the manner, place or
terms of payment or extend the time of payment of, or renew or
alter, such Senior Indebtedness, or otherwise amend or supplement
in any manner such Senior Indebtedness or any instrument
evidencing the same or any agreement under which such Senior
Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise
securing such Senior Indebtedness; (iii) release any Person
liable in any manner for the collection
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<PAGE> 71
of such Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company, and any other Person.
The Chase Manhattan Bank hereby accepts the trusts in
this Indenture declared and provided, upon the terms and
conditions herein above set forth.
64
<PAGE> 72
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed by their respective officers
thereunto duly authorized, as of the day and year first above
written.
MERCANTILE BANCORPORATION INC.
By
-----------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Trustee
By
-----------------------------
Name:
Title:
65
<PAGE> 1
-------------------------------------
FIRST SUPPLEMENTAL INDENTURE
between
MERCANTILE BANCORPORATION INC., as Issuer,
and
THE CHASE MANHATTAN BANK, as Trustee
Dated as of February 4, 1997
-------------------------------------
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES . . . . . . . . .4
ARTICLE III
REDEMPTION OF THE DEBENTURES. . . . . . . . . . . . . . . . . .10
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD. . . . . . . . . . . . . .10
ARTICLE V
EXPENSES AND GUARANTEE. . . . . . . . . . . . . . . . . . . . .12
ARTICLE VI
FORM OF DEBENTURE . . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE VII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .22
i
<PAGE> 3
FIRST SUPPLEMENTAL INDENTURE, dated as of February 4,
1997 (the "First Supplemental Indenture"), between Mercantile
Bancorporation Inc., a Missouri corporation (the "Company") and
The Chase Manhattan Bank, as trustee (the "Trustee"), under the
Indenture dated as of February 4, 1997 between the Company and
the Trustee (the "Indenture").
WHEREAS, the Company executed and delivered the
Indenture to the Trustee to provide for the issuance of the
Company's unsecured junior subordinated debt securities to be
issued from time to time in one or more series as might be
determined by the Company under the Indenture, in an unlimited
aggregate principal amount which may be authenticated and
delivered as provided in the Indenture;
WHEREAS, pursuant to the terms of the Indenture, the
Company desires to provide for the establishment of a series of
its Debt Securities to be known as Floating Rate Junior
Subordinated Deferrable Interest Debentures due 2027 (the
"Initial Debentures"), and to provide for, if and when issued in
exchange for the Initial Debentures pursuant to the Indenture and
the Registration Agreement, a series of its Debt Securities to be
known as Floating Rate Junior Subordinated Deferrable Interest
Debentures due 2027 (the "Exchange Debentures" and together with
the Initial Debentures, the "Debentures"), the form and substance
of each such series of Debentures and the terms, provisions and
conditions thereof to be set forth as provided in the Indenture
and this First Supplemental Indenture;
WHEREAS, Mercantile Capital Trust I, a Delaware
statutory business trust (the "Trust"), has offered for sale
pursuant to an exemption from the registration requirements of
the Securities Act of 1933, $150,000,000 aggregate liquidation
amount of Floating Rate Capital Trust Pass-through Securities
(the "Initial Capital Securities"), representing undivided
beneficial interests in the assets of the Trust and proposes to
invest the proceeds from such offering, together with the
proceeds of the issuance and sale by the Trust to the Company of
its common securities, in $154,640,000 aggregate principal amount
of the Debentures;
WHEREAS, the Trust may offer and issue Floating Rate
Capital Trust Pass-through Securities (the "Exchange Capital
Securities") in exchange for the Initial Capital Securities; and
WHEREAS, the Company has requested that the Trustee
execute and deliver this First Supplemental Indenture; all
requirements necessary to make this First Supplemental Indenture
a valid instrument in accordance with its terms, and to make the
Debentures, when executed by the Company and authenticated and
delivered by the Trustee, the valid obligations of the Company,
have been performed; and the execution and delivery of this First
Supplemental Indenture has been duly authorized in all respects;
NOW THEREFORE, in consideration of the purchase and
acceptance of the Initial Debentures by the holders thereof, and
for the purpose of setting forth, as provided in the Indenture,
the form and substance of each series of Debentures and the
terms, provisions and conditions thereof, the Company covenants
and agrees with the Trustee as follows:
<PAGE> 4
ARTICLE I
DEFINITIONS
SECTION 1.1
-----------
Unless the context otherwise requires:
(a) a term defined in the Indenture has the same
meaning when used in this First Supplemental Indenture;
(b) a term defined anywhere in this First Supplemental
Indenture has the same meaning throughout;
(c) the singular includes the plural and vice versa;
(d) a reference to a Section or Article is to a
Section or Article of this First Supplemental Indenture;
(e) headings are for convenience of reference only and
do not affect interpretation;
(f) the following terms have the meanings given to
them in the Declaration: (i) Administrators; (ii) Business Day;
(iii) Capital Security Certificate; (iv) Capital Treatment Event;
(v) Clearing Agency; (vi) Delaware Trustee; (vii) Depositary;
(viii) Distribution; (ix) Institutional Trustee; (x) Purchase
Agreement; and (xi) Tax Event;
(g) the following terms have the meanings given to
them in this Section 1.1(g):
"Additional Interest" shall have the meaning set forth
in Section 2.5(d).
"Calculation Agent" means any Person authorized by the
Company to determine the interest rate of the Debentures, which
shall be The Chase Manhattan Bank, until a successor is
appointed.
"Compounded Interest" shall have the meaning set forth
in Section 4.1.
"Declaration" means the Amended and Restated
Declaration of Trust of the Trust, dated as of February 4, 1997,
as amended or supplemented from time to time.
"Deferred Interest" shall have the meaning set forth in
Section 4.1.
"Determination Date" means, with respect to any
interest period, the date that is two London Business Days prior
to the first day of such interest period.
2
<PAGE> 5
"Dissolution Event" means that, subject to the receipt
by the Company of prior approval from the Federal Reserve if then
required under applicable capital guidelines or policies of the
Federal Reserve, the Trust is to be dissolved in accordance with
the Declaration, and the Debentures held by the Institutional
Trustee are to be distributed to the holders of the Trust Securities
issued by the Trust pro rata in accordance with the Declaration.
--- ----
"Extension Period" shall have the meaning set forth in
Section 4.1.
"Federal Reserve" means the Board of Governors of the
Federal Reserve System.
"Global Debenture" shall have the meaning set forth in
Section 2.4(a)(i).
"interest" shall include all interest payable on a
series of Debentures including any Additional Interest,
Compounded Interest and Special Interest, if applicable.
"LIBOR" means, with respect to a quarterly interest
period relating to an Interest Payment Date (in the following
order of priority):
(i) the rate (expressed as a percentage per annum) for
Eurodollar deposits having a three-month maturity
that appears on Telerate Page 3750 as of 11:00
a.m. (London time) on the related Determination
Date;
(ii) if such rate does not appear on Telerate Page 3750
as of 11:00 a.m. (London time) on the related
Determination Date, LIBOR will be the arithmetic
mean (if necessary rounded upwards to the nearest
whole multiple of .00001%) of the rates (expressed
as percentages per annum) for Eurodollar deposits
having a three-month maturity that appear on
Reuters Monitor Money Rates Page LIBO ("Reuters
Page LIBO") as of 11:00 a.m. (London time) on such
Determination Date;
(iii) if such rate does not appear on Reuters Page
LIBO as of 11:00 a.m. (London time) on the related
Determination Date, the Calculation Agent will
request the principal London offices of four
leading banks in the London interbank market to
provide such banks offered quotations (expressed
as percentages per annum) to prime banks in the
London interbank market for Eurodollar deposits
having a three-month maturity as of 11:00 a.m.
(London time) on such Determination Date. If at
least two quotations are provided, LIBOR will be
the arithmetic mean (if necessary rounded upwards
to the nearest whole multiple of .00001%) of such
quotations;
(iv) if fewer than two such quotations are provided as
requested in clause (iii) above, the Calculation
Agent will request four major New York City banks
to provide such banks offered quotations
(expressed as percentages per annum) to leading
European banks for loans in Eurodollars as of
11:00 a.m. (London time) on such Determination
Date. If at least two such
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<PAGE> 6
quotations are provided, LIBOR will be the arithmetic
mean (if necessary rounded upwards to the nearest whole
multiple of .00001%) of such quotations; and
(v) if fewer than two such quotations are provided as
requested in clause (iv) above, LIBOR will be
LIBOR determined with respect to the interest
period immediately preceding such current interest
period.
If the rate for Eurodollar deposits having a three-
month maturity that initially appears on Telerate Page 3750 or
Reuters Page LIBO, as the case may be, as of 11:00 a.m. (London
time) on the related Determination Date is superseded on Telerate
Page 3750 or Reuters Page LIBO, as the case may be, by a
corrected rate before 12:00 noon (London time) on such
Determination Date, the corrected rate as so substituted on the
applicable page will be the applicable LIBOR for such
Determination Date.
"London Business Day" means any day, other than a
Saturday or Sunday, on which banks are open for business in
London.
"Maturity Date" means February 1, 2027.
"Non-Book-Entry Capital Securities" shall have the
meaning set forth in Section 2.4(a)(ii).
"Record Date" shall have the meaning set forth in the
Debentures.
"Redemption Price" shall have the meaning set forth in
Section 3.1.
"Registration Agreement" means the Registration Rights
Agreement, dated January 29, 1997, relating to the Debentures and
the other securities described therein among the Company, the
Trust and the initial purchasers named therein.
"Registered Exchange Offer" has the meaning set forth
in the Registration Agreement.
"Special Interest" has the meaning set forth in Section
2.5(f)(iii).
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES
SECTION 2.1
-----------
The Initial Debentures and the Exchange Debentures are
hereby authorized as two series of Debt Securities. The
aggregate principal amount of Debentures outstanding at any time
shall not exceed $154,640,000 (except as set forth in Section
2.03(2) of the Indenture). Upon receipt of a written order of
the Company for the authentication and delivery of a series of
Debentures and satisfaction of the requirements of Section 2.04
of the Indenture, the Trustee
4
<PAGE> 7
shall authenticate (a) Initial Debentures for original issuance in an
aggregate principal amount not to exceed $154,640,000 (except as set
forth in Section 2.03(2) of the Indenture) or (b) Exchange Debentures
for issuance pursuant to a Registered Exchange Offer for Initial
Debentures in a principal amount equal to the principal amount of
Initial Debentures exchanged in such Registered Exchange Offer.
The Initial Debentures shall be issued pursuant to an
exemption from registration under the Securities Act and the
Restricted Securities Legend shall appear thereon, unless
otherwise determined by the Company in accordance with applicable
law. The Initial Debentures may not be transferred except in
compliance with the Restricted Securities Legend set forth in
Section 2.07 of the Indenture, unless otherwise determined by the
Company in accordance with applicable law. The Initial
Debentures shall be issued in minimum denominations of $100,000
and any integral multiple of $1,000 in excess thereof, and the
Exchange Debentures shall be issuable in minimum denominations of
$1,000 and any integral multiple thereof.
SECTION 2.2
-----------
At the Maturity Date, the Debentures shall mature and
the principal thereof shall be due and payable together with all
accrued and unpaid interest thereon including Compounded
Interest, Additional Interest and Special Interest thereon, if
any.
SECTION 2.3
-----------
Except as provided in Section 2.4, Debentures of a
series shall be issued in fully registered certificated form
without interest coupons. Principal and interest on Debentures
of a series issued in certificated form will be payable, the
transfer of such Debentures will be registrable and such
Debentures will be exchangeable for Debentures of such series
bearing identical terms and provisions at the office or agency of
the Company in the Borough of Manhattan, The City of New York,
which office or agency shall initially be the corporate trust
office of the Trustee; provided, however, that payment of
-------- -------
interest may be made at the option of the Company by check mailed
to the holder of any Debenture at such address as shall appear in
the Debt Security Register for such series of Debentures or by
wire transfer to an account appropriately designated by such
holder. Notwithstanding the foregoing, so long as the holder of
any Debentures of a series is the Institutional Trustee, the
payment of the principal of and interest (including Compounded
Interest, Additional Interest and Special Interest, if any) on
the Debentures held by the Institutional Trustee will be made at
such place and to such account as may be designated by the
Institutional Trustee.
SECTION 2.4
-----------
(a) In connection with a Dissolution Event,
(i) except as provided in clause (ii) of this
sentence, Debentures of a series in certificated form may be
presented to the Trustee by the Institutional Trustee in
exchange for a Global Security for such series in an
aggregate principal amount equal to
5
<PAGE> 8
the aggregate principal amount of all outstanding Debentures of
such series (a "Global Debenture"), to be registered in the name
of The Depository Trust Company, New York, New York, or its
nominee (hereby designated to be the Depositary for Debentures of
such series), and delivered by the Trustee to the Depositary
or its custodian for crediting to the accounts of the
Depositarys participants pursuant to the instructions of
the Administrators of the Trust, which instructions shall be
provided in accordance with the terms of the Declaration;
the Company upon any such presentation shall execute a
Global Debenture for such series in such aggregate principal
amount and deliver the same to the Trustee for authentication and
delivery in accordance with the Indenture and this First
Supplemental Indenture; payments on the Debentures of a series
issued as a Global Debenture will be made to the Depositary;
(ii) if any Capital Securities of a series are not
held by the Clearing Agency or its nominee ("Non-Book-Entry
Capital Securities"), the Debentures in certificated form of
the series held by the Trust corresponding to such Capital
Securities of such series may be presented to the Trustee by
the Institutional Trustee and any Capital Security
Certificate which represents such Non-Book-Entry Capital
Securities will be deemed to represent beneficial interests
in Debentures so presented to the Trustee by the
Institutional Trustee having an aggregate principal amount
equal to the aggregate liquidation amount of such Non-Book-
Entry Capital Securities until such Capital Security
Certificates are presented to the Debt Security registrar
for registration of transfer or reissuance at which time
such Capital Security Certificates will be canceled and a
Debenture of the series previously held by the Trust
registered in the name of the holder of the Capital Security
Certificate or the transferee of the holder of such Capital
Security Certificate, as the case may be, with an aggregate
principal amount equal to the aggregate liquidation amount
of the Capital Security Certificate canceled, will be
executed by the Company and delivered to the Trustee for
authentication and delivery in accordance with the Indenture
and this First Supplemental Indenture; upon issue of such
Debentures of such series, Debentures of such series with an
equivalent aggregate principal amount that were presented by
the Institutional Trustee to the Trustee will be deemed to
have been canceled; and
(iii) prior to the distribution of Debentures
of a series held by the Institutional Trustee to the holders
of Trust Securities, the Company and the Trustee shall enter
into a supplemental indenture pursuant to Article IX of the
Indenture to provide for transfer procedures and
restrictions with respect to such Debentures of such series
substantially similar to those contained in the Declaration
with respect to Capital Securities of the corresponding
series to the extent applicable in the circumstances
existing at the time of distribution of Debentures of such
series in connection with a Dissolution Event for purposes
of assuring that no registration of Debentures of such
series is required under the Securities Act of 1933, as
amended.
(b) A Global Debenture may be transferred, in whole
but not in part, only by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the
6
<PAGE> 9
Depositary or another nominee of the Depositary, or to a successor
Depositary selected or approved by the Company or to a nominee of such
successor Depositary.
(c) If at any time the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary or if at
any time the Depositary shall no longer be registered or in good
standing under the Securities Exchange Act of 1934, as amended,
or other applicable statute or regulation, and a successor
Depositary is not appointed by the Company within 90 days after
the Company receives such notice or becomes aware of such
condition, as the case may be, the Company will execute, and,
subject to Article II of the Indenture, the Trustee, upon written
request of the Company, will authenticate and make available for
delivery, Debentures of each series in definitive registered form
without coupons, in authorized denominations, and in an aggregage
principal amount equal to the principal amount of the Global
Debenture of such series in exchange for such Global Debenture.
In addition, the Company may at any time determine that the
Debentures of a series shall no longer be represented by a Global
Debenture. In such event the Company will execute, and subject
to Section 2.07 of the Indenture, the Trustee, upon receipt of an
Officers' Certificate evidencing such determination by the
Company, will authenticate and deliver Debentures of such series
in definitive registered form without coupons, in authorized
denominations, and in an aggregate principal amount equal to the
principal amount of the Global Debenture of such series in
exchange for such Global Debenture. A Global Debenture shall
also be exchangeable for Debentures in definitive form upon the
occurrence of an Event of Default. Upon the exchange of a Global
Debenture for Debentures in definitive registered form without
coupons, in authorized denominations, such Global Debenture shall
be canceled by the Trustee. Such Debentures in definitive
registered form issued in exchange for such Global Debenture
shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from
its direct or indirect participants or otherwise, shall instruct
the Trustee. The Trustee shall deliver such Debentures to the
Depositary for delivery to the Persons in whose names such
Debentures are so registered.
SECTION 2.5
-----------
(a) The Company shall appoint a Calculation Agent,
which may be the Trustee, to determine LIBOR as of the
Determination Date for each quarterly interest period and to
calculate the interest rate and the amount of interest due for
each such interest period. Absent manifest error, the
Calculation Agents determination of LIBOR and its calculation of
the interest rate for each interest period shall be final and
binding on the holders of the Debentures.
(b) The amount of interest payable for any period will
be computed on the basis of the actual number of days elapsed in
a year of twelve 30-day months. In the event that any date on
which interest is payable on the Debentures of a series is not a
Business Day, then payment of interest payable on such date will
be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same
force and effect as if made on such date.
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<PAGE> 10
(c) The indebtedness evidenced by all Debentures of a
series is subordinate and junior in right of payment to the prior
payment in full of all present and future Senior Indebtedness and
pari passu in right of payment with all Debentures of each other series.
- ---- -----
(d) If, at any time while the holder of any Debentures
of a series is the Institutional Trustee, the Trust is required
to pay any taxes, duties, assessments or governmental charges of
whatever nature (other than withholding taxes) imposed by the
United States, or any other taxing authority, then, in any such
case, the Company shall pay as additional interest ("Additional
Interest") on the Debentures held by the Institutional Trustee,
such additional amounts as shall be required so that the net
amounts received and retained by the Trust after paying any such
taxes, duties, assessments or other governmental charges will be
equal to the amounts the Trust and the Institutional Trustee
would have received had no such taxes, duties, assessments or
other governmental charges been imposed.
(e) If an Initial Debenture is exchanged in a
Registered Exchange Offer prior to the Record Date for the first
Interest Payment Date following such exchange, accrued and unpaid
interest, if any, on such Initial Debenture, up to but not
including the date of issuance of the Exchange Debenture or
Exchange Debentures issued in exchange for such Initial
Debenture, shall be paid on the first Interest Payment Date for
such Exchange Debenture or Exchange Debentures to the
Securityholder or Securityholders of such Exchange Debenture or
Exchange Debentures on the first Record Date with respect to such
Exchange Debenture or Exchange Debentures. If an Initial
Debenture is exchanged in a Registered Exchange Offer subsequent
to the Record Date for the first Interest Payment Date following
such exchange but on or prior to such Interest Payment Date, then
any such accrued and unpaid interest with respect to such Initial
Debenture and any accrued and unpaid interest on the Exchange
Debenture or Exchange Debentures issued in exchange for such
Initial Debenture, through the day before such Interest Payment
Date, shall be paid on such Interest Payment Date to the
Securityholder of such Initial Debenture on such Record Date.
(f) The following terms relate to Special Interest:
(i) In the event that either (A) the Exchange
Offer Registration Statement (as such term is defined in the
Registration Agreement) is not filed with the Securities and
Exchange Commission (the "Commission") on or prior to the
90th day following the Closing Date (as such term is defined
in the Registration Agreement), (B) the Exchange Offer
Registration Statement is not declared effective by the
Commission on or prior to the 120th day following the
Closing Date or (C) the Registered Exchange Offer (as such
term is defined in the Registration Agreement) is not
consummated or a Shelf Registration Statement (as such term
is defined in the Registration Agreement) with respect to
the Initial Debentures is not declared effective by the
Commission on or prior to the 150th day following the
Closing Date, interest shall accrue (in addition to the
stated interest on Initial Debentures) from and including
the next day following each of (1) such 90-day period in the
case of clause (A) above, (2) such 120-day period in the
case of clause (B) above and (3) such 150-day period in the
case of clause (C) above. In each case, such additional
interest shall accrue at a rate
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<PAGE> 11
per annum equal to 0.25% of the principal amount of the Initial
Debentures (determined daily). The aggregate amount of additional
interest payable pursuant to the above provisions will in no event
exceed 0.75% per annum of the principal amount of the Initial
Debentures (determined daily). Upon (X) the filing of the
Exchange Offer Registration Statement after the 90-day
period described in clause (A) above, (Y) the effectiveness
of the Exchange Offer Registration Statement after the 120-
day period described in clause (B) above or (Z) the
consummation of the Registered Exchange Offer or the
effectiveness of a Shelf Registration Statement, as the case
may be, after the 150-day period described in clause (C)
above, the additional interest payable on the Initial
Debentures, with respect to such clause (A), (B) or (C), as
the case may be, from the date of such filing, effectiveness
or consummation, as the case may be, shall cease to accrue.
(ii) In the event that a Shelf Registration
Statement filed with respect to the Initial Debentures is
declared effective pursuant to the terms of the Registration
Agreement, if the Company or the Trust fails to keep such
Shelf Registration Statement continuously effective for the
period required by the Registration Agreement, then from the
next day following such time as the Shelf Registration
Statement is no longer effective until the earlier of
(A) the date that the Shelf Registration Statement is again
deemed effective, (B) the date that is the third anniversary
of the effective date or (C) the date as of which all of the
Initial Debentures are sold pursuant to the Shelf
Registration Statement or may be sold without registration
pursuant to Rule 144 under the Securities Act of 1933,
interest shall accrue on the Initial Debentures (in addition
to the stated interest on the Initial Debentures) at a rate
per annum equal to 0.25% of the principal amount of the
Initial Debentures (determined daily), to be increased to
0.50% per annum of the principal amount of the Initial
Debentures (determined daily) if and when such Shelf
Registration Statement is no longer effective for 30 days or
more.
(iii) Any additional interest that accrues
with respect to the Initial Debentures as provided in this
paragraph is referred to as "Special Interest." For all
purposes of the Indenture, this Supplemental Indenture and
the Initial Debentures, Special Interest shall be treated as
interest and shall be payable on the same Interest Payment
Dates and to the Securityholders of record on the same
record dates as would be the case for stated interest.
SECTION 2.6
-----------
If at any time the holder of all Debentures of a series
ceases to be the Institutional Trustee and, at such time, the
Capital Securities issued by the Trust are rated by at least one
nationally recognized statistical rating agency, then the Company
shall use its best efforts to obtain from at least one nationally
recognized statistical rating agency a rating for the Debentures
of such series.
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<PAGE> 12
ARTICLE III
REDEMPTION OF THE DEBENTURES
SECTION 3.1
-----------
If a Tax Event or a Capital Treatment Event shall occur
and be continuing, the Company shall have the right, subject to
the receipt by the Company of prior approval from the Federal
Reserve if then required under applicable capital guidelines or
policies of the Federal Reserve, to redeem, upon not less than 30
days nor more than 60 days' notice, the Debentures in whole or
in part, at any time, within 90 days following the occurrence of
such Tax Event or Capital Treatment Event, as the case may be, at
a redemption price equal to 100% of the principal amount to be
redeemed plus accrued but unpaid interest to the date of such
redemption (the "Redemption Price"). If Debentures are only
partially redeemed pursuant to this Section 3.1, Debentures shall
be redeemed pro rata or by lot or by any other method
--- ----
utilized by the Trustee. The Redemption Price shall be paid prior
to 11:00 a.m., New York City time, on the date of such redemption
or such earlier time as the Company determines, provided that
--------
the Company shall deposit with the Trustee an amount sufficient
to pay the Redemption Price by 10:00 a.m., New York City time, on
the date the Redemption Price is to be paid.
SECTION 3.2
-----------
At any time on or after February 1, 2007, the Company
shall have the right, subject to the provisions of Article XIV of
the Indenture and to the receipt by the Company of prior approval
from the Federal Reserve if then required under applicable
capital guidelines or policies of the Federal Reserve, to redeem
the Debentures, in whole or in part, from time to time, at the
Redemption Price. Any redemption pursuant to this Section 3.2
will be made upon not less than 30 days' nor more than 60 days'
notice to the holders of the relevant Debentures. If Debentures
are only partially redeemed pursuant to this Section 3.2,
Debentures shall be redeemed pro rata or by lot or by any
--- ----
other method utilized by the Trustee. The Redemption Price shall
be paid prior to 11:00 a.m., New York City time, on the date of
such redemption or such earlier time as the Company determines,
provided that the Company shall deposit with the Trustee an
- --------
amount sufficient to pay the Redemption Price by 10:00 a.m., New
York City time, on the date the Redemption Price is to be paid.
The Debentures are not entitled to the benefit of any
sinking fund.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1
-----------
The Company shall have the right, subject to the
conditions set forth herein, to defer payments of interest on the
Debentures of a series by extending the interest payment period
on the Debentures of a series at any time and from time to time
during the term of the
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<PAGE> 13
Debentures, for up to 20 consecutive quarterly periods (each such
extended interest payment period, an "Extension Period"), during which
Extension Period no interest shall be due and payable; provided that
-------- ----
(i) no Extension Period may extend beyond the Maturity Date and (ii)
no Extension Period may commence or be extended so long as the Company
is in default in the payment of any interest upon any Debentures of
such series or has not paid all Deferred Interest from a prior
completed Extension Period. At the termination of an Extension
Period for the Debentures of a series or, if not an Interest
Payment Date, on the Interest Payment Date immediately following
termination of such Extension Period for the Debentures of such
series, the Company shall pay all interest then accrued and
unpaid on the Debentures, together with interest thereon at a
variable annual rate equal to LIBOR plus 0.85%, compounded
quarterly (to the extent permitted by applicable law)
("Compounded Interest") and any Additional Interest (together
with Compounded Interest, "Deferred Interest"), which Deferred
Interest shall be payable to the holders of the Debentures of
such series in whose names the Debentures are registered in the
Debt Security Register on the record date for the payment of
interest on such Interest Payment Date. Before the termination
of any Extension Period, the Company may further extend such
period, provided that such period together with all such previous
and further consecutive extensions thereof shall not exceed 20
consecutive quarterly periods, or extend beyond the Maturity
Date. Upon the termination of any Extension Period and upon the
payment of all Deferred Interest then due, the Company may
commence a new Extension Period, subject to the foregoing
requirements.
SECTION 4.2
-----------
(a) If the Institutional Trustee is the only
registered holder of the Debentures of a series at the time the
Company initiates an Extension Period, the Company shall give
written notice to the Administrators, the Institutional Trustee
and the Trustee of its initiation of such Extension Period one
Business Day before the earlier of (i) the date on which
distributions on the Capital Securities of the corresponding
series are payable, or (ii) the date the Administrators are
required to give notice to holders of the Capital Securities of
the corresponding series (or any national securities exchange or
other organization on which such Capital Securities are listed,
if any) of the record date or the distribution payment date, in
each case with respect to distributions on the Trust Securities
the payment of which is being deferred.
(b) If the Institutional Trustee is not the only
registered holder of the Debentures of a series at the time the
Company initiates an Extension Period, the Company shall give the
holders of the Debentures of such series and the Trustee written
notice of its initiation of such Extension Period at least ten
Business Days before the earlier of (i) the next succeeding
Interest Payment Date or (ii) the date the Company is required to
give notice to holders of the Debentures of such series (or any
national securities exchange or other organization on which the
Capital Securities of the corresponding series are listed, if
any) of the record or payment date of such interest, in each case
with respect to interest payments the payment of which is being
deferred.
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ARTICLE V
EXPENSES AND GUARANTEE
SECTION 5.1
-----------
In connection with the offering, sale and issuance of
the Debentures of a series and in connection with the sale of any
Trust Securities by the Trust, the Company, in its capacity as
borrower with respect to the Debentures of such series, shall:
(a) pay all costs and expenses relating to the
offering, sale and issuance of Debentures of such series,
including commissions to the underwriters payable pursuant to the
Purchase Agreement and compensation of the Trustee under the
Indenture in accordance with the provisions of Section 6.06 of
the Indenture;
(b) pay all debts and other obligations (other than
with respect to the Trust Securities) and costs and expenses of
the Trust (including, but not limited to, costs and expenses
relating to the organization of the Trust, the offering, sale and
issuance of the Trust Securities (including commissions to the
underwriters in connection therewith), the fees and expenses, if
any, of the Institutional Trustee, the Delaware Trustee and each
Administrator, the costs and expenses relating to the operation
of the Trust, including, without limitation, costs and expenses
of accountants, attorneys, statistical or bookkeeping services,
expenses for printing and engraving and computing or accounting
equipment, paying agent(s), registrar(s), transfer agent(s),
duplicating, travel and telephone and other telecommunications
expenses and costs and expenses incurred in connection with the
acquisition, financing, and disposition of Trust assets of the
Trust);
(c) be primarily and fully liable for any
indemnification obligations arising with respect to the
Declaration or the Purchase Agreement or the Registration
Agreement; and
(d) pay any and all taxes, duties, assessments or
governmental charges of whatever nature and all liabilities,
costs and expenses with respect thereto (other than United States
withholding taxes attributable to the Trust or assets of the
Trust) to which the Trust may become subject.
SECTION 5.2
-----------
Upon termination of the Declaration or the removal or
resignation of the Delaware Trustee or the Institutional Trustee,
as the case may be, pursuant to Section 5.7 of the Declaration,
the Company shall pay to the Delaware Trustee or the
Institutional Trustee, as the case may be, all amounts owing to
the Delaware Trustee or the Institutional Trustee, as the case
may be, under Sections 10.4 and 10.6 of the Declaration accrued
to the date of such termination, removal or resignation.
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<PAGE> 15
ARTICLE VI
FORM OF DEBENTURE
The Debentures and the Trustees certificate of
authentication to be endorsed thereon are to be substantially in
the following forms and are expressly made a part of this First
Supplemental Indenture:
(FACE OF DEBENTURE)
[IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, INSERT:
This Debenture is a Global Debenture within the meaning of the
Indenture hereinafter referred to and is registered in the name
of a Depositary or a nominee of a Depositary. This Debenture is
exchangeable for Debentures of this series registered in the name
of a person other than the Depositary or its nominee only in the
limited circumstances described in the Indenture, and no transfer
of this Debenture may be registered except in limited
circumstances. Except as otherwise provided in Section 2.11 of
the Indenture, this Debenture may be transferred, in whole but
not in part, only to another nominee of the Depositary or to a
successor Depositary or to a nominee of such successor
Depositary.
Unless this Debenture is presented by an authorized
representative of The Depository Trust Company (55 Water Street,
New York, New York) to the issuer or its agent for registration
of transfer, exchange or payment, and any Debenture of this
series issued is registered in the name of Cede & Co. or such
other name as requested by an authorized representative of The
Depository Trust Company and any payment hereon is made to Cede &
Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY A PERSON IS WRONGFUL since the registered owner
hereof, Cede & Co., has an interest herein.]
[IF THIS DEBENTURE IS ONE OF A SERIES ORIGINALLY ISSUED
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, AS SPECIFIED PURSUANT TO SECTION 2.03 OF THE INDENTURE,
INSERT THE FOLLOWING UNLESS OTHERWISE DETERMINED BY THE COMPANY -
- - THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY
STATE SECURITIES LAWS. NEITHER THIS DEBENTURE NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THE HOLDER OF THIS DEBENTURE BY ITS ACCEPTANCE
HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH DEBENTURE
PRIOR TO THE DATE WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH MERCANTILE
BANCORPORATION INC. (THE "COMPANY") OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS DEBENTURE OR ANY PREDECESSOR OF
THIS DEBENTURE (THE "RESALE RESTRICTIONS TERMINATION DATE") ONLY
13
<PAGE> 16
(A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
DEBENTURES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER
THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (a) (1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE DEBENTURE FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED
INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION
OF THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE COMPANYS RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO IT IN ACCORDANCE WITH THE INDENTURE,
A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. THE HOLDER OF
THIS DEBENTURE AGREES THAT IT WILL COMPLY WITH THE FOREGOING
RESTRICTIONS. DEBENTURES OWNED BY A PURCHASER THAT IS NOT A
QUALIFIED INSTITUTIONAL BUYER MAY NOT BE HELD IN BOOK-ENTRY FORM.
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER
THE RESALE RESTRICTIONS TERMINATION DATE.]
No.
---------------------
MERCANTILE BANCORPORATION INC.
FLOATING RATE JUNIOR SUBORDINATED DEFERRABLE
INTEREST DEBENTURE DUE 2027
MERCANTILE BANCORPORATION INC., a Missouri corporation
(the "Company," which term includes any successor corporation
under the Indenture hereinafter referred to), for value received,
hereby promises to pay to ------------ or registered assigns, the
principal sum of ---------------- Dollars ($--------- ) on
February 1, 2027, and to pay interest on said principal sum from
February 4, 1997, or from the most recent interest payment date
(each such date, an "Interest Payment Date") to which interest
has been paid or duly provided for, quarterly (subject to
deferral as set forth herein) in arrears on the first day of
February, May, August and November of each year commencing May 1,
1997, at a variable annual rate equal to LIBOR plus 0.85% until
the principal hereof shall have become due and payable, and on
any overdue principal and (without duplication and to the extent
that payment of such interest is enforceable under applicable
law) on any overdue installment of interest at a variable annual
rate equal to LIBOR plus 0.85% compounded quarterly. The amount
of interest payable on any Interest Payment Date shall be
computed on the basis of the actual number of
14
<PAGE> 17
days elapsed in a year of twelve 30-day months. In the event that any
date on which interest is payable on this Debenture is not a Business
Day, then payment of interest payable on such date will be made
on the next succeeding day that is a Business Day (and without
any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and
effect as if made on such date. The interest installment so
payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid
to the Person in whose name this Debenture (or one or more
Predecessor Securities, as defined in said Indenture) is
registered at the close of business on the Record Date for such
interest installment, [which shall be the close of business on
the Business Day next preceding such Interest Payment Date]. [IF
PURSUANT TO THE PROVISIONS OF THE INDENTURE THE DEBENTURES OF
THIS SERIES ARE NO LONGER REPRESENTED SOLELY BY A GLOBAL
DEBENTURE, SUBSTITUTE THE FOLLOWING FOR THE FOREGOING BRACKETED
TEXT -- which shall be the close of business on the 15th day next
preceding such Interest Payment Date.] Any such interest
installment not punctually paid or duly provided for shall
forthwith cease to be payable to the registered holders on such
Record Date and may be paid to the Person in whose name this
Debenture (or one or more Predecessor Securities) is registered
at the close of business on a special record date to be fixed by
the Trustee for the payment of such defaulted interest, notice
whereof shall be given to the registered holders of this series
of Debentures not less than 10 days prior to such special record
date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on
which the Debentures of this series may be listed, and upon such
notice as may be required by such exchange, all as more fully
provided in the Indenture. In the event the Debentures of this
series are issued in non-book entry form, the principal of and
interest on this Debenture shall be payable at the office or
agency of the Trustee (or other paying agent appointed by the
Company) maintained for that purpose in any coin or currency of
the United States of America that at the time of payment is legal
tender for payment of public and private debts; provided,
--------
however, that payment of interest may be made at the option
- -------
of the Company by check mailed to the registered holder at such
address as shall appear in the Debt Security Register or by wire
transfer to an account appropriately designated by the holder
hereof. Notwithstanding the foregoing, so long as the holder of
this Debenture is the Institutional Trustee, the payment of the
principal of and interest on this Debenture will be made in
immediately available funds at such place and to such account as
may be designated by the Institutional Trustee.
The indebtedness evidenced by this Debenture is, to the
extent provided in the Indenture, subordinate and junior in right
of payment to the prior payment in full of all Senior
Indebtedness, and this Debenture is issued subject to the
provisions of the Indenture with respect thereto. Each holder of
this Debenture, by accepting the same, (a) agrees to and shall be
bound by such provisions, (b) authorizes and directs the Trustee
on his or her behalf to take such action as may be necessary or
appropriate to acknowledge or effectuate the subordination so
provided and (c) appoints the Trustee his or her attorney-in-fact
for any and all such purposes. Each holder hereof, by his or her
acceptance hereof, hereby waives all notice of the acceptance of
the subordination provisions contained herein and in the
Indenture by each holder of Senior
15
<PAGE> 18
Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
If this Debenture is exchanged in a Registered Exchange
Offer prior to the Record Date for the first Interest Payment
Date following such exchange, accrued and unpaid interest, if
any, on this Debenture, up to but not including the date of
issuance of the Exchange Debenture or Exchange Debentures issued
in exchange for this Debenture, shall be paid on the first
Interest Payment Date for such Exchange Debenture or Exchange
Debentures to the Securityholder or Securityholders of such
Exchange Debenture or Exchange Debentures on the first Record
Date with respect to such Exchange Debenture or Exchange
Debentures. If this Debenture is exchanged in a Registered
Exchange Offer subsequent to the Record Date for the first
Interest Payment Date following such exchange but on or prior to
such Interest Payment Date, then any such accrued and unpaid
interest with respect to this Debenture and any accrued and
unpaid interest on the Exchange Debenture or Exchange Debentures
issued in exchange for this Debenture, through the day before
such Interest Payment Date, shall be paid on such Interest
Payment Date to the Securityholder of this Debenture on such
Record Date.
If any time the Trust shall be required to pay any
taxes, duties, assessments or governmental charges of whatever
nature (other than withholding taxes) imposed by the United
States or any other taxing authority, then, in any such case, the
Company shall pay as additional interest on the Debentures held
by the Institutional Trustee such additional amounts as shall be
required so that the net amounts received and retained by the
Trust after paying any such taxes, duties, assessments or other
governmental charges will equal the amounts the Trust and the
Institutional Trustee would have received had no such taxes,
duties, assessments or other governmental charges been imposed.
[IF THIS DEBENTURE IS AN INITIAL DEBENTURE INSERT -- In addition,
the interest rate payable on the Debentures of this series is
subject to increase as provided in the Indenture if, pursuant to
the Registration Agreement either (A) the Exchange Offer
Registration Statement (as such term is defined in the
Registration Agreement) is not filed with the Securities and
Exchange Commission (the "Commission") on or prior to the 90th
day following the Closing Date (as such term is defined in the
Registration Agreement), (B) the Exchange Offer Registration
Statement is not declared effective by the Commission on or prior
to the 120th day following the Closing Date or (C) the Registered
Exchange Offer (as such term is defined in the Registration
Agreement) is not consummated or a Shelf Registration Statement
(as such term is defined in the Registration Agreement) with
respect to the Initial Debentures is not declared effective by
the Commission on or prior to the 150th day following the Closing
Date.
The interest rate payable on the Debentures of this
series is also subject to adjustment in certain circumstances if
a Shelf Registration Statement filed pursuant to the Registration
Agreement is not kept continuously effective for a specified
period, as provided in the Indenture.]
This Debenture shall not be entitled to any benefit
under the Indenture hereinafter referred to, be valid or become
obligatory for any purpose until the certificate of
authentication hereon shall have been signed by or on behalf of
the Trustee.
16
<PAGE> 19
The provisions of this Debenture are continued on the
reverse side hereof and such continued provisions shall for all
purposes have the same effect as though fully set forth at this
place.
17
<PAGE> 20
IN WITNESS WHEREOF, the Company has caused this
instrument to be executed.
Dated
--------------------
MERCANTILE BANCORPORATION INC.
By:
-------------------------
Name:
Title:
[Seal]
By:
-------------------------
Name:
Title:
CERTIFICATE OF AUTHENTICATION
-----------------------------
This is one of the Debt Securities of the series
designated therein referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK, as Trustee
By
------------------------------
Authorized Officer
18
<PAGE> 21
(REVERSE OF DEBENTURE)
----------------------
This Debenture is one of a duly authorized series of
Debt Securities of the Company, all issued or to be issued in one
or more series under and pursuant to an Indenture dated as of
February 4, 1997, duly executed and delivered between the Company
and The Chase Manhattan Bank, as Trustee (the "Trustee"), as
supplemented by the First Supplemental Indenture dated as of
February 4, 1997, between the Company and the Trustee (the
Indenture as so supplemented, the "Indenture"), to which
Indenture and all indentures supplemental thereto reference is
hereby made for a description of the rights, limitations of
rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the holders of the series of Debt
Securities (referred to herein as the "Debentures") of which this
Debenture is a part. The summary of the terms of this Debenture
contained herein does not purport to be complete and is qualified
by reference to the Indenture. By the terms of the Indenture,
the Debt Securities are issuable in series that may vary as to
amount, date of maturity, rate of interest and in other respects
as provided in the Indenture. This series of Debentures is
limited in aggregate principal amount as specified in said First
Supplemental Indenture.
Upon the occurrence and continuation of a Tax Event or
a Capital Treatment Event, this Debenture may become due and
payable, in whole or in part, at any time, within 90 days
following the occurrence of such Tax Event or Capital Treatment
Event, as the case may be, at a redemption price equal to 100% of
the principal amount being redeemed together with any accrued and
unpaid interest thereon. The Company shall also have the right
to redeem this Debenture at the option of the Company, in whole
or in part, at any time or from time to time on or after February
1, 2007, at par plus accrued and unpaid interest to the
redemption date.
Any redemption pursuant to the preceding paragraph will
be made, subject to the receipt by the Company of prior approval
from the Board of Governors of the Federal Reserve System (the
"Federal Reserve") if then required under applicable capital
guidelines or policies of the Federal Reserve, upon not less than
30 days' nor more than 60 days' notice. If the Debentures are
only partially redeemed by the Company, the Debentures will be
redeemed pro rata or by lot or by any other method utilized
--- ----
by the Trustee; provided that if, at the time of redemption,
--------
the Debentures are registered as a Global Debenture, the
Depositary shall determine the principal amount of such
Debentures held by each of its direct participants to be redeemed
pro rata in accordance with its procedures.
- --- ----
In the event of redemption of this Debenture in part
only, a new Debenture or Debentures of this series for the
unredeemed portion hereof will be issued in the name of the
holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the
Indenture, shall have occurred and be continuing, the principal
of all of the Debentures may be declared due and payable, and
upon such declaration of acceleration shall become due and
payable, in the manner, with the effect and subject to the
conditions provided in the Indenture.
The Indenture contains provisions permitting the
Company and the Trustee, with the consent of the holders of not
less than a majority in aggregate principal amount of the Debt
19
<PAGE> 22
Securities of any series at the time outstanding affected
thereby, as specified in the Indenture, to execute supplemental
indentures for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or of modifying in
any manner the rights of the holders of the Debt Securities;
provided, however, that no such supplemental indenture
- -------- -------
shall, among other things, without the consent of the holders of
each Debt Security then outstanding and affected thereby (i)
extend the fixed maturity of any Debt Securities of any series,
or reduce the principal amount thereof or any redemption premium
thereon, or reduce the rate or extend the time of payment of
interest thereon, or make the principal of, or interest or
premium on, the Debt Securities payable in any coin or currency
other than that provided in the Debt Securities, or impair or
affect the right of any holder of Debt Securities to institute
suit for the payment thereof, or (ii) reduce the aforesaid
percentage of Debt Securities, the holders of which are required
to consent to any such supplemental indenture. The Indenture
also contains provisions permitting the holders of a majority in
aggregate principal amount of the Debt Securities of a series at
the time outstanding affected thereby as provided in the
Indenture, on behalf of all of the holders of the Debt Securities
of such series, to waive any past default in the performance of
any of the covenants contained in the Indenture, or established
pursuant to the Indenture with respect to such series, and its
consequences, except a default in the payment of the principal of
or premium, if any, or interest on any of the Debt Securities of
such series. Any such consent or waiver by the registered holder
of this Debenture (unless revoked as provided in the Indenture)
shall be conclusive and binding upon such holder and upon all
future holders and owners of this Debenture and of any Debenture
issued in exchange herefor or in place hereof (whether by
registration of transfer or otherwise), irrespective of whether
or not any notation of such consent or waiver is made upon this
Debenture.
No reference herein to the Indenture and no provision
of this Debenture or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and premium, if any, and interest on this
Debenture at the time and place and at the rate and in the money
herein prescribed.
The Company shall have the right at any time during the
term of the Debentures and from time to time, subject to certain
conditions, to defer payment of interest on the Debentures of a
series by extending the interest payment period for Extension
Periods, each not exceeding 20 consecutive quarterly periods as
provided in the Indenture. Notwithstanding the foregoing, no
Extension Period may extend beyond the maturity date of the
Debentures. In the event that the Company exercises its right to
extend an interest payment period, then during any Extension
Period (a) the Company shall not declare or pay any dividends on,
make any distribution with respect to, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of
its capital stock or rights to acquire such capital stock (other
than (i) purchases or acquisitions of shares of any such capital
stock or rights to acquire such capital stock in connection with
the satisfaction by the Company of its obligations under any
employee benefit plans, (ii) as a result of a reclassification of
the Company's capital stock or rights to acquire such capital
stock or the exchange or conversion of one class or series of the
Company's capital stock or rights to acquire such capital stock
for another class or series of the Company's capital stock or
rights to acquire such capital stock, (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant
to the conversion or exchange provisions of such capital stock
20
<PAGE> 23
or the security being converted or exchanged, (iv) dividends and
distributions made on the Company's capital stock or rights to acquire
such capital stock with the Company's capital stock or rights to
acquire such capital stock, or (v) any declaration of a dividend in
connection with the implementation of a shareholder rights plan, or the
issuance of stock under any such plan in the future, or the redemption
or repurchase of any such rights pursuant thereto), or make guarantee
payments (other than payments under the Capital Securities Guarantee or
the Common Securities Guarantee for the Trust) with respect to the
foregoing and (b) the Company shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase
or redeem any debt securities issued by the Company that rank
pari passu with or junior to the Debentures. Prior to
- ---- -----
the termination of any such Extension Period, the Company may
further defer payments of interest by extending the interest
payment period; provided, however, that each such
-------- -------
Extension Period, including all such previous and further
extensions thereof, may not exceed 20 consecutive quarterly
periods or extend beyond the maturity of the Debentures. Upon
the termination of any Extension Period and the payment of all
amounts then due, the Company may commence a new Extension
Period, subject to the terms set forth in the Indenture. No
interest during an Extension Period, except on the date on which
such Extension Period terminates (or if such date is not an
Interest Payment Date, on the immediately following Interest
Payment Date), shall be due and payable.
As provided in the Indenture and subject to certain
limitations herein and therein set forth, this Debenture is
transferable by the registered holder hereof on the Debt Security
Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Trustee
in the City and State of New York accompanied by a written
instrument or instruments of transfer in form satisfactory to the
Company or the Trustee duly executed by the registered holder
hereof or his attorney duly authorized in writing, and thereupon
one or more new Debentures of authorized denominations and for
the same aggregate principal amount and series will be issued to
the designated transferee or transferees. No service charge will
be made for any such registration of transfer, but the Company
may require payment of a sum sufficient to cover any tax or other
governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer
of this Debenture, the Company, the Trustee, any Authenticating
Agent, any paying agent, any transfer agent and the Debt Security
registrar may deem and treat the registered holder hereof as the
absolute owner hereof (whether or not this Debenture shall be
overdue and notwithstanding any notice of ownership or writing
hereon) for the purpose of receiving payment of or on account of
the principal hereof and interest due hereon and for all other
purposes, and neither the Company nor the Trustee nor any
Authenticating Agent nor any paying agent nor any transfer agent
nor any Debt Security registrar shall be affected by any notice
to the contrary.
No recourse shall be had for the payment of the
principal of or the interest on this Debenture, or for any claim
based hereon, or otherwise in respect hereof, or based on or in
respect of the Indenture, against any incorporator, stockholder,
officer or director, past, present or future, as such, of the
Company or of any predecessor or successor corporation, whether
by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or
21
<PAGE> 24
penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof,
expressly waived and released.
The Debentures of this series are issuable only in
registered form without coupons. A Global Debenture is
exchangeable for Debentures in definitive form only under certain
limited circumstances set forth in the Indenture. As provided in
the Indenture and subject to certain limitations herein and
therein set forth, Debentures of this series are exchangeable for
a like aggregate principal amount of Debentures of this series of
a different authorized denomination, as requested by the holder
surrendering the same.
[IF THIS DEBENTURE IS AN INITIAL DEBENTURE INSERT --
The Debentures of this series are issuable only in minimum
denominations of $100,000 and any integral multiple of $1,000 in
excess thereof. The Debentures of this series may be transferred
only in blocks having an aggregate principal amount of not less
than $100,000. Any transfer of Debentures of this series in a
block having an aggregate principal amount of less than $100,000
shall be deemed to be void and of no legal effect whatsoever.
Any transferee of Debentures of this series having an aggregate
principal amount of less than $100,000 shall be deemed not to be
the holder of such Debentures for any purpose, including, but not
limited to, the receipt of payments on such Debentures, and such
transferee shall be deemed to have no interest whatsoever in such
Debentures.]
All terms used in this Debenture that are defined in
the Indenture shall have the meanings assigned to them in the
Indenture.
THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN
THE INDENTURE AND THE DEBENTURES, WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES THEREOF.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1
-----------
The Indenture, as supplemented by this First
Supplemental Indenture, is in all respects ratified and
confirmed, and this First Supplemental Indenture shall be deemed
part of the Indenture in the manner and to the extent herein and
therein provided.
SECTION 7.2
-----------
The recitals herein contained are made by the Company
and not by the Trustee, and the Trustee assumes no responsibility
for the correctness thereof. The Trustee makes no representation
as to the validity or sufficiency of this First Supplemental
Indenture.
22
<PAGE> 25
SECTION 7.3
-----------
This First Supplemental Indenture and each Debenture
shall be deemed to be a contract made under the internal laws of
the State of New York, and for all purposes shall be construed in
accordance with the laws of said State without regard to conflict
of laws principles thereof.
SECTION 7.4
-----------
In case any one or more of the provisions contained in
this First Supplemental Indenture or in a series of Debentures
shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this
First Supplemental Indenture or of such series of the Debentures,
but this First Supplemental Indenture and such series of the
Debentures shall be construed as if such invalid or illegal or
unenforceable provision had never been contained herein or
therein.
This First Supplemental Indenture may be executed in
any number of counterparts each of which shall be an original;
but such counterparts shall together constitute but one and the
same instrument.
23
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have caused this
First Supplemental Indenture to be duly executed as of the day
and year first above written.
MERCANTILE BANCORPORATION INC.
By:
--------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Trustee
By:
--------------------------
Name:
Title:
24
<PAGE> 1
EXHIBIT NO. 21
MERCANTILE BANCORPORATION INC.
SUBSIDIARIES
AS OF FEBRUARY 20, 1997
<TABLE>
<CAPTION>
STATE OR
SUBSIDIARY JURISDICTION
---------- ------------
<S> <C>
Mercantile Insurance Services, Inc. Missouri
Supplemental Monetary Transfer System Missouri
Ameribanc, Inc. Missouri
Mercantile Bank of North Central Missouri Missouri
Mercantile Bank of Pike County Missouri
Mercantile Bank of Trenton Missouri
Mercantile Bank of Northwest Missouri Missouri
Mercantile Bank of Western Missouri Missouri
Mercantile Bank of Missouri Valley Missouri
Mercantile Trust Company National Association United States
Mercantile Bank of Memphis Missouri
Mercantile Bank of Kansas City Missouri
MBTC Services, Inc. Kansas
Mercantile Bank of Plattsburg Missouri
Mercantile Bank of Illinois Illinois
Metro Financial Service Corporation Inc. Illinois
Mercantile Bank of South Central Missouri Missouri
SoMo Investment Company, Inc. Missouri
South Central Investments Inc. Illinois
South Central Financial L.L.C. Illinois
Mercantile Bank of Central Missouri Missouri
Central Investments Inc. Illinois
Central Financial L.L.C. Illinois
Mercantile Bank of Southeast Missouri Missouri
Southeast Investments Inc. Illinois
Southeast Financial L.L.C. Illinois
Mercantile Bank of Joplin Missouri
Westmo Investments Inc. Illinois
Western Financial L.L.C. Illinois
Mercantile Bank of Topeka Kansas
Mercantile Financial of Topeka Inc. Kansas
<PAGE> 2
<S> <C>
Mercantile Bank of St. Joseph Missouri
Northern Investments Inc. Illinois
Northern Financial L.L.C. Illinois
Mercantile Bank (Kansas/Kansas City) Kansas
Kansas Trust Company Kansas
Kaw Valley Building Corporation, Inc. Kansas
Mercantile Financial of Kansas, Inc. Kansas
Mercantile Financial of Kansas L.L.C. Kansas
Mercantile Bank of Illinois National Association United States
Mercantile Bank of Southern Illinois Illinois
TODAY'S BANK-EAST Illinois
Today's Mortgage Source Inc. Illinois
Today's Financial Services Company Illinois
Today's Trust Company Illinois
Today's Capital Management Group Inc. Illinois
Mercantile Bank of Dubuque National Association United States
Mercantile Bank of Arkansas Arkansas
Security Service Corporation Arkansas
Mercantile Bank FSB United States
Shafer Farm Joint Venture Iowa
S&L Service Corporation Iowa
Mercantile Realty, Inc. Iowa
Mercantile Bank of Eastern Iowa Iowa
Waterloo Realty Company, Inc. Iowa
Mercantile Bank of Western Iowa Iowa
Western Iowa Realty Company, Inc. Iowa
Mercantile Leasing Corporation Iowa
Hawkeye Investment Center, Inc. Iowa
TODAY'S BANK-WEST Illinois
First National Bank of Salem United States
Financial Ideas, Inc. Missouri
MidAmerican Insurance Agency, Inc. Kansas
Mississippi Valley Life Insurance Company Arizona
Alton Downtown Parking, Inc. Illinois
D.D. Development of Sterling Limited Partnership Illinois
Mercantile Guaranteed Loans, Inc. Iowa
Mercantile Service Corp. Iowa
Mercantile Bank of Sterling/Rock Falls National Association United States
2
<PAGE> 3
<S> <C>
Mercantile Bank National Association (St. Louis) United States
Mercantile Community Development Corp. Missouri
Sangamon Investment Company Missouri
Mercantile Business Credit, Inc. Missouri
Mississippi Valley Advisors Inc. Missouri
Mercantile Investment Services, Inc. Missouri
Metropolitan Savings Service Corporation Missouri
Lending Express, L.P. Missouri
Mercantile Bank International Missouri
Mercantile Trade Services Limited Missouri
Manley Investment Services, Inc. Missouri
Mercantile Mortgage Investment Company, Inc. Missouri
Mercantile Center Associates Missouri
Mercantile Center Redevelopment Corp. Missouri
</TABLE>
3
<PAGE> 1
Independent Auditors' Consent
-----------------------------
The Board of Directors
Mercantile Bancorporation Inc.:
We consent to the incorporation by reference in the Registration Statements
No. 2-78395, No. 33-15265, No. 33-33870, No. 33-35139, No. 33-43694,
No. 33-48952, and No. 33-57543, each on Form S-8, and No. 33-45863,
No. 33-52986, No. 33-50579, No. 33-50981, No. 33-55439, No. 33-56603,
No. 33-58467, No. 33-63609, No. 33-65087, No. 333-09803, and No. 333-17757,
each on Form S-4, of Mercantile Bancorporation Inc. of our report dated
January 15, 1997, relating to the consolidated balance sheets of Mercantile
Bancorporation Inc. and subsidiaries as of December 31, 1996, 1995, and 1994,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996, which report appears in the Annual Report on Form 10-K
of Mercantile Bancorporation Inc. for the fiscal year ended December 31, 1996.
/s/ KPMG Peat Marwick LLP
- --------------------------
KPMG Peat Marwick LLP
St. Louis, Missouri
February 20, 1997
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0
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