<PAGE> 1
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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1998 COMMISSION FILE NUMBER 1-11792
MERCANTILE BANCORPORATION INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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) 418-2525
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
X
----- -----
YES NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
COMMON STOCK, $.01 PAR VALUE, 151,983,848 SHARES OUTSTANDING AS OF THE CLOSE OF
BUSINESS ON JULY 31, 1998.
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<PAGE> 2
<TABLE>
INDEX
PART I--FINANCIAL INFORMATION
<CAPTION>
PAGE NO.
--------
<S> <C>
Item 1--Financial Statements
Consolidated Statement of Income
Three months and six months ended June 30, 1998 and 1997 3
Consolidated Balance Sheet
June 30, 1998 and 1997, and December 31, 1997 4
Consolidated Statement of Changes in Shareholders' Equity
Six months ended June 30, 1998 and 1997 5
Consolidated Statement of Cash Flows
Six months ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2--Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3--Quantitative and Qualitative Disclosures Regarding Market Risk
There have been no material changes from the information provided
in the December 31, 1997 Form 10-K.
PART II--OTHER INFORMATION
Item 6--Exhibits and Reports on Form 8-K 26
Signature 27
Exhibit Index 28
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $397,521 $331,688 $ 791,640 $652,959
Investments in debt and equity securities
Trading 2,839 1,636 4,899 2,800
Taxable 129,035 67,185 252,642 133,949
Tax-exempt 4,413 5,164 8,970 10,518
-------- -------- ---------- --------
Total Investments in Debt and Equity
Securities 136,287 73,985 266,511 147,267
Due from banks--interest bearing 3,244 1,800 6,130 3,036
Federal funds sold and repurchase agreements 4,072 3,690 7,174 6,363
-------- -------- ---------- --------
Total Interest Income 541,124 411,163 1,071,455 809,625
INTEREST EXPENSE
Interest bearing deposits 204,191 148,875 407,083 297,920
Foreign deposits 6,241 6,722 13,858 11,439
Short-term borrowings 45,167 27,888 94,712 50,760
Bank notes 368 2,633 2,691 5,173
Long-term debt and mandatorily redeemable
preferred securities 42,550 9,482 70,199 16,809
-------- -------- ---------- --------
Total Interest Expense 298,517 195,600 588,543 382,101
-------- -------- ---------- --------
NET INTEREST INCOME 242,607 215,563 482,912 427,524
PROVISION FOR POSSIBLE LOAN LOSSES<F*> 6,402 27,695 13,008 46,138
-------- -------- ---------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 236,205 187,868 469,904 381,386
OTHER INCOME
Trust 26,543 24,022 52,429 46,823
Service charges 26,448 22,591 52,024 45,389
Investment banking and brokerage 8,969 7,760 19,115 15,742
Mortgage banking 7,363 2,728 12,282 5,506
Gain on sale of mortgage servicing rights -- -- 23,155 --
Credit card fees 2,341 5,373 5,625 10,772
Securitization revenue 4,520 4,725 9,043 12,017
Securities gains 2,816 1,818 7,079 2,867
Miscellaneous 25,537 18,910 50,978 36,911
-------- -------- ---------- --------
Total Other Income 104,537 87,927 231,730 176,027
OTHER EXPENSE
Salaries 92,799 80,599 184,437 158,739
Employee benefits 15,452 17,653 35,389 37,235
Net occupancy 14,307 12,434 28,788 25,146
Equipment 19,483 15,005 38,657 28,821
Intangible asset amortization 13,851 4,603 27,835 8,982
Miscellaneous<F*> 45,488 90,181 83,138 127,147
-------- -------- ---------- --------
Total Other Expense 201,380 220,475 398,244 386,070
-------- -------- ---------- --------
INCOME BEFORE INCOME TAXES 139,362 55,320 303,390 171,343
INCOME TAXES<F*> 44,352 23,141 104,488 64,169
-------- -------- ---------- --------
NET INCOME $ 95,010 $ 32,179 $ 198,902 $107,174
======== ======== ========== ========
PER SHARE DATA
Basic earnings per share $.71 $.29 $1.50 $.94
Diluted earnings per share .70 .28 1.47 .93
Dividends declared .31 .287 .62 .574
<FN>
<F*> Includes the following nonrecurring amounts:
Provision for possible loan losses $ -- $ 6,540 $ -- $ 6,540
Miscellaneous expense -- 51,863 -- 51,863
Income tax benefit -- (15,977) -- (15,977)
-------- -------- ---------- --------
Impact on Net Income $ -- $(42,426) $ -- $(42,426)
======== ======== ========== ========
</TABLE>
3
<PAGE> 4
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(THOUSANDS)
<CAPTION>
JUNE 30 JUNE 30
1998 DEC. 31 1997
(UNAUDITED) 1997 (UNAUDITED)
----------- ------- -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,325,038 $ 1,171,727 $ 1,053,338
Due from banks--interest bearing 223,423 240,578 180,445
Federal funds sold and repurchase agreements 242,552 292,384 420,988
Investments in debt and equity securities
Trading 124,828 70,486 73,429
Available-for-sale (Amortized cost of $8,071,629,
$7,192,818, and $4,327,370, respectively) 8,114,546 7,225,638 4,336,067
Held-to-maturity (Estimated fair value of
$171,320, $252,135 and $305,797, respectively) 169,273 249,434 303,214
----------- ----------- -----------
Total Investments in Debt and Equity Securities 8,408,647 7,545,558 4,712,710
Loans held-for-sale 186,562 85,790 59,457
Loans and leases, net of unearned income 19,463,984 19,114,127 15,361,854
----------- ----------- -----------
Total Loans and Leases 19,650,546 19,199,917 15,421,311
Reserve for possible loan losses (263,356) (254,983) (234,684)
----------- ----------- -----------
Net Loans and Leases 19,387,190 18,944,934 15,186,627
Bank premises and equipment 473,893 464,683 388,524
Intangible assets 779,439 807,666 193,120
Other assets 594,984 487,881 443,857
----------- ----------- -----------
Total Assets $31,435,166 $29,955,411 $22,579,609
=========== =========== ===========
LIABILITIES
Deposits
Non-interest bearing $ 3,540,248 $ 3,586,011 $ 3,105,751
Interest bearing 18,010,896 17,908,477 13,577,786
Foreign 328,641 585,439 270,908
----------- ----------- -----------
Total Deposits 21,879,785 22,079,927 16,954,445
Federal funds purchased and repurchase agreements 1,727,033 1,991,289 2,057,710
Other short-term borrowings 1,482,757 1,474,533 391,816
Bank notes 25,000 175,000 175,000
Long-term Federal Home Loan Bank advances 2,478,374 539,491 16,321
Other long-term debt 779,501 779,662 779,728
Company-obligated mandatorily redeemable preferred
securities of Mercantile Capital Trust I 150,000 150,000 150,000
Other liabilities 370,656 355,340 294,337
----------- ----------- -----------
Total Liabilities 28,893,106 27,545,242 20,819,357
Commitments and contingent liabilities -- -- --
<CAPTION>
JUNE 30 DEC. 31 JUNE 30
1998 1997 1997
------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY
Preferred stock--no par value
Shares authorized 5,000 5,000 5,000
Shares issued and outstanding -- -- -- -- -- --
Common stock--$.01 par value
Shares authorized 400,000 200,000 200,000
Shares issued 135,221 130,670 117,885 1,352 1,307 1,179
Capital surplus 993,635 940,197 582,567
Retained earnings 1,615,461 1,451,455 1,428,844
Accumulated other comprehensive income 29,966 23,215 7,797
Treasury stock, at cost 1,791 162 6,821 (98,354) (6,005) (260,135)
----------- ----------- -----------
Total Shareholders' Equity 2,542,060 2,410,169 1,760,252
----------- ----------- -----------
Total Liabilities and Shareholders' Equity $31,435,166 $29,955,411 $22,579,609
=========== =========== ===========
</TABLE>
4
<PAGE> 5
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
($ IN THOUSANDS)
<CAPTION>
COMMON STOCK
----------------------- TOTAL
OUTSTANDING CAPITAL RETAINED TREASURY SHAREHOLDERS'
SHARES DOLLARS SURPLUS EARNINGS<F*> STOCK EQUITY
----------- --------- ------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 116,229,704 $ 594,107 $ 34,956 $1,400,789 $ (84,201) $1,945,651
Net income 107,174 107,174
Common dividends declared:
Mercantile Bancorporation Inc.--$.574 per share (57,738) (57,738)
Pooled company prior to acquisition (12,812) (12,812)
Issuance of common stock in acquisition
of Regional Bancshares, Inc. 900,625 (474) 361 28,813 28,700
Change in par value of common stock from $5.00 per
share to $.01 per share (587,016) 587,016 --
Issuance of common stock for:
Employee incentive plans 369,993 388 2,157 3,387 5,932
Convertible notes 73,408 22 794 816
Other comprehensive income (1,411) (1,411)
Purchase of treasury stock (6,724,699) (259,050) (259,050)
Reissuance and retirement of treasury stock (7,396) (42,950) 50,346 --
Pre-merger transactions of pooled company
and other 214,484 1,074 1,068 278 570 2,990
----------- --------- -------- ---------- --------- ----------
BALANCE AT JUNE 30, 1997 111,063,515 $ 1,179 $582,567 $1,436,641 $(260,135) $1,760,252
=========== ========= ======== ========== ========= ==========
BALANCE AT DECEMBER 31, 1997 130,508,090 $ 1,307 $940,197 $1,474,670 $ (6,005) $2,410,169
Net income 198,902 198,902
Common dividends declared:
Mercantile Bancorporation Inc.--$.62 per share (83,094) (83,094)
Issuance of common stock in acquisition of:
HomeCorp, Inc. 854,760 9 6,727 13,792 20,528
Horizon Bancorp, Inc. 2,549,970 25 10,755 35,615 357 46,752
Issuance of common stock for:
Employee incentive plans 1,281,512 10 35,808 5,746 41,564
Convertible notes 13,380 1 148 149
Other comprehensive income 5,542 5,542
Purchase of treasury stock (1,778,125) (98,452) (98,452)
----------- --------- -------- ---------- --------- ----------
BALANCE AT JUNE 30, 1998 133,429,587 $ 1,352 $993,635 $1,645,427 $ (98,354) $2,542,060
=========== ========= ======== ========== ========= ==========
<FN>
<F*>Includes accumulated other comprehensive income.
</TABLE>
5
<PAGE> 6
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(THOUSANDS)
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1998 1997
---- ---
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 198,902 $ 107,174
Adjustments to reconcile net income to net cash provided by operating activities
Provision for possible loan losses 13,008 46,138
Depreciation and amortization 32,955 24,856
Provision for deferred income taxes (credits) (4,251) (4,157)
Net change in loans held-for-sale (94,698) 6,916
Net change in trading securities 4,287 (24,571)
Net change in accrued interest receivable 627 (6,983)
Net change in accrued interest payable (566) 741
Other, net (75,195) (21,205)
----------- -----------
Net Cash Provided by Operating Activities 75,069 128,909
INVESTING ACTIVITIES
Investments in debt and equity securities, other than trading securities
Purchases (3,246,950) (1,072,164)
Proceeds from maturities 1,540,705 968,083
Proceeds from sales of available-for-sale securities 1,103,999 324,100
Net change in loans and leases (29,950) (531,741)
Purchases of loans and leases (175,230) (98,135)
Proceeds from sale of mortgage servicing rights 26,330 --
Proceeds from sales of loans and leases 405,146 101,241
Purchases of premises and equipment (43,131) (43,803)
Proceeds from sales of premises and equipment 12,450 2,323
Proceeds from sales of foreclosed property 20,519 21,101
Cash and cash equivalents from acquisitions, net of cash paid 34,448 (8,132)
Sale of banking offices, net of cash paid (3,524) --
Other, net 11,741 1,806
----------- -----------
Net Cash Used by Investing Activities (343,447) (335,321)
FINANCING ACTIVITIES
Net change in non-interest bearing, savings, interest bearing demand and
money market deposit accounts (72,048) (115,082)
Net change in time certificates of deposit under $100,000 (555,990) (249,982)
Net change in time certificates of deposit $100,000 and over (69,548) (97,923)
Net change in other time deposits 5,560 (73,995)
Net change in foreign deposits (256,798) 19,021
Net change in short-term borrowings (297,379) 411,607
Issuance of bank notes -- --
Principal payments on bank notes (150,000) --
Issuance of long-term FHLB advances and other long-term debt 1,916,500 500,000
Issuance of company-obligated mandatorily
redeemable preferred securities -- 150,000
Principal payments on long-term debt (256) (7,966)
Cash dividends paid (80,746) (70,550)
Proceeds from issuance of common stock from employee incentive plans 13,859 8,936
Purchase of treasury stock (98,452) (270,086)
Other, net -- (801)
----------- -----------
Net Cash Provided by Financing Activities 354,702 203,179
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 86,324 (3,233)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,704,689 1,658,004
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,791,013 $ 1,654,771
=========== ===========
</TABLE>
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
ACCOUNTING POLICIES
The consolidated financial statements include all adjustments which are, in the
opinion of management, necessary for the fair statement of the results of these
periods and are of a normal recurring nature.
NOTE B
NEW ACCOUNTING STANDARDS
Financial Accounting Standard ("FAS") 128, "Earnings per Share," was issued
in February 1997. This statement, effective in the fourth quarter of 1997,
requires additional reporting of earnings per share which gives effect to
dilutive common share equivalents such as stock options or convertible notes.
The Corporation's disclosure under FAS 128 is included in Note C to the
Consolidated Financial Statements.
FAS 130, "Reporting Comprehensive Income," was issued in June 1997.
Comprehensive income is defined as net income plus certain items that are
recorded directly to shareholders' equity, such as unrealized gains and losses
on available-for-sale securities. Components of the Corporation's comprehensive
income are included in Note E.
FAS 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for financial statements for periods beginning
after December 15, 1997, but interim period reporting is not required in 1998.
An operating segment is defined under FAS 131 as a component of an enterprise
that engages in business activities that generate revenue and expense for which
operating results are reviewed by the chief operating decision maker in the
determination of resource allocation and performance. Mercantile is currently
evaluating the impact of FAS 131 on future financial statement disclosures.
FAS 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," addresses disclosure of such benefit plans and is effective for
fiscal years beginning after December 31, 1997 (i.e., in the Corporation's 1998
Annual Report). The Corporation does not anticipate a significant impact when
making these new disclosures.
FAS 133, "Accounting for Derivative Instruments and Hedging Activities,"
which was issued in June 1998, establishes accounting and reporting standards
for derivative instruments and hedging activities. Under FAS 133, derivatives
are recognized on the balance sheet at fair value as an asset or liability.
Changes in the fair value of derivatives are reported as a component of other
comprehensive income or recognized as earnings through the income statement
depending on the nature of the instrument. FAS 133 is effective for all
quarters of fiscal years beginning after June 15, 1999 with earlier adoption
permitted. The Corporation is currently evaluating FAS 133's effect.
NOTE C
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted
average number of common shares outstanding during the period.
Diluted earnings per share gives effect to both the increase in the average
shares outstanding that would have resulted from both the exercise of dilutive
stock options and the conversion of the entire balance of outstanding
convertible notes. Net income is increased in the diluted earnings per share
computation by interest expense that would not be incurred on notes if
7
<PAGE> 8
they converted, net of taxes. The components of basic and diluted earnings per
share as prescribed by FAS 128, "Earnings per Share," are as follows:
<TABLE>
<CAPTION>
(THOUSANDS EXCEPT PER SHARE DATA)
SECOND QUARTER SIX MONTHS
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC
Net income $95,010 $32,179 $198,902 $107,174
Weighted average shares outstanding 133,270,514 112,054,583 133,025,833 113,450,600
BASIC EARNINGS PER SHARE $.71 $.29 $1.50 $.94
DILUTED
Net income $95,010 $32,179 $198,902 $107,174
Interest on convertible notes, net
of taxes 11 31 23 55
------- ------- -------- --------
Diluted Net Income $95,021 $32,210 $198,925 $107,229
======= ======= ======== ========
Weighted average common shares
outstanding 133,270,514 112,054,583 133,025,833 113,450,600
Employee incentive plans 2,205,436 1,920,240 2,345,551 1,857,260
Convertible notes 93,715 152,242 95,893 166,262
----------- ----------- ----------- -----------
Diluted Average Shares
Outstanding 135,569,665 114,127,065 135,467,277 115,474,122
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE $.70 $.28 $1.47 $.93
</TABLE>
All per share amounts and average shares outstanding have been restated to give
effect to a three-for-two stock split distributed on October 1, 1997. Per share
data for 1997 gives effect to the computational and reporting requirements of
FAS 128.
NOTE D
ACQUISITIONS
On July 1, 1997, the Corporation acquired Roosevelt Financial Group, Inc.
("Roosevelt"), a $7.3 billion-asset thrift holding company headquartered in
St. Louis, Missouri. The Roosevelt acquisition was accounted for as a purchase.
Unaudited pro forma combined consolidated financial data including the
Corporation and Roosevelt as of or for the six months ending June 30, 1997 is
disclosed 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 consideration; and 2) interest on
$650 million of senior debt, subordinated debt and redeemable preferred
securities issued in 1997 largely to finance the Roosevelt acquisition, offset
by interest earned on funds not utilized in the acquisition.
<TABLE>
<CAPTION>
(THOUSANDS EXCEPT PER SHARE DATA)
AS OF OR FOR THE SIX MONTHS ENDED
JUNE 30
1997
---------------------------------
<S> <C>
Total assets $29,961,999
Net interest income 505,162
Other income 163,453
Net income 77,261
Basic earnings per share .58
</TABLE>
On July 1, 1998, the Corporation consummated acquisitions with CBT Corporation
("CBT") of Paducah, Kentucky, and Firstbank of Illinois Co. ("Firstbank"),
headquartered in Springfield, Illinois. The CBT and Firstbank acquisitions will
be
8
<PAGE> 9
accounted for under the pooling-of-interests method. Unaudited pro forma
combined consolidated financial data including the Corporation, CBT and
Firstbank for the six months ending June 30, 1998 and 1997 is listed below:
<TABLE>
<CAPTION>
(THOUSANDS EXCEPT PER SHARE DATA)
AS OF OR FOR THE SIX MONTHS ENDED
JUNE 30
1998 1997
---- ----
<S> <C> <C>
Total assets $34,744,910 $25,626,807
Net interest income 548,023 488,808
Other income 251,702 192,779
Net income 222,006 128,067
Basic earnings per share 1.47 .97
</TABLE>
On August 3, 1998, the Corporation consummated its acquisition of
Financial Services Corporation of the Midwest, headquartered in Rock Island,
Illinois. Mercantile has announced plans to merge with Iowa City based First
Financial Bancorporation; this acquisition is expected to close in the third
quarter of 1998. Both acquisitions are to be accounted for as poolings-of-
interests.
NOTE E
COMPREHENSIVE INCOME
Comprehensive income as defined by FAS 130 is as follows:
<TABLE>
<CAPTION>
(THOUSANDS)
SECOND QUARTER SIX MONTHS
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $95,010 $32,179 $198,902 $107,174
Other comprehensive income, net of
tax:
Holding gains on available-for-
sale securities 913 11,583 10,143 453
Less: Reclassification adjustment
for securities gains included
in net income above (1,830) (1,182) (4,601) (1,864)
------- ------- -------- --------
Other Comprehensive Income (917) 10,401 5,542 (1,411)
------- ------- -------- --------
COMPREHENSIVE INCOME $94,093 $42,580 $204,444 $105,763
======= ======= ======== ========
</TABLE>
NOTE F
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF MERCANTILE
CAPITAL TRUST I
Mercantile Capital Trust I is a subsidiary of which the Corporation owns
all the outstanding common securities; its sole assets are the $150,000,000 in
mandatorily redeemable preferred securities, and considered together, the
back-up undertakings constitute a full and unconditional guarantee by the
Corporation of the trust's obligations under the preferred securities.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 1
HIGHLIGHTS
<CAPTION>
SECOND QUARTER SIX MONTHS
($ IN THOUSANDS EXCEPT PER SHARE DATA) 1998 1997 CHANGE 1998 1997 CHANGE
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Diluted earnings per share $.70 $.28 --% $1.47 $.93 58.1%
Basic earnings per share .71 .29 -- 1.50 .94 59.6
Dividends declared .31 .287 8.0 .62 .574 8.0
Book value at June 30 19.05 15.85 20.2 19.05 15.85 20.2
Market price at June 30 50 3/8 40 1/2 24.4 50 3/8 40 1/2 24.4
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS AND SELECTED RATIOS
EXCLUDING NONRECURRING EXPENSE<F1>
Adjusted net income $95,010 $74,605 27.4% $198,902 $149,600 33.0%
Adjusted diluted earnings per share .70 .65 7.7 1.47 1.30 13.1
Adjusted basic earnings per share .71 .67 6.0 1.50 1.32 13.6
Return on assets 1.20% 1.33% 1.28% 1.36%
Return on equity 15.10 16.38 15.83 16.00
Efficiency ratio 57.45 54.83 55.20 54.66
Other expense to average assets 2.55 3.02 2.56 3.03
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS<F2>
Taxable-equivalent net interest income $245,973 $219,577 12.0% $489,679 $435,395 12.5%
Tax-equivalent adjustment 3,366 4,014 (16.1) 6,767 7,871 (14.0)
Net interest income 242,607 215,563 12.5 482,912 427,524 13.0
Provision for possible loan losses 6,402 27,695 (76.9) 13,008 46,138 (71.8)
Other income 104,537 87,927 18.9 231,730 176,027 31.6
Other expense 201,380 220,475 (8.7) 398,244 386,070 3.2
Income taxes<F3> 44,352 23,141 91.7 104,488 64,169 62.8
Net income 95,010 32,179 -- 198,902 107,174 85.6
- -----------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS AND DATA<F2>
Return on assets 1.20% .58% 1.28% .97%
Return on equity 15.10 7.07 15.83 11.46
Efficiency ratio 57.45 71.70 55.20 63.14
Other expense to average assets 2.55 3.94 2.56 3.50
Net interest rate margin 3.45 4.30 3.49 4.33
Tangible equity to tangible assets 5.75 7.00
Equity to assets 8.09 7.80
Tier I capital to risk-adjusted assets 9.00 10.38
Total capital to risk-adjusted assets 12.06 14.19
Leverage 6.28 7.80
Reserve for possible loan losses to outstanding
loans 1.34 1.52
Reserve for possible loan losses to non-performing
loans 237.74 285.57
Non-performing loans to outstanding loans .56 .53
Banks 17 28
Banking offices 555 513
Full-time equivalent employees 9,752 8,718
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Total assets $31,598,485 $22,369,177 41.3% $31,151,487 $22,066,686 41.2%
Earning assets 28,601,502 20,476,699 39.7 28,258,922 20,275,964 39.4
Loans and leases 19,679,913 15,288,972 28.7 19,556,730 15,141,515 29.2
Deposits 22,433,156 17,460,544 28.5 22,310,179 17,306,659 28.9
Shareholders' equity 2,517,486 1,821,411 38.2 2,513,116 1,870,271 34.4
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Nonrecurring expense reduced net income in the second quarter and
first six months of 1997 by $42,426,000.
<F2> Includes nonrecurring expense noted in (1) above.
<F3> Earnings in the second quarter of 1998 benefited from a lower effective
tax rate of 31.83% as a result of the implementation of business
strategies including the realignment of corporate entities.
</TABLE>
- -------------------------------------------------------------------------------
10
<PAGE> 11
PERFORMANCE SUMMARY
Net income for Mercantile Bancorporation Inc. ("Mercantile" or
"Corporation") was $95,010,000 in the second quarter of 1998 versus
$32,179,000 in the same period of 1997. Basic earnings per share was $.71
compared with $.29 in the second quarter of 1997 and diluted earnings per
share was $.70 compared with $.28 in the second quarter of 1997. Net income
for the six months ended June 30, 1998 was $198,902,000 compared with
$107,174,000 last year.
<TABLE>
----------------------------------------------------------------------------
EXHIBIT 2
ADJUSTED RESULTS
<CAPTION>
DILUTED
NET INCOME EARNINGS RETURN ON
(THOUSANDS) PER SHARE ASSETS
----------- --------- ---------
<S> <C> <C> <C>
SECOND QUARTER ENDED
JUNE 30, 1997:
Reported $ 32,179 $ .28 .58%
Nonrecurring
acquisition expense 42,426 .37 .75
-------- ----- ----
Adjusted $ 74,605 $ .65 1.33%
======== ===== ====
SIX MONTHS ENDED
JUNE 30, 1997:
Reported $107,174 $ .93 .97%
Nonrecurring
acquisition expense 42,426 .37 .39
-------- ----- ----
Adjusted $149,600 $1.30 1.36%
======== ===== ====
----------------------------------------------------------------------------
</TABLE>
The comparison of operating results from 1997 to 1998 is significantly
affected by several factors. First, $42,426,000 of nonrecurring acquisition
costs were recorded in the second quarter of 1997. Exhibit 2 presents 1997
results adjusted to exclude such nonrecurring expense, and as shown,
year-to-date net income for 1998 was $49,302,000 or 33.0% higher than the
adjusted amount in 1997. Second, Mercantile acquired Roosevelt Financial
Group, Inc. ("Roosevelt") on July 1, 1997 in a transaction accounted for
as a purchase. Thus, historical financial statements were not restated and
Roosevelt's results of operations are included with Mercantile's only from
July 1, 1997 forward. On November 14, 1997, the assets and liabilities of
Roosevelt Bank were merged into Mercantile subsidiary banks based on
geographic area, which also makes the year-over-year comparison more
difficult. Finally, the Corporation recorded a $23,155,000 pre-tax gain on
the sale of mortgage servicing rights in the first quarter of 1998. This
gain increased 1998 year-to-date diluted earnings per share by $.11.
The Corporation believes it is significant to disclose cash based earnings,
which exclude intangible asset amortization, because it is more indicative
of cash flows, and thus, the Corporation's ability to support growth and pay
dividends. Mercantile added $608 million of goodwill to its balance sheet in
conjunction with the purchase of Roosevelt on July 1, 1997. Goodwill
amortization for the first six months of 1998 was $26,666,000 compared with
$6,173,000 for the same 1997 period. Second quarter 1998 cash based diluted
earnings per share was $.80, up 15.9% from the $.69 earned in 1997. See
Exhibit 3 for other cash based performance ratios and the related favorable
comparisons to 1997.
<TABLE>
--------------------------------------------------------------------------------------------------------------------
EXHIBIT 3
CASH BASED EARNINGS
($ IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
SECOND QUARTER SIX MONTHS
1998 1997 CHANGE 1998 1997 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Adjusted Net Income $ 95,010 $74,605 27.4% $198,902 $149,600 33.0%
Add Back:
Goodwill amortization 13,280 3,208 -- 26,666 6,173 --
Other intangible asset amortization 571 1,395 (59.1) 1,169 2,809 (58.4)
-------- ------- -------- --------
Total Intangible Asset Amortization 13,851 4,603 -- 27,835 8,982 --
Less:
Tax effect (211) (426) (50.5) (425) (922) (53.9)
-------- ------- -------- --------
CASH BASED ADJUSTED NET INCOME $108,650 $78,782 37.9 $226,312 $157,660 43.5
======== ======= ======== ========
CASH BASED ADJUSTED DILUTED EARNINGS PER SHARE $.80 $.69 15.9 $1.67 $1.37 21.9
CASH BASED ADJUSTED PERFORMANCE RATIOS
Return on tangible assets 1.41% 1.42% 1.49% 1.44%
Return on tangible equity 25.13 19.36 26.33 18.78
Efficiency ratio 53.50 53.34 51.35 53.19
Other expense to average tangible assets 2.43 2.96 2.44 2.97
--------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
Exhibit 4 details acquisitions completed during 1997 and 1998 as well as
pending acquisitions. On July 1, 1998, Mercantile completed the acquisitions
of CBT Corporation ("CBT") of Paducah, Kentucky, a bank holding company
with assets totaling $1.0 billion, and Firstbank of Illinois Co.
("Firstbank"), a $2.3 billion asset bank holding company headquartered in
Springfield, Illinois. These two acquisitions will be accounted for under
the pooling-of-interests method of accounting. Firstbank is in the process
of divesting of its two Missouri banks due to state restrictions on deposit
concentration. These banks had total assets of approximately $300 million.
An after-tax gain of approximately $28,000,000 ($.18 per share) will be
recorded in the third quarter in connection with these divestitures.
Additionally, the Corporation expects to record one-time charges in the
third quarter of 1998 related to both the CBT and Firstbank acquisitions that
will reduce pre-tax income between $61,000,000 and $65,000,000 when finally
quantified. Total nonrecurring merger-related charges for all 1998 completed
and pending acquisitions, including those for CBT and Firstbank, are
estimated to reduce pre-tax income in the range between $100,000,000 and
$110,000,000.
On August 3, 1998, Mercantile acquired Financial Services Corporation of the
Midwest, a $514 million one-bank holding company headquartered in Rock
Island, Illinois. The company's subsidiary bank, The Rock Island Bank, N.A.
has the number one market share position in Rock Island County, which forms
the eastern half of the Quad Cities metropolitan area. On May 8, 1998, the
Corporation announced plans to merge with First Financial Bancorporation
headquartered in Iowa City, Iowa. First Financial is the $524 million
one-bank holding company for First National Bank Iowa, which operates in ten
locations in the Iowa City / Cedar Rapids corridor. The merger with First
Financial Bancorporation is expected to close in the third quarter of 1998.
These acquisitions meet the requirements for treatments as poolings-of-
interests; however, due to the immateriality of their financial condition
and results of operations to that of Mercantile, the historical financial
statements of the Corporation will not be restated.
<TABLE>
---------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 4
ACQUISITIONS
($ IN THOUSANDS)
<CAPTION>
CONSIDERATION
--------------------
GROSS ACCOUNTING
DATE ASSETS DEPOSITS CASH SHARES METHOD
---- ------ -------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
BANK ACQUISITIONS COMPLETED
HomeCorp, Inc. Mar. 2, 1998 $ 335,137 $ 309,157 $ 14 854,760 Pooling<F1>
Horizon Bancorp, Inc. Feb. 2, 1998 536,507 454,230 2 2,549,970 Pooling<F1>
Roosevelt Financial Group, Inc. July 1, 1997 7,251,985 5,317,514 374,477 18,948,884 Purchase
Mark Twain Bancshares, Inc. Apr. 25, 1997 3,227,972 2,519,474 73 24,088,713 Pooling
Regional Bancshares, Inc. Mar. 5, 1997 171,979 135,954 12,300 900,625 Purchase
BANK ACQUISITIONS PENDING AT JUNE 30, 1998
CBT Corporation July 1, 1998 1,006,384 695,923 34 5,123,214 Pooling
Firstbank of Illinois Co. July 1, 1998 2,285,146 1,969,600 64 13,352,641 Pooling
Financial Services Corporation of the Midwest Aug. 3, 1998 514,377 407,523 -- 2,077,000<F2> Pooling
First Financial Bancorporation 3rd Qtr. 1998 523,660 439,927 -- 3,194,844<F2> Pooling
NONBANK ACQUISITION PENDING AT JUNE 30, 1998
Bruno, Stolze & Company, Inc. 3rd Qtr. 1998 <F3> <F3> Purchase
<FN>
<F1> The Corporation's historical financial statements were not restated for
the acquisition due to the immateriality of the acquiree's financial
condition and results of operations to those of Mercantile.
<F2> Estimated number of shares to be issued in acquisition.
<F3> Terms of the transaction are not being disclosed.
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On June 18, 1998, Mercantile announced plans to acquire St. Louis based
Bruno Stolze & Company, Inc., accelerating expansion into the fast-growing
discount brokerage business. This acquisition, which is expected to close in
the third quarter of 1998, will give Mercantile more critical mass needed to
compete in this market niche.
Net interest income increased 12.5% to $242,607,000 for the second quarter
of 1998 and was up 13.0% to $482,912,000 for the first six months of 1998.
The net interest rate margin was 3.45% this quarter compared with 3.54% in
the first quarter
12
<PAGE> 13
and 4.30% for the second quarter of 1997, while the year-to-date margin was
3.49% compared with 4.33% last year. The third quarter 1997 acquisition of
Roosevelt, competitive pricing for both loans and deposits, mortgage asset
refinancings and prepayments, the flat yield curve, and the divestiture of
selected credit card portfolios significantly impacted the Corporation's mix
of earning assets and costing sources of funds, and thus lowered the rate
margin. Average earning assets for the first half of 1998 of $28.3 billion
were 39.4% higher than the $20.3 billion reported last year, as average loan
volume increased by 29.2%. Roosevelt increased 1998 average earning assets
and loans by approximately $6.8 billion and $4.2 billion, respectively.
For the first six months of 1998, other income was $231,730,000, an increase
of $55,703,000 or 31.6% from last year. The first quarter of 1998 was
favorably influenced by the $23,155,000 pre-tax gain on the sale of mortgage
servicing rights as well as gains on the sales of Roosevelt's credit card
portfolio and Mark Twain Bancshares, Inc. ("Mark Twain") corporate trust,
both identified as non-strategic businesses. Fee growth in core businesses,
the impact of the Roosevelt acquisition on service charges and mortgage
banking revenue, and growth in syndication fees, leasing, insurance
commissions and debit card fees accounted for the remainder of the increase.
Second quarter non-interest expenses were $201,380,000 compared with the
adjusted figure of $168,612,000 last year, an increase of 19.4%. Excluding
the 1997 one-time adjustments, year-to-date operating expenses were up by
19.2%, due largely to the inclusion of Roosevelt in 1998.
The provision for possible loan losses for the second quarter of 1998 was
$6,402,000 compared with $27,695,000 the prior year, and was $13,008,000 for
the first six months of 1998 compared with $46,138,000 in 1997. The
provision in 1997 included $6,540,000 in acquisition-related expense. Net
charge-offs for the first six months of 1998 and 1997 were $12,474,000 and
$43,441,000, respectively, and on an annualized basis were .13% of average
loans compared with .57% last year. The lower provision and charge-offs were
due to an overall improvement in credit quality as well as the decrease in
average credit card loans, which was caused by the sale of non-strategic
credit card receivables in the third quarter of 1997 and the first quarter
of 1998. At June 30, 1998, the reserve for possible loan losses was
$263,356,000 and provided coverage of 237.74% of non-performing loans
compared with 249.51% at year-end and 285.57% last June 30.
Non-performing loans (i.e., non-accrual and renegotiated loans) as of June
30, 1998 were $110,775,000 or .56% of total loans compared with $113,884,000
or .58% at March 31, 1998 and $82,182,000 or .53% at June 30, 1997.
Foreclosed assets totaled $20,179,000 at June 30, 1998 compared with
$19,723,000 at March 31, 1998 and $13,497,000 last June 30.
Consolidated assets of $31.4 billion were up 39.2% from a year ago. On a pro
forma basis after all announced acquisitions are closed, consolidated assets
of Mercantile will approximate $35 billion. Total deposits increased by
29.1% to $21.9 billion, loans were $19.7 billion, up 27.4% from last year,
and shareholders' equity of $2.5 billion was 44.4% higher than at June 30,
1997. All measures of capital adequacy remained adequate. Tier I capital to
risk-adjusted assets was 9.00% while total capital to risk-adjusted assets
at June 30, 1998 was 12.06%, both improved from March 31, 1998.
The following financial commentary presents a more thorough discussion and
analysis of the results of operations and financial position of the
Corporation for the first half and second quarter of 1998.
NET INTEREST INCOME
Net interest income for the second quarter of 1998 was $242,607,000, a 12.5%
increase from the $215,563,000 earned last year, and for the first six
months of 1998 was $482,912,000 or 13.0% higher than last year. For the
quarter, the net interest rate margin was 3.45% compared with 4.30% last
year, and the year-to-date margin was 3.49% compared with 4.33% last year.
The acquisition of Roosevelt caused a significant shift in the mix of
earning assets and funding sources. These shifts, combined with the cost of
debt issued to acquire Roosevelt and the sale of the former co-branded
credit card portfolio, resulted in an estimated 60-basis-point decline in the
net interest rate margin during the second half of 1997. The second quarter
and year-to-date 1998 net interest rate margins further dropped due to
competitive pressures on both deposit and
13
<PAGE> 14
loan pricing, accelerated mortgage asset prepayments and refinancings,
the flat yield curve, and the divestiture of selected portions of the
Corporation's credit card portfolio.
<TABLE>
----------------------------------------------------------------------------
EXHIBIT 5
LOANS AND LEASES
($ IN MILLIONS)
<CAPTION>
JUNE 30
1998 1997 CHANGE
---- ---- ------
<S> <C> <C> <C>
Commercial $ 5,094 $ 4,479 13.7%
Real estate--commercial 3,109 2,878 8.0
Real estate--construction 737 661 11.5
Real estate--residential
mortgage 7,894 4,419 78.6
Real estate--home equity
credit loans 470 393 19.5
Consumer 2,227 1,921 15.9
Credit card loans managed 520 1,070 (51.4)
Securitized credit card loans (400) (400) --
------- -------
Total Loans and Leases $19,651 $15,421 27.4
======= =======
----------------------------------------------------------------------------
</TABLE>
Average earning assets for the first six months of 1998 grew by $8.0 billion
or 39.4% when compared with 1997, and average loans grew by $4.4 billion or
29.2%. This growth was funded by an increase of $4.6 billion or 29.3% in
average core deposits, a $420 million increase in purchased deposits, a $1.6
billion increase in short-term borrowed funds and $650 million of long-term
debt issued in the first half of 1997. The net result of these funding
changes likewise caused a reduction in the rate margin.
Investment securities averaged $8.2 billion in the first six months of 1998,
and increased by 71.4% from 1997. The held-to-maturity and available-for-sale
portfolios as of June 30, 1998 consisted of 66.12% in U.S. and other
government agency securities, including 32.96% in mortgage-related issues,
4.32% in state and municipal securities, and 29.56% of other miscellaneous
securities. The comparable distribution at June 30, 1997 was 84.49%, 30.90%,
10.18% and 5.33%, respectively. The change in the mix of the investment
portfolio was attributable to the Roosevelt acquisition and a decline in
state and municipal securities. Roosevelt owned a higher concentration of
government and privately issued mortgage-backed securities and
collateralized mortgage obligations. These privately issued collateralized
mortgage obligations are included in miscellaneous securities. State and
municipal securities decreased from $472 million at June 30, 1997 to $358
million this year due to paydowns and the lack of attractive reinvestment
opportunities.
Year-to-date average commercial loans increased by $570 million or 13.1%.
Average commercial real estate mortgage loans increased by $119 million or
4.1% and construction loans increased by $117 million or 19.2%. Average
residential real estate mortgage loans increased by $3.8 billion or 87.5%.
The Roosevelt acquisition added approximately $3.9 billion in volume on July
1, 1997, thereby accounting for much of this loan growth. Average residential
mortgage loans as a percentage of earning assets increased from 21.18% in the
second quarter of 1997 to 28.04% in 1998. However, the percentage of average
residential mortgages to earning assets declined from 29.52% in the first
quarter of 1998 to 28.04% in the second quarter due to prepayments and
refinancings from adjustable-rate loans, which are largely retained on the
balance sheet, to fixed-rate loans which are sold. Home equity credit loans
averaged $486 million in the first six months of 1998, a 26.3% increase over
the prior year, again reflecting the impact of the Roosevelt acquisition.
Consumer loans increased on average by $251 million or 13.4% over the first
six months of 1997. Over 40% of the growth was in the indirect loan
portfolio of Mercantile Bank N.A. Average credit card loans were down $575
million or 75.6% in 1998. The largest part of the decline was due to the
sale of $405 million in loans related to co-branded cards on September 25,
1997. Prior to that date, the Corporation had managed to a $224 million
decline due to more aggressive risk-based pricing of the cards, as well as
transferring $123 million of loans to the investment portfolio as required
by FAS 125. Partially offsetting the sale, the managed decline and the FAS
125 transfer was the addition of $112 million in Roosevelt credit card loans
on July 1, 1997; the out-of-territory Roosevelt credit card loans were sold
in March 1998.
Average core deposits increased by $4.6 billion or 29.3% in the first six
months of 1998. At June 30, 1998, Mercantile was substantially core funded
at 91.68% of total deposits and 70.32% of earning assets. As anticipated,
Mercantile has experienced certificate of deposit run-off from former
Roosevelt depositors, largely due to changed pricing policies and intense
competition in major markets. Changes in average core deposits for the past
six quarters are shown in the Consolidated Quarterly Average Balance Sheet
on pages 23 and 24 of this report.
14
<PAGE> 15
Average non-interest bearing deposits increased by $611 million or 20.9%
over the first six months of 1997. Some of the growth occurred due to the
Roosevelt acquisition and part of the remaining growth came from the U.S.
Government, a significant cash management customer of Mercantile Bank N.A.
that pays for services rendered via compensating balances. These average
balances have increased from $720 million in the first six months of 1997 to
$781 million in 1998. Partially offsetting this increase was growth of $198
million in cash and due from banks that was minimized by both float and
reserve reduction efforts.
Year-to-date average interest bearing demand, savings, money market accounts
and consumer time certificates under $100,000 increased by 8.3%, 34.4%,
30.0% and 41.6%, respectively, largely due to the Roosevelt acquisition.
Roosevelt had a greater percentage of consumer time certificates in its
total core deposits, and as a result, Mercantile's year-to-date average of
consumer time certificates to total core deposits increased to 43.02% from
39.29% in 1997. However, the quarterly trend of average consumer time
certificates to total core deposits has trended downward. The current
quarterly ratio of 42.34% was 1.37% lower than in the first quarter of 1998.
Average short-term borrowings increased by $1.6 billion or 79.4%, to fund
earning asset growth and to replace the decline in bank notes outstanding.
Mercantile recently completed a new $3.0 billion bank note offering program
that is now available for funding to the five largest affiliate banks.
Average long-term debt increased by $1.9 billion. The increase was due to
long-term FHLB advances acquired in the Roosevelt transaction and subsequent
borrowings incurred to lower wholesale borrowing costs and improve
liquidity. In addition, long-term debt was issued by the Corporation in the
first half of 1997 to fund the acquisition of Roosevelt. Average
shareholders' equity increased by $643 million or 34.4%, due to net earnings
retained, the three acquisitions and a favorable adjustment in the fair
value of available-for-sale securities.
The factors discussed above are consistent with Mercantile's overall
corporate policy relative to rate sensitivity and liquidity, which is to
produce the optimal yield and maturity mix consistent with interest rate
expectations and projected liquidity needs. The Consolidated Quarterly
Average Balance Sheet, with rates earned and paid, is summarized by quarter
on pages 23 and 24.
OTHER INCOME
Non-interest income increased 18.9% during the second quarter of 1998 to
$104,537,000, and for the six months was $231,730,000 compared with
$176,027,000 a year ago, an improvement of 31.6%.
Trust fees were the largest source of non-interest income in 1998, and were
$52,429,000 compared with $46,823,000 during 1997, an increase of 12.0%.
Personal trust fees earned by Mercantile Trust Company N.A. were the largest
source of trust revenue and increased 24.5% from last year. Income from
Mississippi Valley Advisors Inc., the investment management subsidiary of
Mercantile, rose by 27.1%. Mississippi Valley Advisors Inc. manages 17
proprietary mutual funds--the ARCH funds, which had assets of $4.2 billion at
June 30, 1998 compared with $3.2 billion last year. Increases in the value of
assets managed and successful new business development efforts accounted for
the growth in trust fees. Partially offsetting these increases was the
reduction in trust fees caused by the sales of the document custody
business and Mark Twain's corporate trust division.
Service charge income totaled $52,024,000 in the first six months of 1998,
which represented an increase of $6,635,000 or 14.6% over 1997. The increase
was partially caused by additional deposits and fees from the Roosevelt
customer base, partially offset by the attrition of acquired deposit
customers.
In January 1998, the Corporation sold $1.9 billion in loan servicing which
reduced originated mortgage servicing assets by approximately $3.2 million.
A pre-tax gain of $23,155,000 was recognized in the first quarter of 1998;
there was no comparable sale in the second quarter. This sale was consistent
with the Corporation's goals to "right size" the servicing portfolio as
all Mercantile servicing operations have been consolidated in Nevada,
Missouri. The sale also will lower the prepayment risk associated with the
servicing portfolio and fund the Corporation's systems cost to become Year
2000 compliant by the end of 1998. All other mortgage banking income was
$12,282,000 in the first six months of 1998 versus
15
<PAGE> 16
$5,506,000 the prior year. The growth was attributable to Roosevelt's
servicing volume and the higher than expected level of refinancing activity
in 1998. Mortgages serviced totaled $10.6 billion at June 30, 1998 compared
with $6.0 billion at June 30, 1997. Total originated and purchased mortgage
servicing assets on the balance sheet at June 30, 1998 totaled $48 million.
The associated risk for impairment was not considered to be material,
although the current rate environment could accelerate refinancing activity
and cause quicker amortization.
<TABLE>
------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 6
OTHER INCOME
($ IN THOUSANDS)
<CAPTION>
SECOND QUARTER SIX MONTHS
1998 1997 CHANGE 1998 1997 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Trust $26,543 $24,022 10.5% $ 52,429 $ 46,823 12.0%
Service charges 26,448 22,591 17.1 52,024 45,389 14.6
Retail brokerage revenue 5,312 1,891 -- 10,194 3,786 --
Other investment banking 3,657 5,869 (37.7) 8,921 11,956 (25.4)
Mortgage banking 7,363 2,728 -- 12,282 5,506 --
Gain on sale of mortgage servicing rights -- -- -- 23,155 -- --
Credit card fees 2,341 5,373 (56.4) 5,625 10,772 (47.8)
Securitization revenue 4,520 4,725 (4.3) 9,043 12,017 (24.7)
Securities gains 2,816 1,818 54.9 7,079 2,867 --
Miscellaneous 25,537 18,910 35.0 50,978 36,911 38.1
-------- ------- -------- --------
Total Other Income $104,537 $87,927 18.9 $231,730 $176,027 31.6
======== ======= ======== ========
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Year-to-date retail brokerage revenue was $10,194,000 compared with
$3,786,000 last year; second quarter fees totaled $5,312,000, almost three
times last year's amount. Roosevelt's customer base had a positive impact on
this source of revenue. Other investment banking income for the first six
months of 1998 was 25.4% lower than last year due to lower levels of
activity in both institutional fixed-income and world currency bond sales.
For the first six months of 1998, credit card income was $5,625,000,
significantly less than the comparable 1997 period. Credit card income
primarily represents interchange fees received on transactions of Mercantile
cardholders and cardholders' miscellaneous fees. The two aforementioned
portfolio sales largely accounted for the decline in credit card income.
Securitization revenue for the first six months of 1998 was $9,043,000
compared with $12,017,000 last year, and represents amounts accruing to
Mercantile on the $400 million in credit card loans securitized in the
Mercantile Credit Card Master Trust during May 1995, as well as $2,200,000
recognized in 1997 under FAS 125 for investor certificate loans that were
sold and reclassified to the investment portfolio. Excluding that one-time
accounting gain, securitization revenue declined by 7.9%. 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.
Year-to-date miscellaneous income of $50,978,000 was 38.1% higher than in
1997. The corporate trust business of Mark Twain was sold in the first
quarter of 1998 at a $2,002,000 gain. Mercantile had previously sold its
comparable corporate trust business during 1996. The Corporation also sold
the out-of-market Roosevelt credit card portfolio in the first quarter of
1998 at a gain of $2,658,000. Excluding these two 1998 gains and the 1997
gain of $2,300,000 on the sale of Mark Twain's merchant credit card
processing business, year-to-date miscellaneous income increased by 33.8%
over 1997. Credit life and other insurance product sales, loan syndication
fees, operating lease income, and ATM, official check and debit card fees
accounted for the increase. Net securities gains of $7,079,000 were realized
through June 30, 1998 on the restructuring of the available-for-sale
investment portfolio compared with $2,867,000 in gains last year. Net
securities gains in the second quarter of 1998 totaled $2,816,000 versus
$1,818,000 in 1997.
OTHER EXPENSE
For the first half of 1998, expenses other than interest expense and the
provision for possible loan losses were $398,244,000, a 3.2% increase from
the 1997 level. Included in other expense in the second quarter of 1997 was
$51,863,000 in expenses
16
<PAGE> 17
associated with mergers, largely for investment banking and other
professional services, change in control and severance payments, and obsolete
equipment write-offs. Excluding nonrecurring merger costs, year-to-date
operating expenses increased by 19.2% over 1997, yet declined to 2.56% of
average assets compared with 3.03% last year.
Other expense from the Roosevelt acquisition increased the Corporation's
expenses by an estimated $35,000,000. If both expense from Roosevelt and
nonrecurring acquisition expense are excluded, non-interest expense for
the first six months of 1998 was approximately 9% higher than last year.
Year-to-date salary expenses increased by $25,698,000 or 16.2% from last
year. The impact of Roosevelt on salaries for the first six months of 1998
was estimated to be $12,000,000. Temporary help salaries rose by $8,629,000
and were primarily utilized in operations, mortgage banking and in the Year
2000 effort. The decline in year-to-date 1998 employee benefits was due
largely to the Corporation's decision to modify its defined benefit pension
plan to a cash balance plan, cost-effective changes to employee 401(k) and
welfare plans, and an increase in temporary help salaries for which few
benefits are paid.
Occupancy and equipment costs through June 30, 1998 increased by 25.0% from
the prior year, reflecting the costs of maintaining additional offices and a
consistent program of upgrading systems and equipment to improve customer
service and enhance employee efficiency. A new deposit system that had been
installed throughout most of the Corporation also increased equipment
expense.
Exhibit 7 details the composition of all other operating expenses. Marketing
and business development expense in the first six months of 1998 was
$7,758,000, which was $851,000 or 12.3% more than in 1997. In the third
quarter of 1997, Mercantile initiated a corporate-wide image advertising
program that continues. Credit card expense declined by $1,781,000 or 36.9%,
due primarily to the absence of the costs associated with the portfolios
that were sold. Mercantile contributed $1,600,000 to its charitable
foundation in the first quarter of 1998, which increased miscellaneous
expense. Additionally, there were $353,000 in recoveries related to
foreclosed property in the first six months of 1998 compared with recoveries
of $4,219,000 in 1997.
<TABLE>
-----------------------------------------------------------------------------------------------------------
EXHIBIT 7
OTHER EXPENSE
($ IN THOUSANDS)
<CAPTION>
SECOND QUARTER SIX MONTHS
1998 1997 CHANGE 1998 1997 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Salaries $ 92,799 $ 80,599 15.1% $184,437 $158,739 16.2%
Employee benefits 15,452 17,653 (12.5) 35,389 37,235 (5.0)
-------- -------- -------- --------
Total Personnel Expense 108,251 98,252 10.2 219,826 195,974 12.2
Net occupancy 14,307 12,434 15.1 28,788 25,146 14.5
Equipment 19,483 15,005 29.8 38,657 28,821 34.1
Postage and freight 5,965 5,804 2.8 12,582 12,010 4.8
Marketing/business development 4,122 3,619 13.9 7,758 6,907 12.3
Office supplies 3,901 3,357 16.2 7,742 6,629 16.8
Communications 4,344 3,416 27.2 8,237 6,609 24.6
Data processing 4,480 4,225 6.0 8,548 8,633 (1.0)
Legal and professional 3,882 2,935 32.3 6,668 5,739 16.2
Credit card 1,776 2,380 (25.4) 3,050 4,831 (36.9)
FDIC insurance 1,361 742 83.4 2,631 1,511 74.1
Foreclosed property expense
(recoveries) (423) (4,297) 90.2 (353) (4,219) 91.6
Miscellaneous 16,080 16,137 (.4) 26,275 26,634 (1.3)
-------- -------- -------- --------
Adjusted Other Expense Before
Intangible Asset Amortization 187,529 164,009 14.3 370,409 325,225 13.9
Intangible asset amortization 13,851 4,603 -- 27,835 8,982 --
-------- -------- -------- --------
Adjusted Other Expense 201,380 168,612 19.4 398,244 334,207 19.2
Nonrecurring merger-related expense -- 51,863 -- -- 51,863 --
-------- -------- -------- --------
Total Other Expense $201,380 $220,475 (8.7) $398,244 $386,070 3.2
======== ======== ======== ========
-----------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
Intangible asset amortization was $27,835,000 in the first six months of
1998 compared with $8,982,000 in 1997. The increase was caused by additional
amortization on goodwill recorded in purchase acquisitions since 1996 that
are being amortized using the straight-line method over 15 years.
During 1997, Mercantile recorded adjustments related to the acquisitions of
Roosevelt, Mark Twain and Regional Bancshares, Inc. The other expense
adjustments totaled $121,393,000 and was originally recorded as an accrued
liability. Of that original liability, $94,618,000 has been utilized at June
30, 1998 and $26,775,000 remains to absorb future cash payments.
In 1996, Mercantile organized a formal program to address the implications
of the Year 2000. Mercantile has completed the assessment, analysis and
planning phases and is well into the execution phase of the project. It is
the goal of the program to have all mission critical systems "2000
compliant" by January 1, 1999. Year-to-date total expense in 1998 of
$7,804,000 was incurred to ensure that systems are ready for the date
transition, and it is expected that the Corporation will expend a total
between $15,000,000 and $20,000,000 in 1998 to substantially complete this
project. Including expenses incurred throughout 1997, $30,000,000 is
currently the best total cost estimate of the Year 2000 project at
Mercantile. All such costs are expensed as incurred. Approximately 79% of
business and system applications are in compliance and have been
reintroduced to production or are in testing at June 30, 1998. An additional
15% of the Corporation's applications are considered compliant and are
awaiting testing and installation. Mercantile believes that the largest risk
associated with this effort is vendor compliance. All critical vendor
application systems are promised to be delivered in time to meet the date
goal of January 1, 1999.
INCOME TAXES
For the six months ended June 30, 1998, the Corporation recorded income tax
expense of $104,488,000 compared with 1997 expense of $64,169,000, which
included income tax benefits of $15,977,000 related to nonrecurring charges.
The effective tax rate decreased to 34.44% from 37.45% in 1997. The second
quarter effective tax rate declined to 31.83% from 41.83% in 1997. The
implementation of various business strategies that included the realignment
of corporate entities consistent with the plan of reducing bank charters
resulted in a $7,000,000 tax benefit in the second quarter of 1998. An
effective tax rate comparable to the second quarter of 1998 is expected in
the third and fourth quarters of 1998.
RESERVE FOR POSSIBLE LOAN LOSSES
The reserve for possible loan losses was $263,356,000 or 1.34% of loans
outstanding at June 30, 1998 compared with $254,983,000 or 1.33% at year's
end and 1.52% at June 30, 1997. Approximately one-third of the Corporation's
total loan portfolio is invested in residential real estate loans for which
the loan loss experience averaged only .03% for the past five years. If
residential mortgages and its allocated reserve are excluded, the reserve
represents 2.06% of outstanding loans at June 30, 1998.
The year-to-date 1998 provision for possible loan losses was $13,008,000,
which exceeded net charge-offs of $12,474,000 by $534,000 or 4.3%. The
annualized ratio of net charge-offs to average loans for the first six
months of 1998 declined to .13%. The lower adjusted provision and
charge-offs were due to improvement in overall credit quality and to the
decrease in average credit card loans. Excluding those related to credit
card loans, net charge-offs were only $8,574,000 or .09% of average loans
for the first six months of 1998.
Mercantile evaluates the reserves of all banks on a quarterly basis to
ensure the timely charge-off of loans and to determine the adequacy of those
reserves. Management believes the consolidated reserve as of June 30, 1998
was adequate based on the risks identified at such date in the respective
portfolios.
18
<PAGE> 19
<TABLE>
---------------------------------------------------------------------------------
EXHIBIT 8
RESERVE FOR POSSIBLE LOAN LOSSES
($ IN THOUSANDS)
<CAPTION>
SECOND QUARTER SIX MONTHS
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
BEGINNING BALANCE $263,511 $231,496 $254,983 $230,372
PROVISION<F*> 6,402 27,695 13,008 46,138
Charge-offs (12,765) (30,329) (24,137) (55,126)
Recoveries 6,208 5,822 11,663 11,685
-------- -------- -------- --------
NET CHARGE-OFFS (6,557) (24,507) (12,474) (43,441)
Acquired Reserves -- -- 7,839 1,615
-------- -------- -------- --------
ENDING BALANCE $263,356 $234,684 $263,356 $234,684
======== ======== ======== ========
LOANS AND LEASES
June 30 balance $19,650,546 $15,421,311 $19,650,546 $15,421,311
=========== =========== =========== ===========
Average balance $19,679,913 $15,288,972 $19,556,730 $15,141,515
=========== =========== =========== ===========
RATIOS
Reserve balance to
outstanding loans 1.34% 1.52% 1.34% 1.52%
Reserve balance to
non-performing loans 237.74 285.57 237.74 285.57
Net charge-offs to average
loans .13 .64 .13 .57
<FN>
<F*> Includes nonrecurring provision of $6,540,000 in the second quarter and
six months ended June 30, 1997.
---------------------------------------------------------------------------------
</TABLE>
NON-PERFORMING ASSETS
Non-performing loans (non-accrual and renegotiated loans) were $110,775,000
or .56% of total loans outstanding at June 30, 1998. By the Corporation's
definition, all non-accrual and renegotiated commercial-related loans are
considered impaired as defined by FAS 114, "Accounting by Creditors for
Impairment of a Loan," as amended by FAS 118. Impaired loans totaled
$53,435,000 at June 30, 1998 and averaged $61,098,000 for the first six
months of 1998. Foreclosed assets at June 30, 1998 were $20,179,000. The
ratio of non-performing loans and foreclosed assets to outstanding loans and
foreclosed assets was .67% at June 30, 1998 compared with .68% at March 31,
1998 and .62% last year.
Non-accrual loans declined by $2,228,000 from the March 31, 1998 level and
foreclosed property increased slightly from the prior quarter. As of June
30, 1998, Mercantile had only 10 non-accrual loans with balances in excess
of $1,000,000; the largest totaled $5,700,000 and paid off in July 1998.
As significant, the Corporation held only two foreclosed assets with a book
value in excess of $1,000,000. Over 43% of the Corporation's non-accrual
loans are residential mortgage loans for which losses have averaged only
.03% for the past five years.
The Corporation's impaired investment securities were primarily acquired in
the Roosevelt transaction, and have declined by $11,978,000 from December
31, 1997 due to paydowns. Roosevelt owned pools of privately issued
mortgage-backed securities. The loan pools underlying some of these
securities have been affected by high delinquency and foreclosure rates and
higher than anticipated losses on foreclosed property sales. The current
yield on the net book value of these impaired securities was 8.86% at June
30, 1998.
19
<PAGE> 20
<TABLE>
----------------------------------------------------------------------------------
EXHIBIT 9
NON-PERFORMING ASSETS
($ IN THOUSANDS)
<CAPTION>
JUNE 30 DEC. 31 JUNE 30
1998 1997 1997
------- ------- -------
<S> <C> <C> <C>
NON-ACCRUAL LOANS
Commercial $ 28,296 $ 32,360 $24,465
Real estate--commercial 22,179 15,895 20,923
Real estate--construction 1,403 1,948 3,018
Real estate--residential
mortgage 45,695 40,860 23,066
Real estate--home equity
credit loans 326 228 37
Consumer 8,285 6,623 5,634
-------- -------- -------
TOTAL NON-ACCRUAL LOANS 106,184 97,914 77,143
RENEGOTIATED LOANS 4,591 4,278 5,039
-------- -------- -------
TOTAL NON-PERFORMING LOANS 110,775 102,192 82,182
FORECLOSED ASSETS
Foreclosed real estate 17,341 14,881 11,696
Other foreclosed assets 2,838 2,492 1,801
-------- -------- -------
TOTAL FORECLOSED ASSETS 20,179 17,373 13,497
-------- -------- -------
TOTAL NON-PERFORMING LOANS AND
FORECLOSED ASSETS<F1> 130,954 119,565 95,679
Impaired Investment Securities 73,909 85,887 1,240
-------- -------- -------
TOTAL NON-PERFORMING ASSETS $204,863 $205,452 $96,919
======== ======== =======
PAST-DUE LOANS
(90 DAYS OR MORE)<F2>
Commercial $ 5,516 $ 4,846 $ 4,508
Real estate--commercial 1,092 296 1,391
Real estate--construction 300 -- 58
Real estate--residential
mortgage 6,260 3,187 3,082
Real estate--home equity
credit loans 524 1,856 218
Consumer 4,566 4,699 2,108
Credit card 1,322 5,411 19,140
-------- -------- -------
TOTAL PAST-DUE LOANS $ 19,580 $ 20,295 $30,505
======== ======== =======
RATIOS<F2>
Non-performing loans to
outstanding loans .56% .53% .53%
Non-performing loans and
foreclosed assets to
outstanding loans and
foreclosed assets .67 .62 .62
Non-performing assets to
total assets .65 .69 .43
<FN>
<F1> Excludes insured FHA and government-guaranteed VA loans that were
acquired primarily in the Roosevelt transaction and were contractually
past due more than 90 days. Since these loans are fully insured or
guaranteed for the payment of both principal and interest by the U.S.
Government, the Corporation does not consider these loans to be
non-performing assets, consistent with Roosevelt's past disclosure for
these loans. The total of such insured or guaranteed loans was
$31,516,000 at June 30, 1998 and $37,677,000 at December 31, 1997.
<F2> Past-due loans 90 days or more are not included in non-performing asset
totals or ratios.
----------------------------------------------------------------------------------
</TABLE>
All loans classified as renegotiated were paying in accordance with their
modified terms at June 30, 1998. Loans past due 90 days or more and still
accruing interest consisted largely of credit card loans, consumer loans and
residential real estate mortgage loans. Exhibit 9 details the composition of
loans past due 90 days and over.
CAPITAL RESOURCES
Mercantile maintains a capital base which provides a 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 provided for both current needs
and anticipated growth. This strategy has enabled Mercantile to profitably
expand its balance sheet, while maintaining capital ratios that exceed
minimum regulatory capital requirements.
At June 30, 1998, shareholders' equity was $2.5 billion, an increase of
44.4% from June 30, 1997. This increase was primarily derived from retained
earnings, the Roosevelt, Horizon Bancorp, Inc. and HomeCorp, Inc.
acquisitions and a favorable FAS 115 adjustment, partially offset by
dividends and share repurchases. The Corporation recorded a favorable
adjustment to equity of $5,542,000 on available-for-sale investment
securities through June 30, 1998. As of June 30, 1998, the balance of the
valuation on available-for-sale securities totaled $30 million.
In the first six months of 1998, the Corporation repurchased 1,778,125
shares of its common stock via designated broker-dealers at an average cost
of $55.37 per share. In the second quarter of 1998, 28,125 shares were
repurchased by Mercantile. The first quarter 1998 repurchases occurred
through an accelerated stock repurchase program. These shares will be
reissued for the 1994 Stock Incentive Plan and the July 1, 1998 acquisitions
of CBT and Firstbank. As of July 1, 1998, Mercantile had no tainted treasury
shares.
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 126.13% at June 30, 1998 compared with
127.88% at year-end 1997. Intangible assets, which consisted largely of
goodwill, totaled $779 million at June 30, 1998 compared with $193 million a
year ago; the increase reflects the impact of the Roosevelt transaction,
which was accounted for as a purchase on July 1, 1997.
20
<PAGE> 21
<TABLE>
----------------------------------------------------------------------------
EXHIBIT 10
RISK-BASED CAPITAL
($ IN MILLIONS)
<CAPTION>
JUNE 30 DEC. 31 JUNE 30
1998 1997 1997
------- ------- -------
<S> <C> <C> <C>
Capital
Tier I $ 1,937 $ 1,785 $ 1,730
Total 2,595 2,432 2,364
Risk-adjusted assets 21,525 20,187 16,664
Tier I capital to
risk-adjusted assets 9.00% 8.84% 10.38%
Total capital to
risk-adjusted assets 12.06 12.05 14.19
Leverage 6.28 6.15 7.80
Tangible equity to
tangible assets 5.75 5.50 7.00
Double leverage 126.13 127.88 114.69
----------------------------------------------------------------------------
</TABLE>
The tangible equity to tangible assets ratio improved to 5.75% at June 30,
1998 from 5.45% at March 31, 1998 yet is down from 7.00% at June 30, 1997,
reflecting the impact of the Roosevelt goodwill, nonrecurring expense
adjustments recorded in 1997, and common share repurchases. It is the plan
of the Corporation to raise that ratio to exceed 6.00% by year-end 1998. All
regulatory capital ratios have improved since year-end 1997.
On May 20, 1998, the Board of Directors declared a cash dividend of $.31 per
common share, payable July 1, 1998 to shareholders of record at the end of
business June 10, 1998. Book value per common share was $19.05 at June 30,
1998 compared with $15.85 a year earlier, an increase of 20.2%. Exhibit 10
details significant capital ratios. Public debt ratings of the Corporation
and Mercantile Bank N.A. are shown in Exhibit 11.
<TABLE>
----------------------------------------------------------------------------------------------------------------------
EXHIBIT 11
DEBT RATINGS
<CAPTION>
JUNE 30, 1998
----------------------------------------------------------------------
FITCH THOMSON STANDARD
MOODY'S IBCA BANKWATCH & POOR'S
------- ----- --------- --------
<S> <C> <C> <C> <C>
MERCANTILE BANCORPORATION INC.
Issuer rating B
Commercial paper F1 TBW-1
6.800% senior notes, due 2001 A2 BBB+
7.050% senior notes, due 2004 A2 BBB+
7.625% subordinated notes, due 2002 A3 BBB+ BBB
7.300% subordinated notes, due 2007 A3 BBB
Floating rate capital trust pass-through
securities(SM) a2 BBB-
MERCANTILE BANK N.A.
Bank notes (long-term/short-term) A1/P-1 A A-/A-2
6.375% subordinated notes, due 2004 A2 A A- BBB+
9.000% mortgage-backed notes, due 1999 Aaa
Certificates of deposit
(long-term/short-term) TBW-1 A-/A-2
Letters of credit TBW-1 A-/A-2
----------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED QUARTERLY STATEMENT OF INCOME
($ IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
1997 1998
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR.
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $321,271 $331,688 $415,068 $396,817 $394,119 $397,521
Investments in debt and equity
securities 73,282 73,985 119,464 122,148 130,224 136,287
Short-term investments 3,909 5,490 8,030 7,042 5,988 7,316
-------- -------- -------- -------- -------- --------
Total Interest Income 398,462 411,163 542,562 526,007 530,331 541,124
Tax-equivalent adjustment 3,857 4,014 3,741 3,474 3,401 3,366
-------- -------- -------- -------- -------- --------
TAXABLE-EQUIVALENT INTEREST INCOME 402,319 415,177 546,303 529,481 533,732 544,490
INTEREST EXPENSE
Deposits 153,762 155,597 218,671 213,028 210,509 210,432
Borrowed funds 32,739 40,003 71,757 72,133 79,517 88,085
-------- -------- -------- -------- -------- --------
Total Interest Expense 186,501 195,600 290,428 285,161 290,026 298,517
-------- -------- -------- -------- -------- --------
TAXABLE-EQUIVALENT NET INTEREST
INCOME 215,818 219,577 255,875 244,320 243,706 245,973
PROVISION FOR POSSIBLE LOAN LOSSES 18,443 27,695 27,478 5,693 6,606 6,402
OTHER INCOME
Trust 22,801 24,022 24,865 24,367 25,886 26,543
Service charges 22,798 22,591 27,236 26,108 25,576 26,448
Investment banking and brokerage 7,982 7,760 10,086 9,242 10,146 8,969
Mortgage banking 2,778 2,728 7,378 10,788 4,919 7,363
Gain on sale of mortgage servicing
rights -- -- -- -- 23,155 --
Credit card fees 5,399 5,373 5,649 4,059 3,284 2,341
Securitization revenue 7,292 4,725 3,357 3,030 4,523 4,520
Securities gains 1,049 1,818 2,034 2,084 4,263 2,816
Other 18,001 18,910 22,631 19,743 25,441 25,537
-------- -------- -------- -------- -------- --------
Total Other Income 88,100 87,927 103,236 99,421 127,193 104,537
OTHER EXPENSE
Personnel expense 97,722 98,252 111,376 107,532 111,575 108,251
Net occupancy and equipment 26,528 27,439 32,064 32,727 33,655 33,790
Other 41,345 94,784 172,894 52,117 51,634 59,339
-------- -------- -------- -------- -------- --------
Total Other Expense 165,595 220,475 316,334 192,376 196,864 201,380
-------- -------- -------- -------- -------- --------
TAXABLE-EQUIVALENT INCOME BEFORE INCOME
TAXES 119,880 59,334 15,299 145,672 167,429 142,728
INCOME TAXES
Income taxes 41,028 23,141 8,902 47,435 60,136 44,352
Tax-equivalent adjustment 3,857 4,014 3,741 3,474 3,401 3,366
-------- -------- -------- -------- -------- --------
Adjusted Income Taxes 44,885 27,155 12,643 50,909 63,537 47,718
-------- -------- -------- -------- -------- --------
NET INCOME $ 74,995 $ 32,179 $ 2,656 $ 94,763 $103,892 $ 95,010
======== ======== ======== ======== ======== ========
PER SHARE DATA
Basic earnings per share $.65 $.29 $.02 $.73 $.78 $.71
Diluted earnings per share .64 .28 .02 .71 .77 .70
SIGNIFICANT RATIOS
Return on assets 1.38% .58% .04% 1.27% 1.35% 1.20%
Return on equity 15.63 7.07 .44 15.85 16.57 15.10
</TABLE>
22
<PAGE> 23
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET
($ IN MILLIONS)
<CAPTION>
1997
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
---------------- ---------------- ---------------- ----------------
VOLUME RATE<F1> VOLUME RATE<F1> VOLUME RATE<F1> VOLUME RATE<F1>
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases, net of unearned income
Commercial $ 4,246 8.41% $ 4,438 8.56% $ 4,431 8.45% $ 4,445 8.34%
Real estate--commercial 2,853 8.63 2,893 8.78 2,972 8.74 2,943 8.71
Real estate--construction 581 8.89 639 8.93 683 8.82 735 8.84
Real estate-residential mortgage 4,257 7.93 4,336 7.94 8,248 7.80 8,258 7.70
Real estate--home equity credit loans 384 9.62 384 9.96 495 9.78 506 9.77
Consumer 1,851 8.83 1,896 8.88 1,983 8.93 2,009 8.89
Credit card 820 13.31 703 13.33 738 12.83 285 9.97
------- ------- ------- -------
Total Loans and Leases 14,992 8.60 15,289 8.72 19,550 8.52 19,181 8.30
Investments in debt and equity securities
Trading 69 6.81 93 7.00 101 6.41 155 6.66
Taxable 4,330 6.17 4,327 6.22 6,827 6.62 6,968 6.59
Tax-exempt 398 7.95 383 8.00 368 7.98 352 7.98
------- ------- ------- -------
Total Investments in Debt and Equity
Securities 4,797 6.33 4,803 6.38 7,296 6.68 7,475 6.66
Short-term investments 284 5.50 385 5.64 482 6.52 457 6.03
------- ------- ------- -------
Total Earning Assets 20,073 8.13 20,477 8.13 27,328 7.93 27,113 7.75
Non-earning Assets 1,688 1,892 2,606 2,681
------- ------- ------- -------
Total Assets $21,761 $22,369 $29,934 $29,794
======= ======= ======= =======
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 2,748 $ 3,082 $ 3,192 $ 3,284
Interest bearing demand 2,551 2.14 2,528 2.09 2,593 1.96 2,616 1.89
Money market accounts 2,792 3.89 2,784 3.95 3,577 4.02 3,573 3.97
Savings 1,092 2.27 1,103 2.27 1,407 2.43 1,351 2.48
Consumer time certificates under $100,000 6,182 5.48 6,114 5.48 9,278 5.55 8,953 5.56
Other time 155 4.71 161 4.25 161 3.63 154 4.16
------- ------- ------- -------
Total Core Deposits 15,520 4.18 15,772 4.18 20,208 4.41 19,931 4.38
Time certificates $100,000 and over 1,287 5.49 1,220 5.52 1,534 5.69 1,558 5.69
Foreign 344 5.48 469 5.67 529 5.70 486 5.66
------- ------- ------- -------
Total Purchased Deposits 1,631 5.50 1,689 5.58 2,063 5.71 2,044 5.70
------- ------- ------- -------
Total Deposits 17,151 4.33 17,461 4.34 22,271 4.55 21,975 4.52
Short-term borrowings 1,810 5.05 2,102 5.25 3,528 5.63 3,526 5.33
Bank notes 175 5.81 175 5.95 175 6.01 175 5.99
Long-term debt<F2> 398 7.36 530 7.07 1,120 6.41 1,306 6.41
------- ------- ------- -------
Total Acquired Funds 19,534 4.51 20,268 4.57 27,094 4.82 26,982 4.77
Other liabilities 307 280 413 420
SHAREHOLDERS' EQUITY 1,920 1,821 2,427 2,392
------- ------- ------- -------
Total Liabilities and Shareholders'
Equity $21,761 $22,369 $29,934 $29,794
======= ======= ======= =======
SIGNIFICANT RATIOS
Net interest rate spread 3.62% 3.56% 3.11% 2.98%
Net interest rate margin 4.36 4.30 3.71 3.58
<FN>
<F1> Taxable-equivalent basis.
<F2> Includes company-obligated mandatorily redeemable preferred securities of
Mercantile Capital Trust I.
</TABLE>
23
<PAGE> 24
<TABLE>
MERCANTILE BANCORPORATION INC. AND SUBSIDIARIES
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET
($ IN MILLIONS)
<CAPTION>
1998 1997 1998
1ST QTR. 2ND QTR. SIX MONTHS SIX MONTHS
---------------- ---------------- ---------------- ----------------
VOLUME RATE<F1> VOLUME RATE<F1> VOLUME RATE<F1> VOLUME RATE<F1>
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans and leases, net of unearned income
Commercial $ 4,689 8.33% $ 5,134 8.24% $ 4,343 8.48% $ 4,912 8.28%
Real estate--commercial 2,966 8.57 3,018 8.48 2,873 8.70 2,993 8.53
Real estate--construction 729 8.86 725 8.78 610 8.91 727 8.82
Real estate-residential mortgage 8,240 7.63 8,020 7.55 4,297 7.93 8,130 7.59
Real estate-home equity credit loans 495 9.71 476 9.74 384 9.73 485 9.73
Consumer 2,067 8.96 2,181 8.90 1,874 8.85 2,124 8.93
Credit card 247 9.30 125 6.74 761 13.32 186 8.45
------- ------- ------- -------
Total Loans and Leases 19,433 8.14 19,679 8.10 15,142 8.66 19,557 8.12
Investments in debt and equity securities
Trading 125 6.65 170 6.66 81 6.92 147 6.66
Taxable 7,604 6.50 7,912 6.53 4,328 6.19 7,759 6.51
Tax-exempt 325 8.34 310 8.46 390 7.98 318 8.40
------- ------- ------- -------
Total Investments in Debt and Equity
Securities 8,054 6.58 8,392 6.60 4,799 6.35 8,224 6.59
Short-term investments 426 5.62 530 5.47 335 5.58 478 5.53
------- ------- ------- -------
Total Earning Assets 27,913 7.75 28,601 7.64 20,276 8.13 28,259 7.69
Non-earning Assets 2,787 2,997 1,791 2,892
------- ------- ------- -------
Total Assets $30,700 $31,598 $22,067 $31,151
======= ======= ======= =======
LIABILITIES
Acquired Funds
Deposits
Non-interest bearing $ 3,403 $ 3,650 $ 2,916 $ 3,527
Interest bearing demand 2,746 1.98 2,756 1.89 2,539 2.12 2,751 1.94
Money market accounts 3,575 4.06 3,674 4.03 2,788 3.92 3,625 4.04
Savings 1,419 2.53 1,532 2.67 1,098 2.27 1,476 2.60
Consumer time certificates under $100,000 8,769 5.59 8,638 5.57 6,148 5.48 8,703 5.58
Other time 146 5.91 151 5.38 158 4.47 148 5.64
------- ------- ------- -------
Total Core Deposits 20,058 4.41 20,401 4.36 15,647 4.18 20,230 4.38
Time certificates $100,000 and over 1,587 5.58 1,591 5.59 1,253 5.50 1,589 5.59
Foreign 541 5.63 441 5.60 407 5.59 491 5.62
------- ------- ------- -------
Total Purchased Deposits 2,128 5.62 2,032 5.61 1,660 5.54 2,080 5.61
------- ------- ------- -------
Total Deposits 22,186 4.55 22,433 4.49 17,307 4.34 22,310 4.52
Short-term borrowings 3,664 5.41 3,359 5.32 1,957 5.16 3,510 5.37
Bank notes 152 6.13 25 5.82 175 5.88 88 6.08
Long-term debt<F2> 1,779 6.22 2,871 5.86 465 7.19 2,328 6.00
------- ------- ------- -------
Total Acquired Funds 27,781 4.82 28,688 4.78 19,904 4.54 28,236 4.80
Other liabilities 410 393 293 402
SHAREHOLDERS' EQUITY 2,509 2,517 1,870 2,513
------- ------- ------- -------
Total Liabilities and Shareholders'
Equity $30,700 $31,598 $22,067 $31,151
======= ======= ======= =======
SIGNIFICANT RATIOS
Net interest rate spread 2.93% 2.86% 3.59% 2.89%
Net interest rate margin 3.54 3.45 4.33 3.49
<FN>
<F1> Taxable-equivalent basis.
<F2> Includes company-obligated mandatorily redeemable preferred securities of
Mercantile Capital Trust I.
</TABLE>
24
<PAGE> 25
SPECIAL NOTE
Certain statements in this report that relate to the plans, objectives or
future performance of Mercantile Bancorporation Inc. may be deemed to be
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward looking statements involve
certain risks and uncertainties. For example, by accepting deposits at fixed
rates, at different times and for different terms, and lending funds at
fixed rates for fixed periods, a bank accepts the risk that the cost of
funds may rise and the use of the funds may be at a fixed rate. Similarly,
the cost of funds may fall, but a bank may have committed by virtue of the
term of a deposit to pay what becomes an above-market rate. Investments may
decline in value in a rising interest rate environment. Because the business
of banking is highly regulated, decisions of governmental authorities, such
as the rate of deposit insurance, can have a major effect on operating
results. Unanticipated events associated with Year 2000 compliance, relating
to work on developments or modifications to computer systems and to
software, including work performed by suppliers or vendors, could affect
Mercantile's future financial condition and operating results. Actual
charges associated with pending and completed acquisitions may prove to be
greater than current estimates. In addition, management's objectives with
respect to the Corporation's capital base and equity levels may not reach
the targeted objectives within the targeted periods due to numerous factors,
including those previously mentioned. All of these uncertainties, as well as
others, are present in a banking operation and shareholders are cautioned
that management's view of the future on which it prices it products,
evaluates collateral, sets loan reserves and estimates costs of operation
and regulation may prove to be other than as anticipated. Actual strategies
and results in future periods may differ materially from those currently
expected.
25
<PAGE> 26
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3-1(b) Certificate of Designation, Preferences and Rights of
Series B Junior Participating Preferred Stock of the
Registrant
4-2 Rights Agreement dated as of May 20, 1998, between
Registrant and Harris Trust and Savings Bank, as Rights
Agent (including as an exhibit thereto the form of
Rights Certificate)
27 Financial Data Schedule
(b) Reports on Form 8-K:
Registrant filed no Current Reports on Form 8-K during the quarter
ended June 30, 1998.
26
<PAGE> 27
SIGNATURE
Pursuant to the requirements 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 August 13, 1998 /s/ JOHN W. MCCLURE
----------------------- ----------------------------------------
John W. McClure
Chief Financial Officer
27
<PAGE> 28
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
<S> <C> <C>
3-1(b) Certificate of Designation, Preferences and Included herein
Rights of Series B Junior Participating
Preferred Stock of the Registrant
4-2 Rights Agreement dated as of May 20, 1998, Included herein
between Registrant and Harris Trust and Savings
Bank, as Rights Agent (including as an exhibit
thereto the form of Rights Certificate)
27 Financial Data Schedule Included herein
</TABLE>
28
<PAGE> 1
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
OF
MERCANTILE BANCORPORATION INC.
I, John Q. Arnold, the Vice Chairman and Chief Financial Officer of
Mercantile Bancorporation Inc., a corporation organized and existing under
The General and Business Corporation Law of Missouri, in accordance with the
provisions of Section 351.180.7 thereof, DO HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation, as amended, of the Company, the said
Board of Directors on May 20, 1998 adopted the following resolution creating
a series of Two Million (2,000,000) shares of voting Preferred Stock
designated as Series B Junior Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of its Certificate
of Incorporation, as amended, a series of voting Preferred Stock of the
Company be and it is hereby created, and that the designation and amount
thereof and the powers, preferences and relative, participating, optional and
other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. Designation and Amount.
----------------------
There shall be a series of the voting preferred stock of the Company
which shall be designated as the "Series B Junior Participating Preferred
Stock," no par value, and the number of shares constituting such series shall
be Two Million (2,000,000). Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, however, that no
decrease shall reduce the number of shares of Series B Junior Participating
Preferred Stock to a number less than that of the shares then outstanding
plus the number of shares issuable upon exercise of outstanding rights,
options or warrants or upon conversion of outstanding securities issued by
the Company.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of any series
of preferred stock of the Company ranking prior and superior to the Series B
Junior Participating Preferred Stock with respect to dividends, the holders
of shares of Series B Junior Participating Preferred Stock, in preference to
the holders of shares of Common Stock, $.01 par value (the "Common Stock"),
of the Company and of any other junior stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on or about
the first day of January, April, July and October in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series B Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal
to the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions, other than a dividend payable
in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
<PAGE> 2
since the immediately preceding Quarterly Dividend Payment Date or, with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series B Junior Participating
Preferred Stock. In the event the Company shall at any time after May 20,
1998 (the "Rights Declaration Date") declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount to which holders of shares of Series B Junior
Participating Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Company shall declare a dividend or distribution on the
Series B Junior Participating Preferred Stock as provided in paragraph (A) of
this Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided, however, that in the event no dividend or distribution shall have
been declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $1.00 per share on the Series B Junior Participating
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series B Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series B Junior Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid
on the shares of Series B Junior Participating Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable
on such shares shall be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series B Junior
Participating Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60
days prior to the date fixed for the payment thereof.
-2-
<PAGE> 3
Section 3. Voting Rights.
-------------
The holders of shares of Series B Junior Participating Preferred Stock
shall have the following voting rights:
(A) Each share of Series B Junior Participating Preferred Stock shall
entitle the holder thereof to 100 votes on all matters submitted to a vote of
the stockholders of the Company.
(B) Except as otherwise provided herein, in the Company's Certificate
of Incorporation or by law, the holders of shares of Series B Junior
Participating Preferred Stock, the holders of shares of Common Stock, and the
holders of shares of any other capital stock of the Company having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Company.
(C) Except as otherwise set forth herein or in the Company's
Certificate of Incorporation, and except as otherwise provided by law,
holders of Series B Junior Participating Preferred Stock shall have no
special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
--------------------
(A) Whenever dividends or distributions payable on the Series B
Junior Participating Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Series B Junior Participating Preferred
Stock outstanding shall have been paid in full, the Company shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any shares
of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Junior Participating Preferred
Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Junior
Participating Preferred Stock, except dividends paid ratably on the Series B
Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) except as permitted in Section 4(A)(iv) below, redeem or
purchase or otherwise acquire for consideration shares of any stock ranking
on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series B Junior Participating Preferred Stock, provided,
however, that the Company may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock
of the Company ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series B Junior Participating Preferred
Stock; and
(iv) purchase or otherwise acquire for consideration any shares
of Series B Junior Participating Preferred Stock, or any shares of stock
ranking on a parity with the Series B Junior Participating Preferred Stock,
except in accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such shares upon
such terms as the
-3-
<PAGE> 4
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares.
-----------------
Any shares of Series B Junior Participating Preferred Stock purchased
or otherwise acquired by the Company in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. The Company
shall cause all such shares upon their cancellation to be authorized but
unissued shares of Preferred Stock which may be reissued as part of a new
series of Preferred Stock, subject to the conditions and restrictions on
issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Company, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Junior Participating Preferred
Stock unless, prior thereto, the holders of shares of Series B Junior
Participating Preferred Stock shall have received $100.00 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the "Series B
Liquidation Preference"). Following the payment of the full amount of the
Series B Liquidation Preference, no additional distributions shall be made to
the holders of shares of Series B Junior Participating Preferred Stock,
unless, prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the "Common Adjustment") equal to the quotient
obtained by dividing (i) the Series B Liquidation Preference by (ii) 100 (as
appropriately adjusted as set forth in paragraph (C) of this Section 6 to
reflect such events as stock dividends, and subdivisions, combinations and
consolidations with respect to the Common Stock) (such number in clause (ii)
being referred to as the "Adjustment Number"). Following the payment of the
full amount of the Series B Liquidation Preference and the Common Adjustment
in respect of all outstanding shares of Series B Junior Participating
Preferred Stock and Common Stock, respectively, holders of Series B Junior
Participating Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such
Series B Junior Participating Preferred Stock and Common Stock, on a per
share basis, respectively.
(B) In the event there are not sufficient assets available to permit
payment in full of the Series B Liquidation Preference and the liquidation
preferences of all other series of preferred stock, if any, which rank on a
parity with the Series B Junior Participating Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the
event there are not sufficient assets available to permit payment in full of
the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Company shall at any time after the Rights
Declaration Date declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a
-4-
<PAGE> 5
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc.
--------------------------
In case the Company shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any
other property, then in any such case the shares of Series B Junior
Participating Preferred Stock shall at the same time be similarly exchanged
or changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is exchanged or
changed. In the event the Company shall at any time after the Rights
Declaration Date declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case
the amount set forth in the preceding sentence with respect to the exchange
or change of shares of Series B Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
Section 8. Redemption.
----------
The shares of Series B Junior Participating Preferred Stock shall not
be redeemable.
Section 9. Ranking.
-------
The Series B Junior Participating Preferred Stock shall rank junior to
all other series of the Company's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
Section 10. Fractional Shares.
-----------------
Series B Junior Participating Preferred Stock may be issued in
fractions which are integral multiples of one one-hundredth of a share.
Fractions of shares of Series B Junior Participating Preferred Stock may, at
the election of the Company, be evidenced by depositary receipts, pursuant to
an appropriate agreement between the Company and a depositary selected by the
Company. The holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Series B Junior Participating Preferred Stock represented by such
depositary receipts.
IN WITNESS WHEREOF, I have executed and subscribed this Certificate and
do affirm and acknowledge the foregoing as true under the penalties of
perjury this 22nd day of May, 1998.
-5-
<PAGE> 6
By: /s/ John Q. Arnold
-----------------------------------
Name: John Q. Arnold
Title: Vice Chairman and Chief Financial Officer
State of Missouri )
) SS.
City of St. Louis )
On this 22nd day of May, 1998, before me, Michael J. Marshall, a Notary
Public in and for the State of Missouri, personally appeared John Q. Arnold,
Vice Chairman and Chief Financial Officer of Mercantile Bancorporation Inc.,
known to me to be the person who executed the foregoing Certificate of
Designation and acknowledged to me that he executed the same pursuant to
authority given by the Board of Directors of such corporation as their free
and voluntary act, and as the free and voluntary act and deed of such
corporation, for the uses and purposes therein set forth.
/s/ Michael J. Marshall
---------------------------------------
Notary Public
My commission expires:
January 31, 2000
-6-
<PAGE> 1
RIGHTS AGREEMENT
MERCANTILE BANCORPORATION INC.
AND
HARRIS TRUST AND SAVINGS BANK
RIGHTS AGENT
DATED AS OF MAY 20, 1998
<PAGE> 2
<TABLE>
INDEX
-----
<CAPTION>
Page
----
<S> <C>
Section 1. Certain Definitions 1
Section 2. Appointment of Rights Agent 3
Section 3. Issue of Right Certificates 3
Section 4. Form of Right Certificates 4
Section 5. Countersignature and Registration 5
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates 5
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights 6
Section 8. Cancellation and Destruction of Right Certificates 7
Section 9. Reservation and Availability of Shares of Preferred Stock 7
Section 10. Preferred Stock Record Date 8
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights 8
Section 12. Certificate of Adjusted Purchase Price or Number of Shares 13
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power 13
Section 14. Fractional Rights and Fractional Shares 15
Section 15. Rights of Action 16
Section 16. Agreement of Right Holders 16
Section 17. Right Certificate Holder Not Deemed a Stockholder 16
Section 18. Concerning the Rights Agent 16
Section 19. Merger or Consolidation or Change of Name of Rights Agent 17
Section 20. Duties of Rights Agent 17
Section 21. Change of Rights Agent 19
Section 22. Issuance of New Right Certificates 20
Section 23. Redemption and Termination 20
-i-
<PAGE> 3
Section 24. Exchange 21
Section 25. Notice of Proposed Actions 22
Section 26. Notices 22
Section 27. Supplements and Amendments 23
Section 28. Successors 23
Section 29. Benefits of this Agreement 23
Section 30. Severability 23
Section 31. Governing Law 23
Section 32. Counterparts 23
Section 33. Descriptive Headings 23
EXHIBIT A - Form of Certificate of Designation A-1
EXHIBIT B - Form of Right Certificate B-1
EXHIBIT C - Form of Summary of Preferred Stock Purchase Rights C-1
</TABLE>
-ii-
<PAGE> 4
RIGHTS AGREEMENT
----------------
This Agreement, dated as of May 20, 1998, is entered into between
MERCANTILE BANCORPORATION INC., a Missouri corporation (the "Company"), and
HARRIS TRUST AND SAVINGS BANK (the "Rights Agent").
W I T N E S S E T H
-------------------
WHEREAS, on May 20, 1998, the Board of Directors of the Company
authorized and declared a dividend distribution of one right (hereinafter
referred to as a "Right") for each share of Common Stock, $.01 par value, of
the Company outstanding at the close of business on June 4, 1998 (the "Record
Date") (other than shares of such Common Stock held in the Company's treasury
on such date) and has authorized the issuance of one Right in respect of each
share of Common Stock of the Company issued between the Record Date (whether
originally issued or issued from the Company's treasury) and the Distribution
Date (as such term is defined in Section 3 hereof), each Right representing
the right to purchase one one-hundredth of a share of Series B Junior
Participating Preferred Stock of the Company having the rights, powers and
preferences set forth in the form of Certificate of Designation attached
hereto as Exhibit A, upon the terms and subject to the conditions hereinafter
---------
set forth (the "Rights");
WHEREAS, the Company desires to appoint the Rights Agent to act as
provided herein, and the Rights Agent is willing to so act;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
-------------------
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as hereinafter defined)
who or which, together with all Affiliates (as hereinafter defined) and
Associates (as hereinafter defined) of such Person, without the prior written
approval of a majority of the Board of Directors, shall be the Beneficial
Owner (as hereinafter defined) of securities of the Company constituting 20%
or more of the Voting Power (as hereinafter defined) of the Company or was
such a Beneficial Owner at any time after the date hereof, whether or not
such Person continues to be the Beneficial Owner of securities representing
20% or more of the Voting Power of the Company, but shall not include the
Company, any Subsidiary of the Company, any employee benefit plan of the
Company or any Subsidiary of the Company, any entity holding securities of
the Company to the extent organized, appointed or established by the Company
or any Subsidiary of the Company for or pursuant to the terms of any such
employee benefit plan. Notwithstanding the foregoing, no Person shall become
an "Acquiring Person" as the result of (i) an acquisition of Common Stock by
means of shares issued directly by the Company which increases the
proportionate Voting Power of such securities beneficially owned by such
Person to 20% or more of the Voting Power, where such acquisition is approved
by a majority of the Board of Directors; provided, however, that such Person
was not an Acquiring Person prior to such acquisition of shares from the
Company; (ii) an acquisition of voting securities of the Company by the
Company which, by reducing the amount of such securities outstanding,
increases the proportionate Voting Power of such securities beneficially
owned by such Person to 20% or more of the Voting Power; provided, however,
that if a Person becomes the Beneficial Owner of securities constituting 20%
or more of the Voting Power by reason of purchases by the Company and shall,
after such purchases by the Company, become the Beneficial Owner of any
additional voting securities of the Company (other than pursuant to a stock
dividend, stock split, capitalization or similar transaction that does not
affect the percentage of voting securities beneficially owned by such
person), then such Person shall be deemed to be an Acquiring Person.
Notwithstanding the foregoing, if a majority of the Board of Directors then
in office determines in good faith that a Person who would otherwise be an
"Acquiring Person," as defined pursuant to this Section 1(a), has become such
inadvertently, and such Person divests as promptly as practicable a
sufficient number of shares of voting securities of the Company so that such
Person would no longer be
<PAGE> 5
an Acquiring Person, then such Person shall not be deemed to be an "Acquiring
Person" for purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule l2b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date hereof.
(c) A person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and
between underwriters and selling group members with respect to a bona fide
public offering of securities), or upon the exercise of conversion rights,
exchange rights, rights (other than these Rights), warrants or options, or
otherwise, provided, however, that a Person shall not be deemed the
"Beneficial Owner" of securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's Affiliates
or Associates until such tendered securities are accepted for payment or
exchange; or (B) the right to vote pursuant to any agreement, arrangement or
understanding, provided, however, that a Person shall not be deemed the
"Beneficial Owner" of any security under this clause (B) if the agreement,
arrangement or understanding to vote such securities (1) arises solely from a
revocable proxy or consent given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules
and regulations of the Exchange Act and (2) is not also then reportable by
such person on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy or consent
as described in clause (B) of subparagraph (ii) of this paragraph (c)) or
disposing of any securities of the Company.
(d) "Business Day" shall mean any day other than a Saturday, Sunday,
or a day on which banking institutions in the States of Missouri or Illinois
are authorized or obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M.,
Central time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., Central time, on the next succeeding
Business Day.
(f) "Common Stock" shall mean the Common Stock, $.01 par value, of
the Company, except that "Common Stock" when used with reference to any
Person other than the Company shall mean the capital stock with the greatest
Voting Power of such Person or the equity securities or other equity interest
having power to control or direct the management of such Person or, if such
Person is a Subsidiary (as hereinafter defined) of another Person, of the
Person which ultimately controls such first-mentioned Person and which has
issued and outstanding such capital stock, equity securities or equity
interests.
(g) "Distribution Date" shall have the meaning defined in Section 3
hereof.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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<PAGE> 6
(i) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company or other entity, and shall include any
successor (by merger or otherwise) of any such entity.
(j) "Preferred Stock" shall mean the Series B Junior Participating
Preferred Stock, no par value, of the Company.
(k) "Purchase Price" shall have the meaning defined in Section 4
hereof.
(l) "Stock Acquisition Date" shall mean the earlier of (i) the first
date of public announcement by the Company or an Acquiring Person that an
Acquiring Person has become such, or (ii) the date on which the Company first
has notice, direct or indirect, or otherwise determines that a Person has
become an Acquiring Person.
(m) "Subsidiary" shall mean any corporation or other entity of which
the securities or other ownership interests having ordinary Voting Power, in
the absence of contingencies, to elect a majority of the board of directors
or other persons performing similar functions are at the time directly or
indirectly owned by another corporation or other entity and shall include
Subsidiaries of Subsidiaries, except that "Subsidiary" when used with
reference to the Company shall mean any corporation or other entity of which
either a majority of the Voting Power of the voting equity securities or a
majority of the equity interests is owned, directly or indirectly, by the
Company.
(n) "Voting Power" shall mean the Voting Power of all securities of a
Person then outstanding generally entitled to vote for the election of
directors of the Person (or, where appropriate, for the election of persons
performing similar functions).
Section 2. Appointment of Rights Agent. The Company hereby appoints
---------------------------
the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof shall prior to the
Distribution Date also be the holders of the Common Stock) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such Co-Rights Agents
as it may deem necessary or desirable. In the event the Company appoints one
or more Co-Rights Agents, the respective duties of the Rights Agent and any
Co-Rights Agents shall be as the Company shall determine.
Section 3. Issue of Right Certificates.
---------------------------
(a) Until the earlier of (i) the Close of Business on the tenth day
after the Stock Acquisition Date or (ii) the Close of Business on the tenth
day (or such later date as may be determined by action of a majority of the
Board of Directors prior to such time as any Person becomes an Acquiring
Person) after the date of the commencement of, or first public announcement
of the intent of any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, or any entity holding securities of the Company to the extent
organized, appointed or established by the Company or any Subsidiary of the
Company for or pursuant to the terms of any such employee benefit plan) to
commence (which intention to commence remains in effect for five Business
Days after such announcement), without the prior written approval of a
majority of the Board of Directors, a tender or exchange offer which would
result in any Person becoming the Beneficial Owner of securities representing
20% or more of the Voting Power of the Company (including any such date which
is after the date of this Agreement and prior to the issuance of the Rights;
the earlier of such dates being herein referred to as the "Distribution
Date"): (x) the Rights will be evidenced (subject to the provisions of
paragraph (b) of this Section 3) by the certificates for the Common Stock
registered in the names of the holders of the Common Stock (which
certificates for Common Stock shall be deemed also to be Right Certificates)
and not by separate Right Certificates, as more fully set forth below, and
(y) the Rights (and the right to receive certificates therefor) will be
transferable only in connection with the transfer of the underlying shares of
Common Stock, as more fully set forth below. As soon as practicable after
the Company has notified the Rights Agent of the occurrence of the
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<PAGE> 7
Distribution Date, the Company shall prepare and execute, and the Rights
Agent shall countersign and send, at the expense of the Company, by
first-class, insured, postage prepaid mail, to each record holder of the
Common Stock as of the Close of Business on the Distribution Date, at the
address of such holder shown on the records of the Company, a right certificate,
in substantially the form of Exhibit B hereto (the "Right Certificate"),
evidencing one Right for each share of Common Stock so held. As of and after
the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) On the Record Date or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Preferred Stock,
in substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class postage prepaid mail, to each record holder of the Common Stock
as of the Close of Business on the Record Date, at the address of such holder
shown on the records of the Company. With respect to certificates for the
Common Stock outstanding as of the Record Date until the Distribution Date
(or the earlier redemption, exchange, expiration or termination of the
Rights), the Rights will be evidenced by such certificates for the Common
Stock registered in the names of the holders of the Common Stock and the
registered holders of the Common Stock shall also be registered holders of
the associated Rights. Until the Distribution Date (or the earlier
redemption, exchange, expiration or termination of the Rights), the surrender
for transfer of any of the certificates for the Common Stock outstanding in
respect of which Rights have been issued (with or without a copy of the
Summary of Rights attached thereto) shall also constitute the transfer of the
Rights associated with the Common Stock represented by such certificate.
(c) Certificates for the Common Stock issued after the Record Date
but prior to the earlier of the Distribution Date or the redemption,
expiration or termination of the Rights shall be deemed also to be
certificates for Rights and shall have impressed, printed or written on, or
otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between Mercantile
Bancorporation Inc. and the Rights Agent, the terms of which are
incorporated herein by reference and a copy of which is on file at the
principal executive offices of Mercantile Bancorporation Inc. Under
certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. Mercantile Bancorporation Inc. will
mail to the holder of this certificate a copy of the Rights Agreement
without charge promptly following receipt of a written request
therefor. Under certain circumstances, Rights beneficially owned by
Acquiring Persons (as defined in the Rights Agreement) and any
subsequent holder of such Rights, may become null and void.
With respect to such certificates containing the foregoing legend,
until the Distribution Date (or the earlier redemption, exchange, expiration
or termination of the Rights), the Rights associated with the Common Stock
represented by such certificates shall be evidenced by such certificates
alone, and the surrender for transfer of any of such certificates shall also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificates.
In the event that the Company purchases or acquires any Common Stock
after the Record Date but prior to the Distribution Date, any Rights
associated with such Common Stock shall be deemed canceled and retired so
that the Company shall not be entitled to exercise any Rights associated with
the Common Stock which are no longer outstanding. Upon reissuance of such
Common Stock by the Company prior to the Distribution Date (or earlier
redemption, exchange, expiration or termination of the Rights), the Rights
shall again attach to such Common Stock as set forth in this Section 3(c).
Section 4. Form of Right Certificates.
--------------------------
(a) The Right Certificates (and the forms of election to purchase
shares and of assignment to be printed on the reverse thereof) shall be in
substantially the same form as Exhibit B
---------
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<PAGE> 8
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any applicable law, rule or
regulation or with any rule or regulation of any stock exchange on which the
Rights may from time to time be listed, or to conform to customary usage.
Subject to the provisions of Section 11 and Section 22 hereof, the Right
Certificates, whenever issued, shall be dated as of the Record Date, and on
their face shall entitle the holders thereof to purchase such number of one
one-hundredths of a share of Preferred Stock as shall be set forth therein at
the price per one one-hundredth of a share as set forth therein (the
"Purchase Price"), but the number of such shares and the Purchase Price shall
be and remain subject to adjustment as provided in Sections 11 and 13 hereof.
(b) Any Right Certificate issued pursuant to Section 3(a) hereof that
represents Rights as to which an Acquiring Person or any Associate or
Affiliate thereof is the Beneficial Owner and any Right Certificate issued at
any time upon the transfer of any Rights to an Acquiring Person or any
Associate or Affiliate thereof or to any nominee of such Acquiring Person,
Associate or Affiliate, and any Right Certificate issued pursuant to Section
6 hereof, Section 11 hereof or Section 22 hereof upon transfer, exchange,
replacement or adjustment of any other Right Certificate referred to in this
sentence, shall contain (to the extent feasible) the following legend:
The Rights represented by this Right Certificate were issued to a
Person who was an Acquiring Person or an Affiliate or an Associate of
an Acquiring Person. This Right Certificate and the Rights represented
hereby may become void in the circumstances specified in Section 7(e)
of the Rights Agreement.
The failure to print the foregoing legend on any such Right Certificate or
any defect therein shall not affect in any manner whatsoever the application
or interpretation of the provisions of Section 7(e) hereof.
Section 5. Countersignature and Registration.
---------------------------------
(a) The Right Certificates shall be executed on behalf of the Company
by its President or any Vice President, either manually or by facsimile
signature, and shall have affixed thereto the Company's seal or a facsimile
thereof which shall be attested by the Secretary or an Assistant Secretary of
the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent or any
registrar for the Common Stock (the "Registrar") and shall not be valid for
any purpose unless so countersigned. In case any officer of the Company
whose manual or facsimile signature is affixed to the Right Certificates
shall cease to be such officer of the Company before countersignature by the
Rights Agent or the Registrar and issuance and delivery by the Company, such
Right Certificates, nevertheless, may be countersigned by the Rights Agent or
the Registrar, issued and delivered with the same force and effect as though
the Person who signed such Right Certificates had not ceased to be such
officer of the Company. Any Right Certificate may be signed on behalf of the
Company by any Person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement
any such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, books for registration and transfer of the Right
Certificates issued hereunder. Such books shall show the names and addresses
of the respective holders of the Right Certificates, the number of Rights
evidenced on its face by each of the Right Certificates, the certificate
number of each of the Right Certificates and the date of each of the Right
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
-----------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
- ---------------------------------------------------------------------
Subject to the provisions of Section 14 hereof, at any time after the Close
of Business on the Distribution Date, and at or prior to the Close of
Business on the Expiration Date (as such term is defined in Section 7(a)
hereof), any Right Certificate or Certificates (other than Right Certificates
representing Rights that have become void pursuant to Section 7(e) hereof)
may be transferred, split up, combined or exchanged for another Right
Certificate or Right Certificates,
-5-
<PAGE> 9
entitling the registered holder to purchase a like number of shares of
Preferred Stock as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate shall make such
request in writing delivered to the Rights Agent, and shall surrender the
Right Certificate or Right Certificates to be transferred, split up, combined
or exchanged at the principal office of the Rights Agent. Thereupon, the
Rights Agent or the Registrar shall countersign and deliver to the Person
entitled thereto a Right Certificate or Rights Certificates, as the case may
be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with
any transfer, split up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to the Company and the Rights Agent, and
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation
of the Right Certificate if mutilated, the Company will make and deliver a
new Right Certificate of like tenor to the Rights Agent or the Registrar for
countersignature and delivery to the registered owner in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
------------------------------------------------------
Rights.
- ------
(a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the principal office of the
Rights Agent together with payment of the Purchase Price for each one
one-hundredth of a share of Preferred Stock as to which the Rights are
exercised, at or prior to the Close of Business on the earlier of (i) June 3,
2008 (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof, or (iii) the time at which the Rights
are exchanged as provided in Section 24 hereof (such earlier date being herein
referred to as the "Expiration Date").
(b) The Purchase Price for each one one-hundredth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be
$212.00, subject to adjustment from time to time as provided in Sections 11
and 13 hereof, and shall be payable in lawful money of the United States of
America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate, with the form of election to
purchase duly executed, accompanied by payment of the Purchase Price for each
one one-hundredth of a share of Preferred Stock to be purchased and an amount
equal to any applicable transfer tax required to be paid by the holder of the
Rights pursuant hereto in accordance with Section 9 hereof in cash, or by
certified check or money order payable to the order of the Company, the
Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i)
either (A) requisition from any transfer agent of the shares of Preferred
Stock (or make available, if the Rights Agent is the transfer agent),
certificates for the number of shares of Preferred Stock to be purchased and
the Company hereby irrevocably authorizes its transfer agent to comply with
all such requests, or (B) if the Company, in its sole discretion, shall have
elected to deposit the shares of Preferred Stock issuable upon exercise of
the Rights hereunder into a depositary, requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a share
of Preferred Stock as are to be purchased (in which case certificates for the
shares of Preferred Stock represented by such receipts shall be deposited by
the transfer agent with the depositary agent) and the Company hereby
irrevocably authorizes the depositary agent to comply with all such requests,
(ii) when appropriate, requisition from the Company the amount of cash to be
paid in lieu of issuance of fractional shares in accordance with Section 14
hereof, (iii) promptly after receipt of such certificates or depositary
receipts cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate, registered in such name or names
as may be designated by such holder, and (iv) when appropriate, after
receipt, promptly deliver such cash in lieu of issuance of fractional shares
to or upon the order of the registered holder of such Right Certificate.
-6-
<PAGE> 10
(d) In case the registered holder of any Right Certificate shall
exercise less than all of the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, upon
the occurrence of any of the events listed in Section 11(b) or in Section
13(a) hereof, any Rights of which an Acquiring Person or any Associate or
Affiliate of the Acquiring Person was the Beneficial Owner at any time on or
after the earlier of the Stock Acquisition Date or the Distribution Date
shall become void with respect to the rights provided under Section 11(b) and
Section 13(a) hereof and any holder of such Rights shall thereafter have no
right to exercise such rights under the provisions of Section 11(b) and
Section 13(a).
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any
purported exercise as set forth in this Section 7 unless the certification
contained in the appropriate form of election to purchase set forth on the
reverse side of the Right Certificate surrendered for such exercise shall
have been properly completed and duly executed by the registered holder
thereof and the Company shall have been provided with such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner)
of such Rights or Affiliates or Associates of such Beneficial Owner (or
former Beneficial Owner) as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All
--------------------------------------------------
Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent in canceled form, or, if
surrendered to the Rights Agent in uncanceled form, shall be canceled by the
Rights Agent, and no Right Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Rights
Agreement. The Company shall deliver to the Rights Agent for cancellation
and retirement, and the Rights Agent shall so cancel and retire, any other
Right Certificate purchased or acquired by the Company otherwise than upon
the exercise thereof. The Rights Agent shall deliver all canceled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such canceled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Shares of Preferred Stock.
---------------------------------------------------------
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock or its authorized and issued shares of Preferred Stock held
in treasury, the number of shares of Preferred Stock that will be sufficient
to permit the exercise in full of all outstanding Rights and, after the
occurrence of an event specified in Section 11(b) hereof, shall so reserve
and keep available a sufficient number of shares of Preferred Stock, Common
Stock and/or other securities which may be required to permit the exercise in
full of the Rights pursuant to this Agreement.
(b) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock
and/or other securities delivered upon exercise of Rights shall, at the time
of delivery of the certificates for such shares or other securities (subject
to payment of the Purchase Price), be duly and validly authorized and issued
and fully paid and nonassessable shares or securities.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the first occurrence of an event which (with the
passage of the prescribed time periods set forth in Section 3(a) hereof)
would establish the Distribution Date, a registration statement on an
appropriate form under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities purchasable upon exercise
of the Rights, (ii) cause such registration statement to become effective as
soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the date of the expiration of
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<PAGE> 11
the Rights. The Company will also take such action as may be appropriate
under the Blue Sky laws of the various states.
(d) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Right
Certificates or of any shares of Preferred Stock and/or other securities upon
the exercise of Rights. The Company shall not, however, be required to pay
any transfer tax which may be payable in respect of any transfer involved in
the transfer or delivery of Right Certificates or the issuance or delivery of
certificates or depositary receipts for Preferred Stock and/or other
securities in a name other than that of the registered holder of the Right
Certificate evidencing Rights surrendered for exercise, nor shall the Company
be required to issue or deliver any certificates or depositary receipts for
shares of Preferred Stock and/or other securities upon the exercise of any
Rights until any such tax shall have been paid (any such tax being payable by
the holder of such Right Certificate at the time of surrender) or until the
Company has established to its satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person (other than the
---------------------------
Company) in whose name any certificate for shares of Preferred Stock (or
other securities) is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of the Preferred Stock
(or other securities) represented thereby on, and such certificate shall be
dated, the date upon which the Right Certificate evidencing such Rights was
duly surrendered and payment of the Purchase Price (and any applicable
transfer taxes) was made; provided, however, that if the date of such
surrender and payment is a date upon which the Preferred Stock (or other
securities) transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Stock (or other securities) transfer books of the Company are open.
Prior to the exercise of the Rights evidenced thereby, the holder as a Right
Certificate shall not be entitled to any rights of a stockholder of the
Company with respect to shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or
other distributions or to exercise any preemptive rights, and shall not be
entitled to receive any notice of any proceedings of the Company, except as
provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number
--------------------------------------------------------
of Rights. The Purchase Price, the number of shares covered by each Right
- ---------
and the number of Rights outstanding are subject to adjustment from time to
time as provided in this Section 11.
(a) In the event the Company shall at any time after the date of this
Agreement (ii) declare a dividend on the Preferred Stock payable in shares of
Preferred Stock, (ii) subdivide the outstanding Preferred Stock, (iii)
combine the outstanding Preferred Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock in a reclassification of the
Preferred Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11, the Purchase
Price in effect at the time of the record date for such dividend or the time
of the effective date of such subdivision, combination or reclassification,
and the number and kind of shares of capital stock, including Preferred
Stock, issuable upon exercise of a Right, shall be proportionately adjusted
so that the holder of any Right exercised after such time, upon payment of
the aggregate Purchase Price such holder would have to pay to exercise such
Right prior to such time, shall be entitled to receive the aggregate number
and kind of shares of capital stock, including Preferred Stock, which, if
such Right had been exercised immediately prior to such date and at a time
when the Preferred Stock transfer books of the Company were open, such holder
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination or reclassification.
(b) In the event any Person shall become an Acquiring Person, then
proper provision shall be made so that each holder of a Right, subject to
Section 7(e) and except as provided below, shall after the later of the
occurrence of such event and the effective date of an appropriate
registration statement pursuant to Section 9 hereof, have a right to receive,
upon exercise thereof at the then current Purchase Price in accordance with
the terms of this Agreement, in lieu of shares of Preferred Stock, such
number of shares of Common Stock of the Company as shall equal the result
obtained by (x) multiplying
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<PAGE> 12
the then current Purchase Price by the number of one one-hundredths of a
share of Preferred Stock for which a Right is then exercisable and dividing
that product by (y) 50% of the Current Market Price per one share of Common
Stock (determined pursuant to Section 11(f) hereof on the date of the
occurrence of any one of the events listed above in this subparagraph (b))
(such number of shares being referred to as the "Number of Adjustment
Shares").
(c) In the event that there shall not be sufficient shares in
treasury or authorized but unissued shares of Common Stock to permit the
exercise in full of the Rights in accordance with the foregoing Section 11(b)
and the Rights become so exercisable, notwithstanding any other provision of
this Agreement, to the extent necessary and permitted by applicable law and
any agreements in effect on the date hereof to which the Company is a party,
each Right shall thereafter represent the right to receive, upon exercise
thereof at the then current Purchase Price in accordance with the terms of
this Agreement, a number of shares, or unit of shares, of (x) Common Stock,
and (y) any class or series of preferred stock (or other equity securities)
of the Company, including, but not limited to Preferred Stock, equal in the
aggregate to the Number of Adjustment Shares where the Board of Directors
shall have in good faith deemed such shares or units, other than the shares
of Common Stock, to have at least the same value and voting rights as the
Common Stock (a "Common Stock Equivalent"); provided however, if there are
unavailable sufficient shares (or fractions of shares) of Common Stock and/or
Common Stock Equivalents, then the Company shall take all such action as may
be necessary to authorize additional shares of Common Stock or Common Stock
Equivalents for issuance upon exercise of the Rights, including the calling
of a meeting of stockholders; and provided, further, that if the Company is
unable to cause sufficient shares of Common Stock and/or Common Stock
Equivalents to be available for issuance upon exercise in full of the Rights,
then the Company, to the extent necessary and permitted by applicable law,
and any agreements or instruments in effect on the date thereof to which it
is a party, shall make provision to pay an amount in cash equal to twice the
Purchase Price (as adjusted pursuant to this Section 11), in lieu of issuing
shares of Common Stock and/or Common Stock Equivalents. To the extent that
the Company determines that some action needs to be taken pursuant to this
Section 11(c), a majority of the Board of Directors may suspend the
exercisability of the Rights for a period of up to sixty (60) days following
the date on which the event described in Section 11(b) hereof shall have
occurred, in order to decide the appropriate form of distribution to be made
pursuant to this Section 11(c) and to determine the value thereof. In the
event of any such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily suspended.
The Board of Directors may, but shall not be required to, establish
procedures to allocate the right to receive Common Stock and Common Stock
Equivalents upon exercise of the Rights among holders of Rights, which such
allocation may be, but is not required to be, pro rata.
(d) If the Company shall fix a record date for the issuance of rights
or warrants to all holders of Preferred Stock entitling them (for a period
expiring within 90 calendar days after such record date) to subscribe for or
purchase Preferred Stock (or securities having the same or more favorable
rights, privileges and preferences as the Preferred Stock ("Equivalent
Preferred Stock")) or securities convertible into Preferred Stock or
Equivalent Preferred Stock, at a subscription or purchase price per share of
Preferred Stock or per share of Equivalent Preferred Stock or having a
conversion price per share, as the case may be, less than the Current Market
Price per share of Preferred Stock (as defined in Section 11(f) hereof) on
such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such date by a fraction, the numerator of which shall be the number
of shares of Preferred Stock outstanding on such record date plus the number
of shares of Preferred Stock which the aggregate subscription or purchase
price of the total number of shares of Preferred Stock or Equivalent
Preferred Stock to be offered for subscription or purchase (and/or the
aggregate initial conversion price of the convertible securities so to be
offered for subscription or purchase) would purchase at such Current Market
Price, and the denominator of which shall be the number of shares of
Preferred Stock outstanding on such record date plus the number of additional
shares of Preferred Stock and/or Equivalent Preferred Stock to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible). In case such subscription or purchase
price (and/or the conversion price of convertible securities) may be paid in
a consideration, part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by a
majority of the Board of Directors, whose determination shall be
-9-
<PAGE> 13
described in a statement filed with the Rights Agent. Shares of Preferred
Stock owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall
be made successively whenever such a record date is fixed; and in the event
that such rights or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(e) If the Company shall fix a record date for the making of a
distribution to all holders of Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness, cash (other than a regular periodic cash dividend out of
earnings or retained earnings of the Company), assets (other than a dividend
payable in Preferred Stock, but including any dividend payable in stock other
than Preferred Stock) or convertible securities, subscription rights or
warrants (excluding those referred to in Section 11(d) hereof), the Purchase
Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record
date by a fraction, the numerator of which shall be the Current Market Price
for one share of Preferred Stock (as defined in Section 11(f) hereof) on such
record date less the fair market value (as determined in good faith by a
majority of the Board of Directors, whose determination shall be described in
a statement filed with the Rights Agent) of the portion of the assets or
evidences of indebtedness so to be distributed or of such convertible
securities, subscription rights or warrants applicable to one share of
Preferred Stock, and the denominator of which shall be such Current Market
Price for one share of Preferred Stock. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(f) (i) For the purpose of any computation hereunder, the
"Current Market Price" of any security (a "Security" for purposes of this
Section 11(f)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
(as hereinafter defined) immediately prior to such date; provided, however,
that in the event that the Current Market Price per share of such Security is
determined during a period following the announcement by the issuer of such
Security of (A) a dividend or distribution on such Security payable in shares
of such Security or securities convertible into shares of such Security or
(B) any subdivision, combination or reclassification of such Security, and
prior to the expiration of 30 Trading Days after the ex-dividend date for
such dividend or distribution or the record date for such subdivision,
combination or reclassification, then, and in each such case, the "Current
Market Price" shall be appropriately adjusted to reflect the Current Market
Price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on
the New York Stock Exchange or, if the Security is not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed
on the principal national securities exchange on which the Security is listed
or admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last transaction price as
reported by the NASDAQ National Market or, if not so reported, the average of
the high bid and low asked prices in the over-the-counter market, as reported
by the NASDAQ Stock Market or such other system then in use, or, if on any
such date the Security is not reported by any such organization, the average
of the closing bid and asked prices as furnished by a professional market
maker in the Security selected by a majority of the Board of Directors. If
on any such date no market maker is making a market in the Security, the fair
value of such Security on such date as determined in good faith by a majority
of the Board of Directors shall be used. The term "Trading Day" shall mean a
day on which the principal national securities exchange on which the Security
is listed or admitted to trading is open for the transaction of business or,
if the Security is not listed or admitted to trading on any national
securities exchange, a Business Day. If the Security is not publicly held or
not so listed or traded, "Current Market Price" shall mean the fair value as
determined in good faith by a majority of the Board of Directors, whose
determination shall be described in a statement filed with the Rights Agent.
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<PAGE> 14
(ii) For the purposes of any computation hereunder, the
"Current Market Price" per share (or one one-hundredth of a share) of
Preferred Stock shall be determined in the same manner as set forth above for
the Common Stock in clause (i) of this Section 11(f) (other than the last
sentence thereof). If the Current Market Price per share (or one
one-hundredth of a share) of Preferred Stock cannot be determined in the
manner provided above or if the Preferred Stock is not publicly held or listed
or traded in a manner described in clause (i) of this Section 11(f), the
"Current Market Price" per share of Preferred Stock shall be conclusively
deemed to be an amount equal to 100 (as such number may be appropriately
adjusted for such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock occurring after the date
of this Agreement) multiplied by the Current Market Price per share of the
Common Stock and the "Current Market Price" per one one-hundredth of a share
of Preferred Stock shall be equal to the Current Market Price per share of
the Common Stock (as appropriately adjusted). If neither the Common Stock or
the Preferred Stock is publicly held or so listed or traded, "Current Market
Price" per share shall mean the fair value per share as determined in good
faith by the Board of Directors, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all
purposes.
(g) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments which by reason of this Section 11(g) are not required
to be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the
nearest cent or to the nearest ten-thousandth of a share, as the case may be.
Notwithstanding the first sentence of this Section 11(g), any adjustment
required by this Section 11 shall be made no later than the earlier of (i)
three years from the date of the transaction which mandates such adjustment
or (ii) the Expiration Date.
(h) In the event that at any time, as a result of an adjustment made
pursuant to Section 11(a) or (b) hereof, the holder of any Right shall be
entitled to receive upon exercise of such Right any shares of capital stock
of the Company other than shares of Preferred Stock, thereafter the number of
such other shares so receivable upon exercise of any Right shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to the shares contained in
Section 11(a) through (e) hereof, inclusive, and the provisions of Section 7,
9, 10, 13 and 14 hereof with respect to the shares of Preferred Stock shall
apply on like terms to any such other shares.
(i) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of shares of Preferred
Stock or other capital stock of the Company purchasable from time to time
hereunder upon exercise of the Rights, all subject to further adjustment of
the Purchase Price.
(j) Unless the Company shall have exercised its election as provided
in Section 11(k) hereof, upon each adjustment of the Purchase Price as a
result of the calculations made in Section 11(d) and (e) hereof, each Right
outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase Price,
that number of one one-hundredths of a share of Preferred Stock (calculated
to the nearest ten-thousandth) obtained by (i) multiplying (A) the number of
one one-hundredths of a share of Preferred Stock covered by a Right
immediately prior to the adjustment by (B) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after
such adjustment of the Purchase Price.
(k) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of shares of Preferred Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of
the number of Rights shall be exercisable for the number of one
one-hundredths of a share of Preferred Stock for which such Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest ten-thousandth) obtained by dividing the
Purchase Price in effect immediately
-11-
<PAGE> 15
prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on
which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date
of the public announcement. If the Right Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(k), the
Company shall, as promptly as practicable, cause to be distributed to holders
of record of Right Certificates on such record date Right Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option
of the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof if required by
the Company, new Right Certificates evidencing all the Rights to which such
holders shall be entitled after such adjustment. Right Certificates to be so
distributed shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company, the adjusted
Purchase Price) and shall be registered in the names of the holders of record
of Right Certificates on the record date specified in the public
announcement.
(l) Irrespective of any adjustment or change in the Purchase Price or
the number of shares of Preferred Stock issuable upon the exercise of the
Rights, the Right Certificates theretofore and thereafter issued may continue
to express the Purchase Price and the number of shares which were expressed
in the initial Right Certificates issued hereunder.
(m) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the shares of Common
Stock or other securities and below one one-hundredth of the then par value,
if any, of the Preferred Stock, issuable upon exercise of the Rights, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of such Preferred Stock, Common Stock or
other securities at such adjusted Purchase Price. If upon any exercise of
the Rights, a holder is to receive a combination of Common Stock and Common
Stock Equivalents, a portion of the consideration paid upon such exercise,
equal to at least the then par value of a share of Common Stock of the
Company, shall be allocated as the payment for each share of Common Stock of
the Company so received.
(n) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the shares of Preferred Stock and other capital stock or securities of the
Company, if any, issuable upon such exercise over and above the shares of
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment; provided, however, that the Company shall deliver
to such holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares upon the occurrence of the
event requiring such adjustment.
(o) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and
to the extent that in their good faith judgment a majority of the Board of
Directors shall determine to be advisable in order that any (i) consolidation
or subdivision of the Preferred Stock, (ii) issuance wholly for cash of any
Preferred Stock at less than the then Current Market Price, (iii) issuance
wholly for cash of Preferred Stock or securities which by their terms are
convertible into or exchangeable for Preferred Stock, (iv) stock dividends or
(v) issuance of rights, options or warrants referred to hereinabove in this
Section 11, hereafter made by the Company to the holders of its Preferred
Stock, shall not be taxable to such stockholders.
(p) The Company covenants and agrees that it shall not, at any time
after the Distribution Date and so long as the Rights have not been redeemed
pursuant to Section 23 hereof or exchanged pursuant to Section 24 hereof, (i)
consolidate with, (ii) merge with or into, or (iii) sell or
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<PAGE> 16
transfer, in one or more transactions, assets or earning power aggregating
more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to, any other Person, if at the time of or
immediately after such consolidation, merger or sale there are any rights,
warrants or other instruments or securities outstanding or agreements in
effect which would substantially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights.
(q) The Company covenants and agrees that, after the Stock
Acquisition Date, it will not, except as permitted by Section 23 hereof or
Section 24 hereof, take any action the purpose or effect of which is to
diminish substantially or otherwise eliminate the benefits intended to be
afforded by the Rights.
Section 12. Certificate of Adjusted Purchase Price or Number of
---------------------------------------------------
Shares. Whenever an adjustment is made as provided in Sections 11 or 13
- ------
hereof, the Company shall (a) promptly prepare a certificate setting forth
such adjustment, and a brief statement of the facts accounting for such
adjustment, (b) promptly file with the Rights Agent and with each transfer
agent for the Preferred Stock and the Common Stock a copy of such certificate
and (c) mail a brief summary thereof to each holder of a Right Certificate in
accordance with Section 26 hereof. The Rights Agent shall be fully protected
in relying on any such certificate and on any adjustments therein contained
and shall not be obligated or responsible for calculating any adjustment nor
shall the Rights Agent be deemed to have knowledge of such adjustment unless
and until the Rights Agent shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
------------------------------------------------------
Earning Power.
- -------------
(a) In the event that, directly or indirectly, following the
Distribution Date, (x) the Company shall consolidate with, or merge with and
into, any other Person, (y) any Person shall consolidate with or merge with
and into the surviving corporation of such merger and, in connection with
such merger, all or part of the Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or any
other property, or (z) the Company shall sell, or otherwise transfer (or one
or more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to
any other Person other than to the Company or one or more of its wholly owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (i) each holder of a Right, subject to Section 7(e), shall thereafter
have the right to receive, upon the exercise thereof at the then current
Purchase Price in accordance with the terms of this Agreement, in lieu of
Preferred Stock, such number of shares of freely tradable Common Stock of the
Principal Party (as hereinafter defined), free and clear of liens, rights of
call or first refusal, encumbrances or other adverse claims, as shall be
equal to the result obtained by (A) multiplying the then current Purchase
Price by the number of one one-hundredths of a share of Preferred Stock for
which a Right is then exercisable and dividing that product by (B) 50% of the
Current Market Price per share of the Common Stock of such Principal Party
(determined in the manner described in Section 11(f) hereof) on the date of
consummation of such consolidation, merger, sale or transfer; (ii) the
Principal Party shall thereafter be liable for, and shall assume, by virtue
of such consolidation, merger, sale or transfer, all the obligations and
duties of the Company pursuant to this Agreement; (iii) the term "Company"
shall thereafter be deemed to refer to such Principal Party, it being
specifically intended that the provisions of Section 11 hereof, except for
the provisions of Section 11(b), shall apply to such Principal Party; and
(iv) such Principal Party shall take such steps (including, but not limited
to, the authorization and reservation of a sufficient number of shares of its
Common Stock to permit exercise of all outstanding Rights in accordance with
this Section 13(a)) in connection with such consummation as may be necessary
to assure that the provisions hereof shall thereafter be applicable, as
nearly as reasonably may be, in relation to the shares of its Common Stock
thereafter deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean"
(i) in the case of any transaction described in clause (x) or
(y) of the first sentence of Section 13(a) hereof, the Person that is the
issuer of any securities into which shares of
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<PAGE> 17
Common Stock of the Company are converted in such merger or consolidation,
and if no securities are so issued, the Person, including the Company, that
is the other party to the merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a) hereof, the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions; provided, however, that in any
case described in clause (i) or (ii) in this Section 13(b), (x) if the Common
Stock of such Person is not at such time and has not been continuously over
the preceding 12-month period registered under Section 12 of the Exchange
Act, and such Person is a direct or indirect Subsidiary or Affiliate of
another Person, "Principal Party" shall refer to whichever of such Persons is
the issuer of the Common Stock having the greatest market value, and (z) in
case such Person is owned, directly or indirectly, by a joint venture formed
by two or more Persons that are not owned, directly or indirectly, by the
same Person, the rules set forth in (x) and (y) above shall apply to each of
the chains of ownership having an interest in such joint venture as if such
party were a "Subsidiary" of both or all of such joint venturers and the
Principal Parties in each such chain shall bear the obligations set forth in
this Section 13 in the same ratio as their direct or indirect interests in
such Person bear to the total of such interest.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company and each Principal Party
and each other Person who may become a Principal Party as a result of such
consolidation, merger, sale or transfer shall have executed and delivered to
the Rights Agent a supplemental agreement providing for the terms set forth
in paragraphs (a) and (b) of this Section 13 and further providing that, as
soon as practicable after the date of any consolidation, merger or sale of
assets mentioned in paragraph (a) of this Section 13, the Principal Party
will:
(i) prepare and file a registration statement on an
appropriate form under the Securities Act with respect to the Rights and the
securities purchasable upon exercise of the Rights, will use its best efforts
to cause such registration statement to become effective as soon as
practicable after such filing and will use its best efforts to cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the Expiration Date;
(ii) use its best efforts to qualify or register the Rights
and the securities purchasable upon exercise of the Rights under the Blue Sky
laws of such jurisdictions as may be necessary or appropriate; and
(iii) will deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form 10
under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. In lieu
of such fractional Rights, there shall be paid to the registered holders of
the Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section
14(a), the current market value of a whole Right shall be the closing price
of the Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for
any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to
securities listed on the principal national
-14-
<PAGE> 18
securities exchange on which the Rights are listed or admitted to trading or,
if the Rights are not listed or admitted to trading on any national
securities exchange, the last transaction price as reported by the NASDAQ
National Market, or, if not so reported, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the NASDAQ Stock
Market or such other system then in use or, if on any such date the Rights
are not reported by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker in the Rights
selected by a majority of the Board of Directors. If on any such date no
such market maker is making a market in the Rights, the fair value of the
Rights on such date as determined in good faith by a majority of the Board of
Directors shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one
one-hundredth of a share of Preferred Stock) upon exercise of the Rights or
to distribute certificates which evidence fractional shares of Preferred
Stock (other than fractions which are integral multiples of one one-hundredth
of a share of Preferred Stock). Fractions of shares of Preferred Stock in
integral multiples of one one-hundredth of a share of Preferred Stock may, at
the election of the Company, be evidenced by depositary receipts, pursuant to
an appropriate agreement between the Company and a depositary selected by it,
provided that such agreement shall provide that the holders of such
depositary receipts shall have all the rights, privileges and preferences to
which they are entitled as beneficial owners of the shares of Preferred Stock
represented by such depositary receipts. In lieu of fractional shares of
Preferred Stock that are not integral multiples of one one-hundredth of a
share of Preferred Stock, the Company may pay to the registered holders of
Right Certificates at the time such Right Certificates are exercised as
herein provided, an amount in cash equal to the same fraction of the current
market value of one one-hundredth of a share of Preferred Stock. For
purposes of this Section 14(b), the current market value of one one-hundredth
of a share of Preferred Stock shall be one one-hundredth of the closing price
of a share of Preferred Stock (as determined pursuant to Section 11(f)(ii)
hereof) for the Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of one of the transactions or events
specified in Section 11 hereof giving rise to the right to receive Common
Stock, Common Stock Equivalents or other securities (other than Preferred
Stock) upon the exercise of a Right, the Company shall not be required to
issue fractions of shares or units of such Common Stock, Common Stock
Equivalents or other securities upon exercise of the Rights or to distribute
certificates which evidence fractional shares of such Common Stock, Common
Stock Equivalents or other securities. In lieu of fractional shares or units
of such Common Stock, Common Stock Equivalents or other securities, the
Company may pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the
same fraction of the current market value of a share or unit of such Common
Stock, Common Stock Equivalent or other securities. For purposes of this
Section 14(c), the current market value shall be determined in the manner set
forth in Section 11(f)(i) hereof for the Trading Day immediately prior to the
date of such exercise and, if such Common Stock, Common Stock Equivalent or
other securities are not traded, each such share or other unit of Common
Stock, Common Stock Equivalent or other securities shall have the value of
one one-hundredth of a share of Preferred Stock.
(d) Except as otherwise expressly provided in this Section 14, the
holder of a Right by the acceptance of the Rights expressly waives his right
to receive any fractional Rights or any fractional share upon exercise of
Rights.
Section 15. Rights of Action. All rights of action in respect of this
----------------
Agreement, except for rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered
holders of Common Stock); and any registered holder of any Right Certificate
(or, prior to the Distribution Date, of the Common Stock), without the
consent of the Rights Agent or of the holder of any other Right Certificate
(or, prior to the Distribution Date, of the Common Stock), may, on his own
behalf and for his own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act
in respect of, his right to exercise the Rights evidenced by such Right
Certificate in the manner provided in such Right Certificate and in this
Agreement. Without limiting the
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<PAGE> 19
foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an
adequate remedy at law for any breach of this Agreement and will be entitled
to specific performance of the obligations under, and injunctive relief
against actual or threatened violations of, the obligations of any Person
subject to this Agreement. Holders of Rights shall be entitled to recover
the reasonable costs and expenses, including attorneys' fees, incurred by
them in any action to enforce the provisions of this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right by
--------------------------
accepting the same consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Stock
certificate made by anyone other than the Company or the Rights Agent) for
all purposes whatsoever, and neither the Company nor the Rights Agent shall
be affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
-------------------------------------------------
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of Preferred Stock, Common
Stock or any other securities of the Company which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Right Certificate be construed to confer
upon the holder of any Right Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to
give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting stockholders (except as provided in
Section 25 hereof), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate
shall have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to
---------------------------
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and other disbursements incurred in the
administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify
the Rights Agent for, and to hold it harmless against, any loss, liability,
or expense (including the costs and expenses of enforcing this right of
indemnification), incurred without negligence, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or omitted by
the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability. The indemnity provided for herein shall survive the expiration of
the Rights and the termination of this Agreement.
The Rights Agent may conclusively rely upon and shall be protected and
shall incur no liability for or in respect of any action taken, suffered or
omitted by it in connection with its administration of this Agreement in
reliance upon any Right Certificate or certificate for Preferred Stock,
Common Stock or for other securities of the Company, instrument of assignment
or transfer, power of attorney, endorsement, affidavit, letter, notice,
direction, consent, certificate, statement, or other paper or document
believed by it to be genuine and to be signed, executed and, where necessary,
verified or acknowledged, by the proper Person or Persons. Notwithstanding
anything in this Agreement to the contrary, in no event shall the Rights
Agent be liable for special, indirect or consequential loss or damage
-16-
<PAGE> 20
of any kind whatsoever (including but not limited to lost profits), even if
the Rights Agent has been advised of the likelihood of such loss or damage
and regardless of the form of the action.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
---------------------------------------------------------
Any corporation into which the Rights Agent or any successor Rights Agent may
be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the corporate
trust business or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on
the part of any of the parties hereto, provided that such corporation would
be eligible for appointment as a successor Rights Agent under the provisions
of Section 21 hereof. In case at the time such successor Rights Agent shall
succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of the predecessor
Rights Agent and deliver such Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the
name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and
in this Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Right Certificates so countersigned; and in case at
that time any of the Right Certificates shall not have been countersigned,
the Rights Agent may countersign such Right Certificates either in its prior
name or in its changed name; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
----------------------
duties and obligations imposed by this Agreement (and no implied duties or
obligations shall be read into this Agreement against the Rights Agent) upon
the following terms and conditions, by all of which the Company and the
holders of Right Certificates, by their acceptance thereof, shall be bound:
(a) Before the Rights Agent acts or refrains from acting, the Rights
Agent may consult with legal counsel (who may be legal counsel for the
Company), and the opinion of such counsel shall be full and complete
authorization and protection to the Rights Agent as to any action taken or
omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any act or matter
be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by the President or any Vice
President and by the Chief Financial Officer, the Chief Accounting Officer,
Treasurer or any Assistant Treasurer or the Secretary or any Assistant
Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement
in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, and all such statements and recitals are and shall be deemed
to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights
-17-
<PAGE> 21
Agent) or in respect of the validity or execution of any Right Certificate
(except its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this
Agreement or in any Right Certificate; nor shall it be responsible for any
adjustment required under the provisions of Sections 11 and 13 hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Right
Certificates after actual notice to the Rights Agent of any such adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Preferred
Stock, Common Stock or other securities to be issued pursuant to this
Agreement or any Right Certificate or as to whether any shares of Preferred
Stock, Common Stock or other securities will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chief Executive Officer, President any Vice President, the Chief Financial
Officer, the Chief Accounting Officer, the Secretary, any Assistant
Secretary, the Treasurer or any Assistant Treasurer of the Company, and to
apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be
taken or omitted by it in good faith in accordance with instructions of any
such officer. Any application by the Rights Agent for written instructions
from the Company may, at the option of the Rights Agent, set forth in writing
any action proposed to be taken or omitted by the Rights Agent under this
Agreement and the date on or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for any
action taken or suffered to be taken or omitted by it in good faith during
the period beginning on the date on which the Rights Agent has applied for
written instructions from the Company and ending on the date upon which the
Rights Agent receives such instructions or for action taken by, or omission
of, the Rights Agent in accordance with a proposal included in any such
application on or after the date specified in such application (which date
shall not be less than ten Business Days after the date any officer of the
Company actually receives such application, unless any such officer shall
have consented in writing to an earlier date) unless, prior to taking any
such action (or the effective date in the case of an omission), the Rights
Agent shall have received written instructions in response to such
application with respect to the proposed action or omission and/or specifying
the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or have a pecuniary interest in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were
not the Rights Agent under this Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Company or for any
other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any
such act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
-18-
<PAGE> 22
(k) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1, 2 and/or
3 thereof, the Rights Agent shall not take any further action with respect to
such requested exercise of transfer without first consulting with the
Company. The Rights Agent shall not be required to take notice or be deemed
to have notice of any fact, event or determination (including, without
limitation, any dates or events defined in this Agreement or the designation
of any Person as an Acquiring Person, Affiliate or Associate) under this
Agreement unless and until the Rights Agent shall be specifically notified in
writing by the Company of such fact, event or determination.
Section 21. Change of Rights Agent. The Rights Agent or any successor
----------------------
Rights Agent may resign and be discharged from its duties under this
Agreement upon a 30-day notice in writing mailed to the Company and to each
transfer agent of the Common Stock and Preferred Stock by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail at the expense of the Company. The Company may remove the Rights Agent
or any successor Rights Agent upon a 30-days notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Stock and Preferred Stock by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise
become incapable of acting, the Company shall appoint a successor Rights
Agent. If the Company shall fail to make such appointment within a period
of 30 days after such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent
or by the holder of a Right Certificate (who shall, with such notice, submit
his Right Certificate for inspection by the Company), then the registered
holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a successor Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be
(a) a corporation organized and doing business under the laws of the United
States or of any state, in good standing, which is authorized under such laws
to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $25,000,000, or (b) an affiliate of a corporation described in clause
(a) of this sentence. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed. The
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose.
Not later than the effective date of any such appointment, the Company shall
mail a written notice thereof in writing with the predecessor Rights Agent by
certified or registered mail and each transfer agent of the Common Stock and
Preferred Stock, and mail a written notice thereof to the registered holders
of the Right Certificates by first class mail. Failure to give any notice
provided for this Section 21, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any
----------------------------------
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by a majority of the Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind
or class of shares of stock or other securities or property purchasable under
the Right Certificates made in accordance with the provisions of this
Agreement.
Section 23. Redemption and Termination.
--------------------------
(a) (i) A majority of the Board of Directors of the Company may,
at its option, at any time prior to the earlier of (x) the time that any
Person becomes an Acquiring Person or (y) the Final Expiration Date, elect to
redeem all but not less than all of the then outstanding Rights at a
redemption price of $.01 per Right, as appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the
"Redemption Price"). The redemption of the Rights by the Board may be made
effective at such time, on such basis and with such conditions as the Board
in its sole discretion may establish.
-19-
<PAGE> 23
(ii) In addition, prior to any event described in Section
13(a), a majority of the Board of Directors may redeem all but not less than
all of the then outstanding Rights at the Redemption Price (A) following the
occurrence of a Stock Acquisition Date either: (x) if each of the following
shall have occurred and remain in effect: (1) a Person who is an Acquiring
Person shall have transferred or otherwise disposed of a number of shares of
voting securities of the Company in a manner satisfactory to the Board of
Directors such that such Person is thereafter a Beneficial Owner of
securities having less than 20% of the Voting Power of the Company, and (2)
there is no other Person, immediately following the occurrence of the event
described in (1), who is an Acquiring Person; or (y) in connection with any
transaction not involving an Acquiring Person or an Affiliate or Associate of
an Acquiring Person; or (B) following a change (resulting from a proxy or
consent solicitation) in a majority of the directors in office at the
commencement of such solicitation if any Person who is a participant in such
solicitation has stated (or, if upon the commencement of such solicitation, a
majority of the Board of Directors of the Company has determined in good
faith) that such Person intends to take, or may consider taking, any action
which would result in such Person becoming an Acquiring Person.
(b) In the case of a redemption permitted under Section 23(a)(i),
immediately upon the action of a majority of the Board of Directors electing
to redeem the Rights, evidence of which shall be promptly filed with the
Rights Agent, and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of
the holders of Rights shall be to receive the Redemption Price. In the case
of a redemption permitted under Section 23(a)(ii), evidence of which shall
have been filed with the Rights Agent, the right to exercise the Rights will
terminate and represent only the right to receive the Redemption Price only
after ten (10) business days following the giving of such notice of such
redemption to the holders of such Rights. The Company shall promptly give
public disclosure of any such redemption; provided, however, that the failure
to give, or any defect in, any such disclosure shall not affect the validity
of such redemption. Within 10 days after the action of the Board of
Directors ordering the redemption of the Rights, the Company shall give
notice of such redemption to the holders of the then outstanding Rights by
mailing by first class mail such notice to all such holders at their last
addresses as they appear upon the registry books of the transfer agent for
the Common Stock. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice. Each
such notice of redemption will state the method by which the payment of the
Redemption Price will be made.
(c) Neither the Company nor any of its Affiliates or Associates may
redeem, acquire or purchase for value any Rights at any time or in any manner
other than that specifically set forth in this Section 23, and other than in
connection with the purchase of shares of Common Stock prior to the
Distribution Date.
Section 24. Exchange.
--------
(a) The Board of Directors of the Company may, at its option, at any
time after any Person becomes an Acquiring Person, exchange all or part of
the then outstanding and exercisable Rights (which shall not include Rights
that have become void pursuant to the provisions of Section 7(e) hereof) for
Common Stock at an exchange ratio of one share of Common Stock per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or any such
Subsidiary, or any entity holding Common Stock for or pursuant to the terms
of any such plan), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of 50% or more of the Common Stock then
outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of shares of
Common Stock equal to the number of
-20-
<PAGE> 24
such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a
notice of any such exchange to all of the holders of such Rights at their
last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the Common Stock for
Rights will be effected and, in the event of any partial exchange, the number
of Rights which will be exchanged. Any partial exchange shall be effected
pro rata based on the number of Rights (other than Rights which have become
void pursuant to the provisions of Section 7(e) hereof) held by each holder
of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Stock for Common Stock exchangeable for
Rights, at the initial rate of one one-hundredth of a share of Preferred
Stock, as appropriately adjusted to reflect adjustments in the voting rights
of the Preferred Stock pursuant to the terms thereof, so that the fraction of
a share of Preferred Stock delivered in lieu of each share of Common Stock
shall have the same voting rights as one share of Common Stock.
(d) In the event that there shall not be sufficient shares of Common
Stock or of Preferred Stock issued but not outstanding, or authorized but
unissued, to permit any exchange of Rights as contemplated in accordance with
this Section 24, the Company shall take all such action as may be necessary
to authorize additional shares of Common Stock or of Preferred Stock for
issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractional shares of
Common Stock or of Preferred Stock (other than fractions which are integral
multiples of one one-hundredth of a share of Preferred Stock) or to
distribute certificates which evidence fractional shares of such Common Stock
or of Preferred Stock. In lieu of such fractional shares, the Company shall
pay to the registered holders of the Right Certificates with regard to which
such fractional shares would otherwise be issuable an amount in cash as
determined by Section 14 hereof.
Section 25. Notice of Proposed Actions. In case the Company shall
--------------------------
propose (a) to pay any dividend payable in stock of any class to the holders
of its Preferred Stock or to make any other distribution to the holders of
its Preferred Stock (other than a regular periodic cash dividend out of
earnings or retained earnings of the Company), or (b) to offer to the holders
of its Preferred Stock rights or warrants to subscribe for or to purchase any
additional shares of Preferred Stock or shares of stock of any other class or
any other securities, rights or options, or (c) to effect any
reclassification of its Preferred Stock (other than a reclassification
involving only the subdivision of outstanding shares of Preferred Stock), or
(d) to effect any consolidation or merger into or with, or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sales or other transfer), in one or more transactions, of 50% or more of the
assets or earning power of the Company and its Subsidiaries (taken as a
whole) to, any other Person, or (e) to effect the liquidation, dissolution or
winding up of the Company, then, in each such case, the Company shall mail by
first class mail to each holder of a Right, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date
for the purposes of such stock dividend, distribution of rights or warrants,
or the date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of the Preferred Stock, if any
such date is to be fixed. Such notice shall be so given in the case of any
action covered by clauses (a) or (b) above at least ten days prior to the
record date for determining holders of the Preferred Stock for purposes of
such action, and in the case of any such other action, at least ten days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of Preferred Stock, whichever shall be
the earlier. The failure to give notice required by this Section 25, or any
defect therein, shall not affect the legality or validity of the action taken
by the Company or the vote upon any such action.
In case any of the events set forth in Section 11(b) of this Agreement
shall occur, then, in any such case, the Company shall as soon as practicable
thereafter mail by first class mail to each holder
-21-
<PAGE> 25
of a Right Certificate, in accordance with Section 26 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences
of the event to holders of Rights under Section 11(b) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement
-------
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent
by first-class mail, postage prepaid, addressed (unless another address is
filed in writing with the Rights Agent) as follows:
MERCANTILE BANCORPORATION INC.
Mercantile Tower
P.O. Box 524
St. Louis, Missouri 63166-0524
Attention: Jon W. Bilstrom, General Counsel and Secretary
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the
holder of any Right Certificate to or on the Rights Agent shall be
sufficiently given or made if sent by registered or certified mail or
overnight courier with a reputable national courier service and shall be
deemed given upon receipt and addressed (unless another address is filed in
writing with the Company) as follows:
HARRIS TRUST AND SAVINGS BANK
111 West Monroe Street
P. O. Box 755
Chicago, Illinois 60690
Attn:
-----------------------------
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the
registry books of the Company or the Rights Agent.
Section 27. Supplements and Amendments. The Company may from time to
--------------------------
time supplement or amend this Agreement without the approval of any holders
of Right Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the
Company may deem necessary or desirable and which shall be consistent with,
and for the purpose of fulfilling, the objectives of the Board of Directors
in adopting this Agreement, any such supplement or amendment to be evidenced
by a writing signed by the Company and the Rights Agent; provided, however,
that from and after such time any Person becomes an Acquiring Person, this
Agreement shall not be amended in any manner which would adversely affect the
interests of the holders of Rights. Notwithstanding anything in this
Agreement to the contrary, no supplement or amendment that changes the rights
and duties of the Rights Agent under this Agreement will be effective against
the Rights Agent without the execution of such supplement or amendment by the
Rights Agent.
Section 28. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement
--------------------------
shall be construed to give any Person or corporation other than the Company,
the Rights Agent and the registered holders of the Right Certificates (and,
prior to the Distribution Date, the Common Stock) any legal or equitable
right, remedy or claim under this Agreement. This Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Stock).
-22-
<PAGE> 26
Section 30. Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated. It is the intent of the parties hereto to enforce the remainder
of the terms, provisions, covenants and restrictions to the maximum extent
permitted by law.
Section 31. Governing Law. This Agreement and each Right Certificate
-------------
issued hereunder shall be deemed to be a contract made under the laws of the
State of Missouri and for all purposes shall be governed by and construed in
accordance with the laws of such state applicable to contracts to be made and
performed entirely within such state, except as to the duties and liabilities
of the Rights Agent which shall be governed by and construed in accordance
with the laws of the State of Illinois.
Section 32. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
--------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
Attest: MERCANTILE BANCORPORATION INC.
By /s/ Jon W. Bilstrom By /s/ John Q. Arnold
----------------------------------- -----------------------------------
Name: Jon W. Bilstrom Name: John Q. Arnold
Title: General Counsel and Secretary Title: Vice Chairman and Chief
Financial Officer
Attest: HARRIS TRUST AND SAVINGS BANK, AS
RIGHTS AGENT
By /s/ Susan M. Shudel By /s/ Palmer Haffner
----------------------------------- -----------------------------------
Name: Susan M. Shudel Name: Palmer Haffner
Title: Assistant Vice President Title: Vice President
-23-
<PAGE> 27
EXHIBIT A
---------
[FORM OF CERTIFICATE OF DESIGNATION]
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
OF
MERCANTILE BANCORPORATION INC.
I, John Q. Arnold, the Vice Chairman and Chief Financial Officer of
Mercantile Bancorporation Inc., a corporation organized and existing under
The General and Business Corporation Law of Missouri, in accordance with the
provisions of Section 351.180.7 thereof, DO HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation, as amended, of the Company, the said
Board of Directors on May --, 1998 adopted the following resolution creating
a series of Two Million (2,000,000) shares of voting Preferred Stock
designated as Series B Junior Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of its Certificate
of Incorporation, as amended, a series of voting Preferred Stock of the
Company be and it is hereby created, and that the designation and amount
thereof and the powers, preferences and relative, participating, optional and
other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. Designation and Amount.
----------------------
There shall be a series of the voting preferred stock of the Company
which shall be designated as the "Series B Junior Participating Preferred
Stock," no par value, and the number of shares constituting such series shall
be Two Million (2,000,000). Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, however, that no
decrease shall reduce the number of shares of Series B Junior Participating
Preferred Stock to a number less than that of the shares then outstanding
plus the number of shares issuable upon exercise of outstanding rights,
options or warrants or upon conversion of outstanding securities issued by
the Company.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of any series
of preferred stock of the Company ranking prior and superior to the Series B
Junior Participating Preferred Stock with respect to dividends, the holders
of shares of Series B Junior Participating Preferred Stock, in preference to
the holders of shares of Common Stock, $.01 par value (the "Common Stock"),
of the Company and of any other junior stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on or about
the first day of January, April, July and October in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series B Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal
to the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions, other than a dividend payable
in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date or, with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series B Junior Participating
Preferred
A-1
<PAGE> 28
Stock. In the event the Company shall at any time after May --, 1998 (the
"Rights Declaration Date") declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case
the amount to which holders of shares of Series B Junior Participating
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount by
a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Company shall declare a dividend or distribution on the
Series B Junior Participating Preferred Stock as provided in paragraph (A) of
this Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided, however, that in the event no dividend or distribution shall have
been declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $1.00 per share on the Series B Junior Participating
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series B Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series B Junior Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid
on the shares of Series B Junior Participating Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable
on such shares shall be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series B Junior
Participating Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60
days prior to the date fixed for the payment thereof.
Section 3. Voting Rights.
-------------
The holders of shares of Series B Junior Participating Preferred Stock
shall have the following voting rights:
(A) Each share of Series B Junior Participating Preferred Stock shall
entitle the holder thereof to 100 votes on all matters submitted to a vote of
the stockholders of the Company.
(B) Except as otherwise provided herein, in the Company's Certificate
of Incorporation or by law, the holders of shares of Series B Junior
Participating Preferred Stock, the holders of shares of Common Stock, and the
holders of shares of any other capital stock of the Company having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Company.
(C) Except as otherwise set forth herein or in the Company's
Certificate of Incorporation, and except as otherwise provided by law,
holders of Series B Junior Participating Preferred Stock shall have no
special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
A-2
<PAGE> 29
Section 4. Certain Restrictions.
--------------------
(A) Whenever dividends or distributions payable on the Series B
Junior Participating Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Series B Junior Participating Preferred
Stock outstanding shall have been paid in full, the Company shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any shares
of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Junior Participating Preferred
Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series B
Junior Participating Preferred Stock, except dividends paid ratably on the
Series B Junior Participating Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) except as permitted in Section 4(A)(iv) below, redeem or
purchase or otherwise acquire for consideration shares of any stock ranking
on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series B Junior Participating Preferred Stock, provided,
however, that the Company may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock
of the Company ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series B Junior Participating Preferred
Stock; and
(iv) purchase or otherwise acquire for consideration any
shares of Series B Junior Participating Preferred Stock, or any shares of
stock ranking on a parity with the Series B Junior Participating Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series or classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares.
-----------------
Any shares of Series B Junior Participating Preferred Stock purchased
or otherwise acquired by the Company in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. The Company
shall cause all such shares upon their cancellation to be authorized but
unissued shares of Preferred Stock which may be reissued as part of a new
series of Preferred Stock, subject to the conditions and restrictions on
issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Company, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Junior Participating Preferred
Stock unless, prior thereto, the holders of shares of Series B Junior
Participating Preferred Stock shall have received $100.00 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the "Series B
Liquidation Preference"). Following the payment of the full amount of the
Series B Liquidation Preference, no additional distributions shall be made to
the holders of shares of Series B Junior Participating Preferred Stock,
A-3
<PAGE> 30
unless, prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the "Common Adjustment") equal to the quotient
obtained by dividing (i) the Series B Liquidation Preference by (ii) 100 (as
appropriately adjusted as set forth in paragraph (C) of this Section 6 to
reflect such events as stock dividends, and subdivisions, combinations and
consolidations with respect to the Common Stock) (such number in clause (ii)
being referred to as the "Adjustment Number"). Following the payment of the
full amount of the Series B Liquidation Preference and the Common Adjustment
in respect of all outstanding shares of Series B Junior Participating
Preferred Stock and Common Stock, respectively, holders of Series B Junior
Participating Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such
Series B Junior Participating Preferred Stock and Common Stock, on a per
share basis, respectively.
(B) In the event there are not sufficient assets available to permit
payment in full of the Series B Liquidation Preference and the liquidation
preferences of all other series of preferred stock, if any, which rank on a
parity with the Series B Junior Participating Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the
event there are not sufficient assets available to permit payment in full of
the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Company shall at any time after the Rights
Declaration Date declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that are outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc.
--------------------------
In case the Company shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any
other property, then in any such case the shares of Series B Junior
Participating Preferred Stock shall at the same time be similarly exchanged
or changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is exchanged or
changed. In the event the Company shall at any time after the Rights
Declaration Date declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case
the amount set forth in the preceding sentence with respect to the exchange
or change of shares of Series B Junior Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
Section 8. Redemption.
----------
The shares of Series B Junior Participating Preferred Stock shall not
be redeemable.
A-4
<PAGE> 31
Section 9. Ranking.
-------
The Series B Junior Participating Preferred Stock shall rank junior to
all other series of the Company's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
Section 10. Fractional Shares.
-----------------
Series B Junior Participating Preferred Stock may be issued in
fractions which are integral multiples of one one-hundredth of a share.
Fractions of shares of Series B Junior Participating Preferred Stock may, at
the election of the Company, be evidenced by depositary receipts, pursuant to
an appropriate agreement between the Company and a depositary selected by the
Company. The holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Series B Junior Participating Preferred Stock represented by such
depositary receipts.
IN WITNESS WHEREOF, I have executed and subscribed this Certificate and
do affirm and acknowledge the foregoing as true under the penalties of
perjury this day of May, 1998.
---
By:
----------------------------------------
Name: John Q. Arnold
Title: Vice Chairman and
Chief Financial Officer
State of Missouri )
) SS.
County of -------- )
On this ------- day of ---------, 1998, before me,
- ---------------------, a Notary Public in and for the State of Missouri,
personally appeared John Q. Arnold, Vice Chairman and Chief Financial Officer
of Mercantile Bancorporation Inc., known to me to be the person who executed
the foregoing Certificate of Designation and acknowledged to me that he
executed the same pursuant to authority given by the Board of Directors of
such corporation as their free and voluntary act, and as the free and
voluntary act and deed of such corporation, for the uses and purposes therein
set forth.
------------------------------------
Notary Public
My commission expires:
- -------------------------------------
A-5
<PAGE> 32
EXHIBIT B
---------
[FORM FACE OF RIGHT CERTIFICATE]
Certificate No. Rights
------------------- -------------------
NOT EXERCISABLE AFTER JUNE 3, 2008 OR EARLIER IF NOTICE OF REDEMPTION OR
EXCHANGE IS GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $.01 PER RIGHT OR EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. [THE RIGHTS REPRESENTED BY THIS RIGHT CERTIFICATE WERE ISSUED TO A
PERSON WHO WAS AN ACQUIRING PERSON OR AN AFFILIATE OR AN ASSOCIATE OF AN
ACQUIRING PERSON. THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY
MAY BECOME VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS
AGREEMENT.]<F*>
RIGHT CERTIFICATE
MERCANTILE BANCORPORATION INC.
This certifies that , or registered assigns, is
----------------------
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions
of the Rights Agreement, dated as of May --, 1998 (the "Rights Agreement"),
between Mercantile Bancorporation Inc., a Missouri corporation (the
"Company"), and Harris Trust and Savings Bank (the "Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such
term is defined in the Rights Agreement) and prior to 5:00 P.M. (Central
time) on June 3, 2008 (the "Final Expiration Date") at the principal office
of the Rights Agent, or its successor as Rights Agent, one one-hundredth of a
fully paid, nonassessable share of the Series B Junior Participating
Preferred Stock, no par value ("Preferred Stock"), of the Company, at a
purchase price of $212.00 per one one-hundredth of a share (the "Purchase
Price"), upon presentation and surrender of this Right Certificate with the
Form of Election to Purchase on the reverse side hereof duly executed. The
number of Rights evidenced by this Right Certificate (and the number of
shares which may be purchased upon exercise of each Right) and the Purchase
Price set forth above, are the number and Purchase Price as of ------------,
based on the shares of Preferred Stock of the Company as constituted at such
date.
As provided in the Rights Agreement, the Purchase Price and the number
of shares of Preferred Stock which may be purchased upon the exercise of each
of the Rights evidenced by this Right Certificate are subject to modification
and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to
which Rights Agreement reference is hereby made for a full description of the
rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the Company and the
above-mentioned office of the Rights Agent and are also available upon
written request to the Company.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
shares
[FN]
- ---------------------------
<F*> The portion of the legend in brackets shall be inserted only as applicable.
B-1
<PAGE> 33
of Preferred Stock as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If
this Right Certificate shall be exercised in part, the holder shall be
entitled to receive, upon surrender hereof, another Right Certificate or
Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Company at its option at a
redemption price of $.01 per Right prior to the earlier of (i) the time that
any Person becomes an Acquiring Person (as defined in the Rights Agreement)
or (ii) the Final Expiration Date. Under certain terms and conditions, the
Rights may also be redeemed following the time that any person becomes an
Acquiring Person but prior to the Final Expiration Date, as more fully
described in the Rights Agreement. In addition, subject to the provisions of
the Rights Agreement, the Rights may be exchanged at the option of the
Company at any time after any person becomes an Acquiring Person at an
initial exchange ratio of one share of Common Stock (or one one-hundredth of
a share of Preferred Stock) for each Right exchanged.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts).
In lieu of fractions of a share that are not integral multiples of
one-hundredth of a share of Preferred Stock, a cash payment will be made, as
provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of
Preferred Stock, Common Stock or of any other securities of the Company which
may at any time be issuable on the exercise hereof, nor shall anything
contained in the Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Rights evidenced by
this Right Certificate shall have been exercised as provided in the Rights
Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
B-2
<PAGE> 34
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of -----------------, ------.
Attest MERCANTILE BANCORPORATION INC.
By By
----------------------------------- -----------------------------------
Name: Jon W. Bilstrom Name: John Q. Arnold
Title: General Counsel and Secretary Title: Vice Chairman and Chief
Financial Officer
Countersigned:
HARRIS TRUST AND SAVINGS BANK
By
-----------------------------------
Name:
Title:
B-3
<PAGE> 35
[FORM OF REVERSE SIDE OF RIGHT CERTIFICATE]
FORM OF ASSIGNMENT
-----------------
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED hereby sells, assigns and
------------------------
transfers unto:
----------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint -------------------
Attorney to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Dated: ,
--------------------- ----
-------------------------------------------
Signature
(Signature must conform in all respects
to name of holder as specified on the
face of this Right Certificate)
Signature Guaranteed:
------------------
The signature of the person(s) signing this Right Certificate must be
guaranteed by a participant in the Securities Transfer Agent's Medallion
Program, the Stock Exchange's Medallion Program or the NYSE, Inc. Medallion
Program.
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Right Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Right Certificate
from any Person who is, was, or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: --------------, -----
-------------------------------------------
Signature
(Signature must conform in all respects
to name of holder as specified on the
face of this Right Certificate)
B-4
<PAGE> 36
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise the Right Certificate)
To Harris Trust and Savings Bank:
The undersigned hereby irrevocably elects to exercise
----------------
Rights represented by this Right Certificate to purchase the shares of
Preferred Stock (or other securities) issuable upon the exercise of such
Rights and requests that certificates for such shares be issued in the name
of:
Name:
----------------------------------------
Address:
----------------------------------------
----------------------------------------
Social Security or
Taxpayer I.D. No.:
----------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of an delivered to:
Name:
----------------------------------------
Address:
----------------------------------------
----------------------------------------
Social Security or
Taxpayer I.D. No.:
----------------------------------------
Dated: ---------------, ------
------------------------------------------
Signature
(Signature must conform in all respects
to name of holder as specified on the
face of this Right Certificate)
Signature Guaranteed:
The signature of the person(s) signing this Right Certificate must be
guaranteed by a participant in the Securities Transfer Agent's Medallion
Program, the Stock Exchange's Medallion Program or the NYSE, Inc. Medallion
Program.
B-5
<PAGE> 37
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such
terms are defined pursuant to the Rights Agreement);
(2) this Right Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(3) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Right Certificate
from any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: -----------------, --------.
------------------------------------------
Signature
(Signature must conform in all respects
to name of holder as specified on the
face of this Right Certificate)
NOTICE
------
The signature in the foregoing Forms of Assignment and Election to
Purchase must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any
change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or
an Affiliate or Associate thereof (as defined in the Rights Agreement) and
such Assignment or Election to Purchase will not be honored.
B-6
<PAGE> 38
EXHIBIT C
---------
[Form of Summary of Preferred Stock Purchase Rights]
SUMMARY OF PREFERRED STOCK
PURCHASE RIGHTS
MERCANTILE BANCORPORATION INC.
On May --, 1998, the Board of Directors of Mercantile Bancorporation
Inc. (the "Company") declared a dividend distribution of one Preferred Stock
Purchase Right (collectively, the "Rights") for each outstanding share of
common stock, $.01 par value (the "Common Stock"), of the Company (other than
shares held in the Company's treasury). The dividend distribution is payable
to the stockholders of record at the close of business on June 4, 1998 (the
"Record Date"). Except as set forth below, each Right, when exercisable,
entitles the registered holder to purchase from the Company one one-hundredth
of a share of a new series of voting preferred stock, designated as Series B
Junior Participating Preferred Stock, no par value (the "Preferred Stock"),
at a price of $212.00 per one one-hundredth of a share (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are
set forth in a Rights Agreement (the "Rights Agreement") between the Company
and Harris Trust and Savings Bank, as Rights Agent (the "Rights Agent").
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Right Certificates will
be distributed. Until the earlier of (i) ten days following the first to
occur of (a) a public announcement that, without the prior written consent of
the Board of Directors of the Company, a person or group of affiliated or
associated persons other than the Company, a subsidiary of the Company or any
employee benefit plan of the Company or a subsidiary of the Company (an
"Acquiring Person") has acquired, or obtained the right to acquire,
outstanding shares of Common Stock of the Company representing 20% or more of
the voting power of the Company or (b) the date on which the Company first
has notice or otherwise determines that a person has become an Acquiring
Person (the "Stock Acquisition Date") or (ii) ten days following the
commencement or announcement of an intention to make a tender offer or
exchange offer, without the prior written consent of the Board of Directors
of the Company, for outstanding shares of such Common Stock representing 20%
or more of the voting power of the Company (the earlier of the dates in
clause (i) or (ii) above being called the "Distribution Date"), the Rights
will be evidenced, with respect to any of the Company's Common Stock
certificates outstanding as of and after the Record Date (other than shares
held in the Company's treasury), by such Common Stock certificates. The
Rights Agreement provides that, until the Distribution Date, the Rights will
be transferred with and only with the Company's Common Stock. Until the
Distribution Date (or earlier redemption, exchange or expiration of the
Rights), new Common Stock certificates issued after the Record Date, upon
transfer, new issuance or issuance from the Company's treasury of the
Company's Common Stock, will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption,
exchange or expiration of the Rights), the surrender for transfer of any of
the Company's Common Stock certificates outstanding as of and after the
Record Date will also constitute the transfer of the Rights associated with
the Common Stock represented by such certificates. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
("Right Certificates") will be mailed to holders of record of the Company's
Common Stock as of the close of business on the Distribution Date and such
separate certificates alone will then evidence the Rights.
Notwithstanding the above, a person will not be deemed to be an
Acquiring Person if such person: (x) becomes the owner of outstanding Shares
of the Common Stock of the Company representing 20% or more of the voting
power of the Company by means of an acquisition of shares of Common Stock
directly from the Company if such acquisition is approved by a majority of
the Board of
C-1
<PAGE> 39
Directors of the Company (unless such Person was an Acquiring Person prior to
such acquisition); (y) becomes the owner of Common Stock representing 20% or
more of the voting power of the Company following an acquisition of the
Company's voting securities by the Company, unless such person subsequently
acquires additional voting securities of the Company (other than by means of
a stock dividend, stock split, recapitalization or similar event); or (z) has
become an Acquiring Person inadvertently and divests promptly a number of
voting securities so as to no longer be an Acquiring Person.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on June 3, 2008, unless earlier redeemed or exchanged by the
Company, as described below.
The Purchase Price payable, the number of shares of Preferred Stock or
other securities or property issuable, upon exercise of the Rights and the
number of Rights outstanding are subject to adjustment from time to time to
prevent dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of the Preferred Stock, (ii) upon the
distribution to holders of Preferred Stock of rights or warrants to subscribe
for shares of Preferred Stock or securities convertible into Preferred Stock
at less than the then current market price of the Preferred Stock, or (iii)
upon the distribution to holders of Preferred Stock of evidences of
indebtedness, cash or assets (excluding regular periodic cash dividends out
of earnings or retained earnings or dividends payable in Preferred Stock) or
of convertible securities subscription rights or warrants (other than those
referred to above).
In the event that, following the Distribution Date, the Company is
acquired in a merger or other business combination transaction in which the
Company is not the surviving corporation or in which the Common Stock is
exchanged or changed or 50% or more of the Company's assets or earning power
is sold (in one transaction or a series of transactions), proper provision
shall be made so that each holder of a Right shall thereafter have the right
to receive, in lieu of shares of Preferred Stock, upon the exercise of the
Right and payment of the Purchase Price, that number of shares of common
stock of the surviving or purchasing company (or, in certain cases, one of
its affiliates) which at the time of such transaction would have a market
value of two times the Purchase Price (such right being called the "Merger
Right").
In the event that any person shall become an Acquiring Person and
subject to the availability of Common Stock, proper provision shall be made
so that each holder of a Right will thereafter have the right to receive, in
lieu of shares of Preferred Stock, upon exercise that number of shares (or
fractional shares) of Common Stock having a market value of two times the
Purchase Price, subject to the availability of a sufficient number of
treasury shares or authorized but unissued shares (such right being called
the "Subscription Right"). The holder of a Right will continue to have the
Merger Right unless and until such holder exercises the Subscription Right.
Any Rights that are beneficially owned by an Acquiring Person or an
Affiliate or an Associate of an Acquiring Person will become null and void
upon the occurrence of any of the events giving rise to the exercisability of
the Merger Right or the Subscription Right and any holder of such Rights will
have no right to exercise such Rights from and after the occurrence of such
an event insofar as they relate to the Merger Right or the Subscription
Right.
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares will be issued. In lieu of
fractional shares, an adjustment in cash will be made based on the market
price of the Preferred Stock or the Common Stock as the case may be on the
last trading date prior to the date of exercise.
At any time prior to a Person becoming an Acquiring Person or June 3,
2008, the Company's Board of Directors may elect to redeem the Rights in
whole, but not in part, at a price of $.01 per Right and prior to an event
giving rise to the Merger Right (i) following a change in a majority of the
Directors of the Company or (ii) following the Stock Acquisition Date,
provided that either (a) the Acquiring Person reduces its beneficial
ownership to less than 20% of the voting power of the Company
C-2
<PAGE> 40
in a manner satisfactory to the Board of Directors and there are no more
Acquiring Persons, or (b) such redemption is incidental to a merger or other
business combination involving the Company but not involving the Acquiring
Person. Immediately upon the action of the Board of Directors electing to
redeem the Rights, the Company shall make announcement thereof, and the right
to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the redemption price.
At any time after a Person becomes an Acquiring Person but prior to
such time that any Person becomes the beneficial owner of 50% or more of the
outstanding shares of the Company's Common Stock, the Company may elect to
effect a full or partial exchange of Rights for the Company's Common Stock at
an initial exchange ratio of one share of Common Stock for each Right
exchanged. Alternatively, the Company may elect to effect the exchange of
Rights using Preferred Stock at an initial exchange ratio of one
one-hundredth of a share of Preferred Stock for each Right exchanged.
The Preferred Stock purchasable upon exercise of the Rights will be
non-redeemable and junior to any other series of preferred stock the Company
may issue (unless otherwise provided in the terms of such stock). Each share
of Preferred Stock will have a preferential dividend in an amount equal to
the greater of $1.00 per share or 100 times any dividend declared on each
share of Common Stock. In the event of liquidation, the holders of Preferred
Stock will receive a preferred liquidation payment equal to the greater of
$1.00 or 100 times the payment made per each share of Common Stock. Each one
one-hundredth of a share of Preferred Stock will have one vote, voting
together with the shares of Common Stock. In the event of any merger,
consolidation or other transaction in which shares of Common Stock are
exchanged, each share of Preferred Stock will be entitled to receive 100
times the amount and type of consideration received per share of Common
Stock. The rights of the Preferred Stock as to dividends, liquidation and
voting, and in the event of mergers and consolidations, are protected by
customary anti-dilution provisions. Fractional shares of Preferred Stock in
integral multiples of one one-hundredth of a share of Preferred Stock will be
issuable; however, the Company may elect to distribute depositary receipts in
lieu of such fractional shares. In lieu of fractional shares other than
fractions that are multiples of one one-hundredth of a share, an adjustment
in cash will be made based on the market price of the Preferred Stock on the
last trading date prior to the date of exercise.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company.
This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
C-3
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,325,038
<INT-BEARING-DEPOSITS> 223,423
<FED-FUNDS-SOLD> 242,552
<TRADING-ASSETS> 124,828
<INVESTMENTS-HELD-FOR-SALE> 8,114,546
<INVESTMENTS-CARRYING> 169,273
<INVESTMENTS-MARKET> 171,320
<LOANS> 19,650,546
<ALLOWANCE> 263,356
<TOTAL-ASSETS> 31,435,166
<DEPOSITS> 21,879,785
<SHORT-TERM> 3,209,720
<LIABILITIES-OTHER> 370,656
<LONG-TERM> 3,407,875
0
0
<COMMON> 1,352
<OTHER-SE> 2,540,708
<TOTAL-LIABILITIES-AND-EQUITY> 31,435,166
<INTEREST-LOAN> 791,640
<INTEREST-INVEST> 266,511
<INTEREST-OTHER> 13,304
<INTEREST-TOTAL> 1,071,455
<INTEREST-DEPOSIT> 420,941
<INTEREST-EXPENSE> 588,543
<INTEREST-INCOME-NET> 482,912
<LOAN-LOSSES> 13,008
<SECURITIES-GAINS> 7,079
<EXPENSE-OTHER> 398,244
<INCOME-PRETAX> 303,390
<INCOME-PRE-EXTRAORDINARY> 198,902
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 198,902
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.47
<YIELD-ACTUAL> 3.49
<LOANS-NON> 106,184
<LOANS-PAST> 19,580
<LOANS-TROUBLED> 4,591
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 254,983
<CHARGE-OFFS> 24,137
<RECOVERIES> 11,663
<ALLOWANCE-CLOSE> 263,356
<ALLOWANCE-DOMESTIC> 263,356
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>Only reported at fiscal year-end date.
</TABLE>
